COMMITMENTS AND CONTINGENCIES

From time to time, we are involved in legal proceedings that are incidental to the operation of our businesses. Some of these proceedings allege damages relating to environmental exposures, intellectual property matters, copyright infringement, personal injury claims, employment and employee benefit matters, government contract issues and commercial or contractual disputes and acquisitions or divestitures. We will continue to aggressively defend all such claims. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information including our assessment of the merits of the particular claim, as well as our current reserves and insurance coverage, we do not expect that such legal proceedings will have a material adverse impact on our financial statements, unless otherwise noted below.

Asbestos Matters

ITT, including its subsidiary Goulds Pumps, Inc. (Goulds Pumps), has been sued, along with many other companies in product liability lawsuits alleging personal injury due to asbestos exposure. These claims generally allege that certain products sold by us or our subsidiaries prior to 1985 contained a part manufactured by a third party (e.g., a gasket) which contained asbestos. To the extent these third-party parts may have contained asbestos, it was encapsulated in the gasket (or other) material and was non-friable. As of September 30, 2015, there were 38 thousand pending active claims against ITT, including Goulds Pumps, filed in various state and federal courts alleging injury as a result of exposure to asbestos. Activity related to these asserted asbestos claims during the period was as follows:



For the Nine Months Ended September 30 (in thousands)	2015		2014
Pending claims – Beginning	62		79
New claims	3		3
Settlements	(1	)	(2	)
Dismissals	(26	)	(12	)
Pending claims – Ending	38		68
Pending inactive claims^(a)	—		18
Pending active claims	38		50


(a)	Inactive claims represent pending claims in Mississippi filed in 2004 or prior, which have been excluded from our asbestos measurement because the plaintiffs cannot demonstrate a significant compensable loss. As such, management believes these claims have little-to-no value. As of September 30, 2015, all inactive claims have been dismissed.

Frequently, plaintiffs are unable to identify any ITT or Goulds Pumps product as a source of asbestos exposure. Our experience to date is that a majority of resolved claims are dismissed without any payment from the Company. Management believes that a large majority of the pending claims have little or no value. In addition, because claims are sometimes dismissed in large groups, the average cost per resolved claim can fluctuate significantly from period to period. ITT expects more asbestos-related suits will be filed in the future, and ITT will continue to aggressively defend or seek a reasonable resolution, as appropriate.

Asbestos litigation is a unique form of litigation. Frequently, the plaintiff sues a large number of defendants and does not state a specific claim amount. After filing of the complaint, the plaintiff engages defendants in settlement negotiations to establish a settlement value based on certain criteria, including the number of defendants in the case. Rarely do the plaintiffs seek to collect all damages from one defendant. Rather, they seek to spread the liability, and thus the payments, among many defendants. As a result of this and other factors, the Company is unable to estimate the maximum potential exposure to pending claims and claims estimated to be filed over the next 10 years.

Estimating our exposure to pending asbestos claims and those that may be filed in the future is subject to significant uncertainty and risk as there are multiple variables that can affect the timing, severity, quality, quantity and resolution of claims. Any predictions with respect to the variables impacting the estimate of the asbestos liability and related asset are subject to even greater uncertainty as the projection period lengthens. In light of the uncertainties and variables inherent in the long-term projection of the Company's asbestos exposures, although it is probable that the Company will incur additional costs for asbestos claims filed beyond the next 10 years, which additional costs may be material, we do not believe there is a reasonable basis for estimating those costs at this time.

The asbestos liability and related receivables reflect management's best estimate of future events. However, future events affecting the key factors and other variables for either the asbestos liability or the related receivables could cause actual costs or recoveries to be materially higher or lower than currently estimated. Due to these uncertainties, as well as our inability to reasonably estimate any additional asbestos liability for claims which may be filed beyond the next 10 years, it is not possible to predict the ultimate cost of resolving all pending and unasserted asbestos claims. We believe it is possible that future events affecting the key factors and other variables within the next 10 years, as well as the cost of asbestos claims filed beyond the next 10 years, net of expected recoveries, could have a material adverse effect on our financial statements.

Income Statement Costs / Benefit

In the third quarter of each year, we conduct our annual asbestos remeasurement with the assistance of outside consultants to review and update the underlying assumptions used in our asbestos liability and related asset estimates. In each remeasurement, the underlying assumptions are updated based on our actual experience since our previous annual remeasurement and we reassess the appropriate reference period used in determining each assumption and our expectations regarding future conditions, including inflation.

