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Q: | What is the spin-off? | |
A: | The spin-off is the series of transactions by which Xylem will separate from ITT. To complete the spin-off, ITT will distribute to its shareholders all of the shares of Xylem common stock. We refer to this as the distribution. Following the spin-off, Xylem will be a separate company from ITT, and ITT will not retain any ownership interest in Xylem. | |
Q: | What will I receive in the spin-off? | |
A: | As a holder of ITT stock, you will retain your ITT shares and will receive one share of Xylem common stock for each share of ITT common stock you own as of the record date. You will also receive one share of common stock of Exelis Inc. in connection with the concurrent spin-off of that company. Your proportionate interest in ITT will not change as a result of the spin-off. See “The Spin-Off.” | |
Q: | What is Xylem? | |
A: | Xylem is a world leader in the design, manufacturing, and application of highly engineered technologies for the water industry. Xylem is currently a wholly owned subsidiary of ITT whose shares will be distributed to ITT shareholders if the spin-off is completed. After the spin-off is completed, Xylem will be a public company. | |
Q: | Why is the separation of Xylem structured as a spin-off? | |
A: | On January 11, 2011, the Board of Directors of ITT approved a plan to spin off its water-related businesses, which we refer to as ITT’s Water business, and its Defense and Information Solutions segment, which we refer to as ITT’s Defense business. ITT currently believes a spin-off is the most efficient way to accomplish a separation of the Water business for various reasons, including: (i) a spin-off would be a tax-free distribution of Xylem common stock to shareholders; (ii) a spin-off offers a higher degree of certainty of completion in a timely manner, lessening disruption to current Water business operations; and (iii) a spin-off provides greater assurance that decisions regarding Xylem’s capital structure support future financial stability. After consideration of strategic alternatives, including a sale, ITT believes that a tax-free spin-off will enhance the long-term value of both ITT and Xylem. See “The Spin-Off — Reasons for the Spin-Off.” |
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Q: | Can ITT decide to cancel the distribution of the Xylem common shares even if all the conditions have been met? | |
A: | Yes. The distribution of Xylem common stock is subject to the satisfaction or waiver of certain conditions. See “The Spin-Off — Conditions to the Spin-Off.” ITT has the right not to complete the spin-off if, at any time prior to the distribution, the Board of Directors of ITT determines, in its sole discretion, that the spin-off is not in the best interests of ITT or its shareholders or other constituents, that a sale or other alternative is in the best interests of ITT or its shareholders or other constituents, or that it is not advisable at that time for Xylem to separate from ITT. | |
Q: | What is being distributed in the spin-off? | |
A: | Approximately 184 million shares of Xylem common stock will be distributed in the spin-off, based on the number of shares of ITT common stock expected to be outstanding as of , 2011, the record date. The exact number of shares of Xylem common stock to be distributed will be calculated on the record date, and assuming a distribution ratio of one-to-one. The shares of Xylem common stock to be distributed by ITT will constitute all of the issued and outstanding shares of Xylem common stock immediately prior to the distribution. For more information on the shares being distributed in the spin-off, see “Description of Capital Stock — Common Stock.” | |
Q: | How will options and stock held by Xylem employees be affected as a result of the spin-off? | |
A: | At the time of the distribution, the exercise price of and number of shares subject to any outstanding option to purchase ITT stock, as well as the number of shares subject to any restricted stock right or other ITT equity award held by Xylem’s current and former employees on the distribution date, will be adjusted to reflect the value of the distribution such that the intrinsic value of such awards at the time of separation is held constant. In addition, existing performance criteria applicable to such awards will be modified appropriately to reflect the spin-off. | |
Additionally, Xylem’s current and former employees who hold accounts in the ITT 401(k) Plan on , 2011 will have their accounts transferred to the Xylem 401(k) Plan, as of , 2011, including any shares of ITT common stock held in the ITT Stock Fund under the ITT 401(k) Plan. On the distribution date, shares of Xylem common stock (as well as shares of Exelis common stock), based on the distribution ratio for each share of ITT common stock held in such employee’s ITT stock fund account, will be included in a new Xylem stock fund account under the Xylem 401(k) Plan. However, in conformity with the fiduciary responsibility requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”), remaining shares of ITT common stock held in Xylem’s employees’ ITT stock fund accounts following the distribution will be disposed of and allocated to another investment alternative available under the Xylem 401(k) Plan if and when directed by participants, and any such shares remaining as of , 2012 will be automatically disposed of and the proceeds invested in another such investment alternative (but this will not prohibit diversified, collectively managed investment alternatives available under the Xylem 401(k) Plan from holding ITT common stock or prohibit employees who use self-directed accounts in the Xylem 401(k) Plan from investing their accounts in ITT common stock). | ||
In addition, current and former ITT employees who hold shares of ITT common stock in their ITT 401(k) Plan account as of the record date will receive shares of our common stock (as well as shares of Exelis common stock) in the distribution. Our shares (as well as shares of Exelis common stock) will be included in new, temporary stock funds under the ITT 401(k) Plan. In conformity with the fiduciary responsibility requirements of ERISA, remaining shares of our common stock (as well as shares of Exelis common stock) held in these temporary stock funds following the distribution will be disposed of and allocated to another investment alternative available under the ITT 401(k) Plan when directed by participants, and any such shares remaining as of , 2012 will be automatically disposed of and the proceeds invested in another such investment alternative (but this will not prohibit diversified, collectively managed investment alternatives available under the ITT 401(k) Plan from holding our common stock or prohibit employees who use self-directed accounts in the ITT 401(k) Plan from investing their accounts in our common stock). |
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Q: | When is the record date for the distribution? | |
A: | The record date will be 5:00 p.m., New York time, on , 2011. | |
Q: | When will the distribution occur? | |
A: | The distribution date of the spin-off is , 2011. Xylem expects that it will take the distribution agent, acting on behalf of ITT, up to two weeks after the distribution date to fully distribute the shares of Xylem common stock to ITT shareholders. The ability to trade Xylem shares will not be affected during that time. | |
Q: | What do I have to do to participate in the spin-off? | |
A: | Nothing. You are not required to take any action, although you are urged to read this entire document carefully. No shareholder approval of the distribution is required or sought. You are not being asked for a proxy. No action is required on your part to receive your shares of Xylem common stock. You will neither be required to pay anything for the new shares nor be required to surrender any shares of ITT common stock to participate in the spin-off. | |
Q: | What are ITT’s reasons for the spin-off? | |
A: | ITT’s Board of Directors has determined that the spin-off is in the best interests of ITT and its shareholders and other constituents because the spin-off will provide the following key benefits: | |
• Greater Strategic Focus of Financial Resources and Management’s Efforts. ITT’s Water business represents a discrete portion of ITT’s overall businesses. It has historically exhibited different financial and operating characteristics than ITT’s other businesses. The spin-off will allow us to better align management’s attention, compensation and resources to pursue opportunities in the water technology market and to manage our cost structure more actively. | ||
• Enhanced Customer Focus. Both ITT and we believe that, as a unified, commonly managed, stand-alone water technology business, our management will be able to focus solely on the needs of our own customers, without dilution arising from a connection to a larger parent with diverse goals and incentives. | ||
• Direct and Differentiated Access to Capital Resources. After the spin-off, we will no longer need to compete with ITT’s other businesses for capital resources. As a long-cycle global industrial business with strong global cash flow generation, our business has different financial and operating characteristics from ITT’s other businesses. | ||
• Enhanced Investor Choices by Offering Investment Opportunities in Separate Entities. After the spin-off, investors should be better able to evaluate our financial performance, as well as our strategy within the context of our markets, thereby enhancing the likelihood that we will achieve an appropriate market valuation. | ||
• Improved Management Incentive Tools. It is expected that we will use our equity to compensate current and future employees. In multi-business companies such as ITT, it is difficult to structure incentives that reward managers in a manner directly related to the performance of their respective business units. By granting equity linked to a specific business, equity compensation will be more in line with the financial results of the managers’ direct work product. In addition, reducing the conglomerate discount that currently impacts ITT stock may provide our business with a more attractive currency for equity-based compensation. | ||
• Utilization of Stock as an Acquisition Currency. Although we are not currently evaluating any acquisitions involving the use of our stock, the spin-off will enable us to use our stock as currency to pursue certain financial and strategic objectives, including tax-free merger transactions. In addition, future strategic transactions with similar businesses will be more easily facilitated through the use of our stand-alone stock as consideration. | ||
ITT’s Board of Directors also considered a number of potentially negative factors in evaluating the spin-off, including costs relating to the separation and risks relating to the capital structure of ITT and us following the spin-off. Notwithstanding these costs and risks, however, ITT’s Board of Directors determined that the potential benefits of the spin-off outweighed these factors. See “Risk Factors — Risks Relating to the Spin-Off” and “The Spin-Off — Reasons for the Spin-Off.” |
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Q: | What are the U.S. Federal income tax consequences of the spin-off? | |
A: | The spin-off is conditioned on the receipt by ITT of a ruling (“IRS Ruling”) from the Internal Revenue Service (“IRS”) that, for U.S. Federal income tax purposes, the distribution, together with certain related transactions, will be tax-free to ITT and ITT’s shareholders under Sections 355 and 368(c)(1) of the Internal Revenue Code of 1986 (the “Code”). In addition, the spin-off is conditioned on the receipt of an opinion of tax counsel as to the satisfaction of certain requirements necessary for the distribution, together with certain related transactions, to receive tax-free treatment under Sections 355 and 368(a)(1)(D) of the Code upon which the IRS will not rule. ITT expects to receive such opinion at the time of the consummation of the spin-off. Although ITT has no intention to do, such conditions are solely for the benefit of ITT and may be waived by ITT in its sole discretion. The tax consequences of the distribution are described in more detail under “The Spin-Off — U.S. Federal Income Tax Consequences of the Spin-Off.” | |
Q: | Will the Xylem common stock be listed on a stock exchange? | |
A: | Yes. Although there is not currently a public market for Xylem common stock, before completion of the spin-off, Xylem will apply to list its common stock on the New York Stock Exchange (“NYSE”) under the symbol “XYL”. It is anticipated that trading of Xylem common stock will commence on a “when-issued” basis at least two trading days prior to the record date. When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. When-issued trades generally settle within four trading days after the distribution date. On the first trading day following the distribution date, any when-issued trading with respect to Xylem common stock will end and “regular-way” trading will begin. “Regular-way” trading refers to trading after a security has been issued and typically involves a transaction that settles on the third full trading day following the date of the transaction. See “Trading Market.” | |
Q: | Will my shares of ITT common stock continue to trade? | |
A: | Yes. ITT common stock will continue to be listed and trade on the NYSE under the symbol “ITT.” | |
Q: | If I sell, on or before the distribution date, shares of ITT common stock that I held on the record date, am I still entitled to receive shares of Xylem common stock distributable with respect to the shares of ITT common stock I sold? | |
A: | Beginning on or shortly before the record date and continuing through the distribution date for the spin-off, ITT’s common stock will begin to trade in two markets on the NYSE: a “regular-way” market and an “ex-distribution” market. If you hold shares of ITT common stock as of the record date for the distribution and choose to sell those shares in the regular-way market after the record date for the distribution and on or before the distribution date, you also will be selling the right to receive the shares of Xylem common stock in connection with the spin-off. However, if you hold shares of ITT common stock as of the record date for the distribution and choose to sell those shares in the ex-distribution market after the record date for the distribution and on or before the distribution date, you will still receive the shares of Xylem common stock in the spin-off. | |
Q: | Will the spin-off affect the trading price of my ITT stock? | |
A: | Yes, the trading price of shares of ITT common stock immediately following the distribution is expected to be lower than immediately prior to the distribution because its trading price will no longer reflect the value of the Water and Defense businesses. However, we cannot provide you with any guarantees as to the price at which the ITT shares will trade following the spin-off. | |
Q: | What indebtedness will Xylem have following the spin-off? | |
A: | On September 20, 2011, Xylem issued $1.2 billion aggregate principal amount of senior notes, the net proceeds of which have funded a net cash transfer of approximately $817 million to ITT, with the balance to be used in connection with the YSI acquisition and for general corporate purposes. See “Description of Material Indebtedness.” |
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Q: | What is the Contribution? | |
A: | As part of the internal reorganization, we have funded a net cash transfer of approximately $817 million to ITT, which is expected to be used to repay outstanding ITT indebtedness. Immediately following the Contribution, we expect that we will have approximately $200 million in cash and cash equivalents and long-term indebtedness of approximately $1.2 billion, which, together with the cash generated by our ongoing operations, we believe will provide us with sufficient liquidity and capital resources to meet our cash needs and allow us to finance our operations on acceptable terms and conditions. Exelis is also expected to have approximately $200 million in cash and cash equivalents and long-term indebtedness of approximately $890 million, which, together with the cash generated by its ongoing operations, is expected to provide Exelis, which will assume the ITT Salaried Retirement Plan and other postretirement benefit plans from ITT, with sufficient liquidity and capital resources to meet its cash needs and allow Exelis to finance its operations on acceptable terms and conditions. In addition, immediately following the Contribution, ITT is expected to have approximately $ million in cash and cash equivalents and no long-term indebtedness, which, together with the cash generated by ITT’s ongoing operations, is expected to provide ITT, which will have a larger portion of net legacy liabilities, with sufficient liquidity to meet its cash needs and permit ITT to finance its operations on acceptable terms and conditions. Although we believe that the arrangements in place at the time of the distribution will permit us, Exelis and ITT to finance our and their operations on acceptable terms and conditions, our, Exelis’s and ITT’s access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including credit ratings or absence of a credit rating, the liquidity of the overall capital markets, and the current state of the economy. | |
Q: | What will be the relationship between ITT and Xylem after the spin-off? | |
A: | Following the spin-off, Xylem will be an independent, publicly traded company and ITT will have no continuing stock ownership interest in Xylem. Xylem will have entered into a Distribution Agreement with ITT and Exelis and will enter into several other agreements for the purpose of allocating between Xylem, Exelis and ITT various assets, liabilities, rights and obligations (including employee benefits, intellectual property, insurance and tax-related assets and liabilities). These agreements will also govern Xylem’s relationship with ITT and Exelis following the spin-off and will provide arrangements for benefits and compensation matters, tax matters, intellectual property matters, insurance matters and other specified liabilities, rights and obligations attributable to periods before and, in some cases, after the spin-off. These agreements will also include arrangements with respect to transitional services to be provided by one or more of ITT, Xylem or Exelis to any other of them. The Distribution Agreement will provide, in general, that Xylem will indemnify ITT and Exelis, as the case may be, against any and all liabilities arising out of Xylem’s business as constituted in connection with the spin-offs and any other liabilities and obligations assumed by Xylem, and that ITT and Exelis will indemnify Xylem against any and all liabilities arising out of the businesses of ITT or Exelis, as the case may be, as constituted in connection with the spin-offs and any other liabilities and obligations assumed by ITT or Exelis, respectively. | |
Q: | What will Xylem’s dividend policy be after the spin-off? | |
A: | Following the distribution, we expect that initially Xylem will pay a dividend, although the timing, declaration, amount and payment of future dividends to our shareholders fall within the discretion of our Board of Directors and will depend on many factors, including our financial condition, results of operations and capital requirements, industry practice and other business considerations that Xylem’s Board of Directors considers relevant from time to time. In addition, the terms of the agreements governing our new debt or debt that we may incur in the future may limit or prohibit the payments of dividends. See “Dividend Policy.” | |
Q: | What are the anti-takeover effects of the spin-off? | |
A: | Some provisions of the amended and restated articles of incorporation of Xylem and the amended and restated by-laws of Xylem, Indiana law and possibly the agreements governing Xylem’s new debt, as each will be in effect immediately following the spin-off, may have the effect of making more difficult an acquisition of |
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control of Xylem in a transaction not approved by Xylem’s Board of Directors. See “Description of Capital Stock — Provisions of Our Amended and Restated Articles of Incorporation and Amended and Restated By-Laws That Could Delay or Prevent a Change in Control.” In addition, under the Tax Matters Agreement, Xylem will agree not to enter into any transaction for a period of two years following the distribution involving an acquisition (including issuance) of Xylem common stock or any other transaction (or, to the extent Xylem has the right to prohibit it, to permit any such transaction) that could cause the distribution to be taxable to ITT. Xylem will also agree to indemnify ITT for any tax resulting from any such transaction. Generally, ITT will recognize a taxable gain on the distribution if there are one or more acquisitions (including issuances) of Xylem capital stock representing 50% or more of Xylem’s then-outstanding stock, measured by vote or value, and the acquisitions are deemed to be part of a plan or series of related transactions that include the distribution. Any such acquisition of Xylem common stock within two years before or after the distribution (with exceptions, including public trading by less-than-5% shareholders and certain compensatory stock issuances) generally will be presumed to be part of such a plan unless that presumption is rebutted. As a result, Xylem’s obligations may discourage, delay or prevent a change of control of Xylem. | ||
Q: | What are the risks associated with the spin-off? | |
A: | There are a number of risks associated with the spin-off and ownership of Xylem common stock. These risks are discussed under “Risk Factors.” | |
Q: | How will the spin-off affect Xylem’s relationship with its customers? | |
A: | We believe we have well-established relationships with our principal customers. We believe the spin-off will enable us to better focus on those customers and to align our resources with their priorities. As we seek to enter into new contracts with our customers, we expect to continue to provide information to enable them to have ongoing confidence in our management, our workforce and our ability to perform, including our financial stability. | |
Q: | Where can I get more information? | |
A: | If you have any questions relating to the mechanics of the distribution, you should contact the distribution agent, The Bank of New York Mellon, at: |
ITT Corporation c/o BNY Mellon Shareowner Services P.O. Box 358015 Pittsburgh, PA 15252-8015 Phone: 800 254 2823 |
Before the spin-off, if you have any questions relating to the spin-off, you should contact ITT at: |
ITT Corporation Investor Relations Phone: +1 914 641 2030 Email: thomas.scalera@itt.com www.itt.com |
After the spin-off, if you have any questions relating to Xylem, you should contact Xylem at: |
Xylem Inc. Investor Relations Phone: +1 914 323 5930 Email: Phil.DeSousa@itt.com |
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Distributing Company | ITT Corporation, an Indiana corporation. After the distribution, ITT will not own any shares of Xylem common stock. | |
Distributed Company | ITT Xylem Inc., an Indiana corporation and a wholly owned subsidiary of ITT. After the spin-off, Xylem will be an independent, publicly traded company. | |
Distributed Securities | All of the shares of Xylem common stock owned by ITT, which will be 100% of Xylem common stock issued and outstanding immediately prior to the distribution. | |
Record Date | The record date for the distribution is 5:00 p.m., New York time, on , 2011. | |
Distribution Date | The distribution date is , 2011. | |
Internal Reorganization | As part of the spin-off, ITT will undergo an internal reorganization, which we refer to as the “internal reorganization,” that will, among other things and subject to limited exceptions: | |
• allocate and transfer to each of Xylem and Exelis and their respective subsidiaries, as applicable, those assets, and to allocate and assign responsibility for those liabilities, in respect of the activities of the applicable businesses of such entities; and | ||
• allocate, transfer and assign, as applicable, those assets and liabilities in respect of other current and former businesses and activities of ITT and its current and former subsidiaries. | ||
After completion of the spin-off: | ||
�� | ||
• Xylem will own and operate ITT’s water infrastructure and applied water businesses; | ||
• Exelis will own and operate ITT’s command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR) electronics and systems, and informational and technical services businesses; and | ||
• ITT will own and operate its industrial process, motion technologies, interconnect solutions and control technologies businesses. | ||
See “The Spin-Off — Manner of Effecting the Spin-Off — Internal Reorganization.” | ||
Incurrence of Debt | On September 20, 2011, Xylem issued $1.2 billion aggregate principal amount of senior notes, the net proceeds of which have funded a net cash transfer of approximately $817 million to ITT, with the balance to be used in connection with the YSI acquisition and for general corporate purposes. | |
Distribution Ratio | Each holder of ITT common stock will receive one share of Xylem common stock for each share of ITT common stock held on , 2011. | |
The Distribution | On the distribution date, ITT will release the shares of Xylem common stock to the distribution agent to distribute to ITT shareholders. The distribution of shares will be made in book-entry form, which means that no physical share certificates will be issued. It is |
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expected that it will take the distribution agent up to two weeks to issue shares of Xylem common stock to you or to your bank or brokerage firm electronically on your behalf by way of direct registration in book-entry form. Trading of our shares will not be affected during that time. Following the spin-off, shareholders whose shares are held in book-entry form may request that their shares of Xylem common stock be transferred to a brokerage or other account at any time. You will not be required to make any payment, surrender or exchange your shares of ITT common stock, or take any other action to receive your shares of Xylem common stock. | ||
Conditions to the Spin-Off | Completion of the spin-off is subject to the satisfaction or waiver by ITT of the following conditions: | |
• our Registration Statement on Form 10, of which this Information Statement forms a part, shall have been declared effective by the Securities and Exchange Commission (the “SEC”), no stop order suspending the effectiveness thereof shall be in effect, no proceedings for such purpose shall be pending before or threatened by the SEC, and this Information Statement shall have been mailed to the ITT shareholders; | ||
• Xylem common stock shall have been approved for listing on the NYSE, subject to official notice of distribution; | ||
• ITT shall have obtained an opinion from its tax counsel, in form and substance satisfactory to ITT, as to the satisfaction of certain requirements necessary for the distribution, together with certain related transactions, to qualify as a reorganization under Sections 355 and 368(a)(1)(D) of the Code upon which the IRS will not rule; | ||
• ITT shall have obtained a private letter ruling from the Internal Revenue Service, in form and substance satisfactory to ITT, and such ruling shall remain in effect as of the distribution date, to the effect, among other things, that the distribution, together with certain related transactions, will qualify as a reorganization under Sections 355 and 368(a)(1)(D) of the Code; | ||
• the Board of Directors of ITT shall have obtained opinions from a nationally recognized valuation firm, in form and substance satisfactory to ITT, with respect to the capital adequacy and solvency of each of ITT, Exelis and Xylem; | ||
• ITT shall have obtained all government approvals and other consents necessary to consummate the distribution; | ||
• no order, injunction or decree issued by any governmental entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of all or any portion of the distribution shall be pending, threatened, issued or in effect, and no other event outside the control of ITT shall have occurred or failed to occur that prevents the consummation of all or any portion of the distribution; |
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• no other events or developments shall have occurred or failed to occur that, in the judgment of the Board of Directors of ITT, would result in the distribution having a material adverse effect on ITT or its shareholders; | ||
• the financing transactions described in this Information Statement as having occurred prior to the distribution shall have been consummated on or prior to the distribution; | ||
• the internal reorganization shall have been completed, except for such steps as ITT in its sole discretion shall have determined may be completed after the distribution date; | ||
• ITT shall have taken all necessary action, in the judgment of the Board of Directors of ITT, to cause the Board of Directors of Xylem to consist of the individuals identified in this Information Statement as directors of Xylem; | ||
• ITT shall have taken all necessary action, in the judgment of the Board of Directors of ITT, to cause the officers of Xylem to be the individuals identified as such in this Information Statement; | ||
• ITT shall have caused all its employees and any employees of its subsidiaries (excluding any employees of any of Xylem and its subsidiaries after the internal reorganization (the “Xylem Group”)) to resign, effective as of the distribution date, from all positions as officers or directors of any member of the Xylem Group in which they serve, and Xylem shall have caused all its employees and any employees of its subsidiaries to resign, effective as of the distribution date, from all positions as officers or directors of any of ITT, Exelis or any of their respective subsidiaries after the internal reorganization, in which they serve; | ||
• all necessary actions shall have been taken to adopt the form of amended and restated articles of incorporation and amended and restated by-laws filed by Xylem with the SEC as exhibits to the Registration Statement on Form 10, of which this Information Statement forms a part; | ||
• in the event the distribution is for any reason postponed more than one hundred twenty days after the date of the Distribution Agreement, the Board of Directors of ITT shall have redetermined, as of such postponed distribution date, that the distribution satisfies the requirements of Indiana Business Corporation Law governing distributions; | ||
• the Board of Directors of ITT shall have approved the distribution, which approval may be given or withheld at its absolute and sole discretion; and | ||
• each of the Distribution Agreement, the Tax Matters Agreement, the Benefits and Compensation Matters Agreement, the Intellectual Property License Agreements, the Master Transition Services Agreement and the other ancillary agreements shall have been executed by each party. | ||
Completion of the spin-off of Exelis will be subject to similar conditions as those listed above. The fulfillment of the foregoing |
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conditions will not create any obligation on ITT’s part to effect the spin-off. We are not aware of any material federal, foreign or state regulatory requirements that must be complied with or any material approvals that must be obtained, other than compliance with SEC rules and regulations, the receipt of a private letter ruling from the Internal Revenue Service, approval for listing on the NYSE and the declaration of effectiveness of the Registration Statement on Form 10 by the SEC, in connection with the distribution. ITT has the right not to complete the spin-off if, at any time prior to the distribution, the Board of Directors of ITT determines, in its sole discretion, that the spin-off is not then in the best interests of ITT or its shareholders or other constituents, that a sale or other alternative is in the best interests of ITT or its shareholders or other constituents, or that it is not advisable for Xylem to separate from ITT at that time. For more information, see “The Spin-Off — Conditions to the Spin-Off.” | ||
