Table of Contents
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT
ANNUAL REPORT
| (Mark One) | ||
|
þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended December 31, 2008 | ||
|
OR
|
||
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the Transition period from to | ||
Commission File
No. 1-5672
ITT
CORPORATION
| Incorporated in the State of Indiana |
13-5158950 (I.R.S. Employer Identification No.) |
1133 Westchester
Avenue, White Plains, NY 10604
(Principal Executive Office)
Telephone Number: (914) 641-2000
(Principal Executive Office)
Telephone Number: (914) 641-2000
Securities
registered pursuant to Section 12(b) of the Act, all of
which are registered on The New York Stock Exchange,
Inc.:
COMMON STOCK, $1
PAR VALUE
Securities
registered pursuant to Section 12(g) of the Act:
None.
Indicate by check
mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check
mark if the registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the Securities
Exchange
Act. Yes o No þ
Indicate by check
mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check
mark if disclosure of delinquent filers pursuant to
Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule
12b-2 of the
Exchange Act. (Check one):
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a
smaller reporting company)
Indicate by check
mark whether the registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act). Yes
o No
þ
The aggregate market
value of the common stock of the registrant held by
non-affiliates of the registrant on June 30, 2008 was
approximately $11.5 billion.
As of
January 31, 2009, there were outstanding 181.8 million
shares of common stock, $1 par value, of the registrant.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the
registrant’s definitive proxy statement filed or to be
filed with the Securities and Exchange Commission pursuant to
Regulation 14A involving the election of directors at the
annual meeting of the shareholders of the registrant scheduled
to be held on May 12, 2009, are incorporated by reference
in Part III of this
Form 10-K.
TABLE OF
CONTENTS
* Included
pursuant to Instruction 3 to Item 401(b) of
Regulation S-K.
Table of Contents
PART I
| ITEM 1. | BUSINESS |
(In millions,
except per share amounts, unless otherwise stated)
GENERAL
ITT Corporation,
with 2008 sales and revenues of $11.7 billion, is a global
multi-industry leader in high-technology engineering and
manufacturing engaged directly and through its subsidiaries. We
generate revenue and cash through the design, manufacture, and
sale of a wide-range of engineered products and the provision of
services.
Unless the context
otherwise indicates, references herein to “ITT,”
“the Company,” and such words as “we,”
“us,” and “our” include ITT Corporation and
its subsidiaries. ITT Industries, Inc. was incorporated on
September 5, 1995 in Indiana. On July 1, 2006, ITT
Industries, Inc. changed its name to ITT Corporation. Reference
is made to “– COMPANY HISTORY AND CERTAIN
RELATIONSHIPS.”
Our World
Headquarters is located at 1133 Westchester Avenue, White
Plains, NY 10604. Our telephone number is
(914) 641-2000.
BUSINESS
SEGMENTS
For financial
reporting purposes our three principal business segments are
referred to as Defense Electronics & Services, Fluid
Technology, and Motion & Flow Control.
The table below
shows, in percentage terms, consolidated sales and revenues and
operating income attributable to each of our business segments
for the last three years.
| YEAR ENDED DECEMBER 31 | 2008 | 2007 | 2006 | ||||||||||||
|
Sales and Revenues
|
|||||||||||||||
|
Defense Electronics & Services
|
54 | % | 46 | % | 47 | % | |||||||||
|
Fluid Technology
|
33 | 39 | 39 | ||||||||||||
|
Motion & Flow Control
|
13 | 15 | 14 | ||||||||||||
| 100 | % | 100 | % | 100 | % | ||||||||||
|
Operating Income
|
|||||||||||||||
|
Defense Electronics & Services
|
60 | % | 52 | % | 50 | % | |||||||||
|
Fluid Technology
|
39 | 44 | 46 | ||||||||||||
|
Motion & Flow Control
|
16 | 19 | 19 | ||||||||||||
|
Corporate and Other
|
(15 | ) | (15 | ) | (15 | ) | |||||||||
| 100 | % | 100 | % | 100 | % | ||||||||||
Defense
Electronics & Services
Defense
Electronics & Services develops, manufactures, and
supports high-technology electronic systems and components for
worldwide defense and commercial markets, and provides
communications systems and engineering and applied research.
Principal
manufacturing facilities are located in the United Kingdom
and United States of America.
Defense
Electronics & Services consists of two major areas
(i) Systems and Services and (ii) Defense Electronics.
Systems and Services consists of our Systems and Advanced
Engineering & Sciences Divisions. Defense Electronics
consists of our Electronic Systems, Communications Systems,
Space Systems, Night Vision, Electronic Systems, and
Intelligence & Information Warfare Divisions.
Systems and
Services
The Systems Division
provides systems integration, communications, engineering and
technical support solutions ranging from strategic command and
control and tactical warning and attack assessment, to testing,
training and range evaluation. The Systems Division also
provides total systems support solutions for combat equipment,
tactical information systems and facilities management.
The Advanced
Engineering & Sciences Division provides a wide range
of research, technologies and engineering support services to
government, industrial and commercial customers. In addition,
the division provides products and services for information
collection, information processing and control, information
security, homeland defense, and telecommunications systems. The
division will also lead the air traffic control modernization
program for the U.S. Federal Aviation Administration
(“FAA”).
Defense
Electronics
The Electronic
Systems Division (“ESD”) produces a broad range of
next generation information, situational awareness and
Electronic Warfare (“EW”) systems for mission success
and survivability for multiple military aircraft, surface ships,
submarines, and ground vehicles. These systems include the
Advanced Integrated Digital Electronic Warfare System for F-16,
Suite of Integrated Radio Frequency Countermeasures for the
U.S. Army and Special Operations Forces, and the Integrated
Defensive Electronic Countermeasures system for the
U.S. Navy’s fixed-wing
F/A-18 E/F
fighter aircraft. The ESD products and technologies include
integrated EW systems for self-protection, reconnaissance and
surveillance, Counter Improvised Explosive Devices
(“CIEDs”) for vehicles, mine defense, naval
command/sonar applications, and submarine communication and
tracking. This includes the CREW Vehicle Receiver Jammer CIED
system (“CREW”) delivered to the U.S. Navy in
support of ongoing military operations. In addition, ESD
produces aircraft armament suspension/release equipment for
front line fighters such as the U.S. Air Force F-22 Raptor,
Joint Strike Fighter and the U.S. Navy’s
F/A-18E/F,
electronic
2
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weapons interface
systems, and advanced composite structures for the
U.S. Marine Corp MH-53K helicopter and other aircraft
subsystems, as well as Gilfillan mobile, ship and land-based
precision landing and air traffic systems for landing assistance
in extreme physical environments.
The Communications
Systems Division (“CSD”) develops wireless networking
systems for tactical military and government systems. CSD is the
world’s largest provider of military VHF radios, including
the Single Channel Ground and Airborne Radio System
(“SINCGARS”) and Advanced Tactical Communications
Systems. CSD is developing new technologies such as Soldier
Radio Waveform, the U.S. next-generation capability to
support network centric-operations, and already provides many
similar capabilities through its SpearNet systems for the
individual soldier. CSD’s latest fully programmable radio
systems, including the SINCGARS SideHat, Soldier Radios and
Sensor Radios, are supporting transformational experimentation
by the U.S. Army. In addition, CSD provides highly reliable
radio systems to the FAA for air traffic control, including the
newest ground-to-air radios, complete border control security
systems, and reference class Global Positioning System
(“GPS”) receivers.
The Space Systems
Division (“SSD”) provides innovative remote sensing
and navigation solutions to customers in the defense,
intelligence, space science, and commercial aerospace
communities. SSD solutions include intelligence, surveillance
and reconnaissance, high-resolution commercial imaging, earth
and space science, climate and environmental monitoring, GPS
navigation, image and data processing and dissemination, and
space control and missile defense.
The Night Vision
Division (“NVD”) supplies the night vision equipment
available to U.S. and allied military forces. The equipment
includes night vision goggles for fixed and rotary-wing
aviators, night vision goggles, monoculars and weapon sights for
ground forces, and image intensifier tubes required for all of
these systems. NVD is developing advanced technology for the
digital battlefield that will allow improved mobility and
situational awareness. NVD is also supplying high-performance
night vision devices to federal, state and local law enforcement
officers in support of homeland security.
The
Intelligence & Information Warfare Division
(“IIW”) designs, develops, manufactures, tests, and
deploys hardware and software for the U.S. Government, law
enforcement agencies, and commercial use. IIW products are
utilized in numerous applications, including protecting soldiers
in the field, detecting illegal activity in prisons and secured
facilities, and providing high-technology means of
communication. IIW products include field-proven protection
technologies such as the Mobile Multi-Band Jammer 2.1 and the
Multi-User Panoramic Synthetic Vision System, detection and
surveillance solutions products such as the Cell Hound
tm,
which detects and locates all active cell phones within or near
a facility, and The
Guard-Zonetm
Surveillance System, which provides a complete 360° radar
image for surveillance and automated sensing and tracking of
intruders. IIW also provides high-tech communications solutions
that support tactical field devices and Mission Operations
Centers over a secure web-based portal for remote monitoring and
administration of devices.
Sales and revenues
for the Defense Electronics & Services business
segment were $6.3 billion, $4.2 billion, and
$3.7 billion for 2008, 2007 and 2006, respectively. Funded
order backlog was $5.2 billion at the end of 2008 and 2007,
and $3.9 billion in 2006.
The following table
illustrates the percentage of sales and revenues for the listed
categories for the periods specified:
| YEAR ENDED DECEMBER 31 | 2008 | 2007 | 2006 | ||||||||||||
|
Systems and Services
|
|||||||||||||||
|
Systems
|
22 | % | 32 | % | 32 | % | |||||||||
|
Advanced Engineering & Sciences
|
15 | 12 | 9 | ||||||||||||
|
Defense Electronics
|
|||||||||||||||
|
Electronic Systems
|
24 | 11 | 10 | ||||||||||||
|
Communications Systems
|
18 | 19 | 21 | ||||||||||||
|
Space Systems
|
10 | 14 | 17 | ||||||||||||
|
Night Vision
|
8 | 12 | 11 | ||||||||||||
|
Intelligence & Information Warfare
|
3 | – | – | ||||||||||||
| 100 | % | 100 | % | 100 | % | ||||||||||
Defense
Electronics & Services sells its products to a wide
variety of governmental and non-governmental entities located
throughout the world. A substantial portion of the work of
Defense Electronics & Services is performed in the
United States under prime contracts and subcontracts, some of
which by statute are subject to profit limitations and all of
which are subject to termination by the U.S. Government.
Certain products sold by Defense Electronics &
Services have particular commercial application, including night
vision devices. The following table illustrates the percentage
of sales and revenues for the Defense Electronics &
Services customer base:
| YEAR ENDED DECEMBER 31 | 2008 | 2007 | 2006 | ||||||||||||
|
U.S. Government
|
94 | % | 94 | % | 89 | % | |||||||||
|
International governments
|
3 | 4 | 7 | ||||||||||||
|
Commercial
|
3 | 2 | 4 | ||||||||||||
| 100 | % | 100 | % | 100 | % | ||||||||||
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The level of
activity in Defense Electronics & Services is affected
by overall defense budgets, the portion of those budgets devoted
to products and services of the type provided by Defense
Electronics & Services, our ability to win new
contract awards, demand and budget availability for such
products and services in areas other than defense, our ability
to obtain appropriate export licenses for international sales
and business, and other factors. See
“– COMPETITION.”
Fluid
Technology
Fluid Technology is
a leading global provider of water and wastewater treatment
systems, pumps and related technologies, and other water and
fluid control products with residential, commercial, and
industrial applications.
Major production and
assembly facilities are located in Australia, Canada, China,
France, Germany, Italy, the Netherlands, Norway, Spain, South
Korea, Sweden, United Kingdom, and the United States of America.
Principal customers
are in North America, Europe, the Middle East, Africa, Latin and
South America, and the Asia/Pacific region. Sales are made
directly to customers or through independent distributors and
representatives.
Brand names
include: A-C
Pump®,
Bell &
Gossett®,
F.B. Leopold
Company®,
Flygt®,
Flowtronex®,
Goulds
Pumps®,
Hoffman
Specialtytm,
ITT
Standard®,
Lowara®,
Marlow
Pumps®,
McDonnell &
Miller®,
Pure-Flo®,
Red Jacket Water
Products®,
Sanitaire®,
Vogel®,
and
WEDECO®.
The Fluid Technology
business segment provides goods and services to the following
markets: Water & Wastewater, Residential &
Commercial Water, and Industrial Process.