Based on the results of this study, in the third quarter of 2015, we decreased our estimated undiscounted asbestos liability, including legal fees, by $52.7, reflecting a decrease in costs the company estimates will be incurred to resolve all pending claims, as well as unasserted claims estimated to be filed over the next 10 years. The decrease in our estimated liability is a result of several developments, including favorable experience in the ratio of dismissed claims versus settled claims and lower settlement values. These favorable factors were offset in part by an increasing number of cases expected to be adjudicated. Further, in the third quarter of 2015, the Company decreased its estimated asbestos-related assets by $7.9, primarily due to the decrease in the estimated liability.

Further, in the third quarter of 2015, ITT entered into a settlement agreement with an insurer to settle responsibility for certain insured claims, resulting in a benefit of $1.2.

During the second quarter of 2015, the Company changed its asbestos defense strategy and retained a single firm to defend the Company in all asbestos litigation. This long-term strategy streamlines the Company’s management of cases and significantly reduces defense costs. Our agreement with the defense firm is currently limited to a certain set of claims and the remaining claims are expected to be transitioned to the firm within the next four years. Based on the terms of the agreement, the Company adjusted its asbestos liability and related assets in the second quarter of 2015 and recognized a net benefit of $100.7 for the revised estimate of the cost to defend pending claims and claims expected to be filed over the next 10 years.

In addition to the charges associated with our annual remeasurement, we record a net asbestos charge each quarter to maintain a rolling 10-year forecast period. The table below summarizes the total net asbestos charges for the three and nine months ended September 30, 2015 and 2014.



	Three Months						Nine Months
For the Periods Ended September 30	2015			2014			2015			2014
Asbestos provision	$	15.7		$	16.3		$	47.0		$	48.0
Defense cost adjustment	—			—			(100.7		)	—
Net asbestos remeasurement	(44.8		)	(58.8		)	(44.8		)	(58.8		)
Settlement agreement	(1.2		)	—			(1.2		)	—
Asbestos-related (benefit) costs, net	$	(30.3	)	$	(42.5	)	$	(99.7	)	$	(10.8	)

Changes in Financial Position

The Company's estimated asbestos exposure, net of expected recoveries, for the resolution of all pending claims and claims estimated to be filed in the next 10 years was $631.9 and $746.8 as of September 30, 2015 and December 31, 2014, respectively. The following table provides a rollforward of the estimated asbestos liability and related assets for the nine months ended September 30, 2015.



	Liability			Asset			Net
Balance as of December 31, 2014	$	1,223.2		$	476.4		$	746.8
Asbestos provision	54.8			7.8			47.0
Defense cost adjustment	(124.2		)	(23.5		)	(100.7		)
Asbestos remeasurement	(52.7		)	(7.9		)	(44.8		)
Settlement agreement	—			1.2			(1.2		)
Net cash activity	(52.3		)	(37.1		)	(15.2		)
Balance as of September 30, 2015	$	1,048.8		$	416.9		$	631.9
Current portion	$	87.6		$	74.5
Noncurrent portion	$	961.2		$	342.4

Environmental

In the ordinary course of business, we are subject to federal, state, local, and foreign environmental laws and regulations. We are responsible, or are alleged to be responsible, for ongoing environmental investigation and site remediation. These sites are in various stages of investigation and/or remediation and in many of these proceedings our liability is considered de minimis. We have received notification from the U.S. Environmental Protection Agency, and from similar state and foreign environmental agencies, that a number of sites formerly or currently owned and/or operated by ITT, and other properties or water supplies that may be or have been impacted from those operations, contain disposed or recycled materials or wastes and require environmental investigation and/or remediation. These sites include instances where we have been identified as a potentially responsible party under federal and state environmental laws and regulations.

The following table provides a rollforward of the estimated environmental liability and related assets for the nine months ended September 30, 2015.



	Liability			Asset			Net
Balance as of December 31, 2014	$	89.9		$	7.7		$	82.2
Change in estimates for pre-existing accruals
Continuing operations	1.4			0.3			1.1
Discontinued operations	(2.8		)	(0.9		)	(1.9		)
Accruals added during the period for new matters	—			—			—
Net cash activity	(9.1		)	(0.4		)	(8.7		)
Foreign currency	(0.4		)	—			(0.4		)
Balance as of September 30, 2015	$	79.0		$	6.7		$	72.3

We are currently involved with 53 active environmental investigation and remediation sites. At September 30, 2015, we have estimated the potential high-end liability range of environmental-related matters to be $136.

As actual costs incurred at identified sites in future periods may vary from our current estimates given the inherent uncertainties in evaluating environmental exposures, management believes it is possible that the outcome of these uncertainties may have a material adverse effect on our financial statements.

Other Matters

The Company has received a civil subpoena from the Department of Defense, Office of the Inspector General requesting documents pertaining to certain products manufactured by the Company’s Interconnect Solutions segment that are purchased or used by the U.S. government. The Company is cooperating with the request. The inquiry is in the early stages and the Company is unable to estimate the timing or outcome of the matter.