Trading Market and Symbol | We intend to file an application to list Xylem common stock on the NYSE under the ticker symbol “XYL”. We anticipate that, at least two trading days prior to the record date, trading of shares of Xylem common stock will begin on a “when-issued” basis and will continue up to and including the distribution date, and we expect “regular-way” trading of Xylem common stock will begin the first trading day after the distribution date. We also anticipate that, at least two trading days prior to the record date, there will be two markets in ITT common stock: a regular-way market on which shares of ITT common stock will trade with an entitlement for the purchaser of ITT common stock to shares of Xylem common stock to be distributed pursuant to the distribution, and an “ex-distribution” market on which shares of ITT common stock will trade without an entitlement for the purchaser of ITT common stock to shares of Xylem common stock. For more information, see “Trading Market.” | |
Tax Consequences | As a condition to the spin-off, ITT will receive an IRS Ruling stating that ITT and ITT’s shareholders will not recognize any taxable income, gain or loss for U.S. Federal income tax purposes as a result of the spin-off. In addition, the spin-off is conditioned on the receipt of an opinion of tax counsel as to the satisfaction of certain requirements necessary for the spin-off to receive tax-free treatment upon which the IRS will not rule. See “The Spin-Off — U.S. Federal Income Tax Consequences of the Spin-Off.” | |
Each shareholder is urged to consult his, her or its tax advisor as to the specific tax consequences of the spin-off to such shareholder, including the effect of any state, local ornon-U.S. tax laws and of changes in applicable tax laws. | ||
Relationship with ITT after the Spin-Off | We will enter into a Distribution Agreement and other agreements with ITT and Exelis related to the spin-off. These agreements will govern the relationship between us, Exelis and ITT after completion of the spin-off and provide for the allocation between us, Exelis and ITT of various assets, liabilities, rights and obligations (including employee benefits, intellectual property, insurance and |
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tax-related assets and liabilities). The Distribution Agreement will provide for the allocation of assets and liabilities among ITT, Exelis and Xylem and will establish the rights and obligations between and among the parties following the distribution. We intend to enter into one or more Transition Services Agreements with ITT and Exelis pursuant to which certain services will be provided on an interim basis following the distribution. We also intend to enter into a Benefits and Compensation Matters Agreement that will set forth the agreements between us, Exelis and ITT concerning certain employee compensation and benefit matters. Further, we intend to enter into a Tax Matters Agreement with Exelis and ITT regarding the sharing of taxes incurred before and after completion of the spin-off, certain indemnification rights with respect to tax matters and certain restrictions to preserve the tax-free status of the spin-off. In addition, to facilitate the ongoing use of various intellectual property, we intend to enter into a Technology License Agreement that will provide for certain reciprocal licensing arrangements with ITT and Exelis and certain trademark license agreements with ITT. We describe these arrangements in greater detail under “Certain Relationships and Related Party Transactions — Agreements with ITT and Exelis Related to the Spin-Off,” and describe some of the risks of these arrangements under “Risk Factors — Risks Relating to the Spin-Off.” | ||
Dividend Policy | Following the distribution, we expect that initially Xylem will pay a dividend, although, the timing, declaration, amount and payment of future dividends to our shareholders fall within the discretion of our Board of Directors and will depend on many factors, including our financial condition, results of operations and capital requirements, as well as applicable law, regulatory constraints, industry practice and other business considerations that Xylem’s Board of Directors considers relevant. In addition, the terms of the agreements governing our new debt or debt that we may incur in the future may limit or prohibit the payments of dividends. See “Dividend Policy.” | |
Transfer Agent | The Bank of New York Mellon | |
Risk Factors | We face both general and specific risks and uncertainties relating to our business, our relationship with ITT and Exelis and our being an independent, publicly traded company. We also are subject to risks relating to the spin-off. You should carefully read the risk factors set forth in the section entitled “Risk Factors” in this Information Statement. |
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As of and for | As of and for | |||||||||||||||||||||||||||
Six Months Ended June 30 | Year Ended December 31 | |||||||||||||||||||||||||||
Pro Forma | Pro Forma | |||||||||||||||||||||||||||
2011 | 2011 | 2010 | 2010 | 2010 | 2009 | 2008 | ||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||
Net sales | $ | 1,861 | $ | 1,861 | $ | 1,461 | $ | 3,347 | $ | 3,202 | $ | 2,849 | $ | 3,291 | ||||||||||||||
Operating income | 237 | 216 | 170 | 407 | 388 | 276 | 315 | |||||||||||||||||||||
Net income | 151 | 150 | 141 | 314 | 329 | 263 | 224 | |||||||||||||||||||||
Total assets | 4,074 | 3,949 | 2,873 | N/A* | 3,735 | 2,535 | 2,543 | |||||||||||||||||||||
Long-term debt (including capital lease obligations) | 894 | 4 | 4 | N/A* | 4 | 4 | 2 |
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• | Possibility of unfavorable circumstances arising from host country laws or regulations; | |
• | Currency exchange rate fluctuations and restrictions on currency repatriation; | |
• | Potential negative consequences from changes to taxation policies; | |
• | The disruption of operations from labor and political disturbances; |
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• | Changes in tariff and trade barriers and import and export licensing requirements; and | |
• | Insurrection or war. |
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• | our decision to repatriatenon-U.S. earnings for which we have not previously provided for U.S. taxes; | |
• | the jurisdictions in which profits are determined to be earned and taxed; | |
• | sustainability of historical income tax rates in the jurisdictions in which we conduct business; | |
• | the resolution of issues arising from tax audits with various tax authorities; and | |
• | changes in the valuation of our deferred tax assets and liabilities, and changes in deferred tax valuation allowances. |
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• | the sale of our shares by some ITT shareholders after the distribution because our business profile and market capitalization may not fit their investment objectives; | |
• | actual or anticipated fluctuations in our operating results due to factors related to our business; | |
• | success or failure of our business strategy; | |
• | our quarterly or annual earnings, or those of other companies in our industry; | |
• | our ability to obtain financing as needed; | |
• | announcements by us or our competitors of significant new business awards; | |
• | announcements by us or our competitors of significant acquisitions or dispositions; | |
• | changes in accounting standards, policies, guidance, interpretations or principles; | |
• | the failure of securities analysts to cover our common stock after the spin-off; | |
• | changes in earnings estimates by securities analysts or our ability to meet those estimates; | |
• | the operating and stock price performance of other comparable companies; | |
• | investor perception of our company and the water technology industry; | |
• | natural or environmental disasters that investors believe may affect us; | |
• | overall market fluctuations; | |
• | fluctuations in the budget of federal, state and local governmental entities around the world; | |
• | results from any material litigation or government investigation; | |
• | changes in laws and regulations affecting our business; and | |
• | general economic conditions and other external factors. |
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• | we will be an independent, publicly traded company (NYSE: XYL), and will own and operate ITT’s water infrastructure and applied water businesses; | |
• | Exelis will be an independent, publicly traded company (NYSE: XLS) and will own and operate ITT’s C4ISR electronics and systems, and informational and technical services businesses; and | |
• | ITT will continue to be an independent, publicly traded company (NYSE: ITT) and will continue to own and operate its industrial process, motion technologies, interconnect solutions and control technologies businesses. |
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• | The decreased capital available for investment: The Company has historically relied upon ITT for working capital requirements on a short-term basis and for other financial support functions. After the spin-off, the Company will not be able to rely on the earnings, assets or cash flow of ITT, and the Company will be responsible for servicing its own debt, and obtaining and maintaining sufficient working capital. |
• | The loss of synergies from operating as one company: As a current part of ITT, the Company takes advantage of ITT’s size and purchasing power in procuring certain goods and services such as insurance and health care benefits, and technology such as computer software licenses. After the spin-off, as a separate, independent entity, the Company may be unable to obtain these goods, services and technologies at prices or on terms as favorable to us as those the Company obtained prior to the distribution. The Company may also incur costs for functions previously performed by ITT that are higher than the amounts reflected in the Company’s historical financial statements, which could cause the Company’s profitability to decrease. |
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• | Potential disruptions to the businesses as a result of the spin-off: Some of the Company’s customers, prospective customers, and suppliers will need assurances that its financial stability on a stand-alone basis is sufficient to satisfy their requirements for doing or continuing to do business with them. If the Company’s customers, prospective customers or suppliers are not satisfied with the Company’s financial stability, it could have a material adverse effect on the Company’s ability to bid for and obtain or retain projects, the Company’s business, financial condition or results of operations. | |
• | The potential effect of the spin-off on the anticipated credit ratings of the separated companies and risks associated with refinancing ITT’s debt: Given the smaller relative size of the Company as compared to ITT, after the spin-off the Company may incur higher debt servicing costs on the new indebtedness than it would have incurred otherwise as a subsidiary of ITT or not have access to other less expensive sources of capital from short-term debt markets. | |
• | Risks of being unable to achieve the benefits expected from the spin-off: By separating from ITT, the Company may be more susceptible to market fluctuations and other adverse events than the Company would have been were it still a part of ITT; actual or anticipated fluctuations in the Company’s operating results due to factors related to the Company’s business; competitive pressures by new or existing competitors of the Company; and investor perception of the company and its industry, among others. | |
• | The reaction of ITT’s shareholders to the spin-off: The market price of the Company’s common stock may fluctuate widely, depending on many factors, some of which may be beyond the Company’s control, including the sale of its shares by some ITT shareholders after the distribution because the Company’s business profile and market capitalization may not fit their investment objectives. | |
• | The risk that the plan of execution might not be completed and the one-time and ongoing costs of the spin-off: There are risks and uncertainties relating to the execution of the spin-off, including the timing and certainty of the completion of the internal reorganization prior to the distribution. In addition, the Company will incur costs in connection with the transition to being a stand-alone public company that relate primarily to accounting, tax and other professional costs; compensation, such as modifications to certain bonus awards, upon completion of the separation; relocation costs; recruiting and relocation costs associated with hiring key senior management personnel new to the Company; costs related to establishing a new brand in the marketplace; and costs to separate information systems. |
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• | no gain or loss will be recognized by, and no amount will be included in the income of, holders of ITT common stock upon their receipt of shares of our common stock (as well as Exelis common stock) in the distribution; | |
• | the basis of ITT common stock immediately before the distribution will be allocated between the ITT common stock, the Exelis common stock and our common stock received in the distribution, in proportion with relative fair market values at the time of the distribution; | |
• | the holding period of the Exelis common stock and our common stock received by each ITT shareholder will include the period during which the shareholder held the ITT common stock on which the distribution is made, provided that the ITT common stock is held as a capital asset on the distribution date; and | |
• | no gain or loss will be recognized by ITT upon the distribution of our common stock. |
• | a taxable dividend to the extent of the shareholder’s pro rata share of ITT’s current and accumulated earnings and profits; | |
• | a reduction in the shareholder’s basis in ITT common stock to the extent the amount received exceeds such shareholder’s share of earnings and profits; |
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• | taxable gain from the exchange of ITT common stock to the extent the amount received exceeds both the shareholder’s share of earnings and profits and the shareholder’s basis in ITT common stock; and | |
• | basis in our stock equal to its fair market value on the date of the distribution. |
• | the distribution does not qualify as tax-free under Section 355 of the Code; and | |
• | there are one or more acquisitions (including issuances) of either our stock, the stock of Exelis, or the stock of ITT, representing 50% or more, measured by vote or value, of the then-outstanding stock of that corporation, and the acquisition or acquisitions are deemed to be part of a plan or series of related transactions that include the distribution. Any such acquisition of our stock, the stock of Exelis, or the stock of ITT within two years before or after the distribution (with exceptions, including public trading by less-than-5% shareholders and certain compensatory stock issuances) generally will be presumed to be part of such a plan unless that presumption is rebutted. |
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• | our Registration Statement on Form 10, of which this Information Statement forms a part, shall have been declared effective by the Securities and Exchange Commission (the “SEC”), no stop order suspending the effectiveness thereof shall be in effect, no proceedings for such purpose shall be pending before or threatened by the SEC, and this Information Statement shall have been mailed to the ITT shareholders; | |
• | Xylem common stock shall have been approved for listing on the NYSE, subject to official notice of distribution; | |
• | ITT shall have obtained an opinion from its tax counsel, in form and substance satisfactory to ITT, as to the satisfaction of certain requirements necessary for the distribution, together with certain related transactions, to qualify as a reorganization under Sections 355 and 368(a)(1)(D) of the Code upon which the IRS will not rule; | |
• | ITT shall have obtained a private letter ruling from the Internal Revenue Service, in form and substance satisfactory to ITT, and such ruling shall remain in effect as of the distribution date, to the effect, among other things, that the distribution, together with certain related transactions, will qualify as a reorganization under Sections 355 and 368(a)(1)(D) of the Code; | |
• | the Board of Directors of ITT shall have obtained opinions from a nationally recognized valuation firm, in form and substance satisfactory to ITT, with respect to the capital adequacy and solvency of each of ITT, Exelis and Xylem; | |
• | ITT shall have obtained all government approvals and other consents necessary to consummate the distribution; | |
• | no order, injunction or decree issued by any governmental entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of all or any portion of the distribution shall be pending, threatened, issued or in effect, and no other event outside the control of ITT shall have occurred or failed to occur that prevents the consummation of all or any portion of the distribution; | |
• | no other events or developments shall have occurred or failed to occur that, in the judgment of the Board of Directors of ITT, would result in the distribution having a material adverse effect on ITT or its shareholders; | |
• | the financing transactions described in this Information Statement as having occurred prior to the distribution shall have been consummated on or prior to the distribution; | |
• | the internal reorganization shall have been completed, except for such steps as ITT in its sole discretion shall have determined may be completed after the distribution date; | |
• | ITT shall have taken all necessary action, in the judgment of the Board of Directors of ITT, to cause the Board of Directors of Xylem to consist of the individuals identified in this Information Statement as directors of Xylem; |
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• | ITT shall have taken all necessary action, in the judgment of the Board of Directors of ITT, to cause the officers of Xylem to be the individuals identified as such in this Information Statement; | |
• | ITT shall have caused all its employees and any employees of its subsidiaries (excluding any employees of any of Xylem and its subsidiaries after the internal reorganization (the “Xylem Group”)) to resign, effective as of the distribution date, from all positions as officers or directors of any member of the Xylem Group in which they serve, and Xylem shall have caused all its employees and any employees of its subsidiaries to resign, effective as of the distribution date, from all positions as officers or directors of any of ITT, Exelis or any of their respective subsidiaries after the internal reorganization, in which they serve; | |
• | all necessary actions shall have been taken to adopt the form of amended and restated articles of incorporation and amended and restated by-laws filed by Xylem with the SEC as exhibits to the Registration Statement on Form 10, of which this Information Statement forms a part; | |
• | in the event the distribution is for any reason postponed more than one hundred twenty days after the date of the Distribution Agreement, the Board of Directors of ITT shall have redetermined, as of such postponed distribution date, that the distribution satisfies the requirements of Indiana Business Corporation Law governing distributions; | |
• | the Board of Directors of ITT shall have approved the distribution, which approval may be given or withheld at its absolute and sole discretion; and | |
• | each of the Distribution Agreement, the Tax Matters Agreement, the Benefits and Compensation Matters Agreement, the Intellectual Property License Agreements, the Master Transition Services Agreement and the other ancillary agreements shall have been executed by each party. |
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• | under a registration statement that the SEC has declared effective under the Securities Act; or |
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• | under an exemption from registration under the Securities Act, such as the exemption afforded by Rule 144. |
• | 1.0% of our common stock then outstanding; or | |
• | the average weekly trading volume of our common stock on the NYSE during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. |
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As of June 30, 2011 | ||||||||
Historical | Pro Forma | |||||||
(In millions) | ||||||||
(Unaudited) | ||||||||
Capitalization: | ||||||||
Liabilities | ||||||||
Long-term debt (including capital lease obligations) | 4 | 894 | ||||||
Equity | ||||||||
Common stock ($0.01 par value) | — | 2 | ||||||
Additional paid in capital | — | 1,699 | ||||||
Parent company investment(1) | 2,362 | — | ||||||
Accumulated other comprehensive income | 502 | 295 | ||||||
Total capitalization | $ | 2,868 | $ | 2,890 | ||||
(1) | Historically, cash received by us has been transferred to ITT, and ITT has funded our disbursement accounts on an as-needed basis. The net effect of transfers of cash to and from the ITT cash management accounts is reflected in parent company investment in the combined balance sheets. |
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As of and for | ||||||||||||||||||||||||||||
Six Months Ended | ||||||||||||||||||||||||||||
June 30 | As of and for Year Ended December 31 | |||||||||||||||||||||||||||
2011(1) | 2010 | 2010(1) | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||
Net sales | $ | 1,861 | $ | 1,461 | $ | 3,202 | $ | 2,849 | $ | 3,291 | $ | 3,068 | $ | 2,710 | ||||||||||||||
Operating income | 216 | 170 | 388 | 276 | 315 | 288 | 293 | |||||||||||||||||||||
Net income | 150 | 141 | 329 | 263 | 224 | 219 | 212 | |||||||||||||||||||||
Total assets | 3,949 | 2,873 | 3,735 | 2,535 | 2,543 | 2,832 | 2,575 |
(1) | The increase in total assets as of June 30, 2011 as compared to June 30, 2010 is primarily attributable to the August 3, 2010 acquisition of Godwin Pumps. The increase in total assets as of December 31, 2010 as compared to December 31, 2009 is primarily attributable to the Godwin Pumps acquisition and the March 23, 2010 acquisition of Nova Analytics. The Godwin Pumps and Nova Analytics acquisitions also benefited net sales, operating income, and net income in the six months ended June 30, 2011 and for the year ended 2010. See Note 3, “Acquisitions,” in the Notes to the Combined Financial Statements. |
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• | the contribution by ITT to us, pursuant to the Distribution Agreement, of all the assets and liabilities that comprise our business; | |
• | the expected transfer to us, upon the spin-off, of certain assets and liabilities that were not reflected in our historical combined financial statements; | |
• | the results of operations for the period prior to our acquisition of Godwin Pumps on August 3, 2010; | |
• | our anticipated post-separation capital structure, including (i) the issuance of up to approximately 184 million shares of our common stock to holders of ITT common shares (this number of shares is based upon the number of ITT common shares outstanding on June 30, 2011 and an assumed distribution ratio of one share of Xylem common stock for each ITT common share) and (ii) the incurrence of $890 million of indebtedness and the making of the $817 million Contribution. | |
• | the impact of, and transactions contemplated by, a Tax Matters Agreement between us and ITT and the provisions contained therein; and | |
• | settlement of intercompany account balances between us and ITT. |
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• | costs to perform financial reporting, tax, regulatory compliance, corporate governance, treasury, legal, internal audit and investor relations activities; | |
• | compensation, including equity-based awards, and benefits with respect to new and existing positions; | |
• | insurance premiums; | |
• | depreciation and amortization related to information technology infrastructure investments; and | |
• | the type and level of other costs expected to be incurred. |
• | accounting, tax and other professional costs pertaining to our separation and establishment as a stand-alone public company; | |
• | compensation, such as modifications to certain bonus awards, upon completion of the separation; | |
• | relocation costs; | |
• | recruiting and relocation costs associated with hiring key senior management personnel new to our company; | |
• | costs related to establishing our new brand in the marketplace; and | |
• | costs to separate information systems. |
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SIX MONTHS ENDED JUNE 30, 2011
Pro Forma for the | ||||||||||||||||
Historical | Financing | Separation and | Financing and the | |||||||||||||
(a) | Adjustments | Other Adjustments | Separation | |||||||||||||
(In millions, except per share amounts) | ||||||||||||||||
Net sales | $ | 1,861 | $ | $ | $ | 1,861 | ||||||||||
Costs of sales | 1,145 | 1,145 | ||||||||||||||
Gross profit | 716 | 716 | ||||||||||||||
Selling, general and administrative expenses | 450 | (21 | )(c) | 429 | ||||||||||||
Research and development expenses | 50 | 50 | ||||||||||||||
Operating income | 216 | 21 | 237 | |||||||||||||
Interest expense | — | 20 | (d) | 20 | ||||||||||||
Income (loss) before income tax expense | 216 | (20 | ) | 21 | 217 | |||||||||||
Income tax expense (benefit) | 66 | (6 | )(e) | 6 | (e) | 66 | ||||||||||
Net income (loss) | $ | 150 | $ | (14 | ) | $ | 15 | $ | 151 | |||||||
Basic earnings per share: | $ | 0.82 | (k) | |||||||||||||
Diluted earnings per share: | $ | 0.82 | (l) | |||||||||||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 184 | (k) | ||||||||||||||
Diluted | 184 | (l) |
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FISCAL YEAR ENDED DECEMBER 31, 2010
Godwin Pumps as | Pro Forma for | |||||||||||||||
Historical | Adjusted | Financing | Godwin Pumps and the | |||||||||||||
(a) | (b) | Adjustments | Financing | |||||||||||||
(In millions, except per share amounts) | ||||||||||||||||
Net sales | $ | 3,202 | $ | 145 | $ | $ | 3,347 | |||||||||
Costs of sales | 1,988 | 74 | 2,062 | |||||||||||||
Gross profit | 1,214 | 71 | 1,285 | |||||||||||||
Selling, general and administrative expenses | 737 | 52 | 789 | |||||||||||||
Research and development expenses | 74 | — | 74 | |||||||||||||
Restructuring charges, net | 15 | — | — | 15 | ||||||||||||
Operating income | 388 | 19 | 407 | |||||||||||||
Interest expense | — | — | 39 | (d) | 39 | |||||||||||
Income (loss) before income tax expense | 388 | 19 | (39 | ) | 368 | |||||||||||
Income tax expense (benefit) | 59 | 7 | (12 | )(e) | 54 | |||||||||||
Net income (loss) | $ | 329 | $ | 12 | $ | (27 | ) | $ | 314 | |||||||
Basic earnings per share: | $ | 1.72 | (k) | |||||||||||||
Diluted earnings per share: | $ | 1.72 | (l) | |||||||||||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 183 | (k) | ||||||||||||||
Diluted | 183 | (l) |
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AS OF JUNE 30, 2011
Pro Forma for the | ||||||||||||||||
Historical | Financing | Separation and | Financing and the | |||||||||||||
(a) | Adjustments | Other Adjustments | Separation | |||||||||||||
(In millions) | ||||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 138 | $ | 879 | (f) | $ | (817 | )(h) | $ | 200 | ||||||
Receivables, net | 771 | 771 | ||||||||||||||
Inventories, net | 436 | 436 | ||||||||||||||
Prepaid expenses | 70 | 2 | (g) | 72 | ||||||||||||
Other current assets | 56 | 28 | (g) | 84 | ||||||||||||
Total current assets | 1,471 | 879 | (787 | ) | 1,563 | |||||||||||
Plant, property and equipment, net | 467 | 11 | (g) | 478 | ||||||||||||
Goodwill | 1,492 | 1,492 | ||||||||||||||
Other intangible assets, net | 417 | 417 | ||||||||||||||
Other non-current assets | 102 | 11 | (f) | 68 | (g) | 124 | ||||||||||
(57 | )(i) | |||||||||||||||
Total non-current assets | 2,478 | 11 | 22 | 2,511 | ||||||||||||
Total assets | $ | 3,949 | $ | 890 | $ | (765 | ) | $ | 4,074 | |||||||
LIABILITIES AND EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 307 | $ | $ | 2 | (g) | $ | 309 | ||||||||
Accrued and other current liabilities | 395 | 25 | (g) | 420 | ||||||||||||
Total current liabilities | 702 | 27 | 729 | |||||||||||||
Postretirement benefits | 174 | 92 | (g) | 266 | ||||||||||||
Deferred income tax liability | 98 | 12 | (g) | 110 | ||||||||||||
Long-term obligations, less current portion | 4 | 890 | (f) | 894 | ||||||||||||
Other non-current liabilities | 107 | 13 | (g) | 79 | ||||||||||||
(41 | )(i) | |||||||||||||||
Total non-current liabilities | 383 | 890 | 76 | 1,349 | ||||||||||||
Total liabilities | 1,085 | 890 | 103 | 2,078 | ||||||||||||
Equity: | ||||||||||||||||
Common stock | — | 2 | (j) | 2 | ||||||||||||
Additional paid in capital | — | 1,699 | (j) | 1,699 | ||||||||||||
Parent company investment | 2,362 | 172 | (g) | — | ||||||||||||
(817 | )(h) | |||||||||||||||
(16 | )(i) | |||||||||||||||
(1,701 | )(j) | |||||||||||||||
Accumulated other comprehensive income | 502 | (207 | )(g) | 295 | ||||||||||||
Total equity | 2,864 | (868 | ) | 1,996 | ||||||||||||
Total liabilities and equity | $ | 3,949 | $ | 890 | $ | (765 | ) | $ | 4,074 | |||||||
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(a) | Our historical combined financial statements reflect the historical financial position and results of operations of the water equipment and services businesses of ITT, and do not reflect the impact of certain assets and liabilities that will be contributed to us by ITT in the spin-off and that are discussed separately in footnote (g). | |
(b) | Reflects the historical pre-acquisition results of Godwin Pumps during the period from January 1, 2010 to August 2, 2010, as adjusted by $10 million for depreciation and amortization related to the increase of property, plant and equipment and finite-lived identifiable intangible assets to their estimated fair value upon purchase. The estimated useful lives of the property, plant and equipment range from 3 to 10 years and the finite-lived intangible assets range from 10 to 20 years. The as-adjusted amounts also include the reversal of transaction costs incurred by us of $3 million directly related to the acquisition of Godwin Pumps and $6 million for the income tax impact of these pro forma adjustments and for the effect of the change in tax status of Godwin Pumps of America, Inc (“GPA”). Prior to the acquisition, GPA was taxed as a subchapter S-corporation under the Internal Revenue Code and following the acquisition became a C-corporation. | |
(c) | Reflects the removal of separation costs directly related to the spin-off transaction that were incurred during the historical period. These costs were primarily for tax, accounting, and other professional fees. | |
(d) | The adjustment of $20 million and $39 million in the six months ended June 30, 2011 and the fiscal year ended December 31, 2010, respectively, represents interest expense and amortization of debt issuance costs in connection with debt securities described in note (f) below. The pro forma impact was based on the incurrence of $890 million of indebtedness issued with an assumed weighted average interest rate of 4.24%, and an assumed weighted average life of approximately 7 years. We expect to capitalize debt issuance costs of approximately $11 million in connection with these debt arrangements. Not reflected in the adjustments is the debt of $310 million incurred in connection with the YSI acquisition. See “Summary — Recent Developments.” | |
A1/8% variance in the assumed interest rate on the new debt securities would change annual interest expense by $1 million. | ||
(e) | The provision for income taxes reflected in our historical financial statements was determined as if Xylem filed a separate, stand-alone consolidated income tax return. The pro forma adjustments were determined using the statutory tax rate in effect in the respective tax jurisdictions during the periods presented. Our effective tax rate reflects the historical assumption that we do not intend to repatriatenon-U.S. earnings. The Company is in the process of evaluating its future expected tax rate, including tax implications resulting from its spin-off and any potential changes to our intention in repatriatingnon-U.S. earnings. |
(f) | Reflects the incurrence of $890 million of indebtedness, net of expected debt issuance costs of $11 million. The $890 million of indebtedness includes $600 million aggregate principal amount of 3.55% Senior Notes due in September 2016, $600 million aggregate principal amount of 4.875% Senior Notes due in October 2021, but excludes the $310 million incurred in connection with the YSI acquisition. The target debt balance at the time of separation was determined by senior management based on a review of a number of factors including credit ratings consideration, forecast liquidity and capital requirements, expected operating results, and general economic conditions. Cash on hand following the spin-off transaction is expected to be used for general corporate purposes. |