Water &
Wastewater
The principal
products and services for this market include submersible pump
systems for water and wastewater control, and biological
filtration and disinfection treatment systems for municipal,
industrial and commercial applications.
ITT’s
Flygt®
brand is the originator and largest manufacturer of submersible
pumps and mixers, which form the heart of many of the
world’s sewage and wastewater treatment facilities.
Additionally,
Flygt®
is recognized as the market leader for municipal submersible
wastewater pumps. Combining Flygt’s submersible pumps and
mixers with
Sanitaire®,
WEDECO®,
and F.B.
Leopold®
products (discussed below) provides a solution to
customers’ needs for complete wastewater transport and
treatment systems. Dry mount pumps branded A-C
Pump®
provide an alternative technical solution to submersible pumps.
Through the
Sanitaire®
brand, ITT is a leader in biological treatment systems for
municipal and industrial wastewater treatment. The broad range
of products includes ceramic and membrane fine bubble diffusers,
and stainless steel coarse bubble diffusers. ITT also provides
advanced membrane filtration engineered systems, reverse osmosis
systems, and portable filtration technology.
WEDECO®
is a leading provider of ultraviolet disinfection and ozone
oxidation systems with both municipal and industrial
applications. F.B.
Leopold®
is a leading provider of water and wastewater treatment products
with municipal and industrial applications, including
clarification and gravity filtration technologies.
Residential &
Commercial Water
The principal
products and services for this market include pumps, systems,
controls and accessories for water wells, pressure boosters,
agricultural and irrigation applications, heating, ventilation
and air conditioning systems, boiler controls, flood control and
fire protection pumps with residential, commercial, light
industrial, and agriculture and turf irrigation applications.
These products are offered under the Goulds
Pumps®,
Bell &
Gossett®,
Flowtronex®,
Lowara®,
Red Jacket Water
Products®,
Marlow
Pumps®
and
Vogel®
brand names.
Leading product
brands, such as Bell &
Gossett®,
McDonnell &
Miller®,
and Hoffman
Specialtytm,
provide a broad variety of products for environmental control in
buildings and for building service and utility applications,
including liquid-based heating and air conditioning systems,
liquid level control, and steam trap products for boiler and
steam systems. ITT services the European and Middle East
building trade markets with pressure boosting pumps under the
Lowara®
and
Vogel®
brand names.
Industrial
Process
The principal
products and services for this market include pumps and valves
with chemical, paper and pulp, oil refining and gas processing,
power, mining, and general industrial applications, and
high-purity systems with biopharmaceutical applications. In
addition, we offer a wide array of valve and turnkey systems
that are at the heart of extremely demanding manufacturing
processes. Our products are used in ultra hygiene processes
similar to those found in production of biological and
pharmaceutical compounds.
Sales and revenues
for the Fluid Technology business segment were
$3.8 billion, $3.5 billion, and $3.1 billion for
2008, 2007 and 2006, respectively. Order backlog for Fluid
Technology was $890.1 at the end of 2008, compared with $887.1
in 2007, and $702.2 in 2006.
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The following table
illustrates the percentage of sales and revenues by market for
the periods specified:
| YEAR ENDED DECEMBER 31 | 2008 | 2007 | 2006 | ||||||||||||
|
Water & Wastewater
|
47 | % | 47 | % | 46 | % | |||||||||
|
Residential & Commercial Water
|
32 | 33 | 35 | ||||||||||||
|
Industrial Process
|
21 | 20 | 19 | ||||||||||||
| 100 | % | 100 | % | 100 | % | ||||||||||
As one of the
world’s leading producers of fluid handling equipment and
related products for treating and recycling wastewater, ITT
actively promotes more efficient use and re-use of water and
endeavors to raise the level of awareness of the need to
preserve and protect the earth’s water resources. ITT
strives to provide its global customer base with the systems and
solutions they need to meet ever-increasing demands on life
cycle cost control and operating efficiencies.
Our strategy to
expand across the value chain to provide better service for our
customers is moving us from a product supplier to a solution
provider. Through ITT’s overarching strategic Value Based
Product Development program, we now have in place a company-wide
system for rapid development of new offerings and technologies
to augment our current offering of systems and solutions. This
strategy has guided us in our acquisitions and business
development efforts. For example, today ITT can extend its core
offering of submersible pumps and mixers with systems to control
plant operation, technologies that analyze the waste stream, and
products and systems to treat water through biological,
treatment, filtration, oxidation and disinfection processes.
In the industrial
markets, our pump systems are now equipped with intelligent
control technologies. Customers engaging in our “total
systems approach” generally experience dramatically lower
energy consumption, and reduced maintenance and operating costs.
Fluid Technology has
a global network of authorized service centers for aftermarket
customer care. Our aftermarket service capabilities include the
repair and service of all brands of pumps and rotating
equipment, engineering upgrades, as well as preventative and
routine maintenance and service.
The level of
activity in Fluid Technology is dependent upon economic
conditions in the markets served, weather conditions and, in the
case of municipal markets, the ability of municipalities to fund
projects for our products and services, and other factors. See
“– COMPETITION.”
Motion &
Flow Control
Motion &
Flow Control is comprised of a group of businesses providing
products and services for the areas of defense, aerospace,
industrial, transportation, computer, telecom and RV/marine. The
Motion & Flow Control businesses primarily serve the
high-end of their markets, with highly engineered products, high
brand recognition, and a focus on new product development and
operational excellence.
Principal
manufacturing facilities are located in Germany, Hong Kong,
Italy, the Netherlands, Japan, the United Kingdom and United
States of America.
Revenue
opportunities are balanced between original equipment
manufacturing (“OEM”) and after-market customers. In
addition to the traditional markets of the U.S. and Western
Europe, opportunities in emerging markets such as Asia are
increasing. Principal customers are located in Brazil, Canada,
France, Germany, Italy, Japan, the United Kingdom and United
States of America.
Certain
Motion & Flow Control businesses were combined during
2008 to improve our strategic alignment with end-markets, and to
better leverage our production capabilities and costs
structures. This included the consolidation of our Controls and
Aerospace Controls businesses into an aerospace-facing business
referred to as Control Technologies, and the combination of our
Koni®
shocks business with our Friction Technologies businesses (now
collectively referred to as the Motion Technologies business).
The Motion & Flow Control business segment now
consists of the Interconnect Solutions, Motion Technologies,
Flow Control, Energy Absorption and Control Technologies
businesses.
In December 2008,
oversight of the Motion & Flow Control business segment was
placed under the direction of Gretchen W. McClain, who now
serves as President, ITT Fluid and Motion Control, to facilitate
operational efficiencies and allow businesses to respond to
customer needs more quickly and with greater impact.
Motion
Technologies
Motion Technologies
designs and manufactures leading brands serving global
automotive and railway customers. Products include friction pads
and back plates for braking applications for the world’s
largest manufacturers of cars, trucks and light commercial
vehicles, and
Koni®
shocks, premier adjustable shocks with car, bus, truck, trailer,
and rail applications.
Interconnect
Solutions
Interconnect
Solutions designs and manufactures connectors, interconnects,
cable assemblies, multi-function grips, input/output card kits
and smart card systems. Markets served include the areas of
defense, aerospace, industrial, transportation, computer, and
telecom. Connector products are marketed primarily under the
Cannon®
brand name.
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Flow
Control
Flow Control is the
world’s leading producer of pumps and related products for
the marine and leisure market. Products sold worldwide under the
brand names
Jabsco®,
Rule®,
Flojet®,
and
Danforth®
also serve the recreational vehicle market. ITT, through its
Flojet®
and
Totton®
brands, is also a leading producer of pumps and components for
beverage applications. Both
Jabsco®
and
Flojet®
also produce pumps for other specialty industrial fluid
dispensing applications. The Midland-ACS and Alcon businesses
provide valve actuation control systems for harsh environments,
including oil and gas pipelines, as well as solenoid valves for
everything from petrochemical plants to drag cars.
Control
Technologies
Control Technologies
is a worldwide supplier of valves, actuators, pumps and switches
for the commercial, military, regional, business jet and general
aviation markets. Products are principally sold to Original
Equipment Manufacturers (“OEMs”) and the aftermarket
in North and South America, Europe and Asia. Control
Technologies also sells switches and regulators into the oil and
gas, fluid power, power generation, and chemical markets. In
addition, product lines in this business include
electro-mechanical actuators, servo motors, Computer Numerical
Control systems, motion controller and other components with
medical imaging, semi-conductor, machine tool, industrial
automation, metal fabrication and aircraft seating applications.
Under its
Conoflow®
brand, ITT markets pressure regulators and diaphragm seals for
industrial applications and natural gas vehicles.
Energy
Absorption
Energy Absorption
designs and manufactures a wide range of standard and custom
energy absorption and vibration isolation solutions serving the
industrial, oil and gas, rail, aviation and defense markets.
Products under the
Enidine®
brand name include shock absorbers, buffers, tow bar snubbers,
rate controls, dampers, vibration isolators and other related
products.
Sales and revenues
were $1.6 billion, $1.3 billion, and $1.1 billion
for 2008, 2007 and 2006, respectively. Order backlog for
Motion & Flow Control was $417.1 at the end of 2008,
compared with $440.4 in 2007, and $409.3 in 2006.
The following table
illustrates the percentage of sales and revenues for the listed
categories for the periods specified:
| YEAR ENDED DECEMBER 31 | 2008 | 2007 | 2006 | ||||||||||||
|
Motion Technologies
|
35 | % | 37 | % | 37 | % | |||||||||
|
Interconnect Solutions
|
29 | 32 | 35 | ||||||||||||
|
Flow Control
|
16 | 19 | 20 | ||||||||||||
|
Control Technologies
|
11 | 9 | 8 | ||||||||||||
|
Energy Absorption
|
9 | 3 | – | ||||||||||||
| 100 | % | 100 | % | 100 | % | ||||||||||
The level of
activity for Motion & Flow Control is affected by
overall economic conditions in the markets served, the
competitive position with respect to price, quality, technical
expertise, and customer service, as well as weather conditions
and natural disasters. See “– COMPETITION.”
See
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and Note 21,
“Business Segment Information,” in the Notes to
Consolidated Financial Statements for further details with
respect to business segments.
Acquisitions,
Divestitures, and Restructuring
We have been
involved in an ongoing program of acquiring businesses that
provide a strategic fit with businesses we presently conduct and
divesting businesses that do not enhance that fit. ITT did not
acquire or dispose of any significant businesses during 2008.
See Note 3,
“Acquisitions,” in the Notes to Consolidated Financial
Statements for further information regarding these acquisitions.
See Note 5,
“Discontinued Operations,” in the Notes to
Consolidated Financial Statements for further information
regarding discontinued operations.
See Note 4,
“Restructuring and Asset Impairment Charges,” in the
Notes to Consolidated Financial Statements regarding
restructuring matters. See also “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations – Restructuring and Asset Impairment
Charges.”
6
Table of Contents
Geographic
Markets
Net sales to
external customers by geographic market for the year ended
December 31, 2008 were as follows:
|
DEFENSE |
MOTION |
|||||||||||||||||||
|
ELECTRONICS |
FLUID |
& FLOW |
ITT |
|||||||||||||||||
| & SERVICES | TECHNOLOGY | CONTROL | CONSOLIDATED | |||||||||||||||||
|
United States
|
96 | % | 37 | % | 35 | % | 68 | % | ||||||||||||
|
Western Europe
|
2 | 32 | 46 | 18 | ||||||||||||||||
|
Asia Pacific
|
1 | 11 | 9 | 5 | ||||||||||||||||
|
Other
|
1 | 20 | 10 | 9 | ||||||||||||||||
|
Total Segments
|
100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||
See Note 21,
“Business Segment Information,” in the Notes to
Consolidated Financial Statements for further geographical
information concerning sales and revenues and long-lived assets.
Competition
Substantially all of
our operations are in highly competitive businesses. The nature
of the competition varies across all business segments. A number
of large companies engaged in the manufacture and sale of
similar lines of products and the provision of similar services
are included in the competition, as are many small enterprises
with only a few products or services. Technological innovation,
price, quality, reliability, and service are primary factors in
the markets served by the various segments of our businesses.
Our many products and services go to market collectively linked
by the ITT brand, the engineered blocks symbol, and the tagline
“Engineered for life.” The brand has been enhanced and
strengthened over the years through a coordinated effort that
includes advertising, public relations activities, trade
exhibits, and point-of-sale material.
Our Defense
Electronics & Services business segment operates in an
environment that has changed as a result of business
consolidations. We have adjusted to these changes by focusing on
the defense electronics and services markets, by making process
improvements, and through capacity rationalization. In most of
the markets served by Defense Electronics & Services,
competition is based primarily upon price, quality,
technological expertise, cycle time, and service.
