COMMITMENTS AND CONTINGENCIES

9 Months Ended

Oct. 02, 2021

Commitments and Contingencies Disclosure [Abstract]

From time to time, we are involved in legal proceedings that are incidental to the operation of our business. Historically, these proceedings have alleged damages relating to asbestos and 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 defend vigorously against all 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 existing legal proceedings will have a material adverse impact on our financial statements, unless otherwise noted below.

Asbestos Matters

Prior to the divestiture described below, former subsidiaries of ITT, including ITT LLC and Goulds Pumps LLC, have been sued, along with many other companies in product liability lawsuits alleging personal injury due to purported asbestos exposure. These claims generally allege that certain products sold by these entities or their subsidiaries prior to 1985 contained a part manufactured by a third party (e.g., a gasket) which contained asbestos. To the extent these third-party parts may have contained asbestos, it was encapsulated in the gasket (or other) material and was non-friable. ITT LLC and Goulds Pumps LLC are wholly owned subsidiaries of InTelCo Management LLC (InTelCo), a former subsidiary of ITT.

On June 30, 2021, the Company entered into a Membership Interest Purchase Agreement (the Purchase Agreement) with Sapphire TopCo, Inc. (Buyer), a wholly owned subsidiary of Delticus HoldCo, L.P., which is a portfolio company of the private equity firm Warburg Pincus LLC. Under the Purchase Agreement, the Company transferred 100% of the equity interests of InTelCo to the Buyer, effective as of July 1, 2021, along with a cash contribution from the Company of $398 to InTelCo. As InTelCo was the obligor for the Company's asbestos-related liabilities and policyholder of the related insurance assets through its subsidiaries ITT LLC and Goulds Pumps LLC, the rights and obligations related to these items transferred upon the sale. In addition, pursuant to the Purchase Agreement, the Buyer and InTelCo have indemnified the Company and its affiliates for legacy asbestos-related liabilities and other product liabilities, and the Company has indemnified InTelCo and its affiliates for all other historical liabilities of InTelCo. This indemnification is not subject to any cap or time limitation. In connection with the sale, the Company and its Board of Directors received a solvency opinion from an independent advisory firm that InTelCo was solvent and adequately capitalized after giving effect to the transaction.

Following the completion of the transfer, the Company no longer has any obligation with respect to pending and future asbestos claims relating to these matters. As such, InTelCo has been deconsolidated from our 2021 financial results, as we no longer maintain control of the entity. Therefore, all associated assets and liabilities are no longer reported on the consolidated balance sheet. The transaction resulted in a pre-tax gain of $88.8. Additionally, the Company recorded tax expense as a result of the reversal of previously recorded deferred tax assets of $116.9, resulting in an after-tax loss of $28.1 recorded in the second quarter of 2021.

The following is a summary of the impacts of the divestiture of InTelCo:


Cash and cash equivalents	$	(398.0)
Current asbestos-related assets	(91.0)
Long-term asbestos-related assets	(310.4)
Accrued liabilities	91.2
Long-term asbestos-related liabilities	797.0
Gain on divestiture of legacy asbestos-related assets and liabilities before income tax	$	88.8
Less: income tax expense	116.9
Loss on divestiture of legacy asbestos-related assets and liabilities, net of tax	$	(28.1)

Asbestos-Related Costs (Benefit), Net

Prior to the divestiture of the entity holding legacy asbestos-related assets and liabilities, the Company recognized an estimated asbestos liability for pending claims and claims expected to be filed in the future, including legal fees. In the third quarter of 2020, we extended the measurement period over which we estimate the legacy asbestos liability to include pending claims and claims estimated to be filed through 2052, including legal fees, reflecting the full time period over which we expected claims to be filed against InTelCo. Previous estimates included pending claims and claims expected to be filed over the next 10 years. Additionally, prior to the divestiture of the entity holding legacy asbestos-related assets and liabilities, the Company recorded an asbestos-related asset composed of probable insurance recoveries.

The following table summarizes our total net asbestos-related costs (benefit).


	Three Months Ended				Nine Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Asbestos provision(a)	$	—	$	5.5	$	14.4	$	29.1
Gain on divestiture before income tax	—		—		(88.8)		—
Net asbestos remeasurement cost(b)	—		135.9		—		135.9
Insurance settlement agreements(c)	—		—		—		(48.3)
Asbestos-related costs (benefit), net	$	—	$	141.4	$	(74.4)	$	116.7

(a)Includes certain administrative costs such as legal-related costs for insurance asset recoveries and transaction costs related to the divestiture of the entity holding legacy asbestos-related assets and liabilities. The asbestos provision for the three and nine months ended September 26, 2020 includes amounts to maintain a rolling 10-year provision prior to the transition to a full horizon estimate.

(b)In the third quarter of 2020, we extended our projection to include pending claims and claims expected to be filed through 2052, reflecting the full time period over which we expected asbestos claims to be filed against InTelCo.

(c)In March 2020, we finalized a settlement agreement with a group of insurers to settle responsibility for claims under certain insurance policies for a lump sum payment of $66.4, resulting in a benefit of $52.5. During June 2020, we entered into a settlement agreement with an insurer accelerating payments previously included in a buyout agreement, resulting in a loss of $4.2.

The following table provides a rollforward of the estimated legacy asbestos liability and related assets.


	October 2, 2021						September 26, 2020
For the Nine Months Ended	Liability		Asset		Net		Liability		Asset		Net
Beginning balance	$	932.0	$	444.7	$	487.3	$	817.6	$	386.8	$	430.8
Asbestos provision(a)	13.4		(1.0)		14.4		35.4		6.3		29.1
Asbestos remeasurement(b)	—		—		—		155.7		19.8		135.9

Insurance settlement agreements	—		—		—		—		48.3		(48.3)
Net cash activity(a)	(57.2)		(42.3)		(14.9)		(60.7)		(51.8)		(8.9)
Divestiture of legacy asbestos-related assets and liabilities	(888.2)		(401.4)		(486.8)		—		—		—
Ending balance	$	—	$	—	$	—	$	948.0	$	409.4	$	538.6
Current portion	$	—	$	—			$	91.3	$	91.0
Noncurrent portion	$	—	$	—			$	856.7	$	318.4

Environmental Matters

In the ordinary course of business, we are subject to federal, state, local, and foreign environmental laws and regulations. We are responsible, or are alleged to be responsible, for ongoing environmental investigation and site remediation. These sites are in various stages of investigation or remediation and in many of these proceedings our liability is considered de minimis. We have received notification from the U.S. Environmental Protection Agency, and from similar state and foreign environmental agencies, that a number of sites formerly or currently owned or operated by 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 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 our estimated environmental liability.


For the Nine Months Ended	October 2, 2021		September 26, 2020
Environmental liability - beginning balance	$	58.3	$	61.9
Change in estimates for pre-existing accruals:
Continuing operations	—		1.2
Discontinued operations	(0.1)		(1.6)
Accruals added during the period for new matters	1.0		—
Payments	(7.2)		(2.9)
Foreign currency	(0.2)		—
Environmental liability - ending balance	$	51.8	$	58.6

Environmental-related assets, including a Qualified Settlement Fund and estimated recoveries from insurance providers and other third parties, were $12.9 and $19.6 as of October 2, 2021 and September 26, 2020, respectively.

We are currently involved with 27 active environmental investigation and remediation sites. As of October 2, 2021, we have estimated the potential high-end liability range of environmental-related matters to be $90.3.

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.