(g) | Reflects the impact of assets and liabilities that are expected to be contributed to us by ITT, primarily related to international postretirement benefit plans and associated deferred tax positions. Effective as of the distribution date, ITT expects to transfer to Xylem certain defined benefit pension and other postretirement benefit plans and Xylem expects to assume all liabilities and assets associated with such plans and become the plans’ sponsor. The net liabilities associated with such plans to be assumed by Xylem are approximately $77 million, excluding net deferred tax assets of $23 million. We estimate that every 25 basis point change in the discount rate in the postretirement benefit plans expected to be contributed to us would impact the aggregate funded status by approximately $13 million. |
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(h) | Reflects the net Contribution to ITT of $817 million based upon the anticipated post-separation capital structure. |
(i) | Reflects adjustments to deferred income taxes and other liabilities including an adjustment of ($41 million) comprising contingent tax liabilities related to unresolved tax matters that will be retained by ITT in connection with the separation as set forth in the Tax Matters Agreement that will be entered into with ITT and an adjustment of ($57 million) related to tax attributes reflected in our historical financial statements that will not be retained after the distribution. Additionally, there will be certain indemnifications extended between ITT and us in accordance with the terms of the Tax Matters Agreement. At the time of separation, we will record a liability necessary to recognize the fair value of such indemnifications. The pro forma adjustment does not include such liability. We are currently in the process of determining the impact, if any, on the amount of any liability that may be recognized at the time of the separation. | |
(j) | Represents the reclassification of ITT’s net investment in us, which was recorded in parent company equity, into additionalpaid-in-capital and the balancing entry to reflect the par value of approximately 184 million outstanding shares of common stock at a par value of $0.01 per share of outstanding common stock. We have assumed the number of outstanding shares of common stock based on the number of ITT common shares outstanding at June 30, 2011, which would result in approximately 184 million shares being distributed to holders of ITT common shares, at an assumed distribution ratio of one share of Xylem common stock for each ITT common share. |
(k) | Pro forma basic earnings per share and pro forma weighted-average basic shares outstanding are based on the number of ITT common shares outstanding on June 30, 2011 and December 31, 2010, respectively, adjusted for an assumed distribution ratio of one share of Xylem common stock for each ITT common share. |
(l) | Pro forma diluted earnings per share and pro forma weighted-average diluted shares outstanding reflect potential common shares from ITT equity plans in which our employees participate based on the distribution ratio. While the actual impact on a go-forward basis will depend on various factors, including employees who may change employment from one company to another, we believe the estimate yields a reasonable approximation of the future dilutive impact of Xylem equity plans. |
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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• | Order growth of 24.2% over the prior year; organic orders were up 6.0% | |
• | Revenue increase of 27.4% from 2010; organic revenue was up 8.7% | |
• | Operating margins of 11.6% in 2011 and 2010 | |
• | Adjusted net income of $165, an increase of $24 from 2010 | |
• | Free cash flow generation of $134, up $40 from 2010 |
• | Order growth of 13.7% over the prior year; organic orders were up 4.7% | |
• | Revenue increase of 12.4% from 2009; organic revenue was up 3.4% | |
• | Operating margin expansion of 240 bps to 12.1% as compared with 2009 | |
• | Adjusted net income of $329, an increase of $124 from 2009 | |
• | Deployment of more than $1 billion of capital into a number of strategic acquisitions in growth markets, most notably the acquisitions of Nova Analytics (“Nova”) and Godwin Pumps of America and Godwin Holdings Limited (collectively referred to as “Godwin”) |
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• | “organic revenue” and “organic orders” defined as revenue and orders, respectively, excluding the impact of foreign currency fluctuations and contributions from acquisitions and divestitures. Divestitures include sales of portions of our business that did not meet the criteria for classification as a discontinued operation or insignificant portions of our business that we did not classify as a discontinued operation. Theperiod-over-period change resulting from foreign currency fluctuations assumes no change in exchange rates from the prior period. | |
• | “adjusted net income” defined as net income, adjusted to exclude items that may include, but are not limited to, significant charges or credits that impact current results but are not related to our ongoing operations, unusual and infrequent non-operating items and non-operating tax settlements or adjustments. A reconciliation of adjusted net income is provided below. |
Six Months Ended | Years Ended | |||||||||||||||||||
June 2011 | June 2010 | 2010 | 2009 | 2008 | ||||||||||||||||
Net income | $ | 150 | $ | 141 | $ | 329 | $ | 263 | $ | 224 | ||||||||||
Tax-related special item(a) | — | — | — | (58 | ) | — | ||||||||||||||
Separation costs, net of tax | 15 | — | — | — | — | |||||||||||||||
Adjusted net income | $ | 165 | $ | 141 | $ | 329 | $ | 205 | $ | 224 | ||||||||||
(a) | The 2009 tax-related special item is primarily attributable to the completion of a restructuring of certain international legal entities. |
• | “free cash flow” defined as net cash provided by operating activities, as reported in the Statement of Cash Flows, less capital expenditures and other significant items that impact current results which management believes are not related to our ongoing operations and performance. Our definition of free cash flow does not consider certain non-discretionary cash payments, such as debt. A reconciliation of free cash flow is provided below. |
Six Months Ended | Years Ended | |||||||||||||||||||
June 2011 | June 2010 | 2010 | 2009 | 2008 | ||||||||||||||||
Net cash from operating activities | $ | 161 | $ | 118 | $ | 395 | $ | 370 | $ | 408 | ||||||||||
Capital expenditures(a) | (48 | ) | (24 | ) | (94 | ) | (62 | ) | (67 | ) | ||||||||||
Separation cash payments(b) | 21 | — | — | — | — | |||||||||||||||
Free cash flow | $ | 134 | $ | 94 | $ | 301 | $ | 308 | $ | 341 | ||||||||||
(a) | Represents capital expenditures as reported in the Statement of Cash Flows, less capital expenditures associated with the Transformation of $5 and $0 for the six months ended June 30, 2011 and 2010, respectively, and $0 for the years ended December 31, 2010, 2009 and 2008. | |
(b) | Separation costs allocated by ITT have been treated as though they were settled in cash. |
• | The global economic environment remains in a relative state of uncertainty. Although financial markets have recovered from their lows in 2009, we consider the overall global economic recovery to be a gradual, long-term process. In the United States, gradual improvements in credit availability, solid consumer spending, moderate job creation and less uncertainty about new regulations should work to reinforce the economic recovery. However, downside factors such as the challenges facing local, state |
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and federal government finance and possible spillover of Europe’s sovereign debt crisis could limit or delay U.S. growth. Within Europe, the sovereign debt crisis has weakened the recovery process and created the potential for significant volatility during 2011. The potential for unforeseen adverse macroeconomic events remains a concern and the occurrence of such events could have a significant unfavorable effect on our business. |
• | Approximately 63% of our Water Infrastructure segment’s revenue is derived from public utilities. European austerity measures and budget pressures within the United States have forced governments to plan for reductions in spending, reevaluate their priorities and postpone wastewater infrastructure projects. These actions have led to a reduction in demand, increased competition and pricing pressures. Our ability or inability to secure project orders in this challenging environment could significantly affect our Water Infrastructure segment results. | |
• | Approximately 33% and 22% of the Applied Water segment’s revenue is attributable to commercial and residential end markets, respectively. Commercial construction build rates are expected to remain low during the majority of 2011 as the build versus buy indicator for real estate investors continues to favor investing in existing buildings due to depressed asset prices. Similarly, consensus expectations for residential homebuilding are mixed, reflecting uncertainty around the likelihood and magnitude of a recovery. The continued uncertainty and volatility within these markets could significantly affect the results of our Applied Water segment. | |
• | Approximately 35% of our total revenues are attributable to applications within the general industrial market. Emerging markets have led a recovery in the global industrial market, most significantly within the mining industry as high metal prices have promoted robust demand for mining equipment. However, as long as global economic uncertainty remains it will be difficult to predict how the trends in industrial orders may be impacted. | |
• | We anticipate significant expenditures associated with the planned spin-off transaction primarily consisting of employee-related costs, costs to start up certain stand-alone functions and information technology systems, and other transaction-related costs. |
Six Months Ended | ||||||||||||||||||||||||
June 30, | Annual | |||||||||||||||||||||||
2011 | 2010 | Change | 2010 | 2009 | Change | |||||||||||||||||||
Water Infrastructure | $ | 1,153 | $ | 820 | 40.6 | % | $ | 1,930 | $ | 1,651 | 16.9 | % | ||||||||||||
Applied Water | 740 | 669 | 10.6 | % | 1,327 | 1,254 | 5.8 | % | ||||||||||||||||
Eliminations | (32 | ) | (28 | ) | — | (55 | ) | (56 | ) | — | ||||||||||||||
Total | $ | 1,861 | $ | 1,461 | 27.4 | % | $ | 3,202 | $ | 2,849 | 12.4 | % | ||||||||||||
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$ | % | |||||||
Change | Change | |||||||
Revenue for the six months ended June 30, 2010 | $ | 1,461 | ||||||
Organic growth | 127 | 8.7 | % | |||||
Acquisitions/(divestitures), net | 195 | 13.3 | % | |||||
Foreign currency translation | 78 | 5.3 | % | |||||
Total change in revenue | 400 | 27.4 | % | |||||
Revenue for the six months ended June 30, 2011 | $ | 1,861 | ||||||
$ | % | |||||||
Change | Change | |||||||
2009 Revenue | $ | 2,849 | ||||||
Organic growth | 96 | 3.4 | % | |||||
Acquisitions/(divestitures), net | 263 | 9.2 | % | |||||
Foreign currency translation | (6 | ) | (0.2 | )% | ||||
Total change in revenue | 353 | 12.4 | % | |||||
2010 Revenue | $ | 3,202 | ||||||
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Six Months Ended June 30, | Annual | |||||||||||||||||||||||
2011 | 2010 | Change | 2010 | 2009 | Change | |||||||||||||||||||
Selling, general and administrative expenses | $ | 450 | $ | 334 | 34.7 | % | $ | 737 | $ | 667 | 10.5 | % | ||||||||||||
Research and development expenses | 50 | 35 | 42.9 | % | 74 | 63 | 17.5 | % | ||||||||||||||||
Restructuring charges, net | — | 7 | (100 | )% | 15 | 31 | (51.6 | )% | ||||||||||||||||
Total | $ | 500 | $ | 376 | 33.0 | % | $ | 826 | $ | 761 | 8.5 | % | ||||||||||||
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Six Months Ended June 30, | Annual | |||||||||||||||||||||||
2011 | 2010 | Change | 2010 | 2009 | Change | |||||||||||||||||||
Water Infrastructure | $ | 158 | $ | 103 | 53.4 | % | $ | 276 | $ | 227 | 21.6 | % | ||||||||||||
Applied Water | 97 | 92 | 5.4 | % | 158 | 109 | 45.0 | % | ||||||||||||||||
Segment operating income | 255 | 195 | 30.8 | % | 434 | 336 | 29.2 | % | ||||||||||||||||
Other | (39 | ) | (25 | ) | 56.0 | % | (46 | ) | (60 | ) | 23.3 | % | ||||||||||||
Total operating income | $ | 216 | $ | 170 | 27.1 | % | $ | 388 | $ | 276 | 40.6 | % | ||||||||||||
Operating margin: | ||||||||||||||||||||||||
Combined | 11.6 | % | 11.6 | % | 0 | bps | 12.1 | % | 9.7 | % | 240 | bps | ||||||||||||
Water Infrastructure | 13.7 | % | 12.6 | % | 110 | bps | 14.3 | % | 13.7 | % | 60 | bps | ||||||||||||
Applied Water | 13.1 | % | 13.8 | % | (70 | ) bps | 11.9 | % | 8.7 | % | 320 | bps |
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2009 | 2008 | Change | ||||||||||
Water Infrastructure | $ | 1,651 | $ | 1,824 | (9.5 | )% | ||||||
Applied Water | 1,254 | 1,527 | (17.9 | )% | ||||||||
Eliminations | (56 | ) | (60 | ) | — | |||||||
Total | $ | 2,849 | $ | 3,291 | (13.4 | )% | ||||||
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$ | % | |||||||
Change | Change | |||||||
2008 Revenue | $ | 3,291 | ||||||
Organic decline | (291 | ) | (8.8 | )% | ||||
Acquisitions/(divestitures), net | 7 | 0.2 | % | |||||
Foreign currency translation | (158 | ) | (4.8 | )% | ||||
Total change in revenue | (442 | ) | (13.4 | )% | ||||
2009 Revenue | $ | 2,849 | ||||||
2009 | 2008 | Change | ||||||||||
Selling, general and administrative expenses | $ | 667 | $ | 721 | (7.5 | )% | ||||||
Research and development expenses | 63 | 64 | (1.6 | )% | ||||||||
Restructuring and asset impairment charges, net | 31 | 41 | (24.4 | )% | ||||||||
Total | $ | 761 | $ | 826 | (7.9 | )% | ||||||
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2009 | 2008 | Change | ||||||||||
Water Infrastructure | $ | 227 | $ | 220 | 3.2 | % | ||||||
Applied Water | 109 | 162 | (32.7 | )% | ||||||||
Segment operating income | 336 | 382 | (12.0 | )% | ||||||||
Other | (60 | ) | (67 | ) | 10.4 | % | ||||||
Total operating income | $ | 276 | $ | 315 | (12.4 | )% | ||||||
Operating margin: | ||||||||||||
Combined | 9.7 | % | 9.6 | % | 10 | bps | ||||||
Water Infrastructure | 13.7 | % | 12.1 | % | 160 | bps | ||||||
Applied Water | 8.7 | % | 10.6 | % | (190 | ) bps |
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Six Months Ended | Annual | |||||||||||||||||||
2011 | 2010 | 2010 | 2009 | 2008 | ||||||||||||||||
Operating Activities | $ | 161 | $ | 118 | $ | 395 | $ | 370 | $ | 408 | ||||||||||
Investing Activities | (48 | ) | (414 | ) | (1,093 | ) | (84 | ) | (81 | ) | ||||||||||
Financing Activities | (112 | ) | 326 | 745 | (292 | ) | (341 | ) | ||||||||||||
Foreign Exchange | 6 | (5 | ) | 3 | 6 | (9 | ) | |||||||||||||
Net change in cash and cash equivalents | $ | 7 | $ | 25 | $ | 50 | $ | — | $ | (23 | ) | |||||||||
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Payments Due By Period | ||||||||||||||||||||
Less Than | More Than | |||||||||||||||||||
Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
Contractual obligations(1) | ||||||||||||||||||||
Operating leases(2) | $ | 176 | $ | 48 | $ | 67 | $ | 32 | $ | 29 | ||||||||||
Purchase obligations(3) | 67 | 64 | 3 | — | — | |||||||||||||||
Other long-term obligations reflected on balance sheet(4) | 42 | 3 | 9 | 5 | 25 | |||||||||||||||
Total | $ | 285 | $ | 115 | $ | 79 | $ | 37 | $ | 54 | ||||||||||
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2010 | 2009 | |||||||||||||||
U.S. | Int’l | U.S. | Int’l | |||||||||||||
Obligation Assumptions: | ||||||||||||||||
Discount rate | 5.83 | % | 5.18 | % | 6.0 | % | 5.55 | % | ||||||||
Rate of future compensation increase | 4.00 | % | 3.40 | % | 4.00 | % | 3.48 | % | ||||||||
Cost Assumptions: | ||||||||||||||||
Discount rate | 6.00 | % | 5.55 | % | 6.25 | % | 5.79 | % | ||||||||
Expected return on plan assets | 9.00 | % | 7.20 | % | 9.00 | % | 6.97 | % | ||||||||
Rate of future compensation increase | 4.00 | % | 3.41 | % | 4.00 | % | 3.48 | % |
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2010 | 2009 | 2008 | ||||||||||
Expected long-term rate of return on plan assets | 9.0 | % | 9.0 | % | 9.0 | % | ||||||
Actual rate of return on plan assets | 14.1 | % | 24.1 | % | (31.2 | )% |
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Figure 1: | Water Industry Supply Chain, based upon Global Water Intelligence’s “Global Water Market 2011” and Management Estimates |
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Market | 2010 | % | ||||||||||||
Segment | Applications | Revenue | Revenue | Major Products | Primary Brands | |||||||||
Water Infrastructure | Transport Treatment Test | $ | 1,436 377 117 $1,930 | 74 | % 20% 6% 100% | • Water and wastewater pumps • Filtration, disinfection and biological treatment equipment • Test equipment • Controls | • Flygt • Wedeco • Godwin Pumps • WTW • Sanitaire • AADI • Leopold | |||||||
Applied Water | Building Services Industrial Water Irrigation | $ | 723 509 95 $1,327 | 55 | % 38% 7% 100% | • Pumps • Valves • Heat exchangers • Controls • Dispensing equipment systems | • Goulds • Bell & Gossett • AC Fire • Standard • Lowara • Jabsco • Flojet • Flowtronex |
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Year Ended December 31 | 2010 | 2009 | 2008 | |||||||||
Sales & Revenues | ||||||||||||
United States | 35 | % | 34 | % | 34 | % | ||||||
Europe | 39 | % | 43 | % | 43 | % | ||||||
Asia Pacific | 11 | % | 9 | % | 9 | % | ||||||
Other | 15 | % | 14 | % | 14 | % | ||||||
100 | % | 100 | % | 100 | % | |||||||
Square Footage | ||||||||
Location | Segment | (in thousands) | Owned/Leased | |||||
Emmaboda, Sweden | Water Infrastructure | 1,156 | Owned | |||||
Morton Grove, Illinois | Applied Water | 530 | Owned | |||||
Montecchio, Italy | Applied Water | 379 | Owned | |||||
Auburn, New York | Applied Water | 298 | Leased | |||||
Lubbock, Texas | Applied Water | 229 | Owned | |||||
Shenyang, China | Water Infrastructure/ Applied Water | 149 | Owned | |||||
Cheektowaga, New York | Applied Water | 200 | Leased | |||||
Corporate Headquarters | ||||||||
White Plains, New York | Corporate Headquarters | 46 | Leased |
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Name | Age | Position(s) | ||||
Gretchen W. McClain | 48 | Chief Executive Officer | ||||
Michael T. Speetzen | 42 | Chief Financial Officer | ||||
Frank R. Jimenez | 46 | General Counsel and Corporate Secretary | ||||
Angela A. Buonocore | 53 | Chief Communications Officer | ||||
Kenneth Napolitano | 49 | President, Residential and Commercial Water | ||||
Michael Kuchenbrod | 47 | President, Water and Wastewater | ||||
Chris McIntire | 47 | President, Analytics | ||||
Robyn Mingle | 46 | Chief Human Resources Officer | ||||
Colin R. Sabol | 44 | Chief Strategy and Growth Officer | ||||
Bob Wolpert | 53 | President, Flow Control |
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Name | Age | Position(s) | ||||
Markos I. Tambakeras | 60 | Chairman | ||||
Curtis J. Crawford | 63 | Director | ||||
John J. Hamre | 60 | Director | ||||
Steven R. Loranger | 59 | Director, chairman emeritus | ||||
Gretchen W. McClain | 48 | Director | ||||
Surya N. Mohapatra | 61 | Director |
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• | A director who is an employee, or whose immediate family member (defined as a spouse, parent, child, sibling, father- andmother-in-law, son- anddaughter-in-law, brother- andsister-in-law and anyone, other than a domestic employee, sharing the director’s home) is an executive officer, of the company, would not be independent until three years after the end of such relationship. | |
• | A director who receives, or whose immediate family member receives, more than $120,000 per year in direct compensation from the company, other than director and committee fees and pension or other forms of deferred compensation for prior services (provided such compensation is not contingent in any way on continued service) would not be independent until three years after ceasing to receive such amount. | |
• | A director who is a partner of or employed by, or whose immediate family member is a partner of or employed by and personally works on the company’s audit, a present or former internal or external auditor of the company would not be independent until three years after the end of the affiliation or the employment or auditing relationship. | |
• | A director who is employed, or whose immediate family member is employed, as an executive officer of another company where any of the company’s present executives serve on the other company’s compensation committee would not be independent until three years after the end of such service or employment relationship. | |
• | A director who is an employee, or whose immediate family member is an executive officer, of a company that makes payments to, or receives payments from, the company for property or services in an amount which, in any single fiscal year, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues, would not be independent until three years after falling below such threshold. |
Fees Earned or | Stock | |||||||||||||||
Paid in Cash | Awards | Option Awards | Total | |||||||||||||
Name | $(a) | ($)(b) | ($)(b) | ($) | ||||||||||||
Curtis J. Crawford | 90,000 | 90,192 | 40,126 | 220,318 | ||||||||||||
John J. Hamre | 90,000 | 90,192 | 40,126 | 220,318 | ||||||||||||
Surya N. Mohapatra | 90,000 | 90,192 | 40,126 | 220,318 | ||||||||||||
Markos I. Tambakeras | 90,000 | 90,192 | 40,126 | 220,318 |
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(a) | Fees earned were paid, at the election of the director, in cash or deferred cash. Non-employee directors could have irrevocably elected deferral into an interest-bearing cash account or an account that tracks an index of ITT’s stock. | |
(b) | Awards reflect the grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718, Stock Compensation. Non- employee directors do not receive differing amounts of equity compensation, the grant date fair value for restricted stock units was $52.59 per share and was determined on May 11, 2010, the date of the ITT’s 2010 Annual Meeting. The grant price reflects the closing price of ITT stock on the grant date. The grant date fair value of non-qualified stock options was $14.03 per share, determined on March 5, 2010, the date on which director stock options were awarded. |
Stock Option Awards Outstanding at 2010 Fiscal Year-End
Outstanding | Outstanding | |||||||||||
Restricted Common | Stock Option | |||||||||||
Name | Stock Awards | Awards | ||||||||||
Curtis J. Crawford | 22,160 | 26,130 | ||||||||||
John J. Hamre | 14,224 | 26,130 | ||||||||||
Surya N. Mohapatra | 3,412 | 10,470 | ||||||||||
Markos I. Tambakeras | 4,674 | 26,130 |
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Annual Base | Annual Incentive | Long-Term | Total | |||||||||||||
Salary | Target | Incentive | Compensation | |||||||||||||
Position as | Position as | Position as | Position as | |||||||||||||
Percentage of | Percentage of | Percentage of | Percentage of | |||||||||||||
Named Executive | Market Median | Market Median | Market Median | Market Median | ||||||||||||
Officer and Title | Dollar Value | Dollar Value | Dollar Value | Dollar Value | ||||||||||||
Gretchen W. McClain, Chief Executive Officer (formerly SVP and President, Fluid and Motion Control of ITT) | 96% | 94% | 84% (Below market median range) | 89% (Below market median range) | ||||||||||||
Michael T. Speetzen, Chief Financial Officer(1) (formerly VP of Finance, Fluid and Motion Control of ITT) | 114% (Above market median range) | 111% (Above market median range) | 117% (Above market median range) | 122% (Above market median range) | ||||||||||||
Frank R. Jimenez, General Counsel and Corporate Secretary (formerly Vice President and General Counsel of ITT) | 82% (Below market median range) | 66% (Below market median range) | 50% (Below market median range) | 61% (Below market median range) | ||||||||||||
Angela A. Buonocore, Chief Communications Officer (formerly SVP and Chief Communications Officer of ITT) | 105% | 120% (Above market median range) | 133% (Above market median range) | 119% (Above market median range) | ||||||||||||
Kenneth Napolitano, President, Residential and Commercial Water (formerly President, ITT Residential and Commercial Water) | 87% (Below market median range) | 71% (Below market median range) | 89% (Below market median range) | 85% (Below market median range) |
(1) | Mr. Speetzen also received 8,000 shares of restricted stock as a special retention award. |
• | Annual performance reviews for the prior year, | |
• | Base salary merit increases — normally established in March, | |
• | Annual Incentive Plans (“AIP”) target awards, and | |
• | Long-term incentive target awards (including stock options, restricted stock or restricted stock units and target total shareholder return (“TSR”) awards). |
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• | Portfolio Repositioning, | |
• | Differentiated Organic Growth, | |
• | Strategic Execution, and | |
• | Cultural Transformation. |
How We Achieve Our Objectives | ||||
Objective | General Principle | Specific Approach | ||
Attract and retain well-rounded, capable leaders. | Design ITT’s executive compensation program to attract, reward and retain capable executives. Design total executive compensation to provide a competitive balance of salary, short-term and long-term incentive compensation. | ITT’s overarching philosophy is to target total compensation at the competitive median of the CDB. ITT considers total compensation (salary plus short-term and long-term compensation) when determining each component of NEO compensation. | ||
Match compensation components to ITT’s short-term and long-term operating and strategic goals. | In addition to salary, ITT includes short-term and long-term performance incentives in its compensation program. | ITT believes the mix of short-term and long-term performance-based incentives focuses executive behavior on annual performance and operating goals, as well as strategic business objectives that will promote long-term shareholder value creation. | ||
Provide a clear link between at-risk compensation with business performance. | ITT believes the measures of performance in our compensation programs must be aligned with measures key to the success of its businesses. The clear link between compensation and performance is intended to provide incentives for achieving performance and business objectives and increasing the long-term value of ITT’s stock. If ITT’s businesses succeed, our shareholders will benefit. | ITT links compensation and performance through its long-term incentive program, comprising restricted stock or restricted stock unit awards, non-qualified stock options awards and TSR target awards. If performance goals are not met, at-risk compensation is reduced or not paid at all. |
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How We Achieve Our Objectives | ||||
Objective | General Principle | Specific Approach | ||
Align at-risk compensation with levels of executive responsibility. | As executives move to greater levels of responsibility, the proportion of compensation at risk, whether through annual incentive plans or long-term incentive programs, increases in relation to the increased level of responsibility. | NEO compensation is structured so that a substantial portion of compensation is at risk for executives with greater levels of responsibility. The ITT Compensation Committee considered allocation of short-term and long-term compensation, cash and non-cash compensation and different forms of non-cash compensation for NEOs based on its assessment of the proper compensation balance needed to achieve ITT’s short-term and long-term goals. The Compensation Consultant compiled and analyzed data that the ITT Compensation Committee considered in weighting compensation components for each of the NEOs. | ||
Tie short-term executive compensation to specific business objectives. | The AIP performance metrics are designed to further ITT’s total enterprise objectives. By linking AIP performance to total enterprise performance, collaboration across the enterprise is rewarded. | The AIP sets out short-term performance components. If specific short-term performance goals are met, cash payments that reflect performance across the enterprise may be awarded. | ||
Tie long-term executive compensation to increasing shareholder return. | The long-term incentive award programs link executive compensation to increases in absolute shareholder return or relative shareholder return against industrial peers. | Long-term executive compensation comprises restricted stock or restricted stock units, stock options and target TSR cash awards that are tied to the achievement of three-year relative total shareholder return goals. | ||
Provide reasonable and competitive benefits and perquisites. | Make sure that other employee benefits, including perquisites, are reasonable in the context of a competitive compensation program. | NEOs participate in many of the same benefit plans with the same benefit plan terms as other employees. Certain other benefit plans are available to NEOs and described more fully in “Compensation Tables — ITT Pension Benefits” and “Compensation Tables — ITT Deferred Compensation Plan.” The Compensation Consultant provides survey data on perquisites to the ITT Compensation Committee. Perquisites provided to NEOs are designed to be consistent with competitive practice and are regularly reviewed by the ITT Compensation Committee. |
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General Principle | Specific Approach | |
A competitive salary provides a necessary element of stability. | Salary levels reflect comparable salary levels based on survey data provided by the Compensation Consultant. Salary levels are reviewed annually. | |
Base salary should recognize individual performance, market value of a position and the incumbent’s tenure, experience, responsibilities, contribution to ITT and growth in his or her role. | Merit increases are based on overall performance and relative competitive market position. |
General Principle | Specific Approach | |
The AIP award recognizes contributions to the year’s results and is determined by performance against specific premier metrics on the enterprise level, or, as applicable, Value Center level as well as qualitative factors, as described in more detail in ‘‘Compensation Discussion and Analysis — Our Executive Compensation Program — Qualitative Considerations.” The 2010 AIP is structured to reward and emphasize overall enterprise, or, as applicable, Value Center performance, and emphasizes collaboration among ITT’s Groups. | The AIP focuses on operating performance, targeting premier metrics considered predictive of top-ranking operating performance. 2010 AIP targets for Mses. McClain and Buonocore and Messrs. Speetzen and Jimenez were established based on the following four internal premier performance metrics: • earnings per share performance, • free cash flow, • sum of Group return on invested capital, and • the sum of Group revenue. | |
2010 AIP targets for Mr. Napolitano were based on the following five internal performance metrics: • earnings per share performance, • Value Center and Group cash flow, • Group return on invested capital, • Value Center and Group revenue, and • Value Center operating margin. | ||
Structure AIP target awards to achieve competitive compensation levels when targeted performance results are achieved. Use objective formulas to establish potential AIP performance awards. | ITT’s AIP provides for an annual cash payment to participating executives established as a target percentage of base salary. AIP target awards are set with reference to the median of competitive practice based on the CDB. Any AIP payment is the product of the annual base salary rate multiplied by the target base salary percentage multiplied by the AIP annual performance factor based on the approved metrics. The ITT Compensation Committee may approve negative discretionary adjustments with respect to NEOs. |
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General Principle | Specific Approach | |
Design long-term incentives for NEOs to link payouts to success in the creation of shareholder value over time. | The ITT Compensation Committee believes that long-term incentives directly reward NEOs for success in the creation of long-term value creation and enhanced total shareholder return. The ITT Compensation Committee employed four considerations in designing the long-term incentive award program: • alignment of executive interests with shareholder interests, • a multi-year plan that balances short-term and long-term decision-making, • long-term awards included as part of a competitive total compensation package, and • retention. | |
For NEOs, long-term equity-based incentives should recognize current performance as well as the expectation of future contributions. | The ITT Compensation Committee grants restricted stock or restricted stock units and stock options awards to link executive compensation to absolute share price performance. It grants TSR awards to provide a link to ITT’s total shareholder return relative to the TSR Performance Index. | |