The Fluid Technology
business segment is affected by strong competition, changing
economic conditions, periodic industry overcapacity that leads
to intense pricing pressures, and public bidding in some
markets. We respond to competitive pressures by utilizing strong
distribution networks, strong brand names, broad product lines
focused on market niches, a global customer base, a continuous
stream of new products developed from a strong technology base,
a focus on quality and customer service, and through continuous
cost improvement programs and life cycle cost initiatives.
In
Motion & Flow Control, competition is a significant
factor, which has resulted in increased pressure to reduce
prices and, therefore, costs. Product capability, quality,
engineering support, and experience are also important
competitive factors. We are focused on differentiated new
product development and maintenance of strong customer
relationships, with emphasis on continuous improvement, striving
to maintain our competitive advantage.
Exposure to
Currency Fluctuations
We conduct
operations worldwide; therefore, are exposed to the effects of
fluctuations in relative currency values. Although we engage,
from time to time, in various hedging strategies with respect to
our foreign currency exposure where appropriate, it is not
possible to hedge all such exposure. Accordingly, our operating
results may be impacted by fluctuations in relative currency
values.
Cyclicality
Many of the
businesses in which we operate are subject to specific industry
and general economic cycles. Certain businesses are subject to
industry cycles, including but not limited to the residential
and commercial real estate, construction, oil and gas, mining
and minerals, marine, transportation, automotive and aerospace
industries.
Governmental
Regulation and Related Matters
A number of our
businesses are subject to governmental regulation by law or
through contractual arrangements. Our Defense
Electronics & Services businesses perform work under
contracts with the United States Department of Defense or other
agencies of the United States government and similar agencies in
certain other countries. These contracts are subject to security
and facility clearances under applicable governmental
regulations, including the requirement of background
investigations for high-level security clearances for our
executive officers. Most of such contracts are subject to
termination by the respective governmental parties on various
grounds, although such terminations generally are rare.
A portion of our
business is classified by the government and cannot be
specifically described. The operating results of these
classified programs are included in our consolidated financial
statements. The business risks associated with classified
programs, as a general matter, do not differ materially from
those of our other government programs and products.
Environmental
Matters
We are subject to
stringent environmental laws and regulations concerning air
emissions, water discharges and waste disposal.
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In the United
States, such environmental laws and regulations include the
Federal Clean Air Act, the Clean Water Act, the Resource,
Conservation and Recovery Act, and the Comprehensive
Environmental Response, Compensation and Liability Act.
Environmental requirements are significant factors affecting all
operations. Management believes that our companies closely
monitor all of their respective environmental responsibilities,
together with trends in environmental laws. We have established
an internal program to assess compliance with applicable
environmental requirements for all of our facilities. The
program is designed to identify problems in a timely manner,
correct deficiencies and prevent future noncompliance. Over the
past several years we have conducted regular, thorough audits of
our major operating facilities. As a result, management believes
that our companies are in substantial compliance with current
environmental regulations. Management does not believe, based on
current circumstances, that we will incur compliance costs
pursuant to such regulations that will have a material adverse
effect on our financial position, results of operations or cash
flows. In addition, we have purchased insurance protection
against certain unknown risks.
See “Legal
Proceedings” and “Management’s Discussion and
Analysis of Financial Condition and Results of
Operations – Contingent Liabilities.”
Raw
Materials
All of our
businesses require various raw materials, the availability and
prices of which may fluctuate. Although some cost increases may
be recovered through increased prices to customers, our
operating results are exposed to such fluctuations. We attempt
to control such costs through long-term purchasing and various
other programs. There have been no raw materials shortages that
have had a material adverse impact on our business as a whole.
Research and
Development
Our businesses
require substantial commitment of resources for research and
development activities to maintain significant positions in the
markets we serve. Such activities are conducted in laboratory
and engineering facilities at several of our major manufacturing
locations. Research and development activities are important in
all of our business segments. During 2008, 2007 and 2006, we
spent $244.3, $182.3, and $160.9, respectively, on research and
development. We also spent $935.2, $708.9 and $499.3, in 2008,
2007, and 2006, respectively, on research and development
pursuant to customer contracts.
Intellectual
Property
While we own and
control a number of patents, trade secrets, confidential
information, trademarks, trade names, copyrights, and other
intellectual property rights which, in the aggregate, are of
material importance to our business, management believes that
our business, as a whole, is not materially dependent upon any
one intellectual property or related group of such properties.
We are licensed to use certain patents, technology, and other
intellectual property rights owned and controlled by others,
and, similarly, other companies are licensed to use certain
patents, technology, and other intellectual property rights
owned and controlled by us.
Patents, patent
applications, and license agreements will expire or terminate
over time by operation of law, in accordance with their terms or
otherwise. Such expiration or termination of patents, patent
applications, and license agreements is not expected by our
management to have a material adverse effect on our financial
position, results of operations or cash flows.
At the time of the
Distribution (see – “Company History and Certain
Relationships”), we obtained from ITT Destinations certain
exclusive rights and licenses to use the “ITT” name,
mark, and logo. In 1999, we acquired all rights, title, and
interest in and to the “ITT” name, mark, and logo and
an assignment of certain agreements granting The Hartford and
ITT Educational Services, Inc. (ESI) limited rights to use the
“ITT” name, mark, and logo in their businesses. These
agreements are perpetual, and the licenses are subject to
maintenance of certain quality standards by both The Hartford
and ESI.
Employees
As of
December 31, 2008, ITT employed approximately
40,800 people. Approximately 24,100 are employed in the
United States, of whom approximately 18% are represented by
labor unions. Generally, labor relations have been maintained in
a normal and satisfactory manner.
Company History
and Certain Relationships
ITT Corporation is
an Indiana corporation incorporated on September 5, 1995 as
ITT Indiana, Inc. It is the successor pursuant to a statutory
merger of ITT Corporation, a Delaware corporation (“ITT
Delaware”), into ITT Indiana, Inc. effective
December 20, 1995, whereupon its name became ITT
Industries, Inc. ITT Delaware, originally incorporated in
Maryland in 1920 as International Telephone and Telegraph
Corporation, was reincorporated in Delaware in 1968. It changed
its name to ITT Corporation in 1983. On December 19, 1995,
ITT Delaware made a distribution (the “Distribution”)
to its stockholders consisting of all the shares of common stock
of ITT Destinations, Inc., a Nevada corporation (“ITT
Destinations”), and all the shares of common stock of ITT
Hartford Group, Inc., a Delaware corporation (now known as The
Hartford Financial Services Group, Inc. or “The
Hartford”), both of which were wholly-owned subsidiaries of
ITT Delaware. In connection with the Distribution, ITT
Destinations changed its name to ITT
8
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Corporation. On
February 23, 1998, ITT Corporation was acquired by Starwood
Hotels & Resorts Worldwide, Inc. On July 1, 2006
ITT Industries, Inc. changed its name to ITT Corporation.
ITT Delaware, ITT
Destinations, and The Hartford entered into a Distribution
Agreement (the “Distribution Agreement”) providing
for, among other things, certain corporate transactions required
to effect the Distribution and other arrangements among the
three parties subsequent to the Distribution.
The Distribution
Agreement provides for, among other things, assumptions of
liabilities and cross-indemnities generally designed to allocate
the financial responsibility for the liabilities arising out of
or in connection with (i) the former Automotive,
Defense & Electronics, and Fluid Technology segments
to ITT Industries, Inc. (now ITT Corporation) and its
subsidiaries, (ii) the hospitality, entertainment, and
information services businesses to ITT Destinations and its
subsidiaries, and (iii) the insurance businesses to The
Hartford and its subsidiaries. The Distribution Agreement also
provides for the allocation of the financial responsibility for
the liabilities arising out of or in connection with former and
present businesses not described in the immediately preceding
sentence to or among ITT Industries, Inc., ITT Destinations, and
The Hartford on a shared basis. The Distribution Agreement
provides that neither ITT Industries, Inc. (now ITT
Corporation), ITT Destinations nor The Hartford will take any
action that would jeopardize the intended tax consequences of
the Distribution.
ITT Industries, Inc.
(now ITT Corporation), ITT Destinations, and The Hartford also
entered into agreements in connection with the Distribution
relating to intellectual property, tax, and employee benefit
matters.
Available
Information, Internet Address and Internet Access to Current and
Periodic Reports
ITT’s website
address is www.itt.com. ITT makes available free of charge on or
through www.itt.com/ir our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and all amendments to those reports as soon as reasonably
practicable after such material is electronically filed with or
furnished to the Securities and Exchange Commission (the
“SEC”). Information contained on our website is not
incorporated by reference unless specifically stated herein. As
noted, we file the above reports electronically with the SEC,
and they are available on the SEC’s web site (www.sec.gov).
In addition, all reports filed by ITT with the SEC may be read
and copied at the SEC’s Public Reference Room located at
100 F Street, N.E., Room 1580,
Washington, D.C. 20549. Information on the operation of the
Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330.
See
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Forward-Looking
Statements” for information regarding forward-looking
statements and cautionary statements relating thereto.
| ITEM 1A. | RISK FACTORS |
We are subject to
various risks and uncertainties relating to or arising out of
the nature of our businesses, financial conditions and results
of operations, including those discussed below, which may affect
the value of our securities. We believe the risks discussed
below are currently the most significant, although additional
risks not presently known to us or that we currently deem less
significant may also materially impact our business, financial
condition and results of operations. If any of the events or
circumstances described in the following risk factors occur, our
business, financial condition or results of operations may
suffer, and the trading price of our common stock could decline.
Adverse
macroeconomic and business conditions, particularly in the local
economies of the countries or regions in which we sell our
products, may significantly and negatively affect our revenues,
profitability and results of operations.
Economic conditions
in the United States and in foreign markets in which we operate
could substantially affect our sales and profitability. Economic
activity in the United States and throughout much of the world
has undergone a sudden, sharp economic downturn following the
recent housing downturn and subprime lending collapse. Global
credit and capital markets have experienced unprecedented
volatility and disruption. Business credit and liquidity have
tightened in much of the world. Consumer confidence and spending
are down significantly.
Changes in
governmental banking, monetary and fiscal policies to restore
liquidity and increase credit availability may not be effective
or such effects may be delayed. It is difficult to determine the
breadth and duration of the economic and financial market
problems and the many ways in which they may affect our
suppliers, customers and our business in general. Nonetheless,
continuation or further worsening of these difficult financial
and macroeconomic conditions could have a significant adverse
effect on our sales, profitability and results of operations.
Recent distress
in the financial markets has had an adverse impact on the
availability of credit and liquidity resources.
Continued market
deterioration could jeopardize certain counterparty obligations,
including those of our insurers and
9
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financial
institutions. If for any reason we lose access to our currently
available lines of credit, or if we are required to raise
additional capital, we may be unable to do so in the current
credit and stock market environment, or we may be able to do so
only on unfavorable terms.
The tightening of
credit markets may reduce the funds available to our customers
to buy our products and services for an unknown, but perhaps
lengthy, period. Restrictive credit markets may also result in
customers extending times for payment and may result in our
having higher customer receivables with increased default rates.
General concerns about the fundamental soundness of domestic and
foreign economies may also cause customers to reduce their
purchases from us even if they have cash or if credit is
available to them.
Our business
could be adversely affected if we are not able to integrate
acquisitions; our acquisitions could cause financial
difficulties.
As part of our
growth strategy, we plan to pursue the acquisition of other
companies, assets and product lines that either complement or
expand our existing business. Because of restricted credit
markets, our ability to acquire new businesses may be impeded.
Further, although we conduct what we believe to be a prudent
level of investigation regarding the operating and financial
condition of the businesses we purchase, an unavoidable level of
risk remains regarding the actual operating condition of these
businesses. Until we actually assume operating control of these
business assets and their operations, we may not be able to
ascertain the actual value or understand the potential
liabilities of the acquired entities and their operations.
Acquisitions involve
a number of risks and present financial, managerial and
operational challenges, including:
| n | diversion of management attention from other businesses; | |
| n | integration of technology, operations, personnel and financial and other systems; | |
| n | potentially insufficient internal controls over financial activities or financial reporting at an acquired company that could impact us on a consolidated basis; | |
| n | the failure to realize expected synergies; | |
| n | the possibility that we have acquired substantial undisclosed liabilities; and | |
| n | the loss of key employees of the acquired businesses. |
Our integration
activities may place substantial demands on our management,
operational resources and financial internal control systems.
Customer dissatisfaction or performance problems with an
acquired business could also have a material adverse effect on
our reputation and business. In addition, any acquired business
could under-perform relative to our expectations.