Review award programs annually to provide for regular assessment. | As part of its annual compensation review, the ITT Compensation Committee determines long-term incentive award program components, the percentage weight of each component, and long-term award target amounts. | |
Use competitive market survey data provided by the Compensation Consultant from a sample of S&P® Industrial Companies to select long-term components designed to advance ITT’s long-term business goals as well as determining competitive target amounts. | In 2010, the ITT Compensation Committee, based on management recommendations, used competitive market data for each of the NEO positions to determine the 2010 long-term award value for each NEO. | |
Balance absolute share price return and relative share price return. | The ITT Compensation Committee balanced long-term awards among awards designed to encourage relative share price performance and awards designed to encourage absolute share price performance. More information on this allocation is provided in “Compensation Discussion and Analysis — Long Term Incentive Awards Programs.” | |
Consider the median of competitive market data, as well as individual contributions and business performance in determining target awards. | Specific target awards are set out in the Grants of Plan-Based Awards table below. |
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3M Co. United Technologies Corp. Illinois Tool Works, Inc. | General Electric Co. Emerson Electric Co. Danaher Corp. |
Premier Performance Metric | Why this Metric | |
• Sum of Group revenue | Revenue reflects ITT’s emphasis on growth. Revenue is defined as reported GAAP revenue excluding the impact of foreign currency fluctuations and contributions from acquisitions and divestitures. ITT’s definition of revenue may not be comparable to similar measures utilized by other companies. Revenue is based on the local currency exchange. | |
• Free cash flow | Free cash flow reflects ITT’s emphasis on cash flow generation. Free cash flow is defined as GAAP net cash flow from operating activities, less capital expenditures and adjusted for other non-cash special items and discretionary pension contributions. Free cash flow should not be considered a substitute for cash flow data prepared in accordance with GAAP. ITT’s definition of free cash flow may not be comparable to similar measures utilized by other companies. Management believes that free cash flow is an important measure of performance and it is utilized as a measure of ITT’s ability to generate cash. | |
• Sum of Group return on invested capital (“ROIC”) | The ITT Compensation Committee considers ROIC to be an appropriate measurement of capital utilization in ITT’s businesses and a key element of premier performance. ROIC is defined as EBITA divided by average invested capital. EBITA is equal to operating income plus amortization, which consists of software amortization and other intangible amortization. Invested capital is equal to total assets minus current liabilities, excluding interest bearing current liabilities. Average invested capital is calculated by averaging invested capital over the five most recent quarters. |
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Premier Performance Metric | Why this Metric | |
• Earnings per share (“EPS”) performance | The ITT Compensation Committee believes that EPS performance is an appropriate measure of ITT’s total performance and employed the ITT EPS performance metric to encourage focus on the achievement of premier earnings performance for the overall company. EPS performance is defined as GAAP net income from continuing operations per diluted share, adjusted to exclude items such as unusual and infrequent non-operating items, non-operating tax settlements or adjustments relating to prior periods and impacts from acquisitions and divestitures. |
Performance Metric | Why this Metric | |
• Value Center and Group revenue | Value Center and Group revenue reflects ITT’s emphasis on growth. Value Center and Group revenue is defined as reported GAAP revenue for a Value Center or Group excluding the impact of foreign currency fluctuations and contributions from acquisitions and divestitures. ITT’s definition of revenue may not be comparable to similar measures utilized by other companies. Value Center and Group revenue is based on the local currency exchange. | |
• Value Center and Group cash flow | Value Center and Group cash flow reflects ITT’s emphasis on cash flow generation for a Value Center or Group. Cash flow is defined as GAAP net cash flow from operating activities, less capital expenditures and adjusted for other non-cash special items and discretionary pension contributions. Cash flow should not be considered a substitute for cash flow data prepared in accordance with GAAP. ITT’s definition of Value Center and Group cash flow may not be comparable to similar measures utilized by other companies. Management believes that Value Center and Group cash flow is an important measure of performance and it is utilized as a measure of ITT’s ability to generate cash. | |
• Value Center operating margin | Operating margin is a metric for Value Center performance. It is defined as operating income divided by sales. This performance metric is employed to determine how the Value Center actually performed as compared to the applicable Value Center budget. |
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Performance Metric | Why this Metric | |
• Group return on invested capital (“ROIC”) | ROIC is an appropriate measurement of capital utilization in ITT’s businesses and a key element of Group performance. ROIC is defined as EBITA divided by average invested capital. EBITA is equal to operating income plus amortization, which consists of software amortization and other intangible amortization. Invested capital is equal to total assets minus current liabilities, excluding interest bearing current liabilities. Average invested capital is calculated by averaging invested capital over the five most recent quarters. | |
• Earnings per share (“EPS”) performance | EPS performance is an appropriate measure of ITT’s total performance. This performance metric is employed to encourage focus on the achievement of earnings performance for the overall enterprise. EPS performance is defined as GAAP net income from continuing operations per diluted share, adjusted to exclude items such as unusual and infrequent non-operating items, non-operating tax settlements or adjustments relating to prior periods and impacts from acquisitions and divestitures. |
Performance | ||||
2010 Metrics | Percentage | |||
Sum of Group Revenue | 20 | % | ||
Free Cash Flow | 20 | % | ||
Sum of Group ROIC | 20 | % | ||
EPS Performance | 40 | % |
Performance | ||||
2010 Metrics | Percentage | |||
Value Center and Group Revenue | 20 | % | ||
Value Center and Group Cash Flow | 20 | % | ||
Value Center Operating Margin | 10 | % | ||
Group ROIC | 10 | % | ||
EPS Performance | 40 | % |
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Earnings Per Share Performance | $ | 3.75 | $ | 4.00 | $ | 4.50 | ||||||
Earnings Per Share Payout Percentage of Target | 50 | % | 100 | % | 200 | % |
2010 AIP Attainment and Payout Design | ||||||||||||||||||||||||
Revenue | Remaining Metrics | |||||||||||||||||||||||
Performance Percentage of Target | 90 | % | 100 | % | 110 | % | 85 | % | 100 | % | 120 | % | ||||||||||||
Payout Percentage of Target | 50 | % | 100 | % | 200 | % | 50 | % | 100 | % | 200 | % |
Performance Target | ||||
Metric | at 100% Payment | |||
(All $ amounts in millions other | ||||
than earnings per share | ||||
performance) | ||||
EPS Performance | $ | 4.00 | ||
Free Cash Flow | $ | 740 | ||
Sum of Group Revenue | $ | 11,200 | ||
Sum of Group ROIC | 21.1 | % |
Performance Target | ||||
Metric | at 100% Payment | |||
(All $ amounts in millions) | ||||
Group Cash Flow | $ | 440 | ||
Group Revenue | $ | 3,425 | ||
Group ROIC | 19.2 | % |
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Performance Target | ||||
Metric | at 100% Payment | |||
(All $ amounts in millions) | ||||
Value Center Cash Flow | $ | 144 | ||
Value Center Revenue | $ | 1,134 |
Target Award | Sum of | ITT EPS | Total | |||||||||||||||||||||
Percentage of | Sum of Group | Free Cash | Group ROIC | Performance | Enterprise | |||||||||||||||||||
Named Executive Officer | Base Salary | Revenue(a) | Flow(b) | (c) | (d) | Performance | ||||||||||||||||||
Gretchen W. McClain | 80 | % | 20 | % | 20 | % | 20 | % | 40 | % | a+b+c+d | |||||||||||||
Michael T. Speetzen | 50 | % | 20 | % | 20 | % | 20 | % | 40 | % | a+b+c+d | |||||||||||||
Frank R. Jimenez | 60 | % | 20 | % | 20 | % | 20 | % | 40 | % | a+b+c+d | |||||||||||||
Angela A. Buonocore | 60 | % | 20 | % | 20 | % | 20 | % | 40 | % | a+b+c+d |
Target | ||||||||||||||||||||||||||||||||||||
Award | Value Center Performance | Group Performance | ||||||||||||||||||||||||||||||||||
Percentage | Cash | Revenue | Operating | Cash | Revenue | ITT EPS | ||||||||||||||||||||||||||||||
of Base | Flow | Growth | Margin | Flow | Growth | ROIC | Performance | Total | ||||||||||||||||||||||||||||
Named Executive Officer | Salary | (a) | (b) | (c) | (d) | (e) | (f) | (g) | Performance | |||||||||||||||||||||||||||
Mr. Napolitano | 50 | % | 10 | % | 10 | % | 10 | % | 10 | % | 10 | % | 10 | % | 40 | % | a+b+c+d+e+f+g |
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Adjusted | ||||||||||||||||
Performance | Performance | Payout | ||||||||||||||
Metric (all $ amounts in millions | Target at 100% | Adjusted 2010 | Percentage of | Percentage of | ||||||||||||
other than earnings per share performance) | Payment | Performance | Target | Target | ||||||||||||
EPS Performance | $ | 3.93 | $ | 4.34 | 110.4 | % | 182 | % | ||||||||
Free Cash Flow | $ | 720 | $ | 924 | 128.4 | % | 200 | % | ||||||||
Sum of Group Revenue | $ | 11,000 | $ | 10,831 | 98.5 | % | 93 | % | ||||||||
Sum of Group ROIC | 21.2 | % | 21.86 | % | 103.0 | % | 115 | % |
Adjusted | ||||||||||||||||
Performance | Performance | Payout | ||||||||||||||
Target at 100% | Adjusted 2010 | Percentage of | Percentage of | |||||||||||||
Metric (all $ amounts in millions) | Payment | Performance | Target | Target | ||||||||||||
Group Cash Flow | $ | 440 | $ | 449 | 102.0 | % | 109.8 | % | ||||||||
Group Revenue | $ | 3,425 | $ | 3,454 | 100.9 | % | 108.6 | % | ||||||||
Group ROIC | 19.2 | % | 19.8 | % | 103.3 | % | 116.5 | % |
Performance | Performance | Payout | ||||||||||||||
Target at 100% | Adjusted 2010 | Percentage of | Percentage of | |||||||||||||
Metric (all $ amounts in millions) | Payment | Performance | Target | Target | ||||||||||||
Value Center Cash Flow | $ | 144 | $ | 140 | 97.2 | % | 90.6 | % | ||||||||
Value Center Revenue | $ | 1,134 | $ | 1,133 | 99.9 | % | 99.5 | % |
Annual Base | ||||||||||||||||||||||||||||
Salary * | Free Cash | Sum of | Total | |||||||||||||||||||||||||
Target | Sum of | Flow | Group | ITT EPS | Enterprise | |||||||||||||||||||||||
Award | Group | Payout | ROIC | Performance | Performance | |||||||||||||||||||||||
Percentage | Revenue | Percentage | Percentage | Percentage | Percentage | Actual AIP 2010 | ||||||||||||||||||||||
of Base | Percentage | Achieved | Achieved | Achieved | Achieved | Awards (x) * | ||||||||||||||||||||||
Named Executive Officer | Salary(x) | Achieved(a) | (b) | (c) | (d) | (a+b+c+d) | (a+b+c+d) | |||||||||||||||||||||
Gretchen W. McClain | $ | 424,000 | 18.5 | % | 40 | % | 23.1 | % | 72.8 | % | 154.4 | % | $ | 654,700 | ||||||||||||||
Michael T. Speetzen | $ | 156,000 | 18.5 | % | 40 | % | 23.1 | % | 72.8 | % | 154.4 | % | $ | 260,100 | (1) | |||||||||||||
Frank R. Jimenez | $ | 249,000 | 18.5 | % | 40 | % | 23.1 | % | 72.8 | % | 154.4 | % | $ | 384,500 | ||||||||||||||
Angela A. Buonocore | $ | 204,000 | 18.5 | % | 40 | % | 23.1 | % | 72.8 | % | 154.4 | % | $ | 315,000 |
(1) | As described above, in recognition of his contributions to the strategic execution of the business, Mr. Speetzen was awarded a 2010 AIP Award that was 8% above the payout he would have received based on his Total |
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Enterprise Performance Percentage Achieved. This additional payout of $19,200 is reflected in the Summary Compensation Table below as “Bonus” rather than “Non-Equity Incentive Plan Compensation.” |
Annual | ||||||||||||||||||||||||||||||||||||||||
Base Salary* | ||||||||||||||||||||||||||||||||||||||||
Target | Value Center Performance | Group Performance | ||||||||||||||||||||||||||||||||||||||
Award | Cash | Revenue | Operating | Cash | Revenue | Total | ||||||||||||||||||||||||||||||||||
Percentage | Flow | Growth | Margin | Flow | Growth | ROIC | ITT EPS | Performance | Actual | |||||||||||||||||||||||||||||||
of Base | Percentage | Percentage | Percentage | Percentage | Percentage | Percentage | Performance | Percentage | AIP 2010 | |||||||||||||||||||||||||||||||
Salary | Achieved | Achieved | Achieved | Achieved | Achieved | Achieved | Achieved | Achieved | Awards (x)* | |||||||||||||||||||||||||||||||
Named Executive Officer | (x) | (a) | (b) | (c) | (d) | (e) | (f) | (g) | (a+b+c+d+e+f+g) | (a+b+c+d+e+f+g) | ||||||||||||||||||||||||||||||
Kenneth Napolitano | 156,000 | 12.8 | % | 10.0 | % | 7.9 | % | 11.0 | % | 10.9 | % | 11.6 | % | 72.8 | % | 136.9 | % | $ | 224,200 | (1) |
(1) | As described above, in recognition of his contributions to the strategic execution of his Value Center, Mr. Napolitano was awarded a 2010 AIP Award that was 5% above the payout he would have received based on his Total Performance Percentage Achieved. This additional payout of $10,600 is reflected in the Summary Compensation Table below as “Bonus” rather than “Non-Equity Incentive Plan Compensation.” |
Total Value Center Consolidated Operating Income | 50 | % | ||
Total Value Center Operating Plan Cash Flow | 30 | % | ||
Total Value Center Plan Revenue | 20 | % |
Total Value Center Consolidated Operating Income | 50 | % | ||
Total Value Center Operating Plan (comprised of): | 50 | % | ||
• Revenue 15% | ||||
• Operating Plan Cash Flow 20% | ||||
• Margin 15% | ||||
100 | % |
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2011 AIP Attainment and Payout Design | ||||||||||||||||||||||||
Consolidated Operating Income | ||||||||||||||||||||||||
Remaining Metrics | ||||||||||||||||||||||||
Performance Percentage of Target | 90 | % | 100 | % | 110 | % | 85 | % | 100 | % | 120 | % | ||||||||||||
Payout Percentage of Target | 50 | % | 100 | % | 200 | % | 50 | % | 100 | % | 200 | % |
Total Value | ||||||||||||||||||||
Center | Total Value | |||||||||||||||||||
Target Award | Consolidated | Center | Total Value | Total Value | ||||||||||||||||
Percentage of | Operating | Operating Plan | Center Plan | Center | ||||||||||||||||
Named Executive Officer | Base Salary | Income (a) | Cash Flow (b) | Revenue (c) | Performance | |||||||||||||||
Gretchen W. McClain | 85 | % | 50 | % | 30 | % | 20 | % | a+b+c | |||||||||||
Michael T. Speetzen | 50 | % | 50 | % | 30 | % | 20 | % | a+b+c | |||||||||||
Frank R. Jimenez | 60 | % | 50 | % | 30 | % | 20 | % | a+b+c | |||||||||||
Angela A. Buonocore | 60 | % | 50 | % | 30 | % | 20 | % | a+b+c |
Total Value | ||||||||||||||||||||||||
Center | ||||||||||||||||||||||||
Target Award | Consolidated | Individual Value Center Operating Income Plan | ||||||||||||||||||||||
Percentage of | Operating | Operating Plan | Total | |||||||||||||||||||||
Named Executive Officer | Base Salary | Income (a) | Revenue (b) | Cash Flow (c) | Margin (d) | Performance | ||||||||||||||||||
Kenneth Napolitano | 50 | % | 50 | % | 15 | % | 20 | % | 15 | % | a+b+c+d |
• | Restricted stock or restricted stock unit awards. In 2010 the ITT Compensation Committee awarded restricted stock awards. In 2011 the ITT Compensation Committee determined to award restricted stock units, which will be settled in shares upon vesting. Restricted stock units provide the same economic risk or reward as restricted stock, but recipients do not have voting rights and do not receive cash dividends during the restriction period. Dividend equivalents are accrued and paid in cash upon vesting of the restricted stock units. The ITT Compensation Committee determined to award restricted stock units rather than restricted stock in 2011 because restricted stock unit awards provide consistent tax treatment for domestic and international employees, | |
• | Non-qualified stock option awards, and | |
• | Performance-based Cash Awards, referred to as TSR Awards. The TSR award plan provides a target cash incentive that directly links ITT’s three-year total shareholder return performance to the same performance measure for each company included within the S&P 500 index, excluding companies in the utility, transportation service and financial service industries (described herein as the “TSR Performance Index”). The TSR Performance Index is adjusted to exclude companies that are added or |
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deleted from the S&P 500 index during the performance period. As of December 31, 2010 the TSR Performance Index included between 312 and 365 companies, based on award year. |
TSR | Non-Qualified | |||||||||||
(Target Cash | Stock Option | Restricted Stock | ||||||||||
Award) | Award | Award | ||||||||||
Named Executive Officer | $ | # Options | # Shares | |||||||||
Gretchen W. McClain | 360,000 | 24,049 | 7,503 | |||||||||
Michael T. Speetzen(1) | 100,000 | 7,135 | 2,084 | |||||||||
8,000 | ||||||||||||
Frank R. Jimenez | 166,700 | 11,890 | 3,474 | |||||||||
Angela A. Buonocore | 135,000 | 9,019 | 2,814 | |||||||||
Kenneth Napolitano | 141,700 | 10,105 | 2,953 |
(1) | As described in “Compensation Tables — Grants of Plan Based Awards,” Mr. Speetzen received a special retention award of 8,000 shares of restricted stock in recognition of his strategic importance to the business. 2,400 shares vest on March 5, 2013 and 5,600 shares vest on March 5, 2014. |
• | Holders of restricted stock have the right to receive dividends and vote the shares during the restriction period, | |
• | Restricted stock generally is subject to a three-year restriction period, | |
• | If an acceleration event occurs (as described in “Compensation Tables — Change of Control Arrangements”) the restricted stock vests in full, |
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• | If an employee dies or becomes disabled, the restricted stock vests in full, | |
• | If an employee leaves ITT prior to vesting, whether through resignation or termination for cause, the restricted stock is forfeited, and | |
• | If an employee retires or is terminated other than for cause, a pro-rata portion of the restricted stock award vests. With respect to a termination other than for cause, the pro-rata portion includes vesting that reflects the applicable severance period. |
• | The option exercise price of stock options awarded is the NYSE closing price of ITT’s common stock on the date the award is approved by the ITT Compensation Committee, | |
• | For options granted to new executives, the option exercise price of approved stock option awards is the closing price on the grant date, generally the day following the first day of employment, | |
• | Options cannot be exercised prior to vesting, | |
• | Three-year cliff vesting is required for executives at the level of senior vice president or above. Stock options vest in one-third cumulative annual installments for executives below the senior vice president level, | |
• | If an acceleration event occurs (as described in “Compensation Tables — Change of Control Arrangements”), the stock option award vests in full, | |
• | Options awarded in 2010 and 2011 and prior to 2005 expire ten years after the grant date. Options awarded between 2005 and 2009 expire seven years after the grant date. In 2010, the seven-year option term was extended to ten years based on a review of competitive market practices, | |
• | If an employee is terminated for cause, vested and unvested portions of the options expire on the date of termination, | |
• | ITT Corporation 2003 Equity Incentive Plan (the “2003 Plan”) and ITT’s 2011 Omnibus Incentive Plan prohibit the repricing of, or exchange of, stock options and stock appreciation rights that are priced below the prevailing market price with lower-priced stock options or stock appreciation rights without shareholder approval, and | |
• | There may be adjustments to the post-employment exercise period of an option grant if an employee’s tenure with ITT is terminated due to death, disability, retirement or termination by ITT other than for cause. Any post-employment exercise period, however, cannot exceed the original expiration date of the |
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option. If employment is terminated due to an acceleration event or because the option holder believes in good faith that he or she would be unable to discharge his or her duties effectively after the acceleration event, the option expires on the earlier of the date seven months after the acceleration event or the normal expiration date. |
• | Currently, no individual may receive more than 600,000 options under the 2003 Plan in any one year. |
Restricted Stock or Restricted Stock Units | Non-Qualified Stock Options | |
A restricted stock award is a grant of ITT stock, subject to certain vesting restrictions. A restricted stock unit award is a promise to deliver to the recipient, upon vesting, shares of ITT stock. Both restricted stock and restricted stock units carry the same economic risk and reward. | Non-qualified stock options provide the opportunity to purchase ITT stock at a specified price called the “exercise price” at a future date. | |
Holders of restricted stock, as shareholders of ITT, are entitled to vote the shares and receive dividends or dividend equivalents prior to vesting. Holders of restricted stock units are not entitled to vote the shares and do not receive cash dividends during the restriction period. Dividend equivalents are paid in cash upon restricted stock unit vesting beginning with the 2011 awards. | Stock option holders do not receive dividends on shares underlying options and cannot vote their shares. | |
Restricted stock and restricted stock units have intrinsic value on the day the award is received and retain some realizable value even if the share price declines during the restriction period. Since restricted stock and restricted stock units do not expire, each provides strong employee retention value even after vesting. | Non-qualified stock options increase focus on activities primarily related to absolute share price appreciation. ITT’s non-qualified stock options expire ten or seven years after their grant date depending on the year of award. If the value of ITT’s stock increases and the optionee exercises his or her option to buy at the exercise price, the optionee receives a gain in value equal to the difference between the option exercise price and the price of the stock on the exercise date. If the value of ITT’s stock fails to increase or declines, the stock option has no realizable value. Stock options provide less retention value than restricted stock since stock options have realizable value only if the share price appreciates over the option exercise price before the options expire. |
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Feature | Implementation | |
TSR rewards comparative stock price appreciation relative to that of the TSR Performance Index | The ITT Compensation Committee, at its discretion, determines the size and frequency of target TSR awards, performance measures and performance goals, in addition to performance periods. In determining the size of target TSR awards for executives, the ITT Compensation Committee considers comparative data provided by the Compensation Consultant and ITT’s internal desired growth in share price. ITT’s target TSR awards provided to NEOs are generally based on a participant’s position, competitive market data, individual performance and anticipated potential contributions to ITT’s long-term goals. | |
Three-year performance period | A three-year TSR performance period encourages behaviors and performance geared to ITT’s long-term goals and, in the view of the ITT Compensation Committee, discourages behaviors that might distract from the three-year period focus. The three-year performance period is consistent with ITT’s business cycle because it allows sufficient time for focus on long-term goals and mutes market swings not based on performance. The three-year performance period is also somewhat independent of short-term market cycles. | |
Performance measurement and award frequency: | ITT’s performance for purposes of the TSR awards is measured by ranking ITT’s calculated total shareholder return (see TSR calculation feature) within the TSR performance index. Payouts, if any, are based on a non-discretionary formula and interpolated for values between the 35th and 80th percentile of performance. The ITT Compensation Committee felt these breakpoints were properly motivational and rewarded the desired behavior. The payout factor (percentage of target award) is 50% at the 35th percentile and 200% at the 80th percentile. | |
TSR awards are expressed as target cash awards and paid in cash. | Cash awards compensate relative performance while reducing share dilution. | |
Components of TSR | The ITT Compensation Committee considered the components of a measurable return of value to shareholders, reviewed peer practices and received input from the Compensation Consultant. Based on that review the ITT Compensation Committee determined that the most significant factors to measure return of value to shareholders were: • dividend yields, • cumulative relative change in stock price, and • extraordinary shareholder payouts. |
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Feature | Implementation | |
TSR calculation | TSR = the sum of 1) dividends paid and reinvested and any other extraordinary shareholder payouts during the three-year performance period and 2) the cumulative change in stock price from the beginning to the end of the performance period as a percentage of beginning stock price. |
• | If a participant’s employment terminates before the end of the three-year performance period, the award is forfeited except in two cases: 1) if a participant dies or becomes disabled, the TSR award vests in full and payment, if any, is made according to its original terms. Vesting in full in the case of death or disability reflects the inability of the participant to control the triggering event and is consistent with benefit plan provisions related to death and disability; and 2) if a participant retires or is terminated by ITT other than for cause, a pro-rata payout, if any, is provided based on the number of full months of employment during the measurement period divided by thirty-six months (the term of the three-year TSR). This pro-rated payout, if any, is provided because it reflects the participant’s service during the pro-rated period. | |
• | ITT’s performance for purposes of the TSR awards is measured by comparing the average stock price performance over the trading days in the month of December immediately prior to the start of the TSR three-year performance period to the average stock price performance over the trading days in the last month of the three-year cycle, including adjustments for dividends and extraordinary payments. (For example, trading days in the month of December 2010 are used as a base for 2011 TSR awards, which will be measured from January 1, 2011 to December 31, 2013). | |
• | Payment, if any, of cash awards generally will be made following the end of the applicable three-year performance period and will be based on ITT’s performance measured against the total shareholder return performance of the TSR Performance Index. | |
• | Subject to the provisions of Section 409A, in the event of an acceleration event in a change of control (described in “Compensation Tables — Change of Control Arrangements”), a pro-rata portion of outstanding awards will be paid through the date of the change of control based on actual performance and the balance of the award will be paid at target (100%). There may be up to three outstanding TSR awards at any time. | |
• | Performance goals for the applicable TSR performance period are established in writing no later than ninety days after the beginning of the applicable performance period. |
If ITT’s Total Shareholder Return | ||||
Rank Against the Companies that Comprise | Payout Factor | |||
the TSR Performance Index is | (% of Target Award) | |||
less than the 35(th) percentile | 0 | % | ||
at the 35(th) percentile | 50 | % | ||
at the 50(th) percentile | 100 | % | ||
at the 80(th) percentile or more | 200 | % |
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If ITT’s Total Shareholder Return | ||||
Rank Against the Companies that Comprise | Payout Factor | |||
the TSR Performance Index is | (% of Target Award) | |||
less than the 35(th) percentile | 0 | % | ||
at the 35(th) percentile | 50 | % | ||
at the 50(th) percentile | 100 | % | ||
at the 80(th) percentile or more | 200 | % |
TSR | Non-Qualified | |||||||||||
(Target Cash | Stock Option | Restricted Stock | ||||||||||
Award) | Award | Unit Award | ||||||||||
Named Executive Officer | $ | # Options | # Units | |||||||||
Gretchen W. McClain | 533,300 | 33,459 | 9,111 | |||||||||
Michael T. Speetzen | 110,000 | 7,640 | 1,879 | |||||||||
Frank R. Jimenez | 233,300 | 16,205 | 3,986 | |||||||||
Angela A. Buonocore | 166,700 | 10,456 | 2,847 | |||||||||
Kenneth Napolitano | 141,700 | 9,840 | 2,420 |
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Non-management directors | 5 X Annual Retainer Amount | |
CEO | 5 X Annual Base Salary | |
CFO | 3 X Annual Base Salary | |
Senior Vice Presidents | 2 X Annual Base Salary | |
Vice Presidents | 1 X Annual Base Salary |
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• | the executive terminates his or her own employment, | |
• | the executive’s employment is terminated for cause, | |
• | termination occurs after the executive’s normal retirement date under the ITT Salaried Retirement Plan, or |
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• | termination occurs in certain divestiture instances if the executive accepts employment or refuses comparable employment. |
• | provide for continuing cohesive operations as executives evaluate a transaction, which, without change of control protection, could be personally adverse to the executive, | |
• | keep executives focused on preserving value for shareholders, | |
• | retain key talent in the face of potential transactions, and | |
• | aid in attracting talented employees in the competitive marketplace. |
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Compensation Component or Policy | Risk Mitigation Factor | |
Salary | • Based on market rates. | |
• Provides stability and minimizes risk-taking incentives. | ||
Annual Incentive Plan | • AIP design emphasizes overall performance and collaboration among business Groups. ITT’s Fluid Technology, Motion & Flow Control and Defense & Information Solutions businesses are each a business segment or Group. | |
• AIP components focus on metrics that encourage operating performance and earnings per share appreciation. | ||
• AIP design is tailored to meet unique business considerations for Corporate headquarters and business Groups. | ||
• Individual AIP components and total AIP awards are capped. | ||
Long-Term Incentive Awards | ||
• Restricted Stock or Restricted Stock Units | • Restricted stock or restricted stock units generally vest after three years. | |
• Stock Options | • Stock options vest after three years for the Chief Executive Officer and for senior vice presidents and in one-third cumulative annual installments after the first, second and third anniversary of the grant date for other optionees. Options awarded in 2010 and 2011 and options awarded prior to 2005 expire ten years after the grant date. Options awarded between 2005 and 2009 expire seven years after the grant date. |
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Compensation Component or Policy | Risk Mitigation Factor | |
• The three-year vesting threshold for senior vice presidents and the Chief Executive Officer and seven and ten-year option terms encourage long-term behaviors. | ||
• Total Shareholder Return Awards | • The TSR long-term award is based on three-year share price performance and encourages behaviors focused on long-term goals, while discouraging behaviors focused on short-term risks. | |
Perquisites | Limited perquisites are based on competitive market data. The ITT Compensation Committee has determined that tax reimbursements related to financial counseling and tax preparation for senior executives associated with the 2011 tax year will be eliminated. No salary increase will be provided to offset the elimination of tax reimbursement. | |