If the fair value
of any of our reporting units is insufficient to recover the
carrying value of the goodwill and other intangibles of the
respective reporting unit, a material non-cash charge to
earnings could result.
We account for
goodwill and indefinite-lived intangibles in accordance with
Statement of Financial Accounting Standards (“SFAS”)
No. 142, “Goodwill and Other Intangible Assets”
(“SFAS 142)”. SFAS 142 states that
goodwill and indefinite-lived intangible assets are not
amortized, but are instead reviewed for impairment annually (or
more frequently if impairment indicators arise).
We conduct annual
impairment testing to determine if we will be able to recover
all or a portion of the carrying value of goodwill and
indefinite-lived intangibles. In addition, we review goodwill
and indefinite-lived intangible assets for impairment more
frequently if impairment indicators arise. If the fair value is
insufficient to recover the carrying value of our goodwill and
indefinite-lived intangibles, we may be required to record a
material non-cash charge to earnings.
Consistent with the
requirements of SFAS 142, the fair values of our reporting
units generally are based on discounted cash flow projections
that are believed to be reasonable under current and forecasted
circumstances, the results of which form the basis for making
judgments about carrying values of the reported net assets of
our reporting units. Any significant change in market conditions
and estimates or judgments used to determine expected future
cash flows that indicate a reduction in carrying value may give
rise to impairment in the period that the change becomes known.
Our Fluid
Technology and Motion & Flow Control business segments
are subject to certain industry risks, which could have adverse
effects on the results of our operations.
Many of the
businesses in which we operate are subject to specific industry
and general economic cycles. Certain businesses are subject to
industry cycles, including but not limited to the residential
and commercial real estate, construction, oil and gas, mining
and minerals, transportation, automotive and aerospace
industries. Downturns in these industries could adversely affect
portions of our businesses.
10
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Our Fluid Technology
business segment depends upon the ability of municipal markets
to fund projects involving our products and services. A
significant decline or delay in this funding would have an
adverse effect on the results of our business.
Industry
overcapacity in the pump and valve market could have an adverse
impact on the results of our Fluid Technology business segment.
Weather conditions
including drought, natural disasters, and excessive rains may
negatively affect our Fluid Technology and Motion &
Flow Control business segments.
Decrease in demand
for replacement parts and services would adversely affect our
Fluid Technology and Motion & Flow Control business
segments.
Our Defense
Electronics & Services business segment is subject to
certain risks, including defense budgets and government contract
requirements and regulations, which could have adverse effects
on the results of our operations.
Because 94% of our
Defense Electronics & Services sales and revenues are
to the U.S. Government, changes in the portion of the
U.S. Defense budget devoted to products and services of the
types of products provided by ITT, and our present ability to
receive awards of U.S. Government contracts, could
adversely impact our business. This includes U.S. Defense
programs impacted as a result of program evaluations to be
conducted in 2009 under the new U.S. Administration.
Our Defense
Electronics & Services business segment records
billions of dollars of orders on an annual basis, and we have
anticipated that our overall performance will benefit from sales
and revenues to certain international markets. Variability of
timing and size of certain key orders could negatively impact
the performance of these businesses.
Many of our
government contracts are subject to profit limitations, which
limit our upside potential on a per contract basis, and all are
subject to termination by our customers. Termination of key
government contracts or a significant number of government
contracts would have a negative impact on our business.
Many Defense
Electronics & Services contracts are subject to
security and facility clearances, as well as export licenses,
which, if withdrawn, restricted or made unavailable, would
adversely affect our business.
Changes in
government contracting regulations, and related governmental
investigations could increase our costs of regulatory compliance
and could have a negative effect on our brand name and on our
ability to win new business.
Our revenues and
profitability could be negatively impacted as a result of
competition.
We operate in highly
competitive industries. Our failure to compete effectively could
harm our business. Competitive pressures in all our businesses
include product capability, technological innovation, cycle
time, price, quality and the reliability of services we offer.
In our Defense Electronics & Services and Fluid
Technology business segments, competition includes public
bidding on many contracts.
Our manufacturing
operations are dependent upon third-party suppliers.
We obtain materials
from third-party suppliers. Delays in obtaining supplies may
result from a number of factors affecting our suppliers,
including capacity constraints, labor disputes, the impaired
financial condition of a particular supplier, suppliers’
allocations to other purchasers, ability to meet regulatory
requirements, weather emergencies or acts of war or terrorism.
Any delay in our suppliers’ abilities to provide us with
necessary materials could impair our ability to deliver products
to our customers and, accordingly, could have a material adverse
effect on our business, results of operations and financial
condition.
Our business
could be adversely affected if we are not able to execute our
restructuring actions or other cost-saving
initiatives.
Our restructuring
activities may place substantial demands on our management,
which could lead to the diversion of management’s attention
from other business priorities and lack of customer focus. In
addition, we strive for and expect to achieve cost savings in
connection with certain initiatives, including:
(i) manufacturing process and supply chain rationalization;
(ii) streamlining redundant administrative overhead and
support activities; and (iii) restructuring and
repositioning organizations. Cost savings expectations are
inherently estimates that are difficult to predict and are
necessarily speculative in nature, and we cannot assure you that
we will achieve expected, or any, cost savings.
Interest and
foreign currency exchange rate and commodity price fluctuations
may adversely affect our results.
We are exposed to
the risks associated with changes in interest rates, currency
exchange rates, and commodity prices. From time to time, we
engage in hedging strategies to limit the risks from such
fluctuations, but it is not possible to hedge against all
eventualities.
We are subject to
laws, regulations and potential liability relating to claims,
complaints and proceedings,
11
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including those
related to antitrust, environmental, product, and other
matters.
We are subject to
various laws, ordinances, regulations and other requirements of
government authorities in foreign countries and in the United
States, such as the Foreign Corrupt Practices Act, any
violations of which could create a substantial liability for us,
and also could cause harm to our reputation. Changes in laws,
ordinances, regulations or other governmental policies may
significantly increase our expenses and liabilities.
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 liabilities, product
liability, personal injury claims, employment and pension
matters, government contract issues and commercial or
contractual disputes, sometimes related to acquisitions or
divestitures. Additionally, we may become subject to significant
claims of which we are currently unaware or the claims of which
we are aware may result in our incurring a significantly greater
liability than we anticipate or can estimate.
Unanticipated
changes in our tax rate or exposure to additional tax
liabilities resulting from changes to tax laws among other
factors could negatively affect our profitability.
Changes in fair
value of our benefit plan assets and other factors may have a
material adverse effect on the valuation of pension plan
obligations, the funded status of pension plans and our pension
cost.
A substantial
portion of our current and retired employee population is
covered by pension and other employee-related benefit plans. The
cost of our these plans is incurred over long periods of time
and involve various factors and uncertainties during those
periods of time, including the value of plan assets, the
expected rates of return on plan assets, discount rates for
future payment obligations and trends for future costs. In
addition, funding requirements for employee benefit plans are
subject to legislative and other government regulatory actions.
Financial market volatility during the fourth quarter of 2008
resulted in substantial a decline in the fair market value of
our employee pension plan assets. This decline translated into a
significant reduction in our shareholders’ equity and a
comprehensive loss for the year ended December 31, 2008.
Continued deterioration in this asset pool or other adverse
changes to our overall pension and other employee-related
benefit plans, including material declines in the fair value of
our pension plan assets, could adversely affect our financial
position and results of operations and could require us to make
significant funding contributions.
We face
heightened legal challenges with respect to intellectual
property.
We have developed
and actively pursue developing proprietary technology in the
industries in which we operate, and rely on intellectual
property laws and a number of patents to protect such
technology. In doing so, we incur ongoing costs to enforce and
defend our intellectual property. Our inability to protect our
intellectual property could have a material adverse effect on
our business. In addition, third parties may claim that we
infringe on their intellectual property, and we could suffer
significant litigation or licensing expense as a result.
Our future
success will depend on, among other factors, our key
employees.
Our ability to
operate our business and implement our strategies depends, in
part, on the efforts of our executive officers and other key
personnel. Our future success will depend on, among other
factors, our ability to develop key employee succession plans.
The loss of the services of any of our key employees,
domestically or abroad, could have a material adverse effect on
our business or business prospects.
We are a
decentralized company, which presents certain risks.
We are a
decentralized company, which presents certain risks. While we
believe this practice has catalyzed our growth and enabled us to
remain responsive to opportunities and to our customers’
needs, it necessarily places significant control and
decision-making powers in the hands of local management. This
presents various risks, including the risk that we may be slower
or less able to identify or react to problems affecting a key
business than we would in a more centralized environment. In
addition, it means that “company-wide” business
initiatives, such as the integration of information technology
systems, are often more challenging and costly to implement, and
their risk of failure higher, than they would be in a more
centralized environment. Depending on the nature of the
initiative in question, such failure could materially adversely
affect our business, financial condition or results of
operations.
These risk factors
are discussed in more detail under the captions
“BUSINESS – Competition; – Exposure to
Currency Fluctuations; – Cyclicality;
– Governmental Regulations and Related
Matters; – Environmental Matters; – Raw
Materials; – Intellectual Property” –
“LEGAL PROCEEDINGS” and “CONTROLS AND
PROCEDURES.”
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
12
Table of Contents
| ITEM 2. | PROPERTIES |
Our principal
executive offices are in leased premises located in White
Plains, NY. We consider the many offices, plants, warehouses,
and other properties that we own or lease to be in good
condition and generally suitable for the purposes for which they
are used. These properties are located in several states in the
United States, as well as in numerous countries throughout the
world. See “BUSINESS” for further information with
respect to properties in each of our business segments. See also
Note 13, “Leases and Rentals,” in the Notes to
Consolidated Financial Statements for further information.
| ITEM 3. | LEGAL PROCEEDINGS |
ITT Corporation and
its subsidiaries from time to time are involved in legal
proceedings that are incidental to the operation of their
businesses. Some of these proceedings allege damages relating to
environmental liabilities, intellectual property matters,
copyright infringement, personal injury claims, employment and
pension matters, government contract issues and commercial or
contractual disputes, sometimes related to acquisitions or
divestitures.
See Note 19
“Commitments and Contingencies” in the Notes to
Consolidated Financial Statements for further information.
| ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No matter was
submitted to a vote of our shareholders during the fourth
quarter of the fiscal year covered by this report.
13
Table of Contents
EXECUTIVE
OFFICERS OF THE REGISTRANT
The following
information is provided regarding the executive officers of ITT.
Each of the executive officers was elected to his or her
position to serve at the pleasure of the Company’s Board of
Directors.
|
AGE AT |
|||||||||||
| NAME | 2/1/09 | CURRENT TITLE | OTHER BUSINESS EXPERIENCE DURING PAST 5 YEARS | ||||||||
|
Angela A. Buonocore
|
50 | Senior Vice President, Chief Communications Officer (2008) | Vice President, Director of Corporate Relations, ITT (2007); Vice President, Corporate Communications, The Pepsi Bottling Group (2001) | ||||||||
|
Aris C. Chicles
|
47 | Senior Vice President and Director of Strategy and Corporate Development (2008) | Vice President, Director of Strategy and Corporate Development, ITT (2006); Vice President, Business and Corporate Development, American Standard, Inc. (2000) | ||||||||
|
Scott A. Crum
|
52 | Senior Vice President and Director, Human Resources (2002) | |||||||||
|
Donald E. Foley
|
57 | Senior Vice President and Treasurer (2003) | |||||||||
|
Janice M. Klettner
|
48 | Vice President, ITT (2008), Chief Accounting Officer and Assistant Secretary (2006) | Vice President, Corporate Controller, Avon Products (1998) | ||||||||
|
Steven R. Loranger
|
56 | Chairman, President and Chief Executive Officer and Director (2004) | Executive Vice President and Chief Operating Officer of Textron, Inc. (2002) | ||||||||
|
Vincent A. Maffeo
|
58 | Senior Vice President and General Counsel (1995) | |||||||||
|
David F. Melcher
|
54 | Vice President, ITT (2008), President, ITT Defense Electronics & Services | Vice President, Strategy and Business Development, ITT Defense Electronics & Services (2008); Lieutenant General, U.S. Army, Deputy Chief of Staff, Military Deputy for Budget (2006-2008); Deputy Chief of Staff, Programs (2004-2006); Director, Program Analysis and Evaluation, (2002-2004) | ||||||||
|
Gretchen W. McClain
|
46 | Senior Vice President, ITT (2008), President, ITT Fluid and Motion Control, (2008) | Vice President, President, ITT Fluid Technology (2007); President ITT Residential & Commercial Water (2005); Vice President, Honeywell Aerospace (2004) and Honeywell Engines & Systems (2003) | ||||||||
|
Robert J. Pagano
|
46 | Vice President, Finance (2006) | Vice President, Corporate Controller (2004) President; ITT Fluid Technology Industrial Products Group (2002) | ||||||||
|
Denise L. Ramos
|
52 | Senior Vice President and Chief Financial Officer (2007) | Chief Financial Officer, Furniture Brands International (2005); Chief Financial Officer, KFC (2002) | ||||||||
Note:
Date in parentheses indicates the year in which the position was
assumed.
14
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PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
COMMON
STOCK – MARKET PRICES AND DIVIDENDS
| 2008 | 2007 | |||||||||||||||||||
| HIGH | LOW | HIGH | LOW | |||||||||||||||||
|
Three Months Ended
|
||||||||||||||||||||
|
March 31
|
$ | 66.01 | $ | 50.94 | $ | 62.33 | $ | 56.30 | ||||||||||||
|
June 30
|
67.62 | 52.05 | 70.44 | 60.02 | ||||||||||||||||
|
September 30
|
69.73 | 52.25 | 73.44 | 58.09 | ||||||||||||||||
|
December 31
|
56.15 | 34.75 | 69.96 | 60.05 | ||||||||||||||||
The above table
reflects the range of market prices of our common stock as
reported in the consolidated transaction reporting system of the
New York Stock Exchange, the principal market in which this
security is traded (under the trading symbol “ITT”).
During the period from January 1, 2009 through
January 31, 2009, the high and low reported market prices
of our common stock were $50.80 and $44.36, respectively.
We declared
dividends of $0.175 and $0.14 per share of common stock in each
of the four quarters of 2008 and 2007, respectively. In the
first quarter of 2009, we declared a dividend of $0.2125 per
share for shareholders of record on March 4, 2009.
Dividend decisions
are subject to the discretion of our Board of Directors and will
be based on, and affected by, a number of factors, including
operating results and financial requirements. Therefore, there
can be no assurance as to what level of dividends, if any, will
be paid in the future.
There were 21,381
holders of record of our common stock on January 31, 2009.
ITT common stock is
listed on the New York Stock Exchange and Euronext Exchange.
EQUITY
COMPENSATION PLAN INFORMATION
The information
called for by Item 5(a) is incorporated herein by reference
to the portions of the definitive proxy statement referred to in
Item 10 of this Annual Report on
Form 10-K
set forth under the caption “Equity Compensation Plan
Information.”
ISSUER PURCHASES
OF EQUITY SECURITIES
|
TOTAL |
MAXIMUM |
|||||||||||||||||||
|
NUMBER |
DOLLAR |
|||||||||||||||||||
|
OF
SHARES |
VALUE
OF |
|||||||||||||||||||
|
PURCHASED
AS |
SHARES
THAT |
|||||||||||||||||||
|
PART
OF |
MAY YET
BE |
|||||||||||||||||||
|
TOTAL |
AVERAGE |
PUBLICLY |
PURCHASED |
|||||||||||||||||
|
NUMBER |
PRICE |
ANNOUNCED |
UNDER
THE |
|||||||||||||||||
|
(IN MILLIONS) |
OF SHARES |
PAID |
PLANS
OR |
PLANS
OR |
||||||||||||||||
| PERIOD | PURCHASED | PER SHARE(1) | PROGRAMS(2) | PROGRAMS(2) | ||||||||||||||||
|
10/1/08–10/31/08
|
– | $ | – | – | $ | 569.2 | ||||||||||||||
|
11/1/08–11/30/08
|
– | $ | – | – | $ | 569.2 | ||||||||||||||
|
12/1/08–12/31/08
|
– | $ | – | – | $ | 569.2 | ||||||||||||||
(1) Average
price paid per share is calculated on a settlement basis and
excludes commission.
| (2) | On October 27, 2006, we announced a three-year $1 billion share repurchase program. On December 16, 2008, we announced that the ITT Board of Directors had approved the elimination of the expiration date with respect to the repurchase program. This program replaces our previous practice of covering shares granted or exercised in the context of ITT’s performance incentive plans. The program is consistent with our capital allocation process, which is centered on those investments necessary to grow our businesses organically and through acquisitions, while also providing cash returns to shareholders. Our strategy for cash flow utilization is to invest in our business, pay dividends, repay debt, complete strategic acquisitions, and repurchase common stock. As of December 31, 2008, we had repurchased 7.1 million shares for $430.8, including commission fees, under our $1 billion share repurchase program. |
15
Table of Contents
PERFORMANCE
GRAPH
CUMULATIVE
TOTAL RETURN
Based upon an
initial investment of $100 on December 31, 2003
with dividends reinvested
with dividends reinvested
| 12/31/03 | 12/31/04 | 12/31/05 | 12/31/06 | 12/31/07 | 12/31/08 | |||||||||||||||||||||||||
|
ITT Corporation
|
$ | 100.00 | $ | 114.79 | $ | 140.80 | $ | 156.92 | $ | 184.00 | $ | 129.81 | ||||||||||||||||||
|
S&P 500
|
$ | 100.00 | $ | 110.88 | $ | 116.32 | $ | 134.69 | $ | 142.09 | $ | 89.52 | ||||||||||||||||||
|
S&P 500 Industrials Index
|
$ | 100.00 | $ | 118.03 | $ | 120.77 | $ | 136.82 | $ | 153.29 | $ | 92.10 | ||||||||||||||||||
Information
provided in the Performance Graph shall not be deemed filed with
the SEC.
16
Table of Contents
| ITEM 6. | SELECTED FINANCIAL DATA |
| (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) | 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||
|
Results and Position
|
|||||||||||||||||||||||||
|
Sales and revenues
|
$ | 11,694.8 | $ | 9,003.3 | $ | 7,807.9 | $ | 7,040.8 | $ | 5,965.5 | |||||||||||||||
|
Operating income
|
1,210.1 | 977.2 | 801.0 | 725.5 | 587.8 | ||||||||||||||||||||
|
Income from continuing operations
|
775.2 | 633.0 | 499.7 | 528.8 | 408.2 | ||||||||||||||||||||
|
Net income
|
794.7 | 742.1 | 581.1 | 359.5 | 432.3 | ||||||||||||||||||||
|
Additions to plant, property and equipment
|
248.7 | 239.3 | 177.1 | 164.4 | 126.1 | ||||||||||||||||||||
|
Depreciation and amortization
|
278.3 | 185.4 | 171.6 | 174.4 | 153.0 | ||||||||||||||||||||
|
Total assets
|
10,480.2 | 11,552.7 | 7,400.6 | 7,071.9 | 7,291.3 | ||||||||||||||||||||
|
Long-term debt
|
467.9 | 483.0 | 500.4 | 516.0 | 542.3 | ||||||||||||||||||||
|
Total debt
|
2,146.9 | 3,566.0 | 1,097.4 | 1,266.9 | 1,269.7 | ||||||||||||||||||||
|
Cash dividends declared per common share
|
0.70 | 0.56 | 0.44 | 0.36 | 0.34 | ||||||||||||||||||||
|
Earnings Per Share
|
|||||||||||||||||||||||||
|
Income from continuing operations
|
|||||||||||||||||||||||||
|
Basic
|
$ | 4.29 | $ | 3.51 | $ | 2.71 | $ | 2.86 | $ | 2.21 | |||||||||||||||
|
Diluted
|
$ | 4.23 | $ | 3.44 | $ | 2.67 | $ | 2.80 | $ | 2.16 | |||||||||||||||
|
Net income
|
|||||||||||||||||||||||||
|
Basic
|
$ | 4.40 | $ | 4.11 | $ | 3.15 | $ | 1.95 | $ | 2.34 | |||||||||||||||
|
Diluted
|
$ | 4.33 | $ | 4.03 | $ | 3.10 | $ | 1.91 | $ | 2.29 | |||||||||||||||
17
Table of Contents
ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(In millions,
except per share amounts, unless otherwise stated)
BUSINESS
OVERVIEW
ITT is a global
multi-industry leader in high-technology engineering and
manufacturing engaged directly and through its subsidiaries. We
generate revenue and cash through the design, manufacture, and
sale of a wide range of engineered products and the provision of
related services. For financial reporting purposes our
businesses are aggregated and organized into three principal
business segments, Defense Electronics & Services,
Fluid Technology, and Motion & Flow Control.
Our growth strategy
is centered on both organic and acquisition growth. Our ability
to grow organically stems from our value-based product
development process, new and existing technologies, distribution
capabilities, customer relationships and strong market
positions. In addition to our growth initiatives, we have a
number of strategic initiatives within the framework of the ITT
Management System aimed at enhancing our operational
performance. These include global sourcing, footprint
rationalization and realignment, Six Sigma and lean fulfillment.
Key Performance
Indicators and Non-GAAP Measures
Management reviews
key performance metrics including sales and revenues, segment
operating income and margins, earnings per share, orders growth,
and backlog, among others.
In addition, we
consider the following non-GAAP measures to be key performance
indicators:
| n | “organic sales and revenues”, “organic orders”, and “organic operating income” defined as sales and revenues, orders, and operating income, respectively, excluding the impact of foreign currency fluctuations and contributions from acquisitions and divestitures. | |
| n | “free cash flow” defined as cash flow from operations less capital expenditures. |
Management believes
that these metrics are useful to investors evaluating our
operating performance for the periods presented, and provide a
tool for evaluating our ongoing operations and our management of
assets held from period to period. These metrics, however, are
not a measures of financial performance under accounting
principles generally accepted in the United States
(“GAAP”) and should not be considered a substitute for
sales and revenue growth (decline), or cash flows from
operating, investing and financing activities as determined in
accordance with GAAP and may not be comparable to similarly
titled measures reported by other companies.
EXECUTIVE
SUMMARY
Despite challenging
market conditions during the fourth quarter, we achieved record
revenue and earnings during 2008. Sales and revenues for the
full year ended December 31, 2008 were $11.7 billion,
an increase of 29.9% over 2007. Income from continuing
operations increased 22.5% in 2008 over 2007 to $4.23 per
diluted share, reflecting net cost productivity, contributions
from acquisitions such as EDO and IMC, organic revenue growth
and lower pension expense, which more than offset additional
restructuring and realignment costs and strategic growth
investments.
Financial highlights
for the year ended December 31, 2008 include:
| n | Sales and revenues for the Defense Electronics & Services business segment of $6.3 billion, an increase of 50.4% over 2007, attributable to organic revenue growth and the successful integration of the EDO acquisition. Operating income for the segment was $727.0, a 44.6% increase year-over-year. | |
| n | Sales and revenue growth for the Fluid Technology business segment of 9.4% year-over-year to $3.8 billion, primarily driven by organic revenue growth. Operating income of $468.7 increased 8.3% year-over-year. | |
| n | Sales and revenues for the Motion & Flow Control business segment of $1.6 billion, up 18.8% over 2007, primarily attributable to the IMC acquisition. For the year, operating income grew 2.3% on a comparable basis to $191.7. | |
| n | Generation of $870.9 of free cash flow, a 112.3% conversion of income from continuing operations. |
Other significant
highlights for the year ended December 31, 2008 include:
| n | Successful integration of our EDO and IMC acquisitions, which contributed more than $2 billion of sales and revenues in 2008. | |
| n | Investments in attractive markets served by both our Motion & Flow Control and Fluid Technology business segments through the opening of new plants, including plants in China, India and the Czech Republic. | |
| n | Participation in the development of the next generation Joint Tactical Radio System by our Defense Electronics & Services business segment, which also became the sole provider of enhanced night vision goggles to the U.S. Army, and commenced delivery of the FAA’s next generation air traffic control program. | |
| n | An investment of approximately $94.0 in restructuring, asset impairment and realignment actions, including facility consolidations and headcount reductions, during the fourth quarter of 2008 to better position certain businesses for 2009. |
18
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| n | The combination of certain Motion & Flow Control businesses to improve our strategic alignment with end-markets and to better leverage our production capabilities and cost structures. |
Further details
related to these results are contained in the following
Consolidated Financial Results and Segment Review sections.
2009
OUTLOOK
Recent changes in
the global economic environment, including disruptions in global
financial markets and global currency fluctuations, will create
difficult 2009 market conditions. In this environment, our
strategy is to focus on the current needs of our customers,
deploy our capital in a disciplined manner, focus on cost
controls, and execute on our operational initiatives.
We are going to
focus on our customers by aligning our activities, including our
vital service and maintenance offerings, with their needs. We
plan to improve product life cycle costs by making our products
more energy efficient and by reducing the total cost of
ownership.
We are focused on
protecting our financial position through continued high free
cash flow generation coupled with a balanced capital deployment
approach, including the preservation of liquidity, a dividend
increase and the elimination of the expiration date of our share
repurchase program.