Severance and Pension benefits | Severance and pension benefits are in line with competitive market data. | |
Recoupment Policy | Provides mechanism for senior executive compensation recapture in certain situations involving fraud or willful misconduct. | |
Officer Share Ownership Guidelines | ITT officers are required to own ITT shares or share equivalents up to 5x base salary, depending on the level of the officer (discussed in “Compensation Discussion and Analysis — Stock Ownership Guidelines”). Share ownership guidelines align executive and shareholder interests. ITT policy prohibits speculative trading in and out of ITT securities, including prohibitions on short sales and leverage transactions, such as puts, calls, and listed and unlisted options. |
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Annual Base | ||||||||||||||||||
Salary | ||||||||||||||||||
Effective Upon | Target 2012 Annual | 2012 Long-Term | Anticipated Total | |||||||||||||||
Annual Base | Spin-Off as | Incentive Award as | Incentive Award as | Compensation as | ||||||||||||||
Salary | Percentage of | Target 2012 | Percentage of | 2012 Long-Term | Percentage of | Percentage of | ||||||||||||
Effective Upon | Market Median | Annual Incentive | Market Median | Incentive | Market Median | Marked Median | ||||||||||||
Named Executive Officer | Spin-Off | Dollar Value | Award | Dollar Value | Award | Dollar Value | Range | |||||||||||
Gretchen W. McClain | $ | 900,000 | 85% (Below market median range) | 100% of Annual Base Salary | 67% (Below market median range) | $ | 3,400,000 | 72% (Below market median range) | 73% (Below market median range) | |||||||||
Michael T. Speetzen | $ | 439,000 | 85% (Below market median range) | 80% of Annual Base Salary | 90% | $ | 746,000 | 65% (Below market median range) | 75% (Below market median range) | |||||||||
Frank R. Jimenez | $ | 435,000 | 101% | 60% of Annual Base Salary | 98% | $ | 700,000 | 95% | 98% | |||||||||
Angela A. Buonocore | $ | 365,000 | 155% (Above market median range) | 60% of Annual Base Salary | 244% (Above market median range) | $ | 500,000 | 385% (Above market median range) | 238% (Above market median range) | |||||||||
Kenneth Napolitano | $ | 360,000 | 95% | 60% of Annual Base Salary | 90% | $ | 510,000 | 99% | 96% |
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Transaction | ||||||||
Success | ||||||||
Founders’ | Incentive | |||||||
Named Executive Officer | Grant | Award | ||||||
Gretchen W. McClain | $ | 5,100,000 | $ | — | ||||
Michael T. Speetzen | $ | 1,118,000 | $ | 160,000 | ||||
Frank R. Jimenez | $ | 1,050,000 | $ | 220,000 | ||||
Angela A. Buonocore | $ | 750,000 | $ | 550,000 | ||||
Kenneth Napolitano | $ | 765,000 | $ | 165,000 |
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Summary Compensation Table
Change in | ||||||||||||||||||||||||||||||||||||
Pension | ||||||||||||||||||||||||||||||||||||
Value & | ||||||||||||||||||||||||||||||||||||
Non-Equity | Non-Qualified | |||||||||||||||||||||||||||||||||||
Incentive | Deferred | |||||||||||||||||||||||||||||||||||
Stock | Option | Plan | Compensation | All Other | ||||||||||||||||||||||||||||||||
Name and Principal | Year | Salary | Bonus | Awards | Awards | Compensation | Earnings | Compensation | Total | |||||||||||||||||||||||||||
(a) | (b) | ($)(c) | ($)(d) | ($)(e) | ($)(f) | ($)(g) | ($)(h) | ($)(i) | ($)(j) | |||||||||||||||||||||||||||
Gretchen W. McClain | 2010 | 527,604 | — | 761,335 | 372,279 | 654,700 | 97,308 | 74,141 | 2,487,367 | |||||||||||||||||||||||||||
Chief Executive Officer | 2009 | 504,054 | 61,000 | 2,426,708 | 317,269 | 474,600 | 70,753 | 65,453 | 3,919,837 | |||||||||||||||||||||||||||
(formerly Senior Vice President | 2008 | 426,462 | — | 801,010 | 249,883 | 527,700 | 39,611 | 139,099 | 2,183,765 | |||||||||||||||||||||||||||
and President, Fluid and Motion Control of ITT) | ||||||||||||||||||||||||||||||||||||
Michael T. Speetzen | 2010 | 309,692 | 19,200 | 639,393 | 100,104 | 240,900 | 20,508 | 45,978 | 1,375,775 | |||||||||||||||||||||||||||
Chief Financial Officer (formerly Vice President of Finance for Fluid and Motion Control of ITT) | ||||||||||||||||||||||||||||||||||||
Frank R. Jimenez | 2010 | 412,115 | — | 352,524 | 166,817 | 384,500 | 47,578 | 54,855 | 1,418,389 | |||||||||||||||||||||||||||
General Counsel and Corporate Secretary (formerly Vice President and General Counsel of ITT) | ||||||||||||||||||||||||||||||||||||
Angela A. Buonocore | 2010 | 338,077 | 15,700 | 285,521 | 139,614 | 315,000 | 64,169 | 41,785 | 1,199,866 | |||||||||||||||||||||||||||
Chief Communications Officer (formerly Senior Vice President and Chief Communications Officer of ITT) | ||||||||||||||||||||||||||||||||||||
Kenneth Napolitano, | 2010 | 311,368 | 10,600 | 299,656 | 141,773 | 213,600 | 120,905 | 91,737 | 1,189,639 | |||||||||||||||||||||||||||
President, Residential and Commercial Water (formerly President, ITT Residential and Commercial Water) |
(d) | For the 2010 performance year, the ITT Compensation Committee awarded Ms. Buonocore a discretionary bonus of $15,700, which payment was outside the AIP plan. This award was in recognition of Ms. Buonocore’s strong contributions and strategic importance to the business. In addition, for the 2010 performance year, in recognition of their respective contributions to the strategic execution of the business, Messrs. Speetzen and Napolitano were awarded 2010 AIP Awards that were 8% and 5%, respectively, above the payout they would have received based on their respective Total Enterprise Performance Percentage Achieved and Total Performance Percentage Achieved (for further discussion see “Compensation Discussion and Analysis-2010 AIP Awards Paid in 2011”). For the 2009 performance year, the ITT Compensation Committee awarded Ms. McClain a discretionary bonus of $61,000, which payment was outside the AIP plan. This award was in recognition of Ms. McClain’s exceptional business leadership of the Fluid Technology and Motion and Flow Control business segments during difficult economic conditions. | |
(e) | Amounts in the Stock Awards column include the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for TSR units and restricted stock. The TSR is considered a liability plan under the provisions of FASB ASC Topic 718. A discussion of restricted stock units, restricted stock, and the TSR may be found in Note 4 to the Combined Financial Statements in this Information Statement. The values of TSR units at target for the2010-2012 performance period for Ms. McClain, Mr. Speetzen, Mr. Jimenez, Ms. Buonocore and Mr. Napolitano were $360,000, $100,000, $166,700, $135,000 and $141,700 respectively. Assuming the maximum value at the highest level of achievement, Ms. McClain, Mr. Speetzen, Mr. Jimenez, Ms. Buonocore and Mr. Napolitano would receive TSR unit payouts of $720,000, $200,000, $333,400, $270,000 and $283,400, respectively, following the end of the performance period. | |
(f) | Amounts in the Option Awards column include the aggregate grant date fair value of: non-qualified stock option awards in the year of grant based on a binomial lattice value of $15.48 for Ms. McClain and Ms. Buonocore and $14.03 for Mr. Speetzen, Mr. Jimenez and Mr. Napolitano for the 2010 grant year; $10.53 |
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for Ms. McClain, and $14.99 for Ms. McClain for the 2008 grant year. A discussion of assumptions relating to option awards may be found in Note 4 to the Combined Financial Statements in this Information Statement. | ||
(g) | Amounts in the Non-Equity Incentive Plan Compensation column represent AIP awards for performance year 2010, which to the extent not deferred by an executive, were paid out shortly after that date. | |
(h) | No NEO received preferential or above-market earnings on deferred compensation. The change in the present value in accrued pension benefits was determined by measuring the present value of the accrued benefit at the respective dates using a discount rate of 6.25% at December 31, 2008, 6.00% at December 31, 2009, and 5.75% at December 31, 2010 (corresponding to the discount rates used for the ITT Salaried Retirement Plan, which is a component of ITT’s consolidated pension plans, as described in Note 13 to the Combined Financial Statements in this Information Statement and based on the assumption that retirement occurs at the earliest date the individual could retire with an unreduced retirement benefit.) | |
(i) | Amounts in this column for 2010 represent items specified in the All Other Compensation Table below. |
Other Compensation | ||||||||||||||||||||||||||||||||||||||||
Personal | ||||||||||||||||||||||||||||||||||||||||
Use of | Excess Savings | Tax | Total All | |||||||||||||||||||||||||||||||||||||
Corporate | Financial | Auto | Total | Plan Contri- | Reimburse- | 401(K) | Other | |||||||||||||||||||||||||||||||||
Aircraft | Counseling | Relocation | Allowances | Perquisites | butions | ments | Match | Other | Compensation | |||||||||||||||||||||||||||||||
Name | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | ||||||||||||||||||||||||||||||
Gretchen W. McClain | 8,936 | 15,895 | 15,600 | 40,431 | 10,011 | 14,263 | 8,575 | 861 | 74,141 | |||||||||||||||||||||||||||||||
Michael T. Speetzen | — | 730 | 15,868 | 13,200 | 29,798 | 1,315 | 10,878 | 3,675 | 312 | 45,978 | ||||||||||||||||||||||||||||||
Frank R. Jimenez | — | 14,800 | 15,600 | 30,400 | 5,849 | 9,079 | 8,575 | 952 | 54,855 | |||||||||||||||||||||||||||||||
Angela A. Buonocore | — | 8,635 | 15,600 | 24,235 | 3,258 | 4,922 | 8,575 | 795 | 41,785 | |||||||||||||||||||||||||||||||
Kenneth Napolitano | — | 940 | 41,674 | 13,200 | 55,814 | 2,264 | 24,618 | 8,575 | 466 | 91,737 |
(b) | Amounts reflect the aggregate incremental cost to ITT for personal use of the corporate aircraft for Ms. McClain. Ms. McClain’s personal use of the corporate aircraft related to a trip where Ms. McClain was a passenger on a trip previously scheduled by Mr. Loranger. The aggregate incremental cost to ITT is determined on a per-flight basis and includes the cost of fuel, a pro-rata share of repairs and maintenance, landing and storage fees, crew-related expenses and other miscellaneous variable costs. A different value attributable to personal use of the corporate aircraft (as calculated in accordance with Internal Revenue Service guidelines) is included as compensation on theW-2 for Ms. McClain in the amount of $1,771. | |
(c) | Amounts represent financial counseling and tax service fees paid during 2010. Financial counseling and tax service fees reflect fees for invoices submitted during the calendar year. | |
(d) | For Mr. Speetzen amounts in this column representrelocation-related expenses. Mr. Napolitano received a company paid apartment in the amount of $41,674 under a relocation arrangement in 2010, which arrangement terminates October 31, 2011. | |
(e) | Auto allowances are provided to a range of executives, including the NEOs. | |
(g) | ITT contributions to the ITT Excess Savings Plan are unfunded and earnings accrue at the same rate as the Stable Value Fund available to participants in the ITT Salaried Investment and Savings Plan. | |
(h) | Amounts in this column are tax reimbursement allowances intended to offset the inclusion of taxable income of financial counseling and tax preparation services. Tax reimbursement for financial counseling has been eliminated for the 2011 tax year. No compensating salary increase will be provided. Mr. Jimenez’s amount also includes a tax-related relocation reimbursement of $130. Amounts for Mr. Speetzen represent tax reimbursements related to a relocation. | |
(i) | Amounts represent the aggregate of ITT’s floor and matching contributions to the participant’s ITT Salaried Investment and Savings Plan account. | |
(j) | Amounts include taxable group term-life insurance premiums attributable to each NEO. |
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All Other | All Other | |||||||||||||||||||||||||||||||||||||||||||
Stock | Option | Grant Date | ||||||||||||||||||||||||||||||||||||||||||
Awards: | Awards: | Exercise or | Fair Value of | |||||||||||||||||||||||||||||||||||||||||
Estimated Future Payouts Under | Estimated Future Payouts Under | Number of | Number of | Base Price of | Stock and | |||||||||||||||||||||||||||||||||||||||
Non-Equity Incentive Plan Awards | Equity Incentive Plan Awards | Shares | Securities | Option | Option | |||||||||||||||||||||||||||||||||||||||
Grant | Threshold | Target | Maximum | Threshold | Target | Maximum | of Stock or | Underlying | Awards | Awards | ||||||||||||||||||||||||||||||||||
Name | Date | ($) | ($) | ($) | (#) | (#) | (#) | Units (#) | Options (#) | ($/Sh) | ($) | |||||||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | (l) | |||||||||||||||||||||||||||||||||
Gretchen W. McClain | 212,000 | 424,000 | 848,000 | |||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 180,000 | 360,000 | 720,000 | 360,000 | ||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 7,503 | 401,335 | ||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 24,049 | 53.49 | 372,279 | |||||||||||||||||||||||||||||||||||||||||
Michael T. Speetzen | 78,000 | 156,000 | 312,000 | |||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 50,000 | 100,000 | 200,000 | 100,000 | ||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 2,084 | 111,473 | ||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 8,000 | 427,920 | ||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 7,135 | 53.49 | 100,104 | |||||||||||||||||||||||||||||||||||||||||
Frank R. Jimenez | 124,500 | 249,000 | 498,000 | |||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 83,350 | 166,700 | 333,400 | 166,700 | ||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 3,474 | 185,824 | ||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 11,890 | 53.49 | 166,817 | |||||||||||||||||||||||||||||||||||||||||
Angela A. Buonocore | 102,000 | 204,000 | 408,000 | |||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 67,500 | 135,000 | 270,000 | 135,000 | ||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 2,814 | 150,521 | ||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 9,019 | 53.49 | 139,614 | |||||||||||||||||||||||||||||||||||||||||
Kenneth Napolitano | 78,000 | 156,000 | 312,000 | |||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 70,850 | 141,700 | 283,400 | 141,700 | ||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 2,953 | 157,956 | ||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 10,105 | 53.49 | 141,773 |
(c)(d)(e) | Amounts reflect the threshold, target and maximum payment levels, respectively, if an award payout is achieved under the 2010 AIP described above in “Compensation Discussion and Analysis — Overview of the AIP And Long-Term Incentive Target Awards”) These potential payments are based on achievement of specific performance metrics and are completely at risk. The target award is computed based upon the applicable range of net estimated payments denominated in dollars where the target award is equal to 100% of the award potential, the threshold is equal to 50% of target and the maximum is equal to 200% of target. | |
(f)(g)(h) | Amounts reflect the threshold, target and maximum payment levels, if an award payout is achieved, under ITT’s TSR Plan for the2010-2012 performance period described above in |
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“Compensation Discussion and Analysis — Long-Term Incentive Awards Program — Total Shareholder Return (TSR) Awards Subcomponent.” Each unit under the TSR Plan equals $1. Payments, if any, under the TSR Plan are paid in cash at the end of the performance period. The performance period for awards under ITT’s TSR Plan, reflected in the Estimated Future Payouts Under Equity Incentive Plan Awards column, for the2010-2012 performance period is January 1,2010-December 31, 2012. | ||
(i) | Amounts reflect the number of shares of restricted stock granted in 2010 to the NEOs. The number of shares underlying restricted stock awards was determined by the average of the high and low stock price on the program valuation date of February 8, 2010. Restricted stock grants to NEOs generally vest in full at the end of the three-year restriction period following the grant date. During the restriction period, the holder receives dividends and may vote the shares. With respect to Mr. Speetzen, 2,400 of the 8,000 shares of restricted stock received on March 5, 2010 as a special retention award vest on March 5, 2013 and the remaining 5,600 shares vest on March 5, 2014. | |
(j) | Amounts reflect the number of non-qualified stock options granted in 2010 to the NEOs. The number of non-qualified stock options was determined by the lattice value on the program valuation date of February 8, 2010. Such non-qualified stock options generally become exercisable at the end of the three-year period following the grant date and expire ten years after the grant date. For Mr. Speetzen, Mr. Jimenez and Mr. Napolitano, one-third of non-qualified stock options granted in 2010 vest in 2011, one-third vest in 2012 and one-third vest in 2013. | |
(k) | The option exercise price for non-qualified stock options granted in 2010 was the closing price of ITT common stock on March 5, 2010, the date the non-qualified stock options were granted. | |
(l) | Amounts in this column represent the grant date fair value computed in accordance with FASB ASC Topic 718 for TSR target awards, restricted stock awards and non-qualified stock option awards granted to the NEOs in 2010. |
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Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
Equity | ||||||||||||||||||||||||||||||||||||
Incentive | ||||||||||||||||||||||||||||||||||||
Equity | Plan | |||||||||||||||||||||||||||||||||||
Incentive | Awards: | |||||||||||||||||||||||||||||||||||
Equity | Plan | Market or | ||||||||||||||||||||||||||||||||||
Incentive | Awards: | Payout | ||||||||||||||||||||||||||||||||||
Plan | Number of | Value of | ||||||||||||||||||||||||||||||||||
Number of | Awards: | Market | Unearned | Unearned | ||||||||||||||||||||||||||||||||
Securities | Number of | Number of | Value of | Shares, | Shares, | |||||||||||||||||||||||||||||||
Number of | Underlying | Securities | Shares or | Shares or | Units or Other | Units or Other | ||||||||||||||||||||||||||||||
Securities | Unexercised | Underlying | Units of | Units of | Rights | Rights | ||||||||||||||||||||||||||||||
Underlying | Options (#) | Unexercised | Option | Option | Stock That | Stock That | That Have | That Have | ||||||||||||||||||||||||||||
Unexercised | Unexercis- | Unearned | Exercise | Expiration | Have Not | Have Not | Not Vested | Not Vested | ||||||||||||||||||||||||||||
Name | Options (#) | able | Options | Price ($) | Date | Vested (#) | Vested ($) | (#) | ($) | |||||||||||||||||||||||||||
(a) | Exercisable(b) | (c) | (#)(d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||||
Gretchen W. McClain | 33,333 | — | — | 55.59 | 9/19/2012 | 74,500 | 3,882,195 | 360,000 | 360,000 | |||||||||||||||||||||||||||
8,725 | — | — | 52.68 | 3/6/2013 | ||||||||||||||||||||||||||||||||
15,155 | — | — | 57.99 | 3/7/2014 | ||||||||||||||||||||||||||||||||
— | 16,670 | — | 53.09 | 3/10/2015 | ||||||||||||||||||||||||||||||||
— | 30,130 | — | 33.19 | 3/5/2016 | ||||||||||||||||||||||||||||||||
— | 24,049 | — | 53.49 | 3/5/2020 | ||||||||||||||||||||||||||||||||
Michael T. Speetzen | 3,309 | 6,616 | 33.19 | 3/5/2016 | 12,723 | 662,996 | 100,000 | 100,000 | ||||||||||||||||||||||||||||
7,135 | 53.49 | 3/5/2020 | ||||||||||||||||||||||||||||||||||
Frank R. Jimenez | 5,512 | 11,023 | — | 45.81 | 6/9/2016 | 7,111 | 370,554 | 166,700 | 166,700 | |||||||||||||||||||||||||||
— | 11,890 | — | 53.49 | 3/5/2020 | ||||||||||||||||||||||||||||||||
Angela A. Buonocore | 6,735 | — | 57.99 | 3/7/2014 | 12,310 | 641,474 | 135,000 | 135,000 | ||||||||||||||||||||||||||||
5,537 | 2,768 | — | 53.09 | 3/10/2015 | ||||||||||||||||||||||||||||||||
11,300 | — | 33.19 | 3/5/2016 | |||||||||||||||||||||||||||||||||
9,019 | — | 53.49 | 3/5/2020 | |||||||||||||||||||||||||||||||||
Kenneth Napolitano | 5,600 | 37.46 | 2/2/2014 | 7,541 | 392,962 | 133,350 | 133,350 | |||||||||||||||||||||||||||||
5,000 | 45.47 | 3/8/2012 | ||||||||||||||||||||||||||||||||||
3,790 | 57.99 | 3/7/2014 | ||||||||||||||||||||||||||||||||||
3,690 | 1,845 | 53.09 | 3/10/2015 | |||||||||||||||||||||||||||||||||
4,135 | 8,270 | 33.19 | 3/5/2016 | |||||||||||||||||||||||||||||||||
10,105 | 53.49 | 3/5/2020 |
(c) | Vesting Schedule for Unexercisable Options (options vest on the applicable anniversary of the grant date.) |
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Vesting Schedule (#’s) | ||||||||||||||||
Name | Grant Date | Expiration Date | 2011 | 2012 | 2013 | |||||||||||
Gretchen W. McClain | 3/10/2008 | 3/10/2015 | 16,670 | |||||||||||||
3/5/2009 | 3/5/2016 | 30,130 | ||||||||||||||
3/5/2010 | 3/5/2020 | 24,049 | ||||||||||||||
Michael T. Speetzen | 3/5/2009 | 3/5/2016 | 3,308 | 3,308 | ||||||||||||
3/5/2010 | 3/5/2020 | 2,379 | 2,378 | 2,378 | ||||||||||||
Frank R. Jimenez | 6/9/2009 | 6/9/2016 | 5,512 | 5,511 | ||||||||||||
3/5/2010 | 3/5/2020 | 3,964 | 3,963 | 3,963 | ||||||||||||
Angela A. Buonocore | 3/10/2008 | 3/10/2015 | 2,768 | |||||||||||||
3/5/2009 | 3/5/2016 | 11,300 | ||||||||||||||
3/5/2010 | 3/5/2020 | 9,019 | ||||||||||||||
Kenneth Napolitano | 3/10/2008 | 3/10/2015 | 1,845 | |||||||||||||
3/5/2009 | 3/5/2016 | 4,135 | 4,135 | |||||||||||||
3/5/2010 | 3/5/2020 | 3,369 | 3,368 | 3,368 |
(g) | Vesting Schedule for Restricted Stock (restricted stock vests on the applicable anniversary of the grant date.) |
Vesting Schedule (#) | ||||||||||||||||||||||
Name | Grant Date | 2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
Gretchen W. McClain | 3/10/2008 | 4,728 | ||||||||||||||||||||
3/5/2009 | 9,499 | |||||||||||||||||||||
3/5/2009 | 52,770 | |||||||||||||||||||||
3/5/2010 | 7,503 | |||||||||||||||||||||
Michael T. Speetzen | 3/5/2009 | 2,639 | ||||||||||||||||||||
3/5/2010 | 2,084 | |||||||||||||||||||||
3/5/2010 | 2,400 | 5,600 | ||||||||||||||||||||
Frank R. Jimenez | 6/9/2009 | 3,637 | ||||||||||||||||||||
3/5/2010 | 3,474 | |||||||||||||||||||||
Angela A. Buonocore | 3/7/2007 | 4,000 | ||||||||||||||||||||
3/10/2008 | 1,934 | |||||||||||||||||||||
3/5/2009 | 3,562 | |||||||||||||||||||||
3/5/2010 | 2,814 | |||||||||||||||||||||
Kenneth Napolitano | 3/10/2008 | 1,290 | ||||||||||||||||||||
3/5/2009 | 3,298 | |||||||||||||||||||||
3/5/2010 | 2,593 |
(h) | Reflects ITT’s closing stock price of $52.11 on December 31, 2010. |
(i)(j) | Awards are typically expressed as target cash awards and payment, if any, is in cash following the end of the performance cycle. Column (i) represents the number of units at threshold levels (50% of target) based on ITT’s stock price performance at year-end and column (j) represents the market or payout value of such units (each unit = $1). See “Compensation Discussion and Analysis — Long-Term Incentive Awards Program — Total Shareholder Return (TSR) Awards Subcomponent” for material terms of ITT’s TSR grants. |
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Target Award in | Vesting Schedule | |||||||||||||
Equity Incentive Plan Awards | Approval Date(1) | Units (#) | 2011 | 2012 | ||||||||||
Gretchen W. McClain | 3/5/2009 | 360,000 | 360,000 | |||||||||||
3/5/2010 | 360,000 | 360,000 | ||||||||||||
Michael T. Speetzen | 3/5/2009 | 100,000 | 100,000 | |||||||||||
3/5/2010 | 100,000 | 100,000 | ||||||||||||
Frank R. Jimenez(2) | 6/9/2009 | 166,700 | 166,700 | |||||||||||
3/5/2010 | 166,700 | 166,700 | ||||||||||||
Angela A. Buonocore | 3/5/2009 | 135,000 | 135,000 | |||||||||||
3/5/2010 | 135,000 | 135,000 | ||||||||||||
Kenneth Napolitano | 3/5/2009 | 125,000 | 125,000 | |||||||||||
3/5/2010 | 141,700 | 141,700 |
(1) | For purposes of the TSR, the grant date is January 1, the first day of the performance period for the year in which the award is approved. | |
(2) | Mr. Jimenez joined ITT on June 8, 2009. His target TSR award was granted effective on the next business day. |
Option Exercises & Stock Vested | ||||||||||||||||
Option Awards | Stock Awards | |||||||||||||||
Number of Shares | Value Realized on | Number of Shares | Value Realized on | |||||||||||||
Acquired on Exercise | Exercise | Acquired on Vesting | Vesting | |||||||||||||
Name | (#) | ($) | (#) | ($)(1) | ||||||||||||
(a) | (b) | (c) | (d) | (e) | ||||||||||||
Gretchen W. McClain | — | — | 3,671 | 195,150 | ||||||||||||
Michael T. Speetzen | — | — | — | — | ||||||||||||
Frank R. Jimenez | — | — | — | — | ||||||||||||
Angela A. Buonocore | — | — | 8,332 | 445,679 | ||||||||||||
Kenneth Napolitano | — | — | 918 | 49,104 |
(1) | Reflects aggregate dollar value upon vesting of restricted stock reflected in column (d). | |
(e) | With respect to all NEOs, the amount in column (e) does not include payment for the2008-2010 TSR award, which vested on December 31, 2010, as ITT’s relative share price appreciation did not meet the minimum threshold requirement for a payment. |
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• | 2% of his or her “average final compensation” (as described below) for each of the first 25 years of benefit service, plus | |
• | 11/2% of his or her average final compensation for each of the next 15 years of benefit service, reduced by | |
• | 11/4% of his or her primary Social Security benefit for each year of benefit service up to a maximum of 40 years. |
• | 11/2% of his or her average final compensation (as defined below) for each year of benefit service up to 40 years, reduced by | |
• | 11/4% of his or her primary Social Security benefit for each year of benefit service up to a maximum of 40 years. |
• | the participant’s average annual base salary for the five calendar years of the last 120 consecutive calendar months of eligibility service that would result in the highest average annual base salary amount, plus | |
• | the participant’s average annual pension eligible compensation, not including base salary, for the five calendar years of the participant’s last 120 consecutive calendar months of eligibility service that would result in the highest average annual compensation amount. |
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Present Value of | Present Value of | |||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||
Benefit at | Benefit at | |||||||||||||||||
Number of | Normal | Earliest Date for | Payments | |||||||||||||||
Years Credited | Retirement | Unreduced | During Last | |||||||||||||||
Service (#) | ($)(1) | Benefit | Fiscal Year ($) | |||||||||||||||
Name(a) | Plan Name(b) | (c) | (d) | (e) | (f) | |||||||||||||
Gretchen W. McClain | ITT Salaried Retirement Plan | 5.29 | 72,062 | 72,062 | — | |||||||||||||
ITT Excess Pension Plan | 5.29 | 193,588 | 193,588 | — | ||||||||||||||
Michael T. Speetzen | ITT Salaried Retirement Plan | 2.0 | 17,205 | 17,205 | — | |||||||||||||
ITT Excess Pension Plan | 2.0 | 13,562 | 13,562 | — | ||||||||||||||
Frank R. Jimenez | ITT Salaried Retirement Plan | 1.56 | 17,912 | 17,912 | — | |||||||||||||
ITT Excess Pension Plan | 1.56 | 29,666 | 29,666 | — | ||||||||||||||
Angela A. Buonocore | ITT Salaried Retirement Plan | 3.83 | 70,464 | 70,464 | — | |||||||||||||
ITT Excess Pension Plan | 3.83 | 113,340 | 113,340 | — | ||||||||||||||
Kenneth Napolitano | ITT Salaried Retirement Plan | 26.25 | 433,689 | 698,064 | — | |||||||||||||
ITT Excess Pension Plan | 12.08 | 182,557 | 282,670 | — |
(1) | Assumptions used to determine present value as of December 31, 2010 are as follows: | |
Measurement date: December 31, 2010; Discount Rate: 5.75%; Mortality (pre-commencement): None; Mortality (post-commencement): UP-94 Mortality Table; Termination of Employment: Age 65 for all participants; Present value is based on the single life annuity payable beginning on the first day of the month at normal retirement age 65 (column (d)) or the earliest time at which a participant may retire under the plan without any benefit reduction due to age (column (e)). The six-month delay under the Pension Plan for “specified employees” as required under Section 409A of the Internal Revenue Code was disregarded for this purpose. All results shown are estimates only; actual benefits will be based on precise credited service and compensation history, which will be determined at termination of employment. | ||
The 2010 row of the column titled Change in Pension Plan Value & Nonqualified Deferred Compensation Earnings in the Summary Compensation Table quantifies the change in the present value of the Pension Plan benefit from December 31, 2009 to December 31, 2010. To determine the present value of the plan benefit as of December 31, 2009, the same assumptions that are described above to determine present value as of December 31, 2010 were used, except a 5.75% interest rate was used to determine the present value, as compared to a 6.00% interest rate as of December 31, 2009. | ||
(c) | Mr. Napolitano became a participant in the ITT Salaried Retirement Plan as of December 1, 1998 following the ITT acquisition of Goulds Pump Inc. Mr. Napolitano’s services are calculated under the Goulds Retirement Plan provisions and such services are treated as a former benefit plan under the ITT Salaried Retirement Plan. Accordingly, the years of credited service for Mr. Napolitano include 14.17 years of service accrued as an employee of Goulds, which reflects breaks in service from his original hire date. The Goulds plan did not provide benefits in excess of the IRS limits. | |
(d) | The accumulated benefit is based on service and earnings (base salary and bonus and/or AIP payment) considered by the plans for the period through December 31, 2010, and represents the actuarial present value under ASC Topic 715 of pension earned to date and payable at the assumed normal retirement age for the named executives as defined under each plan, based upon actuarial factors and assumptions used in Note 13 to the Combined Financial Statements in this Information Statement and as described in (1) above, regardless of whether or not the executive has vested in this benefit. | |
(e) | The amounts represent the actuarial present value of the accumulated benefit at December 31, 2010, for the named executives under each plan based upon actuarial factors and assumptions used in Note 13 to the Combined Financial Statements in this Information Statement and as described in (1) above, where the retirement age is assumed to be the earliest age at which the individual can receive undiscounted early retirement benefits. |
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2010 Nonqualified Deferred Compensation | ||||||||||||||||||||
Executive | Registrant | Aggregate | Aggregate | Aggregate | ||||||||||||||||
Contributions | Contributions | Earnings in | Withdrawals/ | Balance at Last | ||||||||||||||||
Name | in Last FY ($) | in Last FY ($) | Last FY ($) | Distributions ($) | FYE ($) | |||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | |||||||||||||||
Gretchen W. McClain | ||||||||||||||||||||
Non-qualified savings | 16,956 | 10,011 | 2,498 | — | 100,417 | |||||||||||||||
Deferred Compensation | 229,145 | — | 23,976 | — | 612,990 | |||||||||||||||
Total | 246,101 | 10,011 | 26,474 | — | 713,407 | |||||||||||||||
Michael T. Speetzen | — | |||||||||||||||||||
Non-qualified savings | 2,254 | 1,315 | 21 | — | 3,913 | |||||||||||||||
Deferred Compensation | — | — | 2,948 | — | 72,397 | |||||||||||||||
Total | 2,254 | 1,315 | 2,969 | — | 76,310 | |||||||||||||||
Frank R. Jimenez | — | |||||||||||||||||||
Non-qualified savings | 10,027 | 5,849 | 105 | — | 15,981 | |||||||||||||||
Deferred Compensation | — | — | — | — | — | |||||||||||||||
Total | 10,027 | 5,849 | 105 | — | 15,981 | |||||||||||||||
Angela A. Buonocore | — | |||||||||||||||||||
Non-qualified savings | 5,585 | 3,258 | 598 | — | 26,905 | |||||||||||||||
Deferred Compensation | 283,478 | — | 51,000 | — | 1,221,131 | |||||||||||||||
Total | 289,063 | 3,258 | 51,598 | — | 1,248,036 | |||||||||||||||
Kenneth NapolitanoNon-qualified savings | 3,882 | 2,264 | 23 | — | 6,169 | |||||||||||||||
Deferred Compensation | — | — | — | — | — | |||||||||||||||
Total | 3,882 | 2,264 | 23 | — | 6,169 |
(b) | Non-qualified savings amounts for Executive Contributions in Last Fiscal Year are included in the Salary column of the Summary Compensation Table and deferred compensation amounts for Ms. McClain and Ms. Buonocore represent the deferred portion of the 2010 AIP, which amounts were credited to the executives’ accounts in 2011, and are included in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. | |
(c) | The amounts in column (c) for non-qualified savings are also reflected in column (g) of the All Other Compensation Table as Excess Savings Plan Contributions and included in the Summary Compensation Table. | |
(f) | With respect to Ms. McClain, includes $446,178 in executive and registrant contributions to the ITT Deferred Compensation Plan and the ITT Excess Savings Plan that were reported as compensation in the Summary Compensation Table in ITT’s previously filed proxy statements. For Messrs. Speetzen, Jimenez and Napolitano and Ms. Buonocore, amounts in column (f) do not include any amounts reported in previous Summary Compensation Tables. |
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Rate of | Rate of | |||||||||
Return | Return | |||||||||
1/1/10 | 1/1/10 | |||||||||
Name of Fund | 12/31/10 | Name of Fund | 12/31/10 | |||||||
Fixed Rate Option(1) | 5.80 | % | Vanguard Developed Markets Index (VDMIX) | 8.54 | % | |||||
PIMCO Total Return Institutional (PTTRX) | 8.86 | % | Artio International Equity A (BJBIX) | 8.52 | % | |||||
PIMCO Real Return Institutional (PRRIX) | 7.68 | % | American Funds EuroPacific Growth (REREX) | 9.39 | % | |||||
T Rowe Price High Yield (PRHYX) | 14.40 | % | First Eagle Overseas A (SGOVX) | 19.24 | % | |||||
Dodge & Cox Stock (DODGX) | 13.49 | % | Lazard Emerging Markets Equity Open (LZOEX) | 22.43 | % | |||||
Vanguard 500 Index (VFINX) | 14.91 | % | AIM Global Real Estate (AGREX) | 16.97 | % | |||||
American Funds Growth Fund of America R4 (RGAEX) | 12.29 | % | Model Portfolio* — Conservative | 8.11 | % | |||||
Perkins Mid Cap Value (JMCVX) | 14.81 | % | Model Portfolio* — Moderate Conservative | 10.51 | % | |||||
Artisan Mid Cap (ARTMX) | 31.57 | % | Model Portfolio* — Moderate | 12.43 | % | |||||
American Century Small Cap Value (ASVIX) | 24.15 | % | Model Portfolio* — Moderate Aggressive | 13.45 | % | |||||
Perimeter Small Cap Growth (PSCGX) | 25.14 | % | Model Portfolio* — Aggressive | 14.70 | % | |||||
Harbor International (HIINX) | 11.57 | % | ITT Corporation Stock Fund (ITT) | 6.97 | % | |||||
Vanguard Total Bond Market Index (VBMFX) | 6.42 | % |
(1) | The Fixed Rate Option 5.80% rate is based on guaranteed contractual returns from the insurance ITT provider. | |
* | The returns shown in the model portfolio are not subsidized by ITT, but represent returns for a managed portfolio based on funds available to deferred compensation participants. |
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• | Accrued salary and vacation pay; | |
• | Regular pension benefits under the ITT Salaried Retirement Plan; | |
• | Health care benefits provided to retirees under the ITT Salaried Retirement Plan, including retiree medical and dental insurance. Employees who terminate prior to retirement are eligible for continued benefits under COBRA; and | |
• | Distributions of plan balances under the ITT Salaried Investment and Savings Plan and amounts currently vested under the ITT Excess Savings Plan. |
• | any accrued but unpaid base salary, bonus (AIP payment), unreimbursed expenses and employee benefits, including vacation; | |
• | two or three times the highest annual base salary rate during the three fiscal years immediately preceding the date of termination and two or three times the highest AIP payment paid or awarded in the three years preceding an acceleration event or termination; | |
• | continuation of health and life insurance benefits and certain perquisites at the same levels for two or three years; |
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• | a lump-sum payment equal to the difference between the total lump-sum value of his or her pension benefit under ITT’s pension plans, or any successor pension plans (provided such plans are no less favorable to the executive than the ITT pension plans), and the total lump-sum value of his or her pension benefit under the pension plans after crediting an additional two or three years of age and eligibility and benefit service using the highest annual base salary rate and bonus for purposes of determining final average compensation under the pension plans; | |
• | credit for an additional two or three years of age and two or three years of eligibility service under the retiree health and retiree life insurance benefits; | |
• | a lump-sum payment equal to two or three times the highest annual base salary rate during the three years preceding termination or an acceleration event times the highest percentage rate of ITT’s contributions to the ITT Salaried Investment and Savings Plan and the ITT Excess Savings Plan, such payment not to exceed 3.5% per year; and | |
• | taxgross-up for excise taxes imposed on the covered employee; and | |
• | one year of outplacement. |
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• | the 2011 Omnibus Incentive Plan; | |
• | the 2003 Equity Incentive Plan; | |
• | the 1994 Incentive Stock Plan; | |
• | the 1996 Restricted Stock Plan for Non-Employee Directors; | |
• | the 1997 Annual Incentive Plan for Executive Officers; | |
• | the 1997 Annual Incentive Plan; | |
• | the 1997 Long-Term Incentive Plan; | |
• | the Special Senior Executive Severance Pay Plan; | |
• | the Enhanced Severance Pay Plan; | |
• | the Deferred Compensation Plan; | |
• | the Excess Savings Plan; | |
• | the Excess Pension Plans; and | |
• | the Salaried Retirement Plan. |
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Termination not | ||||||||||||||||||||||||
for Cause or | ||||||||||||||||||||||||
Gretchen W. McClain | With Good | |||||||||||||||||||||||
Termination for | Termination | Reason After | ||||||||||||||||||||||
Resignation | Cause | Death | Disability | not for | Change of Control | |||||||||||||||||||
$ | $ | $ | $ | Cause $ | $ | |||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | |||||||||||||||||||
Cash Severance(1) | ||||||||||||||||||||||||
Salary | — | — | — | — | 618,333 | 1,590,000 | ||||||||||||||||||
AIP | — | — | — | — | — | 1,606,800 | ||||||||||||||||||
Total | — | — | — | — | 618,333 | 3,196,800 | ||||||||||||||||||
Unvested Non-Equity Units(2) | ||||||||||||||||||||||||
2009 — 11 TSR Award | — | — | — | — | — | 120,000 | ||||||||||||||||||
2010 — 12 TSR Award | — | — | — | — | — | 240,000 | ||||||||||||||||||
Total | — | — | — | — | 360,000 | |||||||||||||||||||
Unvested Equity Awards(3) | ||||||||||||||||||||||||
3/10/08 Stock Option | — | — | — | — | — | — | ||||||||||||||||||
3/10/08 Restricted Stock | — | — | 246,376 | 246,376 | 246,376 | 246,376 | ||||||||||||||||||
3/5/09 Stock Option | — | — | 570,060 | 570,060 | — | 570,060 | ||||||||||||||||||
3/5/09 Restricted Stock | — | — | 3,244,838 | 3,244,838 | 2,085,319 | 3,244,838 | ||||||||||||||||||
3/5/10 Stock Option | — | — | — | — | — | — | ||||||||||||||||||
3/5/10 Restricted Stock | — | — | 390,981 | 390,981 | 249,794 | 390,981 | ||||||||||||||||||
Total | — | — | 4,452,255 | 4,452,255 | 2,581,489 | 4,452,255 | ||||||||||||||||||
Non-Qualified Retirement Benefits | ||||||||||||||||||||||||
ITT Excess Pension Plan(4) | 193,588 | 193,588 | 105,312 | — | 193,588 | 1,057,111 | ||||||||||||||||||
ITT Excess Savings Plan(5) | — | — | — | — | — | 55,650 | ||||||||||||||||||
Total | 193,588 | 193,588 | 105,312 | — | 193,588 | 1,112,761 | ||||||||||||||||||
Other Benefits | ||||||||||||||||||||||||
Outplacement(6) | — | — | — | — | 75,000 | 75,000 | ||||||||||||||||||
Health & Welfare(7) | — | — | — | — | 3,465 | 8,910 | ||||||||||||||||||
IRC 280(g) TaxGross-Up(8) | — | — | — | — | — | 2,747,791 | ||||||||||||||||||
Total | — | — | — | — | 78,465 | 2,831,701 | ||||||||||||||||||
Total | 193,588 | 193,588 | 4,557,567 | 4,452,255 | 3,471,875 | 11,953,517 |
(1) | Ms. McClain is covered under ITT’s Senior Executive Severance Pay Plan. Under that plan, described in “Compensation Discussion and Analysis — Post-Employment Compensation — Severance Plan Arrangements,” ITT will pay a severance benefit equal to 14 months of base salary if terminated other than for cause unless termination occurs after the normal retirement date. In the event of a change of control, Ms. McClain is covered under ITT’s Special Senior Executive Severance Pay Plan, described in “Compensation Discussion and Analysis— Post-Employment Compensation — Severance Plan Arrangements” and, under the terms of the plan, would be paid a lump sum payment equal to the sum of three times her highest annual salary and three times the highest AIP award paid in the three years preceding a change of control. Further information regarding Ms. McClain’s post employment compensation is provided in the Non-Qualified Deferred Compensation and Pension Tables above. | |
(2) | Based on total shareholder return performance through December 31, 2010, outstanding TSR awards would not earn a payout. Should Ms. McClain resign or be terminated for cause, she would receive no TSR payment. In the event of death or disability, she would receive payment, if any, for outstanding TSR awards and in the event of termination without cause she would receive payment, if any, based on a pro-rata portion of the outstanding TSR awards as of the termination date, based on ITT’s performance during the three-year period, in accordance with Section 409A. TSR awards provide that in the event of a change |
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of control, a pro-rata portion of outstanding awards will be paid through the date of the change of control based on actual performance and the balance of the award will be paid at target (100%). | ||
(3) | Equity awards vest according to the terms described in “Compensation Discussion and Analysis — Long-Term Incentive Awards Program.” Unvested equity awards reflect the market value of restricted stock andin-the-money value of options based on ITT’s December 31, 2010 closing stock price of $52.11. | |
(4) | Column (a) and column (b) amounts reflect the present value of the annual vested benefit payable under the ITT Excess Pension Plan, as of December 31, 2010 assuming a retirement at age 65. Column (c) provides the value of the benefit payable to Ms. McClain’s beneficiary upon death. Column (d) is inapplicable because disability would not affect retirement benefits. Column (e) provides the present value of the benefit payable by ITT after imputing 24 months of eligibility service in the determination of the benefit. Column (f) provides the lump sum payable by ITT in accordance with the Special Senior Executive Severance Pay Plan in the event of a change of control. | |
(5) | No additional ITT Excess Savings Plan payments are made in the event of voluntary or involuntary termination, or termination for cause. In the case of death or disability, to the extent not already vested, the participant becomes 100% vested in the ITT match. Ms. McClain was fully vested in the ITT match as of December 31, 2010. Column (f) reflects the additional cash payment representing ITT contributions, which would be made following a change of control as described in the Special Senior Executive Severance Pay Plan in “Compensation Discussion and Analysis— Post-Employment Compensation — Severance Plan Arrangements.” | |
(6) | ITT’s Senior Executive Severance Pay Plan includes one year of outplacement services. Amounts shown in columns (e) and (f) are based on a current competitive bid. | |
(7) | In the event of termination not for cause, ITT will pay the company’s portion of medical and life insurance premiums for fourteen months ( $2,352 and $1,113 respectively) and in the event of a change of control, ITT will pay medical and life insurance premiums for three years ($6,048 and $2,862 respectively). | |
(8) | Amounts in column (f) assume termination occurs immediately upon a change of control based on ITT’s December 31, 2010 closing stock price of $52.11. |
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Termination | ||||||||||||||||||||||||
not for Cause | ||||||||||||||||||||||||
or with Good | ||||||||||||||||||||||||
Michael Speetzen | Reason | |||||||||||||||||||||||
Termination | Termination | After Change | ||||||||||||||||||||||
Resignation | For Cause | Death | Disability | Not For Cause | of Control | |||||||||||||||||||
$(a) | $(b) | $(c) | $(c) | $(e) | $(f) | |||||||||||||||||||
Cash Severance | ||||||||||||||||||||||||
Salary(1) | — | — | — | — | 156,000 | 624,000 | ||||||||||||||||||
Bonus(1) | — | — | — | — | — | 410,860 | ||||||||||||||||||
Total | — | — | — | — | 156,000 | 1,034,860 | ||||||||||||||||||
Unvested Non-Equity Awards(2) | ||||||||||||||||||||||||
2009 — 11 TSR Award | — | — | — | — | — | 33,333 | ||||||||||||||||||
2010 — 12 TSR Award | — | — | — | — | — | 66,667 | ||||||||||||||||||
Total | — | — | — | — | — | 100,000 | ||||||||||||||||||
Unvested Equity Awards(3) | ||||||||||||||||||||||||
3/5/09 Stock Option | — | — | 125,175 | 125,175 | 62,587 | 125,175 | ||||||||||||||||||
3/5/09 Restricted Stock | — | — | 137,518 | 137,518 | 103,139 | 137,518 | ||||||||||||||||||
3/5/10 Stock Option | — | — | — | — | — | — | ||||||||||||||||||
3/5/10 Restricted Stock | — | — | 525,477 | 525,477 | 218,949 | 525,477 | ||||||||||||||||||
Total | — | — | 788,170 | 788,170 | 384,675 | 788,170 | ||||||||||||||||||
Non-Qualified Retirement Benefits | ||||||||||||||||||||||||
ITT Excess Pension Plan(4) | — | — | — | — | — | 166,471 | ||||||||||||||||||
ITT Excess Savings Plan(5) | — | — | 977 | 977 | — | 21,678 | ||||||||||||||||||
Total | — | — | 977 | 977 | — | 188,149 | ||||||||||||||||||
Other Benefits | ||||||||||||||||||||||||
Outplacement(6) | — | — | — | — | — | 75,000 | ||||||||||||||||||
Health & Welfare(7) | — | — | — | — | 3,715 | 12,736 | ||||||||||||||||||
IRC 280(g) TaxGross-Up(8) | — | — | — | — | — | — | ||||||||||||||||||
Total | — | — | — | — | 3,715 | 87,736 | ||||||||||||||||||
Total | — | — | 789,147 | 789,147 | 544,390 | 2,198,916 |
(1) | Mr. Speetzen is covered under the ITT Severance Pay Policy. Under that policy, described in “Compensation Discussion and Analysis — Post-Employment Compensation — Severance Plan Arrangements,” ITT will pay a severance benefit equal to 26 weeks of base salary if terminated other than for cause unless termination occurs after the normal retirement date. In the event of a change of control, Mr. Speetzen is covered under ITT’s Special Senior Executive Severance Pay Plan, described in “Compensation Discussion and Analysis — Post-Employment Compensation — Severance Plan Arrangements” and, under the terms of the plan, would be paid a lump sum payment equal to the sum of two times his highest annual salary and two times the highest AIP award paid in the three years preceding a change of control. Further information regarding Mr. Speetzen’s post employment compensation is provided in the Non-Qualified Deferred Compensation and Pension Tables above. | |
(2) | Based on total shareholder return performance through December 31, 2010, outstanding TSR awards for the2009-11 and the2010-12 performance periods would not earn a payout. Should Mr. Speetzen resign or be terminated for cause, he would receive no TSR payment. In the event of death or disability, he would receive payment, if any, for outstanding TSR awards and in the event of termination without cause he would receive payment, if any, based on a pro-rata portion of the outstanding TSR awards as of the termination date, based on ITT’s performance during the three-year period, in accordance with Section 409A. TSR awards provide that in the event of a change of control, a pro-rata portion of outstanding awards will be paid through the date of the change of control based on actual performance and the balance of the award will be paid at target (100%). |
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(3) | Equity awards vest according to the terms described in “Compensation Discussion and Analysis — Long-Term Incentive Awards Program.” Unvested equity awards reflect the market value of restricted stock andin-the-money value of options based on ITT’s December 31, 2010 closing stock price of $52.11. | |
(4) | Mr. Speetzen has not yet accrued a vested pension benefit. Column (f) provides the lump sum payable by ITT in accordance with the Special Senior Executive Severance Pay Plan in the event of a change of control. | |
(5) | No additional ITT Excess Savings Plan payments are made in the event of voluntary or involuntary termination, or termination for cause. In the case of death or disability, the participant becomes 100% vested in the ITT match. Column (f) reflects the additional cash payment representing ITT contributions, which would be made following a change of control as described in the Special Senior Executive Severance Pay Plan in “Compensation Discussion and Analysis— Post-Employment Compensation — Severance Plan Arrangements.” | |
(6) | The Severance Policy includes outplacement services. Amounts shown in columns (f) are based on a current competitive bid. | |
(7) | In the event of termination not for cause, ITT will pay the company’s portion of medical and life insurance premiums ($3,388 and $327, respectively) for seven months and in the event of a change of control, ITT will pay medical life insurance premiums ($11,616 and $1,120, respectively) for two years. | |
(8) | Amounts in column (f) assume termination occurs immediately upon a change of control based on ITT’s December 31, 2010 closing stock price of $52.11. |
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Termination | ||||||||||||||||||||||||
not for Cause | ||||||||||||||||||||||||
Frank R. Jimenez | or with Good | |||||||||||||||||||||||
Termination | Reason After | |||||||||||||||||||||||
Termination | not for | Change of | ||||||||||||||||||||||
Resignation | for Cause | Death | Disability | Cause | Control | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | |||||||||||||||||||
Cash Severance(1) | ||||||||||||||||||||||||
Salary | — | — | — | — | 415,000 | 830,000 | ||||||||||||||||||
AIP | — | — | — | — | — | 624,000 | ||||||||||||||||||
Total | — | — | — | — | 415,000 | 1,454,000 | ||||||||||||||||||
Unvested Non-Equity Units(2) | ||||||||||||||||||||||||
2009 — 11 TSR Award | — | — | — | — | — | 55,567 | ||||||||||||||||||
2010 — 12 TSR Award | — | — | — | — | — | 111,133 | ||||||||||||||||||
Total | — | — | — | — | — | 166,700 | ||||||||||||||||||
Unvested Equity Awards(3) | ||||||||||||||||||||||||
6/9/09 Stock Option | — | — | 69,445 | 69,445 | 34,722 | 69,445 | ||||||||||||||||||
6/9/09 Restricted Stock | — | — | 189,524 | 189,524 | 157,937 | 189,524 | ||||||||||||||||||
3/5/10 Stock Options | — | — | — | — | — | — | ||||||||||||||||||
3/5/10 Restricted Stock | — | — | 181,030 | 181,030 | 105,601 | 181,030 | ||||||||||||||||||
Total | 439,999 | 439,999 | 298,260 | 439,999 | ||||||||||||||||||||
Non-Qualified Retirement Benefits | ||||||||||||||||||||||||
ITT Excess Pension Plan(4) | — | — | 463,661 | |||||||||||||||||||||
ITT Excess Savings Plan(5) | — | — | 4,037 | 4,037 | 29,050 | |||||||||||||||||||
Total | 4,037 | 4,037 | — | 492,711 | ||||||||||||||||||||
Other Benefits | ||||||||||||||||||||||||
Outplacement(6) | — | — | — | — | 75,000 | 75,000 | ||||||||||||||||||
Health & Welfare(7) | — | — | — | — | 1,821 | 3,642 | ||||||||||||||||||
IRC 280(g) TaxGross-Up(8) | — | — | — | — | — | — | ||||||||||||||||||
Total | — | — | — | — | 76,821 | 78,642 | ||||||||||||||||||
Total | — | — | 444,036 | 444,036 | 790,081 | 2,632,052 |
(1) | Mr. Jimenez is covered under the Senior Executive Severance Pay Plan. Under that plan, ITT will pay a severance benefit equal to 12 months of base salary if terminated other than for cause unless termination occurs after the normal retirement date. In the event of a change of control, Mr. Jimenez is covered under ITT’s Special Senior Executive Severance Pay Plan, described in “Compensation Discussion and Analysis — Severance Plan Arrangements — Special Senior Executive Severance Pay Plan” and, under the terms of the plan, would be paid a lump sum payment equal to two times his current salary plus two times the highest AIP award paid in the three years prior to a change of control. Further information regarding Mr. Jimenez’s post employment compensation is provided in the Non-Qualified Deferred Compensation and Pension Tables above. | |
(2) | Based on total shareholder return performance through December 31, 2010, outstanding TSR awards for the2009-11 and2010-12 performance periods would not earn a payment. Should Mr. Jimenez resign or be terminated for cause, he would receive no TSR payment. In the event of death or disability, he would receive payment, if any, for outstanding TSR awards and in the event of termination without cause he would receive payment, if any, based on a pro-rata portion of the outstanding TSR awards as of the termination date, based on ITT’s performance during the three-year period, in accordance with Section 409A. The TSR awards, in the event of a change of control, provide that a pro-rata portion of outstanding awards will be paid through the date of the change of control based on actual performance and the balance of the award will be paid at target (100%). |
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(3) | Equity awards vest according to the terms described in “Compensation Discussion and Analysis — Long-Term Incentive Awards Program.” Unvested equity awards reflect the market value of restricted stock andin-the-money value of options based on ITT’s December 31, 2010 closing stock price of $52.11. | |
(4) | Mr. Jimenez has not yet accrued a vested pension benefit. Column (f) provides the lump sum payable by ITT in accordance with the Special Senior Executive Severance Pay Plan in the event of a change of control. | |
(5) | No additional ITT Excess Savings Plan payments are made in the event of voluntary or involuntary termination, or termination for cause. In the case of death or disability, the participant becomes 100% vested in the ITT match. Amounts in column (f) reflect the additional cash payment representing ITT contributions, which would be made following a change of control as described in the Special Senior Executive Severance Pay Plan in “Compensation Discussion and Analysis — Severance Plan Arrangements — Special Senior Executive Severance Pay Plan.” | |
(6) | ITT’s Senior Executive Severance Pay Plan includes one year of outplacement services. Amounts shown in columns (e) and (f) are based on a current competitive bid. | |
(7) | In the event of termination not for cause, ITT will pay the company’s portion of medical and life insurance premiums for one year ($1,074 and $747 respectively) and in the event of a change of control, ITT will pay medical and life insurance premiums for two years ($2,148 and $1,494 respectively). | |
(8) | Amounts in column (f) assume termination occurs immediately upon a change of control based on ITT’s December 31, 2010 closing stock price of $52.11. |
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Termination | ||||||||||||||||||||||||
not for Cause | ||||||||||||||||||||||||
Angela Buonocore | or with Good | |||||||||||||||||||||||
Termination | Reason After | |||||||||||||||||||||||
Termination | not for | Change of | ||||||||||||||||||||||
Resignation | for Cause | Death | Disability | Cause | Control | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | |||||||||||||||||||
Cash Severance | ||||||||||||||||||||||||
Salary(1) | — | — | — | — | 340,000 | 1,020,000 | ||||||||||||||||||
Bonus(1) | — | — | — | — | — | 1,155,000 | ||||||||||||||||||
Total | — | — | — | — | 340,000 | 2,175,000 | ||||||||||||||||||
Unvested Non-Equity Awards(2) | — | — | — | — | ||||||||||||||||||||
2009 — 11 TSR Award | — | — | — | — | — | 45,000 | ||||||||||||||||||
2010 — 12 TSR Award | — | — | — | — | — | 90,000 | ||||||||||||||||||
Total | — | — | — | — | — | 135,000 | ||||||||||||||||||
Unvested Equity Awards(3) | ||||||||||||||||||||||||
3/7/07 Restricted Stock | — | — | 208,440 | 208,440 | 208,440 | 208,440 | ||||||||||||||||||
3/10/08 Stock Option | — | — | — | — | — | — | ||||||||||||||||||
3/10/08 Restricted Stock | — | — | 100,781 | 100,781 | 100,781 | 100,781 | ||||||||||||||||||
3/5/09 Stock Options | — | — | 142,516 | 142,516 | 71,258 | 142,516 | ||||||||||||||||||
3/5/09 Restricted Stock | — | — | 185,616 | 185,616 | 170,148 | 185,616 | ||||||||||||||||||
3/5/10 Stock Option | — | — | — | — | — | — | ||||||||||||||||||
3/5/10 Restricted Stock | — | — | 146,638 | 146,638 | 85,539 | 146,638 | ||||||||||||||||||
Total | — | — | 783,991 | 783,991 | 636,166 | 783,991 | ||||||||||||||||||
Non-Qualified Retirement Benefits | ||||||||||||||||||||||||
ITT Excess Pension Plan(4) | 113,340 | 113,340 | 61,657 | — | 113,340 | 630,762 | ||||||||||||||||||
ITT Excess Savings Plan(5) | — | — | 3,391 | 3,391 | — | 23,800 | ||||||||||||||||||
Total | 113,340 | 113,340 | 65,048 | 3,391 | 113,340 | 654,562 | ||||||||||||||||||
Other Benefits | ||||||||||||||||||||||||
Outplacement(6) | — | — | — | — | — | 75,000 | ||||||||||||||||||
Health & Welfare(7) | — | — | — | — | 2,564 | 7,692 | ||||||||||||||||||
IRC 280(g) TaxGross-Up(8) | — | — | — | — | — | 1,493,206 | ||||||||||||||||||
Total | — | — | — | — | 2,564 | 1,575,898 | ||||||||||||||||||
Total | 113,340 | 113,340 | 849,039 | 787,382 | 1,092,070 | 5,324,451 |
(1) | Ms. Buonocore is covered under the Senior Executive Severance Pay Plan. Under that plan, Ms. Buonocore will receive a severance benefit equal to 12 months base salary if terminated other than for cause unless termination occurs after the normal retirement date. In the event of a change of control, Ms. Buonocore is covered under ITT’s Special Senior Executive Severance Pay Plan, described in “Compensation Discussion and Analysis — Severance Plan Arrangements — Special Senior Executive Severance Pay Plan” and, under the terms of the plan, would be paid a lump sum payment equal to the sum of three times her highest annual salary and three times the highest AIP award paid in the three years preceding a change of control. | |
(2) | Based on total shareholder return performance through December 31, 2010, outstanding TSR awards for the2009-11 and2010-12 performance periods would not earn a payout. Should Ms. Buonocore resign or be terminated for cause, she would receive no TSR payment. In the event of death or disability, she would receive payment, if any, for outstanding TSR awards and in the event of termination not for cause she would receive payment, if any, based on a pro-rata portion of the outstanding TSR awards as of the termination date, based on ITT’s performance during the three-year period, in accordance with Section 409A. TSR awards provide that in the event of a change of control, a pro-rata portion of outstanding awards will |
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be paid through the date of the change of control based on actual performance and the balance of the award will be paid at target (100%). | ||
(3) | Equity awards vest according to the terms described in “Compensation Discussion and Analysis — Long-Term Incentive Awards Program.” Unvested equity awards reflect the market value of restricted stock andin-the-money value of options based on ITT’s December 31, 2010 closing stock price of $52.11. | |
(4) | Column (a) and column (b) amounts reflect the present value of the annual vested benefit payable under the ITT Excess Pension Plan, as of December 31, 2010 assuming a retirement age at 65. Column (c) provides the value of the benefit payable to Ms. Buonocore’s beneficiary upon death. Column (d) is inapplicable because disability would not affect retirement benefits. Column (e) provides the present value of the benefit payable by ITT after imputing 24 months of eligibility service in the determination of the benefit. Column (f) provides the lump sum payable by ITT in accordance with the Special Senior Executive Severance Pay Plan in the event of a change of control. | |
(5) | No additional ITT Excess Savings Plan payments are made in the event of voluntary or involuntary termination, or termination for cause. In the case of death or disability, the participant becomes 100% vested in the ITT match. Column (f) reflects the additional cash payment representing ITT contributions, which would be made following a change of control as described in the Special Senior Executive Severance Pay Plan in “Compensation Discussion and Analysis — Severance Plan Arrangements — Special Senior Executive Severance Pay Plan.” | |
(6) | ITT’s Senior Executive Severance Pay Plan includes one year of outplacement services. | |
(7) | In the event of termination not for cause, ITT will pay the company’s portion of medical and life insurance premiums for one year ($1,950 and $614 respectively) and in the event of a change of control, ITT will pay medical and life insurance premiums for three years ($5,850 and $1,842 respectively). | |
(8) | Amounts in column (f) assume termination occurs immediately upon a change of control based on ITT’s December 31, 2010 closing stock price of $52.11. |
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Termination | ||||||||||||||||||||||||
not for Cause | ||||||||||||||||||||||||
Kenneth Napolitano | or with Good | |||||||||||||||||||||||
Termination | Reason After | |||||||||||||||||||||||
Termination | not for | Change of | ||||||||||||||||||||||
Resignation | for Cause | Death | Disability | Cause | Control | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | |||||||||||||||||||
Cash Severance | ||||||||||||||||||||||||
Salary(1) | — | — | — | — | 312,000 | 624,000 | ||||||||||||||||||
Bonus(1) | — | — | — | — | — | 528,000 | ||||||||||||||||||
Total | — | — | — | — | 312,000 | 1,152,000 | ||||||||||||||||||
Unvested Non-Equity Awards(2) | ||||||||||||||||||||||||
2009 — 11 TSR Award | — | — | — | — | — | 41,667 | ||||||||||||||||||
2010 — 12 TSR Award | — | — | — | — | — | 94,467 | ||||||||||||||||||
Total | — | — | — | — | — | 136,133 | ||||||||||||||||||
Unvested Equity Awards(3) | ||||||||||||||||||||||||
3/10/08 Stock Option | — | — | — | — | — | — | ||||||||||||||||||
3/10/08 Restricted Stock | — | — | 67,222 | 67,222 | 67,222 | 67,222 | ||||||||||||||||||
3/5/09 Stock Options | — | — | 156,453 | 156,453 | 78,226 | 156,453 | ||||||||||||||||||
3/5/09 Restricted Stock | — | — | 171,859 | 171,859 | 157,537 | 171,859 | ||||||||||||||||||
3/5/10 Stock Option | — | — | — | — | — | — | ||||||||||||||||||
3/5/10 Restricted Stock | — | — | 153,881 | 153,881 | 89,764 | 153,881 | ||||||||||||||||||
Total | — | — | 549,414 | 549,414 | 392,749 | 549,414 | ||||||||||||||||||
Non-Qualified Retirement Benefits | ||||||||||||||||||||||||
Non-Qualified Pension(4) | 182,557 | 182,557 | 104,842 | — | 182,557 | 945,080 | ||||||||||||||||||
Non-Qualified Savings Plan(5) | — | — | — | 21,678 | ||||||||||||||||||||
Total | 182,557 | 182,557 | 104,842 | — | 182,557 | 966,758 | ||||||||||||||||||
Other Non-Qualified Benefits | ||||||||||||||||||||||||
Outplacement(6) | — | — | — | — | — | 75,000 | ||||||||||||||||||
Health & Welfare(7) | — | — | — | — | 4,300 | 8,600 | ||||||||||||||||||
IRC 280(g) TaxGross-Up(8) | — | — | — | — | — | 930,484 | ||||||||||||||||||
Total | — | — | — | — | 4,300 | 1,014,084 | ||||||||||||||||||
Total | 182,557 | 182,557 | 654,256 | 549,414 | 897,606 | 3,818,390 |
(1) | Mr. Napolitano is covered under the ITT Severance Pay Policy. Under that policy, described in “Compensation Discussion and Analysis — Post-Employment Compensation — Severance Plan Arrangements,” ITT will pay a severance benefit equal to 52 weeks of base salary if terminated other than for cause unless termination occurs after the normal retirement date. In the event of a change of control, Mr. Napolitano is covered under ITT’s Special Senior Executive Severance Pay Plan, described in “Compensation Discussion and Analysis — Post-Employment Compensation — Severance Plan Arrangements” and, under the terms of the plan, would be paid a lump sum payment equal to the sum of two times his highest annual salary and two times the highest AIP award paid in the three years preceding a change of control. Further information regarding Mr. Napolitano’s post employment compensation is provided in the Non-Qualified Deferred Compensation and Pension Tables above. | |
(2) | Based on total shareholder return performance through December 31, 2010, outstanding TSR awards for the2009-11 and the2010-12 performance periods would not earn a payout. Should Mr. Napolitano resign or be terminated for cause, he would receive no TSR payment. In the event of death or disability, he would receive payment, if any, for outstanding TSR awards and in the event of termination without cause he would receive payment, if any, based on a pro-rata portion of the outstanding TSR awards as of the termination date, based on ITT’s performance during the three-year period, in accordance with Section 409A. TSR awards provide that in the event of a change of control, a pro-rata portion of outstanding awards will |
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be paid through the date of the change of control based on actual performance and the balance of the award will be paid at target (100%). | ||
(3) | Equity awards vest according to the terms described in “Compensation Discussion and Analysis — Long-Term Incentive Awards Program.” Unvested equity awards reflect the market value of restricted stock andin-the-money value of options based on ITT’s December 31, 2010 closing stock price of $52.11. | |