We are proactively
reducing costs and leveraging our business and functional
strength to achieve competitive advantages. We will continue
strategic initiatives within the framework of the ITT Management
System aimed at enhancing our operational performance. We are
now planning approximately $50 of new restructuring actions in
2009 and are developing contingency plans that are reactive to
any volume declines beyond our expectations for 2009. Other cost
and productivity actions include discretionary cost controls,
and driving incremental supply chain savings through our
integrated global strategic sourcing group.
We continue to plan
for the long-term by supporting strategic growth investments,
including research and development activities, significant
capital investments to support our strategic initiatives,
including our position on the FAA next generation air traffic
control program, emerging market expansion, and investing in new
information technology systems.
Current global
economic conditions could have a negative impact on our 2009
performance, particularly within our Fluid Technology and
Motion & Flow Control business segments. However, we
expect that our Defense Electronics & Services
business segment will provide a stable base for 2009 due in part
to a strong funded backlog position and a winning program track
record.
Factors impacting
our 2009 performance, compared to 2008, include revenue declines
in our Fluid Technology and Motion & Flow Control
business segments, higher pension and other employee
benefit-related costs, lower restructuring actions, and benefits
from productivity and cost containment initiatives. We also
anticipate that foreign currency fluctuations will have a
negative impact on our 2009 results of operations.
KNOWN TRENDS AND
UNCERTAINTIES
The following list
represents a summary of trends and uncertainties, which could
have a significant impact on our results of operations,
financial position
and/or cash
flows from operating, investing and financing activities.
| n | Organic revenues grew 4.9% during the fourth quarter of 2008 compared to the prior year, lower than our full year 2008 growth rate of 7.2%. Additionally, organic orders declined 22.0% and 5.2% during the fourth quarter of 2008 at our Motion & Flow Control and Fluid Technology business segments, respectively. This reflects, in part, the impact of the recent economic downturn. It is difficult to determine the breadth and duration of the recent economic and financial market decline and the many ways in which it may affect our suppliers, customers and our business in general. Continuation or further worsening of these difficult financial and macroeconomic conditions could have a significant adverse effect on our sales, profitability and results of operations. | |
| n | The real estate market has suffered greatly over the last year, particularly within the United States and Europe. Continued decline in demand would result in further negative impacts to those portions of our Fluid Technology business segment which sell products with residential and commercial market applications. | |
| n | Recent declines in economic conditions could cause certain municipalities to cancel certain projects or delay their related funding, which could have an adverse effect on the results of our Fluid Technology business segment. A portion of our Fluid Technology business segment provides products to end markets such as oil and gas, power, chemical and mining. We expect to see some level of order delays and/or cancellations during 2009 as a result of declining economic conditions and the impact on these end markets. | |
| n | The International Air Transport Association recently reported cargo traffic and passenger traffic declines of approximately 23% and 5%, respectively. Continued declines could negatively impact a portion of our Motion & Flow Control businesses segment. | |
| n | A portion of our Motion & Flow Control business segment is sensitive to trends within the connector industry. A recent Bishop Report, a publication for the connector industry, forecasts a 2009 decline in sales of approximately 15%. |
19
Table of Contents
| n | The global automotive and marine markets have declined significantly over the last year. OEM production has contracted over the same period. These markets are expected to be challenged during 2009, and as a result, portions of our Motion & Flow Control business segment could be adversely impacted. | |
| n | U.S. Defense programs could be impacted as a result of program evaluations to be conducted during 2009. Changes in the portion of the U.S. Defense budget devoted to these programs could adversely impact our business. In addition, we have anticipated that our overall performance will benefit from certain international markets. Variability of timing and size of key orders could negatively impact our future results. | |
| n | We expect to incur approximately $40.6 of net periodic pension cost in 2009. Changes to our overall pension and other employee-related benefit plans, including material declines in the fair value of our pension plan assets among others, could adversely affect our results of operations beyond 2009, as well as require us to make significant funding contributions. | |
| n | Recent distress in the financial markets has had an adverse impact on the availability of credit and liquidity resources. Short-term and long-term interest rates increased significantly during the fourth quarter of 2008, including rates on our commercial paper. Volatility in these markets and their impact on interest rates have been somewhat less predictable than in years past. Higher rates would negatively impact our results of operations. |
The information
provided above does not represent a complete list of trends and
uncertainties that could impact our business in either the near
or long-term. It should, however, be considered along with the
risk factors identified in Item 1A of this Annual Report on
Form 10-K
and our disclosure under the caption “Forward-Looking
Statements” at the end of this section.
BUSINESS SEGMENT
OVERVIEW
Summarized below is
information on each of our three business segments, including
markets served, goods and services provided, relevant factors
that could impact results, business challenges, and areas of
focus.
Defense
Electronics & Services
Our Defence
Electronics & Services business segment is designed to
serve future needs around safety, security, intelligence and
communication. Management believes that the Defense
Electronics & Services business segment is well
positioned with products and services that support our
customers’ needs. In addition, we expect new product
development to continue to contribute to future growth.
The following
provides a summary of the Defense Electronics &
Services businesses and the goods and services each provides to
its respective end-markets.
Advanced
Engineering & Services
Data analysis and
research on homeland defense, telecommunications systems and
information technology
Communications
Systems
Voice and data
systems, and battlefield communication technology
Electronic
Systems
Force protection,
integrated electronic warfare systems, reconnaissance and
surveillance, radar and undersea systems, aircraft armament
suspension-and-release systems and advanced composite structures
Intelligence &
Information Warfare
Intelligence systems
and analysis, information warfare solutions and data acquisition
and storage
Night
Vision
Image intensifier
technology, military and commercial night vision equipment
Space
Systems
Satellite imaging
systems, meteorological and navigation payloads, related
information solutions and systems
Systems
Division
Systems integration,
communications engineering and technical support solutions
Factors that could
impact Defense Electronics & Services’ financial
results include, the level of defense funding by domestic and
foreign governments, our ability to receive contract awards, the
ability to develop and market products and services for
customers outside of traditional markets and our ability to
obtain appropriate export licenses for international sales and
business. Primary areas of business focus include, new or
improved product offerings, new contract wins and successful
program execution.
Fluid
Technology
Our Fluid Technology
business segment provides critical products and services in
markets that are driven by population growth, increasing
environmental regulation, global security and global
infrastructure trends. Fluid Technology products include water
and wastewater treatment systems, pumps and related
technologies, and other water and fluid control products with
residential, commercial, and industrial applications. The
following provides a summary of the Fluid Technology
20
Table of Contents
businesses and the
goods and services each provides to its respective end-markets.
Water &
Wastewater
Submersible pump
systems for water and wastewater control, and biological
filtration and disinfection treatment systems for municipal,
industrial and commercial applications
Residential &
Commercial Water
Pumps, systems and
accessories for water wells, pressure boosters, agricultural and
irrigation applications, heating, ventilation and air
conditioning systems, boiler controls, flood control and fire
protection pumps, residential, commercial, light industrial, and
agriculture and turf irrigation applications
Industrial
Process
Pumps and valves for
industrial, mining, pulp and paper, chemical and petroleum
processing, and high-purity systems for biopharmaceutical
applications
Factors that could
impact Fluid Technology’s financial results include broad
economic conditions in markets served, the ability of
municipalities to fund projects, raw material prices and
continued demand for replacement parts and servicing. Primary
areas of business focus include new product development,
geographic expansion into new markets, facility rationalization
and global sourcing of direct material purchases.
Motion &
Flow Control
Our Motion &
Flow Control business segment provides highly engineered
critical components that serve the high-end of our markets.
It’s group of businesses provide products and services for
the areas of defense, aerospace, industrial, transportation,
computer, telecom and RV/marine. Revenue opportunities are
balanced between OEM and after-market customers. In addition to
its traditional markets of the U.S. and Western Europe,
opportunities in emerging markets such as Asia are increasing.
The following
provides a summary of the Motion & Flow Control
businesses and the goods and services each provides to its
respective end-markets.
Motion
Technologies
Friction pads and
back plates serving global automotive and railway customers;
Koni®
shocks, premier adjustable shocks with car, bus, truck, trailer,
and rail applications
Interconnect
Solutions
Connectors,
interconnects, cable assemblies, multi-function grips,
input/output card kits and smart card systems serving the
defense, aerospace, industrial, transportation, computer, and
telecom markets
Flow
Control
Pumps and related
products for the marine and leisure market; pumps and components
for beverage applications; pumps for other specialty industrial
fluid dispensing applications; valve actuation control systems
for harsh environments, including oil and gas pipelines, as well
as solenoid valves
Control
Technologies
Valves, actuators,
pumps, switches for the commercial, military, regional, business
and general aviation markets; switches and regulators into the
oil and gas, fluid power, power generation, and chemical
markets; electro-mechanical actuators, servo motors, Computer
Numerical Control systems, motion controller and other
components with medical imaging, semi-conductor, machine tool,
industrial automation, metal fabrication and aircraft seating
applications; pressure regulators and diaphragm seals for
industrial applications and natural gas vehicles
Energy
Absorption
Wide range of
standard and custom energy absorption and vibration isolation
solutions including shock absorbers, buffers, tow bar snubbers,
rate controls, dampers, vibration isolators and other related
products serving the industrial, oil and gas, rail, aviation and
defense markets
The
Motion & Flow Control businesses’ financial
results are driven by economic conditions in its major markets,
the cyclical nature of the transportation industry, production
levels of major auto producers, demand for marine and leisure
products, raw material prices, the success of new product
development, platform life and changes in technology. Primary
areas of business focus include expansion into adjacent markets,
new product development, manufacturing footprint optimization,
global sourcing of direct material purchases and lean
fulfillment.
21
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CONSOLIDATED
FINANCIAL RESULTS
|
2008/2007 |
2007/2006 |
||||||||||||||||||||||||
|
INCREASE |
INCREASE |
||||||||||||||||||||||||
| YEAR ENDED DECEMBER 31 |
(DECREASE) |
(DECREASE) |
|||||||||||||||||||||||
| 2008 | 2007 | 2006 | %/POINT CHANGE | %/POINT CHANGE | |||||||||||||||||||||
|
Sales and revenues
|
$ | 11,694.8 | $ | 9,003.3 | $ | 7,807.9 | 29.9 | % | 15.3 | % | |||||||||||||||
|
Costs of sales and revenues
|
8,439.4 | 6,435.0 | 5,618.4 | 31.1 | % | 14.5 | % | ||||||||||||||||||
|
Gross profit
|
3,255.4 | 2,568.3 | 2,189.5 | 26.8 | % | 17.3 | % | ||||||||||||||||||
|
Selling, general and administrative expenses
|
1,723.5 | 1,342.7 | 1,175.9 | 28.4 | % | 14.2 | % | ||||||||||||||||||
|
Research and development expenses
|
244.3 | 182.3 | 160.9 | 34.0 | % | 13.3 | % | ||||||||||||||||||
|
Restructuring and asset impairment charges, net
|
77.5 | 66.1 | 51.7 | 17.2 | % | 27.9 | % | ||||||||||||||||||
|
Operating income
|
1,210.1 | 977.2 | 801.0 | 23.8 | % | 22.0 | % | ||||||||||||||||||
|
Interest expense
|
140.8 | 114.9 | 86.2 | 22.5 | % | 33.3 | % | ||||||||||||||||||
|
Interest income
|
31.3 | 49.6 | 25.4 | (36.9 | )% | 95.3 | % | ||||||||||||||||||
|
Income tax expense
|
312.3 | 265.5 | 227.6 | 17.6 | % | 16.7 | % | ||||||||||||||||||
|
Income from continuing operations
|
775.2 | 633.0 | 499.7 | 22.5 | % | 26.7 | % | ||||||||||||||||||
|
Income from discontinued operations, net of tax
|
19.5 | 109.1 | 81.4 | (82.1 | )% | 34.0 | % | ||||||||||||||||||
|
Gross margin
|
27.8 | % | 28.5 | % | 28.0 | % | (0.7 | ) | 0.5 | ||||||||||||||||
|
Selling, general and administrative expenses as a % of sales
|
14.7 | % | 14.9 | % | 15.1 | % | (0.2 | ) | (0.2 | ) | |||||||||||||||
|
Research and development expenses as a % of sales
|
2.1 | % | 2.0 | % | 2.1 | % | 0.1 | (0.1 | ) | ||||||||||||||||
|
Operating margin
|
10.3 | % | 10.9 | % | 10.3 | % | (0.6 | ) | 0.6 | ||||||||||||||||
|
Effective tax rate
|
28.7 | % | 29.5 | % | 31.3 | % | (0.8 | ) | (1.8 | ) | |||||||||||||||
SALES AND
REVENUES
Sales and revenues
for the year ended December 31, 2008 were $11,694.8,
representing a 29.9% increase over 2007. This increase reflects
contributions from acquisitions of $1,948.7, including EDO and
IMC, and a benefit of $98.5 from foreign currency exchange
fluctuations. Despite a global economic environment that
deteriorated as the year progressed, organic revenues grew 7.2%
over the prior year primarily driven by higher volumes, price
increases and contributions from new products and programs.