(4) | Column (a) and column (b) amounts reflect the present value of the annual vested benefit payable under the ITT Excess Pension Plan, as of December 31, 2010 assuming a retirement at age 65. Column (c) provides the value of the benefit payable to Mr. Napolitano’s beneficiary upon death. Column (d) is inapplicable because disability would not affect retirement benefits. Column (e) provides the present value of the benefit payable by ITT if Mr. Napolitano is terminated not for cause. Column (f) provides the lump sum payable by ITT in accordance with the Special Senior Executive Severance Pay Plan in the event of a change of control. | |
(5) | No additional ITT Excess Savings Plan payments are made in the event of voluntary or involuntary termination, or termination for cause. In the case of death or disability, to the extent not already vested, the participant becomes 100% vested in the ITT match. Mr. Napolitano was fully vested in the ITT match as of December 31, 2010. Column (f) reflects the additional cash payment representing ITT contributions, which would be made following a change of control as described in the Special Senior Executive Severance Pay Plan in “Compensation Discussion and Analysis— Post-Employment Compensation — Severance Plan Arrangements.” | |
(6) | The Severance Policy includes outplacement services. Amounts shown in columns (f) are based on a current competitive bid. | |
(7) | In the event of termination not for cause, ITT will pay the company’s portion of medical and life insurance premiums ($3,740 and $560, respectively) for twelve months and in the event of a change of control, ITT will pay medical and life insurance premiums ($7,481 and $1,120, respectively) for two years. | |
(8) | Amounts in column (f) assume termination occurs immediately upon a change of control based on ITT’s December 31, 2010 closing stock price of $52.11. |
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• | All of the assets and liabilities (including whether accrued, contingent or otherwise, and subject to certain exceptions) associated with the Water business of ITT will be retained by or transferred to us or one of our subsidiaries. | |
• | All of the assets and liabilities (including whether accrued, contingent or otherwise, and subject to certain exceptions) associated with the Defense business of ITT will be retained by or transferred to Exelis or one of Exelis’s subsidiaries. | |
• | All other assets and liabilities (including whether accrued, contingent or otherwise, and subject to certain exceptions) of ITT will be retained by or transferred to ITT or one of its subsidiaries (other than us or one of our subsidiaries or Exelis and its subsidiaries). | |
• | Liabilities (including whether accrued, contingent or otherwise) related to, arising out of or resulting from businesses of ITT that were previously terminated or divested will be allocated among the parties to the extent formerly owned or managed by or associated with such parties or their respective businesses. | |
• | Each of Xylem and Exelis will assume or retain any liabilities (including under applicable federal and state securities laws) relating to, arising out of or resulting from the Form 10 registering its common stock to be distributed by ITT in the spin-off and from any disclosure documents that offer for sale the debt securities described under “Description of Material Indebtedness,” subject to exceptions for certain information for which ITT will retain liability. |
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• | Except as otherwise provided in the Distribution Agreement or any ancillary agreement, we will be responsible for any costs or expenses incurred by us in connection with the distribution, including costs and expenses relating to legal counsel, financial advisors and accounting advisory work related to the distribution. | |
• | In addition, notwithstanding the allocation described above, we, Exelis and ITT will agree that (i) ITT will be responsible for, and indemnify us against, losses related to all of the contingent liabilities (and related costs and expenses) arising out of litigation and claims alleging exposure to asbestos prior to our separation from ITT (including those that are described in ITT’s public filings with the Securities and Exchange Commission) and (ii) each party will, in accordance with each parties’ applicable percentage of responsibility, be responsible for losses related to certain contingent liabilities (and related costs and expenses) in accordance with the Distribution Agreement and any ancillary agreement. |
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• | the liabilities or alleged liabilities each such party assumed or retained pursuant to the Distribution Agreement; and | |
• | any breach by such party of the Distribution Agreement or any ancillary agreement unless such ancillary agreement expressly provides for separate indemnification therein, in which case any such indemnification claims shall be made thereunder. |
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• | Whether terms or conditions of the transaction are generally available to third-parties under similar terms or conditions; | |
• | Level of interest or benefit to the related person; | |
• | Availability of alternative suppliers or customers; and | |
• | Benefit to the Company. |
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• | Incur additional debt or issues guarantees; | |
• | create liens; | |
• | enter into certain sale and lease-back transactions; | |
• | merge or consolidate with another person; | |
• | sell, transfer, lease or otherwise dispose of assets; | |
• | liquidate or dissolve; and | |
• | enter into restrictive agreements. |
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• | each of our shareholders who we believe (based on the assumptions described below) will beneficially own more than 5% of Xylem’s outstanding common stock; | |
• | each of our current directors and the directors following the spin-off; | |
• | each officer named in the summary compensation table; and | |
• | all of our directors and executive officers following the spin-off as a group. |
Amount and | ||||||||
Nature of | ||||||||
Beneficial | ||||||||
Name and Address of Beneficial Owner | Ownership | Percent of Class | ||||||
Barrow, Hanley, Mewhinney & Strauss, LLC | 13,008,379(a | ) | 7.09 | %(a) | ||||
2200 Ross Avenue, 31st Floor | ||||||||
Dallas, TX75201-2761 |
(a) | As reported on Schedule 13G dated filed on February 11, 2011, Barrow, Hanley, Mewhinney & Strauss, LLC has sole voting power with respect to 1,059,706 shares, shared voting power with respect to 11,948,673 shares, and sole dispositive power with respect to 13,008,379 shares. |
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Shares of | ||||||||
Common Stock | ||||||||
Beneficially | Percent of | |||||||
Owned(1) | Class | |||||||
Non-Employee Directors | ||||||||
Curtis J. Crawford | 61,987 | (2) | * | |||||
Steven R. Loranger | 881,302 | (3) | * | |||||
John J. Hamre | 44,895 | (4) | * | |||||
Surya N. Mohapatra | 16,136 | (5) | * | |||||
Markos I. Tambakeras | 43,455 | (6) | * | |||||
Named Executive Officers | ||||||||
Gretchen W. McClain | 158,514 | (7) | * | |||||
Michael T. Speetzen | 16,719 | (8) | * | |||||
Frank R. Jimenez | 22,309 | (9) | * | |||||
Angela A. Buonocore | 31,982 | (10) | * | |||||
Kenneth Napolitano | 40,237 | (11) | * | |||||
Directors and Executive Officers as a Group (15 persons) | 1,428,206 | (12) | * | |||||
* | Less than 1%. | |
(1) | With respect to certain Non-Employee Directors, includes restricted stock units that have vested but are deferred until the earlier of a later date or retirement. | |
(2) | Includes options exercisable into 22,901 shares within 60 days of August 31, 2011, 1,288 restricted stock units that vest within 60 days of August 31, 2011 and 3,550 vested but deferred restricted stock units. | |
(3) | Includes 50,551 shares held by a family trust of which Mr. Loranger’s spouse is the trustee and as to which Mr. Loranger disclaims beneficial ownership and options exercisable into 721,967 shares within 60 days of August 31, 2011. | |
(4) | Includes options exercisable into 22,901 shares within 60 days of August 31, 2011, 1,288 restricted stock units that vest within 60 days of August 31, 2011 and 5,265 vested but deferred restricted stock units. | |
(5) | Includes options exercisable into 7,241 shares within 60 days of August 31, 2011, 1,288 restricted stock units that vest within 60 days of August 31, 2011 and 1,355 vested but deferred restricted stock units. | |
(6) | Includes 16,307 shares held by a family trust of which Mr. Tambakeras and his spouse are co-trustees and as to which Mr. Tambakeras disclaims beneficial ownership, options exercisable into 22,901 shares within 60 days of August 31, 2011 and 1,288 restricted stock units that vest within 60 days of August 31, 2011. | |
(7) | Includes options exercisable into 73,883 shares within 60 days of August 31, 2011. | |
(8) | Includes options exercisable into 3,996 shares within 60 days of August 31, 2011. | |
(9) | Includes options exercisable into 7,311 shares within 60 days of August 31, 2011. | |
(10) | Includes options exercisable into 15,040 shares within 60 days of August 31, 2011. | |
(11) | Includes options exercisable into 31,564 shares within 60 days of August 31, 2011. | |
(12) | Includes options exercisable into 1,035,867 shares within 60 days of August 31, 2011, 5,152 restricted stock units that vest within 60 days of August 31, 2011 and 10,170 vested but deferred restricted stock units. |
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• | diluting the voting power of shares of our common stock; | |
• | affecting the market price of our common stock; | |
• | delaying or preventing a change in control of Xylem; | |
• | making removal of our present management more difficult; or | |
• | restricting dividends and other distributions on our common stock. |
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• | a classified Board of Directors; | |
• | the availability of capital stock for issuance from time to time at the discretion of our Board of Directors; | |
• | the ability of our Board of Directors to increase the size of the board and to appoint directors to fill newly created directorships; | |
• | prohibitions against shareholders calling a special meeting of shareholders; and | |
• | requirements for advance notice for raising business or making nominations at shareholders’ meetings. |
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• | the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; | |
• | a representation that the shareholder is a holder of record of our stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; | |
• | a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons, naming such person or persons, pursuant to which the nomination or nominations are to be made by the shareholder; | |
• | such other information regarding each nominee proposed by such shareholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by our board; | |
• | the consent of each nominee to serve as a director if so elected; and | |
• | if the shareholder intends to solicit proxies in support of such shareholder’s nominee(s), a representation to that effect. |
• | a brief description of the proposal and the reasons therefor; | |
• | if the proposal involves an amendment to our amended and restated articles of incorporation or amended and restated by-laws, the language of the amendment; | |
• | any material interest of the shareholder in the proposal; and | |
• | if the shareholder intends to solicit proxies with respect to the proposal, a representation to that effect. |
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• | one-fifth or more but less than one-third; | |
• | one-third or more but less than a majority; or | |
• | a majority or more. |
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• | in good faith; | |
• | with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and | |
• | in a manner the directors reasonably believe to be in the best interests of the corporation. |
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Item | Page | |||
The Water Equipment and Services Businesses of ITT Corporation | ||||
Combined Financial Statements | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
Unaudited Interim Condensed Combined Financial Statements | ||||
F-43 | ||||
F-44 | ||||
F-45 | ||||
F-46 | ||||
F-47 | ||||
F-48 | ||||
Godwin Pumps of America, Inc. and Godwin Holdings, Ltd. and Subsidiary | ||||
(Financial Statements of a Significant Acquired Business provided pursuant to the Securities and Exchange Commission’sRegulation S-XRule 3-05) | ||||
Combined Consolidated Financial Statements | ||||
F-59 | ||||
F-60 | ||||
F-61 | ||||
F-62 |
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Stamford, Connecticut July 8, 2011 (August 22, 2011 as to Note 21) |
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Year Ended December 31 | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In millions) | ||||||||||||
Net sales | $ | 3,202 | $ | 2,849 | $ | 3,291 | ||||||
Costs of sales | 1,988 | 1,812 | 2,150 | |||||||||
Gross profit | 1,214 | 1,037 | 1,141 | |||||||||
Selling, general and administrative expenses | 737 | 667 | 721 | |||||||||
Research and development expenses | 74 | 63 | 64 | |||||||||
Restructuring charges, net | 15 | 31 | 41 | |||||||||
Operating income | 388 | 276 | 315 | |||||||||
Other income (expense), net | — | 1 | (3 | ) | ||||||||
Income before income tax expense | 388 | 277 | 312 | |||||||||
Income tax expense | 59 | 14 | 88 | |||||||||
Net income | $ | 329 | $ | 263 | $ | 224 | ||||||
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December 31 | ||||||||
2010 | 2009 | |||||||
(In millions) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 131 | $ | 81 | ||||
Receivables, net | 690 | 599 | ||||||
Inventories, net | 389 | 301 | ||||||
Prepaid expenses | 79 | 53 | ||||||
Other current assets | 47 | 54 | ||||||
Total current assets | 1,336 | 1,088 | ||||||
Plant, property and equipment, net | 454 | 334 | ||||||
Goodwill | 1,437 | 970 | ||||||
Other intangible assets, net | 416 | 91 | ||||||
Other non-current assets | 92 | 52 | ||||||
Total non-current assets | 2,399 | 1,447 | ||||||
Total assets | $ | 3,735 | $ | 2,535 | ||||
LIABILITIES AND PARENT COMPANY EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 309 | $ | 256 | ||||
Accrued and other current liabilities | 340 | 315 | ||||||
Total current liabilities | 649 | 571 | ||||||
Postretirement benefits | 163 | 140 | ||||||
Deferred income tax liability | 99 | 60 | ||||||
Other non-current liabilities | 105 | 77 | ||||||
Total non-current liabilities | 367 | 277 | ||||||
Total liabilities | 1,016 | 848 | ||||||
Parent company equity: | ||||||||
Parent company investment | 2,361 | 1,272 | ||||||
Accumulated other comprehensive income | 358 | 415 | ||||||
Total parent company equity | 2,719 | 1,687 | ||||||
Total liabilities and parent company equity | $ | 3,735 | $ | 2,535 | ||||
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Year Ended December 31 | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In millions) | ||||||||||||
Operating Activities | ||||||||||||
Net income | $ | 329 | $ | 263 | $ | 224 | ||||||
Non-cash adjustments to net income: | ||||||||||||
Depreciation and amortization | 92 | 70 | 62 | |||||||||
Deferred income taxes | (31 | ) | (36 | ) | 9 | |||||||
Share-based compensation | 9 | 9 | 10 | |||||||||
Loss from sale of business | — | — | 4 | |||||||||
Restructuring charges, net | 15 | 31 | 41 | |||||||||
Payments for restructuring | (22 | ) | (40 | ) | (30 | ) | ||||||
Changes in assets and liabilities (net of acquisitions): | ||||||||||||
Change in receivables | (45 | ) | 45 | 37 | ||||||||
Change in inventories | 7 | 62 | 28 | |||||||||
Change in accounts payable | 41 | (38 | ) | (22 | ) | |||||||
Change in accrued liabilities | 12 | (11 | ) | 13 | ||||||||
Change in accrued taxes | (17 | ) | (1 | ) | 22 | |||||||
Change in other assets | (6 | ) | (3 | ) | (1 | ) | ||||||
Change in other liabilities | 1 | 1 | 4 | |||||||||
Other, net | 10 | 18 | 7 | |||||||||
Net Cash — Operating activities | 395 | 370 | 408 | |||||||||
Investing Activities | ||||||||||||
Capital expenditures | (94 | ) | (62 | ) | (67 | ) | ||||||
Acquisitions, net of cash acquired | (1,004 | ) | (33 | ) | (23 | ) | ||||||
Other, net | 5 | 11 | 9 | |||||||||
Net Cash — Investing activities | (1,093 | ) | (84 | ) | (81 | ) | ||||||
Financing Activities | ||||||||||||
Net transfer from / (to) parent | 745 | (292 | ) | (341 | ) | |||||||
Net Cash — Financing activities | 745 | (292 | ) | (341 | ) | |||||||
Exchange rate effects on cash and cash equivalents | 3 | 6 | (9 | ) | ||||||||
Net change in cash and cash equivalents | 50 | — | (23 | ) | ||||||||
Cash and cash equivalents — beginning of year | 81 | 81 | 104 | |||||||||
Cash and Cash Equivalents — End of Year | $ | 131 | $ | 81 | $ | 81 | ||||||
Supplemental Disclosures of Cash Flow Information | ||||||||||||
Cash paid during the year for: | ||||||||||||
Income taxes (net of refunds received) | $ | 110 | $ | 52 | $ | 94 |
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Year Ended December 31 | ||||||||||||||||
Accumulated | ||||||||||||||||
Parent | Other | Total Parent | ||||||||||||||
Company | Comprehensive | Company | Comprehensive | |||||||||||||
Investment | Income | Equity | Income | |||||||||||||
(In millions) | ||||||||||||||||
Balance at December 31, 2007 | $ | 1,382 | $ | 489 | $ | 1,871 | ||||||||||
Comprehensive income: | ||||||||||||||||
Net income | 224 | — | 224 | $ | 224 | |||||||||||
Net change in postretirement benefit plans | — | (14 | ) | (14 | ) | (14 | ) | |||||||||
Net foreign currency translation adjustments | — | (138 | ) | (138 | ) | (138 | ) | |||||||||
$ | 72 | |||||||||||||||
Net (decrease) in parent company investment | (307 | ) | — | (307 | ) | |||||||||||
Balance at December 31, 2008 | $ | 1,299 | $ | 337 | $ | 1,636 | ||||||||||
Comprehensive income: | ||||||||||||||||
Net income | 263 | — | 263 | $ | 263 | |||||||||||
Net change in postretirement benefit plans | — | (3 | ) | (3 | ) | (3 | ) | |||||||||
Net foreign currency translation adjustments | — | 81 | 81 | 81 | ||||||||||||
$ | 341 | |||||||||||||||
Net (decrease) in parent company investment | (290 | ) | — | (290 | ) | |||||||||||
Balance at December 31, 2009 | $ | 1,272 | $ | 415 | $ | 1,687 | ||||||||||
Comprehensive income: | ||||||||||||||||
Net income | 329 | — | 329 | $ | 329 | |||||||||||
Net change in postretirement benefit plans | — | (4 | ) | (4 | ) | (4 | ) | |||||||||
Net foreign currency translation adjustments | — | (53 | ) | (53 | ) | (53 | ) | |||||||||
$ | 272 | |||||||||||||||
Net increase in parent company investment | 760 | — | 760 | |||||||||||||
Balance at December 31, 2010 | $ | 2,361 | $ | 358 | $ | 2,719 | ||||||||||
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NOTE 1 | SEPARATION FROM ITT CORPORATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
F-7
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NOTE 2 | NEW ACCOUNTING PRONOUNCEMENTS |
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NOTE 3 | ACQUISITIONS |
August 3, 2010 | ||||
Accounts receivable | $ | 44 | ||
Inventories | 56 | |||
Other current assets | 3 | |||
Plant, property and equipment | 82 | |||
Deferred income taxes | 1 | |||
Intangible assets(a) | ||||
Customer relationships | 107 | |||
Trademarks | 46 | |||
Proprietary technology | 14 | |||
Other non-current assets | 4 | |||
Current liabilities | (19 | ) | ||
Noncurrent liabilities | (10 | ) | ||
Net tangible and intangible assets | $ | 328 | ||
Goodwill | 252 | |||
Purchase Price | $ | 580 | ||
(a) | Trademarks are indefinite-lived intangibles. Customer relationships and proprietary technology are amortized over weighted average lives of 10 years and 20 years, respectively. |
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Incremental | ||||||||||||||||||||||||
Pre-Acquisition | Depreciation and | Transaction | ||||||||||||||||||||||
Water Co As | Godwin | Amortization | Costs | Income | Water Co Pro | |||||||||||||||||||
2009 | Reported | Operations(a) | Expense(b) | (c) | Taxes(d) | Forma | ||||||||||||||||||
Net Sales | $ | 2,849 | 197 | $ | 3,046 | |||||||||||||||||||
Net income | 263 | 50 | (16 | ) | — | (15 | ) | 282 |
Incremental | ||||||||||||||||||||||||
Pre-Acquisition | Depreciation and | Transaction | ||||||||||||||||||||||
Water Co As | Godwin Operations | Amortization | Costs | Income | Water Co Pro | |||||||||||||||||||
2010 | Reported | (a) | Expense(b) | (c) | Taxes(d) | Forma | ||||||||||||||||||
Net Sales | $ | 3,202 | 145 | $ | 3,347 | |||||||||||||||||||
Net income | 329 | 25 | (10 | ) | 3 | (6 | ) | 341 |
(a) | Godwin recognized sales of $197 and $270 during 2009 and 2010, respectively. | |
(b) | Incremental depreciation and amortization expense associated with the purchase price allocation to plant, property and equipment and finite lived intangible assets recognized as a result of the acquisition. | |
(c) | Reflects the reversal of transaction costs directly related to the acquisition of Godwin. | |
(d) | Reflects income tax impact of pro-forma adjustments and change in income tax status of Godwin Pumps of America, Inc. |
F-17
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Nova | ||||
March 23, 2010 | ||||
Accounts receivable | $ | 16 | ||
Inventories | 29 | |||
Other current assets | 4 | |||
Plant, property and equipment | 14 | |||
Deferred income taxes | (53 | ) | ||
Intangible assets(a) | ||||
Distributor relationships | 112 | |||
Trademarks | 42 | |||
Proprietary technology | 10 | |||
Other | 2 | |||
Current liabilities | (15 | ) | ||
Non-current liabilities | (8 | ) | ||
Net tangible and intangible assets | $ | 153 | ||
Goodwill | 232 | |||
Purchase Price | $ | 385 | ||
(a) | Trademarks are indefinite-lived intangibles. Customer relationships and proprietary technology are amortized over weighted average lives of 20 years and 10 years, respectively. |
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NOTE 4 | SHARE-BASED PAYMENTS |
2010 | 2009 | 2008 | ||||||||||||||||||||||||||||||||||
Other | Other | Other | ||||||||||||||||||||||||||||||||||
Water Co | Employee | Water Co | Employee | Water Co | Employee | |||||||||||||||||||||||||||||||
Compensation Cost | Employees | Allocations | 2010 Total | Employees | Allocations | 2009 Total | Employees | Allocations | 2008 Total | |||||||||||||||||||||||||||
Equity — based awards | $ | 4 | $ | 5 | $ | 9 | $ | 4 | $ | 5 | $ | 9 | $ | 4 | $ | 6 | $ | 10 | ||||||||||||||||||
Liability — based awards | — | (2 | ) | (2 | ) | — | — | — | — | 6 | 6 | |||||||||||||||||||||||||
Total | $ | 4 | $ | 3 | $ | 7 | $ | 4 | $ | 5 | $ | 9 | $ | 4 | $ | 12 | $ | 16 | ||||||||||||||||||
2010 | 2009 | 2008 | ||||||||||
Dividend yield | 1.88 | % | 2.54 | % | 1.31 | % | ||||||
Expected volatility | 27.06 | % | 38.77 | % | 28.69 | % | ||||||
Expected life (in years) | 7.0 | 4.7 | 4.7 | |||||||||
Risk-free rates | 3.06 | % | 2.20 | % | 2.31 | % | ||||||
Weighted-average grant date fair value | $ | 14.50 | $ | 9.60 | $ | 13.46 |
NOTE 5 | RESTRUCTURING CHARGES, NET |
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2010 | 2009 | 2008 | ||||||||||
By component: | ||||||||||||
Severance and other charges | $ | 17 | $ | 32 | $ | 41 | ||||||
Reversal of restructuring accruals | (2 | ) | (1 | ) | (- | ) | ||||||
Total net restructuring charge | $ | 15 | $ | 31 | $ | 41 | ||||||
By segment: | ||||||||||||
Water Infrastructure | $ | 12 | $ | 15 | $ | 17 | ||||||
Applied Water | 3 | 15 | 18 | |||||||||
Corporate and other(1) | — | 1 | 6 |
(1) | Represents amounts allocated to Water Co |
2010 | 2009 | |||||||
Restructuring accruals — 1/1 | $ | 17 | $ | 27 | ||||
Severance and other | 17 | 32 | ||||||
Cash payments | (22 | ) | (40 | ) | ||||
Other(1) | (3 | ) | (2 | ) | ||||
Restructuring accruals — 12/31 | $ | 9 | $ | 17 | ||||
By accrual type: | ||||||||
Severance accrual | $ | 8 | $ | 16 | ||||
Facility carrying and other costs accrual | 1 | 1 | ||||||
By segment: | ||||||||
Water Infrastructure | $ | 6 | $ | 10 | ||||
Applied Water | 3 | 6 | ||||||
Corporate and other(1) | — | 1 |
(1) | Represents amounts allocated to Water Co |
2010 | 2009 | |||||||
Planned reductions — 1/1 | 133 | 158 | ||||||
Additional planned reductions | 259 | 502 | ||||||
Actual reductions | (345 | ) | (527 | ) | ||||
Planned reductions — 12/31 | 47 | 133 | ||||||
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NOTE 6 | INCOME TAXES |
2010 | 2009 | 2008 | ||||||||||
Income components: | ||||||||||||
United States | $ | 65 | $ | 23 | $ | 52 | ||||||
Foreign | 323 | 254 | 260 | |||||||||
Total pre-tax income | $ | 388 | $ | 277 | $ | 312 | ||||||
Income tax expense components: | ||||||||||||
Current income tax provision: | ||||||||||||
United States — federal | $ | 29 | $ | (2 | ) | $ | 23 | |||||
United States — state and local | 3 | — | 1 | |||||||||
Foreign | 58 | 52 | 55 | |||||||||
Total current income tax provision | $ | 90 | $ | 50 | $ | 79 | ||||||
Deferred income tax provision: | ||||||||||||
United States — federal | $ | (41 | ) | $ | (44 | ) | $ | (9 | ) | |||
United States — state and local | — | 1 | — | |||||||||
Foreign | 10 | 7 | 18 | |||||||||
Total deferred income tax provision | $ | (31 | ) | $ | (36 | ) | $ | 9 | ||||
Total income tax expense | $ | 59 | $ | 14 | $ | 88 | ||||||
Effective income tax rate | 15.2 | % | 5.1 | % | 28.2 | % | ||||||
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2010 | 2009 | 2008 | ||||||||||
Tax provision at U.S. statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
Foreign restructurings | — | (20.8 | ) | — | ||||||||
Tax exempt interest | (6.4 | ) | (5.4 | ) | (4.1 | ) | ||||||
Foreign tax rate differential | (5.1 | ) | (5.4 | ) | (1.6 | ) | ||||||
Effect of repatriation of foreign earnings, net of foreign tax credits | (8.8 | ) | .2 | (1.3 | ) | |||||||
All other | 0.5 | 1.4 | 0.2 | |||||||||
Effective income tax rate | 15.2 | % | 5.0 | % | 28.2 | % | ||||||
2010 | 2009 | |||||||
Deferred Tax Assets: | ||||||||
Employee benefits | $ | 33 | $ | 29 | ||||
Accrued expenses | 24 | 31 | ||||||
Loss carryforwards | 76 | 78 | ||||||
Inventory | 3 | 2 | ||||||
Foreign tax credit | 51 | — | ||||||
Other | 4 | 3 | ||||||
Subtotal | $ | 191 | $ | 143 | ||||
Valuation allowance | (68 | ) | (71 | ) | ||||
Net deferred tax assets | $ | 123 | $ | 72 | ||||
Deferred Tax Liabilities: | ||||||||
Intangibles | $ | 122 | $ | 68 | ||||
Plant, property, and equipment | 13 | 6 | ||||||
Total deferred tax liabilities | $ | 135 | $ | 74 | ||||
F-22
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2010 | 2009 | |||||||
Current assets | $ | 47 | $ | 53 | ||||
Non-current assets | $ | 52 | $ | 16 | ||||
Current liabilities | $ | (12 | ) | $ | (11 | ) | ||
Other non-current liabilities | $ | (99 | ) | $ | (60 | ) |
Attribute: | Amount | First Year of Expiration | ||||||
U.S. net operating loss | $ | 22 | December 31, 2019 | |||||
State net operating loss | $ | 2 | December 31, 2022 | |||||
Federal and state capital loss | $ | 16 | December 31, 2013 | |||||
US tax credits | $ | 51 | December 31, 2020 | |||||
Foreign net operating loss | $ | 233 | December 31, 2011 |
2010 | 2009 | 2008 | ||||||||||
Unrecognized tax benefits — 1/1 | $ | 19 | $ | 20 | $ | 13 | ||||||
Additions for: | ||||||||||||
Current year tax positions | 20 | 1 | 7 | |||||||||
Prior year tax positions | — | — | 2 | |||||||||
Business combinations | 5 | — | — | |||||||||
Reductions for: | ||||||||||||
Prior year tax positions | (1 | ) | (2 | ) | (2 | ) | ||||||
Unrecognized tax benefits — 12/31 | $ | 43 | $ | 19 | $ | 20 | ||||||
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Jurisdiction | Earliest Open Year | |||
Austria | 2004 | |||
Canada | 2006 | |||
Germany | 2000 | |||
Italy | 2005 | |||
Netherlands | 2006 | |||
Sweden | 2005 | |||
United Kingdom | 2008 | |||
United States | 2007 |
NOTE 7 | RECEIVABLES, NET |
2010 | 2009 | |||||||
Trade accounts receivable | $ | 703 | $ | 603 | ||||
Other | 19 | 26 | ||||||
Receivables, gross | 722 | 629 | ||||||
Allowance for doubtful accounts | (25 | ) | (24 | ) | ||||
Allowance for cash discounts | (7 | ) | (6 | ) | ||||
Receivables, net | $ | 690 | $ | 599 | ||||
2010 | 2009 | 2008 | ||||||||||
Allowance for doubtful accounts — 1/1 | $ | 24 | $ | 16 | $ | 17 | ||||||
Additions charged to expense | 6 | 11 | 9 | |||||||||
Write-offs | (5 | ) | (3 | ) | (10 | ) | ||||||
Allowance for doubtful accounts — 12/31 | $ | 25 | $ | 24 | $ | 16 | ||||||
NOTE 8 | INVENTORIES, NET |
2010 | 2009 | |||||||
Finished goods | $ | 166 | $ | 128 | ||||
Work in process | 32 | 20 | ||||||
Raw materials | 191 | 153 | ||||||
Inventories, net | $ | 389 | $ | 301 | ||||
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NOTE 9 | PLANT, PROPERTY AND EQUIPMENT, NET |
2010 | 2009 | |||||||
Land and improvements | $ | 20 | $ | 20 | ||||
Buildings and improvements | 200 | 185 | ||||||
Machinery and equipment | 567 | 537 | ||||||
Equipment held for lease or rental | 129 | 54 | ||||||
Furniture, fixtures and office equipment | 81 | 78 | ||||||
Construction work in progress | 51 | 30 | ||||||
Other | 15 | 11 | ||||||
Plant, property and equipment, gross | 1,063 | 915 | ||||||
Less — accumulated depreciation | (609 | ) | (581 | ) | ||||
Plant, property and equipment, net | $ | 454 | $ | 334 | ||||
NOTE 10 | GOODWILL AND OTHER INTANGIBLE ASSETS, NET |
Water | ||||||||||||
Infrastructure | Applied Water | Total | ||||||||||
Goodwill — 1/1/2009 | $ | 362 | $ | 573 | $ | 935 | ||||||
Goodwill acquired | — | 17 | 17 | |||||||||
Foreign currency | 27 | 1 | 28 | |||||||||
Other | — | (10 | ) | (10 | ) | |||||||
Goodwill — 12/31/2009 | $ | 389 | $ | 581 | $ | 970 | ||||||
Goodwill acquired | 493 | — | 493 | |||||||||
Foreign currency | (9 | ) | (17 | ) | (26 | ) | ||||||
Goodwill — 12/31/2010 | $ | 873 | $ | 564 | $ | 1,437 | ||||||
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December 31, 2010 | December 31, 2009 | |||||||||||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | |||||||||||||||||||||
Amount | Amortization | Net Intangibles | Amount | Amortization | Net Intangibles | |||||||||||||||||||
Customer and distributor relationships | $ | 270 | $ | (29 | ) | $ | 241 | $ | 45 | $ | (17 | ) | $ | 28 | ||||||||||
Proprietary technology | 68 | (18 | ) | 50 | 44 | (15 | ) | 29 | ||||||||||||||||
Trademarks | 33 | (9 | ) | 24 | 24 | (7 | ) | 17 | ||||||||||||||||
Patents and other | 21 | (13 | ) | 8 | 19 | (11 | ) | 8 | ||||||||||||||||
Indefinite-lived intangibles | 93 | — | 93 | 9 | — | 9 | ||||||||||||||||||
Other intangibles | $ | 485 | $ | (69 | ) | $ | 416 | $ | 141 | $ | (50 | ) | $ | 91 | ||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||
$ | 29 | $ | 29 | $ | 28 | $ | 27 | $ | 26 |
NOTE 11 | ACCOUNTS PAYABLE |
2010 | 2009 | |||||||
Trade accounts payable | $ | 297 | $ | 238 | ||||
Other | 12 | 18 | ||||||
Accounts payable | $ | 309 | $ | 256 | ||||
NOTE 12 | ACCRUED AND OTHER CURRENT LIABILITIES |
2010 | 2009 | |||||||
Compensation and other employee-benefits | $ | 161 | $ | 135 | ||||
Customer-related liabilities | 25 | 22 | ||||||
Accrued warranty costs | 36 | 34 | ||||||
Accrued income taxes | 20 | 25 | ||||||
Deferred income tax liability | 12 | 11 | ||||||
Other | 86 | 88 | ||||||
Accrued and other current liabilities | $ | 340 | $ | 315 | ||||
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NOTE 13 | POSTRETIREMENT BENEFIT PLANS |
2010 | 2009 | |||||||||||||||||||||||
Other | Other | |||||||||||||||||||||||
Pension | Benefits | Total | Pension | Benefits | Total | |||||||||||||||||||
Fair value of plan assets | $ | 78 | $ | — | $ | 78 | $ | 50 | $ | — | $ | 50 | ||||||||||||
Projected benefit obligation | (233 | ) | (13 | ) | (246 | ) | (183 | ) | (11 | ) | (194 | ) | ||||||||||||
Funded status | $ | (155 | ) | $ | (13 | ) | $ | (168 | ) | $ | (133 | ) | $ | (11 | ) | $ | (144 | ) | ||||||
Amounts reported within: | ||||||||||||||||||||||||
Accrued liabilities | $ | (4 | ) | $ | (1 | ) | $ | (5 | ) | $ | (3 | ) | $ | (1 | ) | $ | (4 | ) | ||||||
Non-current liabilities | (151 | ) | (12 | ) | (163 | ) | (130 | ) | (10 | ) | (140 | ) |
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2010 | 2009 | |||||||||||||||||||||||
Other | Other | |||||||||||||||||||||||
Pension | Benefits | Total | Pension | Benefits | Total | |||||||||||||||||||
Net actuarial loss (gain) | $ | 47 | $ | — | $ | 47 | $ | 44 | $(2 | ) | $ | 42 | ||||||||||||
Prior service cost | 4 | — | 4 | 3 | — | 3 | ||||||||||||||||||
Total | $ | 51 | $ | — | $ | 51 | $ | 47 | $(2 | ) | $ | 45 | ||||||||||||
2010 | 2009 | |||||||||||||||||||||||
U.S. | Int’l | Total | U.S. | Int’l | Total | |||||||||||||||||||
Change in benefit obligation | ||||||||||||||||||||||||
Benefit obligation — 1/1 | $ | 58 | $ | 125 | $ | 183 | $ | 53 | $ | 106 | $ | 159 | ||||||||||||
Service cost | 2 | 3 | 5 | 2 | 3 | 5 | ||||||||||||||||||
Interest cost | 3 | 7 | 10 | 3 | 6 | 9 | ||||||||||||||||||
Amendments /other | 2 | — | 2 | — | — | — | ||||||||||||||||||
Actuarial (gain)/loss | (1 | ) | 9 | 8 | 2 | 4 | 6 | |||||||||||||||||
Benefits paid | (3 | ) | (5 | ) | (8 | ) | (2 | ) | (3 | ) | (5 | ) | ||||||||||||
Liabilities assumed through acquisition | — | 29 | 29 | — | — | — | ||||||||||||||||||