During the fourth quarter of 2008, organic revenues grew 4.9%,
as portions of our business were impacted by the recent economic
downturn.
Sales and revenues
for the year ended December 31, 2007 were $9,003.3,
representing a 15.3% increase over 2006. Organic revenue growth
of 10.9% over the same period was primarily driven by higher
volumes and price increases.
The following table
illustrates the impact of organic growth, acquisitions completed
during the period, and foreign currency translation fluctuations
on sales and revenues during these periods.
|
2008/2007 |
2007/2006 |
|||||||||
| % CHANGE | % CHANGE | |||||||||
|
Organic growth
|
7.2 | % | 10.9 | % | ||||||
|
Acquisitions
|
21.6 | % | 1.9 | % | ||||||
|
Foreign currency translation
|
1.1 | % | 2.5 | % | ||||||
|
Sales and revenues
|
29.9 | % | 15.3 | % | ||||||
Orders received
during 2008 totaled $11,726.1, an increase of $2,628.3 over the
prior year, including orders attributable to acquisitions and a
favorable benefit from foreign currency exchange translation.
Organic orders increased 8.5% overall, including growth of 14.8%
and 5.6% at our Defense Electronics & Services and
Fluid Technology business segments, respectively. Our
Motion & Flow Control business segment reported a full
year organic orders decline of 3.0%. Organic orders declined at
each of our business segments during the fourth quarter of
22
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2008 compared to the
same prior year period, including 22.0% and 5.2% decreases at
our Motion & Flow Control and Fluid Technology
business segments, respectively. We believe that these order
declines, taken into consideration with the current level of
backlog attributable at our commercial businesses, indicate that
our 2009 sales and revenues could be substantially lower than
those reported in 2008.
During 2007, we
received orders of $9,097.8, an increase of $706.1 or 8.4%, over
the prior year period. Order growth in 2007 was attributable to
our Fluid Technology and Motion & Flow Control
business segments, including contributions from both existing
businesses and acquisitions.
COSTS OF SALES
AND REVENUES AND GROSS PROFIT
Costs of sales and
revenues were $8,439.4 and $6,435.0 for the years ended
December 31, 2008 and 2007, respectively. These results
represent increases of 31.1% and 14.5% over each respective
prior year, primarily reflecting the impact of acquisitions,
including EDO and IMC during 2008, higher organic sales volume
over both periods, and the negative impact of foreign currency
exchange translation.
Gross profit for the
year ended December 31, 2008 was $3,255.4, a 26.8% increase
over 2007. Gross margin of 27.8% decreased 70 basis points
for 2008, due to higher production costs, impact from the EDO
acquisition, partially offset by price increases, and benefits
from productivity and strategic initiatives, including efforts
to improve supply chain productivity and control material costs.
Gross profit for the
year ended December 31, 2007 was $2,568.3, a 17.3% increase
over 2006. Gross margin improved 50 basis points to 28.5%
for 2007. This increase was driven by our productivity and cost
savings initiatives, including continued efforts to improve
supply chain productivity and control material costs, partially
offset by unfavorable mix and foreign currency transaction costs.
SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES
Selling, general and
administrative expenses (“SG&A”) increased 28.4%
to $1,723.5 for the year ended December 31, 2008. The
year-over-year increase was primarily attributable to the
acquisitions of EDO and IMC, and a negative impact from foreign
currency exchange translation. In addition, we recognized
certain loss reserves as a result of realignment actions taken
during the fourth quarter of 2008 in our Fluid Technology and
Motion & Flow Control business segments.
SG&A increased
$166.8, or 14.2% in 2007. The year-over-year increase was
primarily attributable to higher levels of marketing expense at
each of our business segments in support of product campaigns
and new sales proposals. In addition, general and administrative
expense increased due to higher compensation-related costs,
investments in growth and process improvement initiatives, and
the impact of foreign currency translation.
SG&A as a
percentage of sales were 14.7%, 14.9%, and 15.1% for the three
years ended December 31, 2008, 2007 and 2006, respectively.
RESEARCH AND
DEVELOPMENT EXPENSES
Research and
development expenses (“R&D”) increased $62.0 and
$21.4 during 2008 and 2007, respectively, over each prior year
period. The 2008 increase reflects the impact of our recent
acquisitions, including EDO and IMC. R&D as a percentage of
sales were relatively consistent at 2.1%, 2.0%, and 2.1% for the
three years ended December 31, 2008, 2007 and 2006,
respectively, as we continued our efforts within each of our
business segments to support product development.
RESTRUCTURING AND
ASSET IMPAIRMENT CHARGES, NET
During 2008, 2007
and 2006, we recorded $77.5, $66.1 and $51.7, respectively, of
restructuring charges and asset impairment charges, net of
restructuring accruals reversed. These charges primarily include
facility consolidations and headcount reductions, which reflect
our efforts to streamline our operating structure. As a result
of a declining global economic environment, we accelerated
restructuring activities during the fourth quarter of 2008,
which, as a result, will better position our businesses for 2009.
See the section
entitled “Restructuring and Asset Impairment Charges”
and Note 4, “Restructuring and Asset Impairment
Charges,” in the Notes to Consolidated Financial Statements
for additional information.
OPERATING
INCOME
Operating income of
$1,210.1 for 2008 reflects a 23.8% increase over the prior year.
This increase was largely due to the impact from our EDO and IMC
acquisitions. In addition, we realized organic operating income
growth of 18.8% and 7.0% from our Defense
Electronics & Services and Fluid Technology business
segments, respectively. These contributions were primarily
attributable to higher sales volumes and new programs at the
Defense Electronics & Services business segment, and
price increases at the Fluid Technology business segment.
Operating income increased $4.3 at our Motion & Flow
Control business segment primarily due to contributions from
acquisitions, such as IMC, and a benefit from foreign currency
exchange translation, partially offset by higher production
costs.
Operating margin
decreased 60 basis points year-over-year to 10.3% for the
year ended December 31, 2008. This decrease reflects
increased SG&A, including the impact of acquisitions
(higher amortization of intangible assets), costs incurred in
23
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connection with our
fourth quarter realignment actions, higher restructuring
expense, and unfavorable foreign currency transaction costs,
partially offset by benefits from operating efficiencies and
cost savings initiatives, and lower pension expense.
Operating income of
$977.2 for 2007 reflects a 22.0% increase over the prior year.
This increase was driven by organic growth attributable to each
of our business segments and the benefit of foreign currency
exchange translation. Higher volumes coupled with price
increases and benefits from operating efficiencies and
cost-saving initiatives more than offset higher production costs
and higher SG&A expense.
INTEREST EXPENSE
AND INTEREST INCOME
During 2008, 2007
and 2006, we recognized interest expense of $140.8, $114.9, and
$86.2, respectively.
Interest expense
increased 22.5% during 2008 due to higher levels of debt,
primarily reflecting our funding for acquisitions and capital
expenditures during the periods, tax-related charges, and higher
interest rates during the fourth quarter of 2008, partially
offset by lower interest rates during the first nine months of
2008.
Interest expense
increased 33.3% during 2007 primarily due to higher average debt
levels during the year, reflecting funding for acquisitions,
stock repurchases, capital expenditures and pension plan
contributions. Partially offsetting the 2007 year-over-year
increase was a decrease of $7.0 in interest expense related to
income taxes as a result of the settlement of a tax examination
during the second quarter of 2007.
We recorded interest
income of $31.3, $49.6, and $25.4 for the years ended
December 31, 2008, 2007 and 2006. The year-over-year 2008
decrease and 2007 increase in interest income was driven by the
average balance of cash and cash equivalents held over each
respective period.
INCOME TAX
EXPENSE
Income tax expense
was $312.3 or 28.7% of income from continuing operations for the
year ended December 31, 2008, compared to $265.5 or 29.5%
during the prior year. The year-over-year decrease in the
effective tax rate was primarily attributable to a tax account
validation adjustment and the benefit from mix of earnings in
countries with differing statutory rates, partially offset by a
benefit recognized during 2007 associated with the settlement of
a tax examination.
Income tax expense
was $265.5 or 29.5% of income from continuing operations for the
year ended December 31, 2007, compared to $227.6 or 31.3%
during the prior year. The year-over-year decrease in the
effective tax rate was primarily attributable to a benefit
recognized during 2007 associated with the settlement of a tax
examination, partially offset by the impact of a penalty
recognized in 2006 associated with a Night Vision compliance
matter.
See Note 6,
“Income Taxes,” in the Notes to Consolidated Financial
Statements for additional information.
INCOME FROM
DISCONTINUED OPERATIONS, NET OF TAX
During 2007, we sold
the majority of the Switches businesses to a private equity
firm, for net proceeds of $223.2, and an after-tax gain of
$84.4. During the third quarter of 2008, we completed the sale
of the remaining component of the Switches businesses to the
same buyer, for net proceeds of $5.1. As a result, we recorded
an after-tax gain on sale of $5.4 for the year ended
December 31, 2008.
In the first quarter
of 2006, we completed the sale of FHS, our automotive brake and
fueling tubing and components business to a privately held
company for net proceeds of $187.7 and a gain of $19.0. The
business, which was a component of our Motion & Flow
Control business segment, manufactures steel and plastic tubing
for fuel and brake lines, quick-connects, and serves the
transportation industry.
During the first
quarter of 2006, we also completed the sale of Richter, our
industrial non-metallic lined pumps and valves business to a
private equity investor for net proceeds of $24.8 and a gain of
$22.2. The business, which was a component of the Fluid
Technology business segment, was a manufacturer of pumps and
valves for selected segments in the chemical, fine chemical and
pharmaceutical industries.
See Note 5,
“Discontinued Operations,” in the Notes to
Consolidated Financial Statements for additional information.
24
Table of Contents
SEGMENT
REVIEW
| REVENUE | OPERATING INCOME | OPERATING MARGIN | ||||||||||||||||||||||||||||||||||||||||
| 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | ||||||||||||||||||||||||||||||||||
|
Defense Electronics & Services
|
$ | 6,282.3 | $ | 4,176.2 | $ | 3,659.3 | $ | 727.0 | $ | 502.7 | $ | 404.3 | 11.6 | % | 12.0 | % | 11.0 | % | ||||||||||||||||||||||||
|
Fluid Technology
|
3,840.6 | 3,509.1 | 3,070.1 | 468.7 | 432.7 | 370.6 | 12.2 | % | 12.3 | % | 12.1 | % | ||||||||||||||||||||||||||||||
|
Motion & Flow Control
|
1,583.4 | 1,332.5 | 1,092.9 | 191.7 | 187.4 | 149.7 | 12.1 | % | 14.1 | % | 13.7 | % | ||||||||||||||||||||||||||||||
|
Corporate and Other/Eliminations
|
(11.5 | ) | (14.5 | ) | (14.4 | ) | (177.3 | ) | (145.6 | ) | (123.6 | ) | – | – | – | |||||||||||||||||||||||||||
|
Total
|
$ | 11,694.8 | $ | 9,003.3 | $ | 7,807.9 | $ | 1,210.1 | $ | 977.2 | $ | 801.0 | 10.3 | % | 10.9 | % | 10.3 | % | ||||||||||||||||||||||||
Defense
Electronics & Services
Sales and revenues
for the year ended December 31, 2008 increased 50.4% over
the prior year to $6,282.3. During 2007, sales and revenues were
$4,176.2, an increase of 14.1% over 2006. The following table
illustrates the impact of organic growth, and acquisitions
completed during the period on sales and revenues.
|
2008/2007 |
2007/2006 |
|||||||||
| % Change | % Change | |||||||||
|
Organic growth
|
8.2 | % | 12.6 | % | ||||||
|
Acquisitions
|
42.3 | % | 1.5 | % | ||||||
|
Foreign currency translation
|
(0.1 | )% | – | |||||||
|
Sales and revenues
|
50.4 | % | 14.1 | % | ||||||
2008 Versus
2007
Acquisitions,
including EDO and its shipments of CREW, contributed $1,766.4 in
sales and revenues for the year ended December 31, 2008.