Foreign currency translation | — | 4 | 4 | — | 9 | 9 | ||||||||||||||||||
Benefit obligation — 12/31 | $ | 61 | $ | 172 | $ | 233 | $ | 58 | $ | 125 | $ | 183 | ||||||||||||
2010 | 2009 | |||||||
Change in benefit obligation | ||||||||
Benefit obligation — 1/1 | $ | 11 | $ | 11 | ||||
Interest cost | 1 | 1 | ||||||
Actuarial loss | 2 | — | ||||||
Benefits paid | (1 | ) | (1 | ) | ||||
Benefit obligation — 12/31 | $ | 13 | $ | 11 | ||||
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2010 | 2009 | |||||||||||||||||||||||
U.S. | Int’l | Total | U.S. | Int’l | Total | |||||||||||||||||||
Change in plan assets | ||||||||||||||||||||||||
Plan assets — 1/1 | $ | 41 | $ | 9 | $ | 50 | $ | 33 | $ | 6 | $ | 39 | ||||||||||||
Actual return on plan assets | 5 | 3 | 8 | 8 | 5 | 13 | ||||||||||||||||||
Employer contributions | — | 2 | 2 | 3 | 1 | 4 | ||||||||||||||||||
Benefits paid | (3 | ) | — | (3 | ) | (3 | ) | (4 | ) | (7 | ) | |||||||||||||
Assets acquired through acquisition | — | 21 | 21 | — | — | — | ||||||||||||||||||
Foreign currency translation | — | — | — | — | 1 | 1 | ||||||||||||||||||
Plan assets — 12/31 | $ | 43 | $ | 35 | $ | 78 | $ | 41 | $ | 9 | $ | 50 | ||||||||||||
Funded status at end of year | $ | (18 | ) | $ | (137 | ) | $ | (155 | ) | $ | (17 | ) | $ | (116 | ) | $ | (133 | ) | ||||||
2010 | 2009 | |||||||
Projected benefit obligation | $ | 209 | $ | 183 | ||||
Accumulated benefit obligation | 192 | 166 | ||||||
Fair value of plan assets | 54 | 49 |
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2010 | 2009 | 2008 | ||||||||||||||||||||||||||||||||||
U.S. | Int’l | Total | U.S. | Int’l | Total | U.S. | Int’l | Total | ||||||||||||||||||||||||||||
Net periodic benefit cost | ||||||||||||||||||||||||||||||||||||
Service cost | $ | 2 | $ | 3 | $ | 5 | $ | 2 | $ | 3 | $ | 5 | $ | 1 | $ | 3 | $ | 4 | ||||||||||||||||||
Interest cost | 3 | 7 | 10 | 3 | 6 | 9 | 3 | 7 | 10 | |||||||||||||||||||||||||||
Expected return on plan assets | (4 | ) | (1 | ) | (5 | ) | (4 | ) | (1 | ) | (5 | ) | (4 | ) | — | (4 | ) | |||||||||||||||||||
Amortization of net actuarial loss | — | 1 | 1 | — | 1 | 1 | — | 1 | 1 | |||||||||||||||||||||||||||
Amortization of prior service cost | 1 | — | 1 | 1 | — | 1 | 1 | — | 1 | |||||||||||||||||||||||||||
Total net periodic benefit cost | 2 | 10 | 12 | 2 | 9 | 11 | 1 | 11 | 12 | |||||||||||||||||||||||||||
Other changes in plan assets and benefit obligations recognized in other comprehensive income | ||||||||||||||||||||||||||||||||||||
Net (gain)/loss | (2 | ) | 6 | 4 | (1 | ) | 6 | 5 | 19 | 4 | 23 | |||||||||||||||||||||||||
Prior service cost | 2 | — | 2 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Amortization of net actuarial loss | — | (1 | ) | (1 | ) | — | (1 | ) | (1 | ) | — | (1 | ) | (1 | ) | |||||||||||||||||||||
Amortization of prior service cost | (1 | ) | — | (1 | ) | (1 | ) | — | (1 | ) | (1 | ) | — | (1 | ) | |||||||||||||||||||||
Total change recognized in other comprehensive income | (1 | ) | 5 | 4 | (2 | ) | 5 | 3 | 18 | 3 | 21 | |||||||||||||||||||||||||
Total impact from net periodic benefit cost and changes in other comprehensive income | $ | 1 | $ | 15 | $ | 16 | $ | — | $ | 14 | $ | 14 | $ | 19 | $ | 14 | $ | 33 | ||||||||||||||||||
2010 | 2009 | 2008 | ||||||||||
Net periodic benefit cost | ||||||||||||
Interest cost | $ | 1 | $ | 1 | $ | 1 | ||||||
Total net periodic benefit cost | 1 | 1 | 1 | |||||||||
Other changes in plan assets and benefit obligations recognized in other comprehensive income | ||||||||||||
Net loss (gain) | 2 | — | (1 | ) | ||||||||
Total changes recognized in other comprehensive income | 2 | — | (1 | ) | ||||||||
Total impact from net periodic benefit cost and changes in other comprehensive income | $ | 3 | $ | 1 | $ | — | ||||||
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Other | ||||||||||||
Pension | Benefits | Total | ||||||||||
Net actuarial loss | $ | 1 | $ | — | 1 | |||||||
Prior service cost | 1 | — | 1 | |||||||||
Total | 2 | — | 2 | |||||||||
2010 | 2009 | |||||||||||||||
U.S. | Int’l | U.S. | Int’l | |||||||||||||
Obligation Assumptions: | ||||||||||||||||
Discount rate | 5.83 | % | 5.18 | % | 6.00 | % | 5.55 | % | ||||||||
Rate of future compensation increase | 4.00 | % | 3.40 | % | 4.00 | % | 3.48 | % | ||||||||
Cost Assumptions: | ||||||||||||||||
Discount rate | 6.00 | % | 5.55 | % | 6.25 | % | 5.79 | % | ||||||||
Expected return on plan assets | 9.00 | % | 7.20 | % | 9.00 | % | 6.97 | % | ||||||||
Rate of future compensation increase | 4.00 | % | 3.41 | % | 4.00 | % | 3.48 | % |
2010 | 2009 | |||||||
Obligation Assumptions: | ||||||||
Discount rate | 5.50 | % | 6.00 | % | ||||
Rate of future compensation increase | 4.00 | % | 4.00 | % | ||||
Cost Assumptions: | ||||||||
Discount rate | 6.00 | % | 6.25 | % | ||||
Rate of future compensation increase | 4.00 | % | 4.00 | % |
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2010 | 2009 | 2008 | ||||||||||
Expected rate of return on plan assets | 9.0 | % | 9.0 | % | 9.0 | % | ||||||
Actual rate of return on plan assets | 14.1 | % | 24.1 | % | (31.2 | )% |
Allocation | ||||||||||||
2010 | 2009 | Range | ||||||||||
Domestic equities | 25 | % | 25 | % | 25%-75% | |||||||
Alternative investments | 47 | 47 | 20%-45% | |||||||||
International equities | 18 | 17 | 10%-45% | |||||||||
Fixed income | 2 | 4 | 0%-60% | |||||||||
Cash and other | 8 | 7 | 0%-30% |
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• | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. | |
• | Level 2 inputs are other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices (in non-active markets or in active markets for similar assets or liabilities), inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data by correlation or other means. | |
• | Level 3 inputs are unobservable inputs for the assets or liabilities. |
• | Equity securities — Equities (including common and preferred shares, domestic listed and foreign listed, closed end mutual funds and exchange traded funds) are generally valued at the closing price reported on the major market on which the individual securities are traded at the measurement date. As all equity securities held by the Company are publicly traded in active markets, the securities are classified within Level 1 of the fair value hierarchy. | |
• | Open ended mutual funds, collective trusts and commingled funds — Open ended mutual funds, collective trusts and commingled funds are measured at NAV. These funds are generally classified within Level 2 of the fair value hierarchy. | |
• | Private equity — The valuation of limited partnership interests in private equity funds may require significant management judgment. The NAV reported by the asset manager is adjusted when it is determined that NAV is not representative of fair value. In making such an assessment, a variety of factors are reviewed, including, but not limited to, the timeliness of NAV as reported by the asset manager and changes in general economic and market conditions subsequent to the last NAV reported by the asset manager. These funds are generally classified within Level 3 of the fair value hierarchy. | |
• | Absolute return (hedge funds) — The valuation of limited partnership interests in hedge funds may require significant management judgment. The NAV reported by the asset manager is adjusted when it is determined that NAV is not representative of fair value. In making such an assessment, a variety of factors are reviewed, including, but not limited to, the timeliness of NAV as reported by the asset manager and changes in general economic and market conditions subsequent to the last NAV reported by the asset manager. Depending on how these investments can be redeemed and the extent of any adjustments to NAV, hedge funds are classified within either Level 2 (redeemable within 90 days) or Level 3 (redeemable beyond 90 days) of the fair value hierarchy. |
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2010 | 2009 | |||||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
Asset Category | ||||||||||||||||||||||||||||||||
Equity securities | $ | 42 | $ | 32 | $ | 8 | $ | 2 | $ | 23 | $ | 14 | $ | 7 | $ | 2 | ||||||||||||||||
Private equity(a) | 13 | — | 2 | 11 | 11 | — | — | 11 | ||||||||||||||||||||||||
Absolute return (hedge funds)(b) | 8 | — | 3 | 5 | 8 | — | 3 | 5 | ||||||||||||||||||||||||
Commodities, fixed income and other | 15 | 1 | 13 | 1 | 8 | 1 | 6 | 1 | ||||||||||||||||||||||||
Total | $ | 78 | $ | 33 | $ | 26 | $ | 19 | $ | 50 | $ | 15 | $ | 16 | $ | 19 | ||||||||||||||||
(a) | Private equity includes a diversified range of strategies, including buyout funds, distressed funds, venture and growth equity funds and mezzanine funds. | |
(b) | Absolute return hedge funds primarily include fund of funds that invest in a diversified portfolio of other hedge funds that employ a range of investment strategies and fixed income/multi-strategy absolute return funds, which invest in multiple investment strategies with the intent of diversifying risk and reducing volatility. |
Equity | Private | Absolute | ||||||||||||||||||
Securities | Equity | Return | Other | Total | ||||||||||||||||
Level 3 balance — 12/31/08 | $ | 3 | $ | 10 | $ | 8 | $ | 1 | $ | 22 | ||||||||||
Unrealized gains, net | 1 | — | 1 | — | 2 | |||||||||||||||
Purchases/(sales), net | — | 1 | (2 | ) | — | (1 | ) | |||||||||||||
Transfers out, net | (2 | ) | — | (2 | ) | — | (4 | ) | ||||||||||||
Level 3 balance — 12/31/09 | 2 | 11 | 5 | 1 | 19 | |||||||||||||||
Realized gains, net | — | 1 | — | — | 1 | |||||||||||||||
Transfers out, net | — | (1 | ) | — | — | (1 | ) | |||||||||||||
Level 3 balance — 12/31/10 | $ | 2 | $ | 11 | $ | 5 | $ | 1 | $ | 19 | ||||||||||
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Other | ||||||||
Pension | Benefits | |||||||
2011 | $ | 8 | $ | 1 | ||||
2012 | 9 | 1 | ||||||
2013 | 9 | 1 | ||||||
2014 | 10 | 1 | ||||||
2015 | 11 | 1 | ||||||
2016 — 2020 | 64 | 6 |
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NOTE 14 | COMPREHENSIVE INCOME |
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In millions) | ||||||||||||
Net income | $ | 329 | $ | 263 | $ | 224 | ||||||
Other comprehensive (loss) income: | ||||||||||||
Net foreign currency translation adjustment | (53 | ) | 81 | (138 | ) | |||||||
Net change in postretirement benefit plans, net of tax | (4 | ) | (3 | ) | (14 | ) | ||||||
Other comprehensive (loss) income | (57 | ) | 78 | (152 | ) | |||||||
Comprehensive income | $ | 272 | $ | 341 | $ | 72 | ||||||
Net change in postretirement benefit plans, net of tax: | ||||||||||||
Prior service cost from plan amendment, net of tax benefit of $1 in 2010 | $ | (2 | ) | $ | (1 | ) | $ | (1 | ) | |||
Net actuarial loss arising during the period, net of tax benefit of $2, $2 and $7, respectively | (4 | ) | (3 | ) | (15 | ) | ||||||
Unrealized changes in postretirement benefit plans, net of tax: | ||||||||||||
Amortization of prior service costs, net of tax | 1 | 1 | 1 | |||||||||
Amortization of net actuarial loss, net of tax | 1 | — | 1 | |||||||||
Total amortization from accumulated other comprehensive income into net periodic benefit cost, net of tax | 2 | 1 | 2 | |||||||||
Net change in postretirement benefit plans, net of tax | $ | (4 | ) | $ | (3 | ) | $ | (14 | ) | |||
2010 | 2009 | |||||||
Post retirement benefit plans | $ | (36 | ) | $ | (32 | ) | ||
Cumulative currency translation adjustment | 394 | 447 | ||||||
Total | 358 | 415 | ||||||
NOTE 15 | OPERATING LEASES |
2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | |||||||||||||||||||
Minimum rental payments | $ | 48 | $ | 39 | $ | 28 | $ | 17 | $ | 15 | $ | 29 |
NOTE 16 | WARRANTIES |
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2010 | 2009 | 2008 | ||||||||||
Warranty accrual — 1/1 | $ | 34 | $ | 32 | $ | 32 | ||||||
Accruals for product warranties issued in the period | 22 | 23 | 23 | |||||||||
Payments | (28 | ) | (18 | ) | (22 | ) | ||||||
Changes in pre-existing warranties | 8 | (3 | ) | (1 | ) | |||||||
Warranty accrual — 12/31 | $ | 36 | $ | 34 | $ | 32 | ||||||
NOTE 17 | CONTINGENCIES AND OTHER LEGAL MATTERS |
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NOTE 18 | RELATED PARTY TRANSACTIONS AND PARENT COMPANY EQUITY |
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December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In millions) | ||||||||||||
Intercompany sales and purchases, net | $ | 1 | $ | 5 | $ | 4 | ||||||
Intercompany dividends | (180 | ) | (110 | ) | (51 | ) | ||||||
Cash pooling and general financing activities | (235 | ) | (339 | ) | (417 | ) | ||||||
Cash transfers for acquisitions, divestitures and investments | 1,012 | 29 | 14 | |||||||||
Corporate allocations including income taxes | 162 | 125 | 143 | |||||||||
Total net transfers from/(to) parent | $ | 760 | $ | (290 | ) | $ | (307 | ) | ||||
NOTE 19 | SEGMENT INFORMATION |
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Revenue | Operating Income | Operating Margin | ||||||||||||||||||||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | ||||||||||||||||||||||||||||
Water Infrastructure | $ | 1,930 | $ | 1,651 | $ | 1,824 | $ | 276 | $ | 227 | $ | 220 | 14.3 | % | 13.7 | % | 12.1 | % | ||||||||||||||||||
Applied Water | 1,327 | 1,254 | 1,527 | 158 | 109 | 162 | 11.9 | % | 8.7 | % | 10.6 | % | ||||||||||||||||||||||||
Eliminations/Other(a) | (55 | ) | (56 | ) | (60 | ) | (46 | ) | (60 | ) | (67 | ) | — | % | — | % | — | % | ||||||||||||||||||
Total | $ | 3,202 | $ | 2,849 | $ | 3,291 | $ | 388 | $ | 276 | $ | 315 | 12.1 | % | 9.7 | % | 9.6 | % | ||||||||||||||||||
(a) | Other consists of allocated ITT corporate office expenses including compensation, benefits, occupancy, depreciation, and other administrative costs, as well as charges related to certain matters, such as environmental liabilities, that are managed at a corporate level and are not included in the business segments in evaluating performance or allocating resources. |
Total Assets | Capital Expenditures | Depreciation and Amortization | ||||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||||||||
Water Infrastructure | $ | 2,377 | $ | 1,278 | $ | 55 | $ | 33 | $ | 40 | $ | 60 | $ | 38 | $ | 33 | ||||||||||||||||
Applied Water | 1,209 | 1,214 | 38 | 27 | 26 | 30 | 30 | 29 | ||||||||||||||||||||||||
Other(a) | 149 | 43 | 1 | 2 | 1 | 2 | 2 | — | ||||||||||||||||||||||||
Total | $ | 3,735 | $ | 2,535 | $ | 94 | $ | 62 | $ | 67 | $ | 92 | $ | 70 | $ | 62 | ||||||||||||||||
(a) | Other consists of allocated ITT corporate assets, which principally consist of deferred tax assets, certain property, plant and equipment, and other assets. |
Plant, Property & | ||||||||||||||||||||
Revenue(A) | Equipment, Net | |||||||||||||||||||
2010 | 2009 | 2008 | 2010 | 2009 | ||||||||||||||||
Geographic Information | ||||||||||||||||||||
United States | $ | 1,125 | $ | 956 | $ | 1,104 | $ | 168 | $ | 73 | ||||||||||
Europe | 1,262 | 1,217 | 1,416 | 219 | 196 | |||||||||||||||
Asia Pacific | 343 | 269 | 303 | 49 | 46 | |||||||||||||||
Other | 472 | 407 | 468 | 18 | 19 | |||||||||||||||
Total | $ | 3,202 | $ | 2,849 | $ | 3,291 | $ | 454 | $ | 334 | ||||||||||
(a) | Revenue to external customers is attributed to individual regions based upon the destination of product or service delivery. |
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Revenue | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Pumps, accessories, parts and service | $ | 2,671 | $ | 2,376 | $ | 2,738 | ||||||
Other(a) | 531 | 473 | 553 | |||||||||
Total | $ | 3,202 | $ | 2,849 | $ | 3,291 | ||||||
(a) | Other includes treatment equipment, analytical instrumentation, valves, heat exchangers, and controls |
NOTE 20 | SUBSEQUENT EVENT |
NOTE 21 | IMMATERIAL CORRECTIONS |
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2009 | ||||||||||||
As | ||||||||||||
Previously | As | |||||||||||
Reported | Adjustments | Adjusted | ||||||||||
Adjustments to Combined Statement of Cash Flows: | ||||||||||||
Changes in receivables | $ | 32 | $ | 13 | $ | 45 | ||||||
Net Cash — Operating activities | 357 | 13 | 370 | |||||||||
Net transfer from/(to) parent | (279 | ) | (13 | ) | (292 | ) | ||||||
Net Cash — Financing activities | (279 | ) | (13 | ) | (292 | ) | ||||||
Adjustments to Combined Statement of Parent Company Equity and Comprehensive Income: | ||||||||||||
Net (decrease) in parent company investment | $ | (218 | ) | $ | (72 | ) | $ | (290 | ) | |||
Net foreign currency translation adjustments | 22 | 59 | 81 | |||||||||
Comprehensive Income | 282 | 59 | 341 |
2008 | ||||||||||||
As | ||||||||||||
Previously | As | |||||||||||
Reported | Adjustments | Adjusted | ||||||||||
Adjustments to Combined Statement of Cash Flows: | ||||||||||||
Change in receivables | $ | 50 | $ | (13 | ) | $ | 37 | |||||
Net Cash — Operating activities | 421 | (13 | ) | 408 | ||||||||
Net transfer from/(to) parent | (397 | ) | 56 | (341 | ) | |||||||
Net Cash — Financing activities | (397 | ) | 56 | (341 | ) | |||||||
Exchange rate effects on cash and cash equivalents | 34 | (43 | ) | (9 | ) | |||||||
Adjustments to Combined Statement of Parent Company Equity and Comprehensive Income: | ||||||||||||
Net (decrease) in parent company investment | $ | (379 | ) | $ | 72 | $ | (307 | ) | ||||
Net foreign currency translation adjustments | (79 | ) | (59 | ) | (138 | ) | ||||||
Comprehensive Income | 131 | (59 | ) | 72 | ||||||||
Parent Company Investment | 1,227 | 72 | 1,299 | |||||||||
Accumulated Other Comprehensive Income | 396 | (59 | ) | 337 | ||||||||
Total Parent Company Equity | 1,623 | 13 | 1,636 |
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FOR THE SIX MONTHS ENDED JUNE 30, 2011 and 2010
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CONDENSED COMBINED STATEMENTS OF OPERATIONS
Period Ended June 30 | 2011 | 2010 | ||||||
(Unaudited) | ||||||||
(In millions) | ||||||||
Net sales | $ | 1,861 | $ | 1,461 | ||||
Costs of sales | 1,145 | 915 | ||||||
Gross profit | 716 | 546 | ||||||
Selling, general and administrative expenses | 450 | 334 | ||||||
Research and development expenses | 50 | 35 | ||||||
Restructuring, net | — | 7 | ||||||
Operating income | 216 | 170 | ||||||
Other (expense), net | — | (3 | ) | |||||
Income before income tax expense | 216 | 167 | ||||||
Income tax expense | 66 | 26 | ||||||
Net income | $ | 150 | $ | 141 | ||||
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ITT | ||||||||||||
Dividend | ||||||||||||
Pro Forma | ||||||||||||
June 30, | June 30, | |||||||||||
2011 | 2011 | December 31, 2010 | ||||||||||
(Unaudited) | ||||||||||||
(In millions) | ||||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 138 | $ | 138 | $ | 131 | ||||||
Receivables, net | 771 | 771 | 690 | |||||||||
Inventories, net | 436 | 436 | 389 | |||||||||
Prepaid expenses | 70 | 70 | 79 | |||||||||
Other current assets | 56 | 56 | 47 | |||||||||
Total current assets | 1,471 | 1,471 | 1,336 | |||||||||
Plant, property and equipment, net | 467 | 467 | 454 | |||||||||
Goodwill | 1,492 | 1,492 | 1,437 | |||||||||
Other intangible assets, net | 417 | 417 | 416 | |||||||||
Other non-current assets | 102 | 102 | 92 | |||||||||
Total non-current assets | 2,478 | 2,478 | 2,399 | |||||||||
Total assets | $ | 3,949 | $ | 3,949 | $ | 3,735 | ||||||
LIABILITIES AND PARENT COMPANY EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | $ | 307 | $ | 307 | $ | 309 | ||||||
Accrued and other current liabilities | 395 | 395 | 340 | |||||||||
Total current liabilities | 702 | 702 | 649 | |||||||||
Postretirement benefits | 174 | 174 | 163 | |||||||||
Deferred income tax liability | 98 | 98 | 99 | |||||||||
Dividend payable to ITT | 817 | — | — | |||||||||
Other non-current liabilities | 111 | 111 | 105 | |||||||||
Total non-current liabilities | 1,200 | 383 | 367 | |||||||||
Total liabilities | 1,902 | 1,085 | 1,016 | |||||||||
Parent company equity: | ||||||||||||
Parent company investment | 1,545 | 2,362 | 2,361 | |||||||||
Accumulated other comprehensive income | 502 | 502 | 358 | |||||||||
Total parent company equity | 2,047 | 2,864 | 2,719 | |||||||||
Total liabilities and parent company equity | $ | 3,949 | $ | 3,949 | $ | 3,735 | ||||||
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Six Months Ended June 30 | 2011 | 2010 | ||||||
(Unaudited) | ||||||||
(In millions) | ||||||||
Operating Activities | ||||||||
Net income | $ | 150 | $ | 141 | ||||
Non-cash adjustments to net income: | ||||||||
Depreciation and amortization | 68 | 39 | ||||||
Share-based compensation | 5 | 5 | ||||||
Restructuring charges, net | — | 7 | ||||||
Payments for restructuring | (6 | ) | (15 | ) | ||||
Changes in assets and liabilities (net of acquisitions): | ||||||||
Change in receivables | (54 | ) | (45 | ) | ||||
Change in inventories | (31 | ) | (33 | ) | ||||
Change in accounts payable | (14 | ) | 26 | |||||
Change in accrued liabilities | 3 | (4 | ) | |||||
Change in accrued taxes | 26 | (11 | ) | |||||
Change in other assets | 1 | (2 | ) | |||||
Change in other liabilities | 10 | 5 | ||||||
Other, net | 3 | 5 | ||||||
Net Cash — Operating activities | 161 | 118 | ||||||
Investing Activities | ||||||||
Capital expenditures | (53 | ) | (24 | ) | ||||
Acquisitions, net of cash acquired | — | (391 | ) | |||||
Other, net | 5 | 1 | ||||||
Net Cash — Investing activities | (48 | ) | (414 | ) | ||||
Financing Activities | ||||||||
Net transfer (to)/from parent | (112 | ) | 326 | |||||
Net Cash — Financing activities | (112 | ) | 326 | |||||
Exchange rate effects on cash and cash equivalents | 6 | (5 | ) | |||||
Net change in cash and cash equivalents | 7 | 25 | ||||||
Cash and cash equivalents — beginning of year | 131 | 81 | ||||||
Cash and Cash Equivalents — End of Period | $ | 138 | $ | 106 | ||||
Supplemental Disclosures of Cash Flow Information | ||||||||
Cash paid during the period for: | ||||||||
Income taxes (net of refunds received) | $ | 18 | $ | 34 |
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Six Months Ended June 30 | 2011 | 2010 | ||||||
(Unaudited) | ||||||||
Net income | $ | 150 | $ | 141 | ||||
Other comprehensive income (loss): | ||||||||
Net change in postretirement benefit plans | 1 | 1 | ||||||
Net foreign currency translation adjustment | 143 | (144 | ) | |||||
Other comprehensive income (loss) | 144 | (143 | ) | |||||
Comprehensive income | $ | 294 | $ | (2 | ) | |||
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NOTE 1 | SEPARATION FROM ITT CORPORATION AND BASIS OF PRESENTATION |
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NOTE 2 | NEW ACCOUNTING PRONOUNCEMENTS |
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NOTE 3 | ACQUISITIONS |
NOTE 4 | INCOME TAXES |
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NOTE 5 | RECEIVABLES, NET |
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Trade accounts receivable | $ | 782 | $ | 703 | ||||
Other | 20 | 19 | ||||||
Receivables, gross | 802 | 722 | ||||||
Allowance for doubtful accounts | (26 | ) | (25 | ) | ||||
Allowance for cash discounts | (5 | ) | (7 | ) | ||||
Receivables, net | $ | 771 | $ | 690 | ||||
NOTE 6 | INVENTORIES, NET |
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Finished goods | $ | 180 | $ | 166 | ||||
Work in process | 33 | 32 | ||||||
Raw materials | 223 | 191 | ||||||
Inventories, net | $ | 436 | $ | 389 | ||||
NOTE 7 | PLANT, PROPERTY AND EQUIPMENT, NET |
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Land and improvements | $ | 21 | $ | 20 | ||||
Buildings and improvements | 214 | 200 | ||||||
Machinery and equipment | 602 | 567 | ||||||
Equipment held for lease or rental | 149 | 129 | ||||||
Furniture, fixtures and office equipment | 84 | 81 | ||||||
Construction work in progress | 48 | 51 | ||||||
Other | 23 | 15 | ||||||
Plant, property and equipment, gross | 1,141 | 1,063 | ||||||
Less — accumulated depreciation | (674 | ) | (609 | ) | ||||
Plant, property and equipment, net | $ | 467 | $ | 454 | ||||
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NOTE 8 | GOODWILL AND OTHER INTANGIBLE ASSETS, NET |
Water | ||||||||||||
Infrastructure | Applied Water | Total | ||||||||||
Goodwill — 12/31/2010 | $ | 873 | $ | 564 | $ | 1,437 | ||||||
Foreign currency | 39 | 16 | 55 | |||||||||
Goodwill — 6/30/2011 | $ | 912 | $ | 580 | $ | 1,492 | ||||||
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Gross | Gross | |||||||||||||||||||||||
Carrying | Accumulated | Net | Carrying | Accumulated | Net | |||||||||||||||||||
Amount | Amortization | Intangibles | Amount | Amortization | Intangibles | |||||||||||||||||||
Customer and distributor relationships | $ | 282 | $ | (42 | ) | $ | 240 | $ | 270 | $ | (29 | ) | $ | 241 | ||||||||||
Proprietary technology | 70 | (21 | ) | 49 | 68 | (18 | ) | 50 | ||||||||||||||||
Trademarks | 34 | (10 | ) | 24 | 33 | (9 | ) | 24 | ||||||||||||||||
Patents and other | 22 | (15 | ) | 7 | 21 | (13 | ) | 8 | ||||||||||||||||
Indefinite-lived intangibles | 97 | — | 97 | 93 | — | 93 | ||||||||||||||||||
Other intangibles | $ | 505 | $ | (88 | ) | $ | 417 | $ | 485 | $ | (69 | ) | $ | 416 | ||||||||||
NOTE 9 | ACCOUNTS PAYABLE |
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Trade accounts payable | $ | 296 | $ | 297 | ||||
Other | 11 | 12 | ||||||
Accounts payable | $ | 307 | $ | 309 | ||||
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NOTE 10 | ACCRUED AND OTHER CURRENT LIABILITIES |
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Compensation and other employee-benefits | $ | 167 | $ | 161 | ||||
Customer-related liabilities | 32 | 25 | ||||||
Accrued warranty costs | 33 | 36 | ||||||
Accrued income taxes | 58 | 20 | ||||||
Deferred income tax liability | 15 | 12 | ||||||
Other accrued liabilities | 90 | 86 | ||||||
Accrued and other current liabilities | $ | 395 | $ | 340 | ||||
NOTE 11 | POSTRETIREMENT BENEFIT PLANS |
2011 | 2010 | |||||||||||||||||||||||||||||||||||||||
Total | Other | Total | Other | |||||||||||||||||||||||||||||||||||||
U.S. | Int’l | Pension | Benefits | Total | U.S. | Int’l | Pension | Benefits | Total | |||||||||||||||||||||||||||||||
Net periodic benefit cost | ||||||||||||||||||||||||||||||||||||||||
Service cost | $ | 1 | $ | 2 | $ | 3 | $ | — | $ | 3 | $ | 1 | $ | 1 | $ | 2 | $ | — | $ | 2 | ||||||||||||||||||||
Interest cost | 2 | 4 | 6 | — | 6 | 2 | 3 | 5 | — | 5 | ||||||||||||||||||||||||||||||
Expected return on plan assets | (2 | ) | (1 | ) | (3 | ) | — | (3 | ) | (2 | ) | — | (2 | ) | — | (2 | ) | |||||||||||||||||||||||
Amortization of net actuarial loss | — | 1 | 1 | — | 1 | — | 1 | 1 | — | 1 | ||||||||||||||||||||||||||||||
Net periodic benefit cost | $ | 1 | $ | 6 | $ | 7 | $ | — | $ | 7 | $ | 1 | $ | 5 | $ | 6 | $ | — | $ | 6 | ||||||||||||||||||||
NOTE 12 | SHARE-BASED PAYMENTS |
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June 30, 2011 | June 30, 2010 | |||||||||||||||||||||||
Other | Other | |||||||||||||||||||||||
Water Co | Employee | Water Co | Employee | |||||||||||||||||||||
Compensation Cost | Employees | Allocations | 2011 Total | Employees | Allocations | 2010 Total | ||||||||||||||||||
Equity-based awards | $ | 1 | $ | 3 | $ | 4 | $ | 1 | $ | 3 | $ | 4 | ||||||||||||
Liability-based awards | 1 | 1 | 2 | 1 | — | 1 | ||||||||||||||||||
Total | $ | 2 | $ | 4 | $ | 6 | $ | 2 | $ | 3 | $ | 5 | ||||||||||||
NOTE 13 | WARRANTIES |
2011 | 2010 | |||||||
Warranty accrual — 1/1 | $ | 36 | $ | 34 | ||||
Accruals for product warranties issued in the period | 8 | 15 | ||||||
Payments | (11 | ) | (12 | ) | ||||
Warranty accrual — 6/30 | $ | 33 | $ | 37 | ||||
NOTE 14 | RELATED PARTY TRANSACTIONS AND PARENT COMPANY EQUITY |
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NOTE 15 | CONTINGENCIES AND OTHER LEGAL MATTERS |
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NOTE 16 | SEGMENT INFORMATION |
Revenue | Operating Income | Operating Margin | ||||||||||||||||||||||
Six Months Ended June 30 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||
Water Infrastructure | $ | 1,153 | $ | 820 | $ | 158 | $ | 103 | 13.7 | % | 12.6 | % | ||||||||||||
Applied Water | 740 | 669 | 97 | 92 | 13.1 | % | 13.8 | % | ||||||||||||||||
Eliminations | (32 | ) | (28 | ) | — | — | — | — | ||||||||||||||||
Corporate and Other | — | — | (39 | ) | (25 | ) | — | — | ||||||||||||||||
Total | $ | 1,861 | $ | 1,461 | $ | 216 | $ | 170 | 11.6 | % | 11.6 | % | ||||||||||||
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NOTE 17 | SUBSEQUENT EVENT |
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(In thousands) | ||||
Product revenue | $ | 69,658 | ||
Rental and service revenue | 75,559 | |||
Total revenues | 145,217 | |||
Cost of product revenue | 44,472 | |||
Cost of rental and service revenues | 26,718 | |||
Total cost of revenues | 71,190 | |||
Gross profit | 74,027 | |||
Selling, general and administrative expenses | 47,832 | |||
Operating income | 26,195 | |||
Other expense: | ||||
Loss on foreign currency forward contracts | 290 | |||
Interest and other expense, net | 242 | |||
Total other expense | 532 | |||
Income before income taxes | 25,663 | |||
Income tax expense | 832 | |||
Net income | 24,831 | |||
Retained earnings, beginning | 144,305 | |||
Shareholders’ distributions | (37,138 | ) | ||
Retained earnings, ending | $ | 131,998 | ||
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(In thousands) | ||||
Cash flows from operating activities | ||||
Net income | $ | 24,831 | ||
Non-cash adjustments to reconcile net income to net cash provided by operating activities: | ||||
Depreciation and amortization | 10,221 | |||
Deferred income taxes | (79 | ) | ||
Payments less than expense for retirement plan | (64 | ) | ||
Loss on foreign currency forward contracts | 290 | |||
Change in: | ||||
Accounts receivables | (608 | ) | ||
Inventories | 3,162 | |||
Prepaid expenses and other assets | 121 | |||
Accounts payables and accrued expense | 928 | |||
Income taxes payable | 630 | |||
Proceeds from settlement of foreign currency forward contracts | 1,015 | |||
Cash provided by operating activities | $ | 40,447 | ||
Cash flows from investing activities | ||||
Purchases of property and equipment | $ | (11,103 | ) | |
Proceeds from sale of property and equipment to third parties | 1,912 | |||
Proceeds from sale of property and equipment to related party | 1,700 | |||
Cash used in investing activities | $ | (7,491 | ) | |
Cash flows from financing activities | ||||
Shareholders’ distributions | $ | (33,769 | ) | |
Repayments of borrowings to related parties | (2,411 | ) | ||
Repayments of borrowings to unrelated parties | (3,464 | ) | ||
Cash used in financing activities | (39,644 | ) | ||
Effect of exchange rates on cash and cash equivalents | (161 | ) | ||
Net decrease in cash and cash equivalents | (6,849 | ) | ||
Cash and cash equivalents, beginning of period | 8,113 | |||
Cash and cash equivalents, end of period | $ | 1,264 | ||
Supplemental disclosure of cash flow information | ||||
Cash paid for interest | $ | 13 | ||
Cash paid for taxes, net of refunds | $ | 692 | ||
Noncash investing and financing activities | ||||
Distribution of net assets to Shareholders | $ | 3,354 | ||
Forgiveness of related party debt, recognized as a distribution to shareholders | $ | 9,181 | ||
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1. | Description of Business and Basis of Presentation |
2. | Summary of Significant Accounting Principles |
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• | Components and finished equipment — actual cost | |
• | Spare parts — average cost (approximates thefirst-in, first-out method) |
Buildings and improvements | 50 years | |
Machinery and equipment — Rental | 5 to 10 years | |
Hose, pipe and fittings — Rental | 3 to 5 years | |
Plant machinery and equipment | 7 years | |
Vehicles | 5 years | |
Office furniture and equipment | 10 years | |
Leasehold improvements | Lease term |
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Net income | $ | 24,831 | ||
Foreign currency translation adjustment | (1,750 | ) | ||
Pension liability adjustments | (255 | ) | ||
Total comprehensive income | $ | 22,826 | ||
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3. | Derivative Financial Instrument |
4. | Income Taxes |
Current income taxes: | ||||
State | $ | 167 | ||
Foreign | 743 | |||
Total | 910 | |||
Deferred income taxes: | ||||
State | (6 | ) | ||
Foreign | (72 | ) | ||
Total | (78 | ) | ||
Total taxes | $ | 832 | ||
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5. | Retirement Benefits |
Net periodic pension cost | $ | 427,000 | ||
Employer contributions | $ | 404,000 | ||
Participant contributions | $ | 139,000 | ||
Benefits paid | $ | 389,000 | ||
Related to net periodic pension cost: | ||||
Weighted average discount rate | 6.0 | % | ||
Expected long-term rate of return on plan assets | 7.5 | % | ||
Expected rate of salary increases | 2.9 | % |
6. | Related Party Transactions |
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7. | Commitments and Contingencies |
Period from August 3 to December 31, 2010 | $ | 2,239 | ||
2011 | 5,256 | |||
2012 | 4,453 | |||
2013 | 3,116 | |||
2014 | 1,649 | |||
2015 | 972 | |||
Total | $ | 17,685 | ||
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8. | Subsequent Events |
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