Organic sales increased $341.9 or 8.2%, primarily due to
contributions from the Advanced Engineering & Sciences
Division, driven by both existing and new contracts, including
classified research programs, data analysis contracts, and the
Federal Aviation Administration’s contract to build
the next generation air-traffic control system. Organic
revenue growth was also attributable to contributions from our
Communications Systems Division, driven by strength in
international Single Channel Ground and Airborne Radio sales,
and Systems Division, primarily driven by non-conflict related
programs such as SENSOR, missile defense and space control
programs. Positive contributions from the GPS Navigation and the
GeoEye projects were more than offset by declines in remote
sensing and classified government programs at our Space Systems
Division. Night Vision Division organic sales increased as a
result of contributions from new products and higher
international sales. Sales and revenues from our Electronic
Systems Division was relatively flat year-over-year, as
decreases in our radar systems offset contributions from
avionics.
Operating income
increased $224.3 or 44.6% during 2008. Acquisitions, including
EDO, contributed $129.8 during 2008, with the remaining increase
of $94.5 attributable to organic growth. The year-over-year
organic growth increase was primarily attributable to the
previously mentioned sales drivers. Operating margins decreased
40 basis points to 11.6%, reflecting higher production
costs, higher amortization of intangible assets recognized as a
result of the EDO acquisition, partially offset by benefits from
productivity improvements and supply chain initiatives.
2007 Versus
2006
The benefit of new
programs and sales growth on existing contracts, particularly at
the Advanced Engineering & Services and Systems
Divisions, drove the 2007 increase in sales and revenues. In
addition, volume declines within Space Systems business due to
lower content on certain platforms partially offset the
segment’s overall performance. Results attributable to
acquisitions during 2007 related primarily to EDO.
Operating income
increased $98.4 or 24.3% during 2007. Excluding the impact of
acquisitions, operating income increased $102.0 or 25.2%. This
increase was primarily attributable to the previously mentioned
sales drivers. Operating margins of 12.0% during 2007, reflect a
100 basis point improvement over 2006. This increase was
attributable to increased operating efficiencies, partially
offset by estimated costs to settle compliance issues in the
Defense Electronics & Services business segment.
Orders and
Backlog
The level of order
activity related to programs within the Defense
Electronics & Services business segment can be
affected by the timing of government funding authorizations and
project evaluation cycles. Year-over-year comparisons could, at
times, be impacted by these factors, among others.
We received orders
of $6,232.9 during 2008, an increase of $2,159.0 over the prior
year, primarily attributable to contributions from acquisitions
of $1,555.1, including EDO. Organic orders grew 14.8% over the
prior year. Funded order backlog was $5.2 billion at
December 31, 2008 and 2007.
We received orders
of $4,073.9 during 2007, a decrease of $44.1 compared with the
prior year. Funded order backlog was
25
Table of Contents
$5.2 billion at
December 31, 2007, compared to $3.9 billion at
December 31, 2006.
Fluid
Technology
Sales and revenues
for the year ended December 31, 2008 were $3,840.6,
reflecting an 9.4% increase over 2007. During 2007, sales and
revenues grew 14.3% over 2006 to $3,509.1. The following table
illustrates the impact of organic growth, acquisitions completed
during the period, and foreign currency translation fluctuations
on sales and revenues during these periods.
|
2008/2007 |
2007/2006 |
|||||||||
| % CHANGE | % CHANGE | |||||||||
|
Organic growth
|
7.7 | % | 8.9 | % | ||||||
|
Acquisitions
|
0.3 | % | 0.9 | % | ||||||
|
Foreign currency translation
|
1.4 | % | 4.5 | % | ||||||
|
Sales and revenues
|
9.4 | % | 14.3 | % | ||||||
2008 Versus
2007
Sales and revenues
increased $331.5 over the prior year. This increase was
primarily attributable to organic growth of 7.7%, driven by
higher volume and price, and the benefit from foreign exchange
translation. Factors driving organic sales growth were as
follows:
| Water & Wastewater |
Organic sales
increased $104.5 or 6.3% for the year ended December 31,
2008, due to strength in water/wastewater transport,
particularly within the municipal market, and dewatering,
primarily attributable to the mining market.
| Residential & Commercial Water |
Organic sales
increased $55.4 or 4.7% for the year ended December 31,
2008, respectively, due to strength in global commercial
markets; strength in the North American agriculture/irrigation
market, offset by weakness in the North American residential
market.
| Industrial Process |
Organic sales
increased by $121.9 or 17.3% for the year ended
December 31, 2008, due to strength in our industrial
operations, particularly within the chemical, oil and gas, power
and mining markets.
Operating income for
the year ended December 31, 2008 increased $36.0 or 8.3%
over prior year, with a benefit of 1.3% attributable to foreign
currency exchange translation. Organic operating income growth
of 7.0% was primarily attributable to the previously mentioned
sales drivers. Operating margins decreased 10 basis points
to 12.2% during 2008, reflecting higher production costs, as
well as costs associated with the disposition of a manufacturing
facility, partially offset by benefits from productivity
improvements and supply chain initiatives and lower pension
expense.
During 2008, we
received orders of $3,938.7, an increase of $281.6 or 7.7% over
the prior year, primarily due to organic order growth of $204.7
or 5.6%. This increase was primarily attributable to Industrial
Process, resulting from strength in large project orders and
strength in international markets. Order backlog was $890.1 at
December 31, 2008, compared to $887.1 at December 31,
2007.
2007 Versus
2006
During 2007, we
recognized sales and revenues of $3,509.1, an increase of $439.0
or 14.3% over 2006, including a $138.3 benefit from foreign
currency exchange translation. Organic revenues grew 8.9%
year-over-year due to higher prices and increased sales volume
in international markets such as Europe, the Middle East,
Africa, Central and South America and Asia/Pacific.
Water &
Wastewater
Organic sales grew
8.3%, on strength in large pump sales and the dewatering
business, partially offset by softness in the U.S. water
treatment business.
Residential &
Commercial Water
Organic sales grew
5.7%, as strength in commercial applications was partially
offset by softness in the residential market.
| Industrial Process |
Organic sales
increased by 17.3%, resulting from strength in large project
sales, particularly in the mining and oil and gas markets.
Operating income for
the year ended December 31, 2007 increased $62.1 or 16.8%
over prior year, with a benefit of 5.2% attributable to foreign
currency exchange translation. The 2007 year-over-year
organic income growth was primarily attributable to the
previously mentioned sales drivers. Operating margins increased
20 basis points to 12.3% during 2007, reflecting higher
prices, favorable sales mix, lower restructuring expense, and
benefits from productivity improvements and supply chain
initiatives, partially offset by increased production costs and
selling, general and administrative expense.
During 2007, we
received orders of $3,657.1, an increase of $513.0 or 16.3% over
the prior year. This increase was primarily attributable to
strength in water transport, particularly within the mining and
the public utility/municipal markets, and continued strength in
industrial project orders. Order backlog was $887.1 at
December 31, 2007, compared to $702.2 at December 31,
2006.
26
Table of Contents
Motion &
Flow Control
Sales and revenues
for the year ended December 31, 2008 were $1,583.4,
reflecting an 18.8% increase over 2007. During 2007, sales and
revenues grew 21.9% over 2006 to $1,332.5. The following table
illustrates the impact of organic growth, acquisitions completed
during the period, and foreign currency translation fluctuations
on sales and revenues during these periods.
|
2008/2007 |
2007/2006 |
|||||||||
| % CHANGE | % CHANGE | |||||||||
|
Organic growth
|
2.1 | % | 10.2 | % | ||||||
|
Acquisitions
|
12.9 | % | 6.3 | % | ||||||
|
Foreign currency translation
|
3.8 | % | 5.4 | % | ||||||
|
Sales and revenues
|
18.8 | % | 21.9 | % | ||||||
2008 Versus
2007
Sales and revenues
increased $250.9 over the prior year, primarily attributable to
contributions from IMC and the benefit of foreign currency
exchange translation. Organic sales and revenues grew $27.4 or
2.1%. Factors driving this increase were as follows:
Motion
Technologies
Organic sales
increased $26.9 or 5.4%. These increases were attributable to
higher volumes of OEM components (new platform wins), and
aftermarket brake pad sales. These contributions were partially
offset by a general slowdown during the second half of 2008 in
the global automotive markets.
Interconnect
Solutions
Organic sales
increased on higher volumes by $16.1 or 3.8%, primarily
attributable to the Americas and Asia markets (strength in
medical, defense, aerospace, rail and industrial markets,
particularly within the oil & gas industry).
Flow
Control
Organic sales
decreased $25.0 or 9.9%. This decrease was primarily
attributable to an overall decline in the bath, spa and
whirlpool markets, partially offset by positive contributions
from the domestic beverage market.
Control
Technologies
Organic sales
increased $12.9 or 11.0%, primarily driven by strength in
commercial/aerospace aftermarket products.
Energy
Absorption
Organic sales
decreased $2.0 or 4.8%, primarily reflecting a decline in the
global industrial market.
Operating income
increased $4.3 or 2.3% including contributions from acquisitions
and the benefit from foreign currency exchange translation.
Operating income declined $28.0 or 14.9% on an organic basis
primarily due to costs associated with the planned sale of our
Spa and Whirlpool and European Industrial Distribution business,
higher restructuring expense and production costs, partially
offset by increased sales volume, benefits from productivity
improvements and supply chain initiatives, and lower pension
expense.
Operating margins
decreased 200 basis points to 12.1% during 2008, primarily
reflecting the factors described above.
During 2008, we
received orders of $1,563.3, an increase of $184.3 or 13.4% over
the prior year. This increase was driven by contributions from
acquisitions, including IMC, and the benefit from foreign
currency exchange translation, partially offset by a decline in
organic orders of 3.0%. Order backlog was $417.1 at
December 31, 2008, compared to $440.4 at December 31,
2007.
2007 versus
2006
Sales and revenues
increased $239.6 or 21.9% over the prior year, attributable to
organic sales growth of $111.7 or 10.2%, contributions from
acquisitions, including IMC, of $69.2 and the benefit of foreign
currency exchange translation of $58.7. Significant factors
attributable to the organic sales growth are illustrated in the
table below.
Motion
Technologies
Organic sales
increased $51.1 or 12.6%. This increase were attributable to
higher volumes on new European platforms and existing programs.
Interconnect
Solutions
Organic sales
increased $34.4 or 9.0% due to higher volumes of electronic
components sales, particularly in Asia and the Americas.
Flow
Control
Organic sales
increased $10.2 or 4.5%. This increase was primarily
attributable to higher volumes in the marine, industrial and
beverage markets, partially offset by declines in the bath, spa
and whirlpool markets.
Control
Technologies
Organic sales
increased $15.6 or 18.9%, primarily due to higher sales to
commercial, military and to a lesser extent industrial markets.
Operating income
increased $37.7 or 25.2% for 2007 compared to 2006. Organic
operating income increased $26.9 or 18.0% over the same period.
The year-over-year increase was primarily driven by higher sales
volumes, cost reduction initiatives, and operating efficiencies.
These benefits were partially offset by higher material costs,
unfavorable mix, and higher SG&A expense, including
increased marketing expense,
27
Table of Contents
higher compensation
costs and the impact of foreign currency translation.
Operating margin was
14.1% and 13.7% for 2007 and 2006, respectively. The
year-over-year increase primarily reflects the factors discussed
above.
We received orders
of $1,379.0 reflecting an increase of $237.6 or 20.8% over the
prior year period. Order growth was attributable to each
business within the segment, including Motion Technologies,
driven by the previously mentioned new platforms in Europe, and
Control Technologies. Order backlog was $440.4 at
December 31, 2007, compared to $409.3 at December 31,
2006.
Corporate and
Other
Corporate expenses
of $177.3 for the year ended December 31, 2008 increased
$31.7 compared to the same prior year period, primarily
reflecting higher bonus and restructuring costs, as well as
corporate initiatives, including expanded resources and review
procedures in the tax accounting function. Corporate expenses of
$145.6 for 2007 increased $22.0 compared to the prior year,
primarily reflecting higher bonus, stock-based compensation,
pension and post-employment benefits and other
compensation-related expenses.
Restructuring and
Asset Impairment Charges
Fourth Quarter
2008 Restructuring Activities and Asset Impairment
Charges
In response to
current and anticipated market conditions, we accelerated
restructuring activities across our businesses during the fourth
quarter of 2008. These restructuring actions resulted in a net
restructuring charge of $56.3 and related payments of $9.5. We
anticipate an additional $6.2 of restructuring charges will be
incurred and payments of $47.7 will occur during 2009 related to
these actions.
Components of
Charges
| FOURTH QUARTER 2008 ACTIONS | ||||||||||||||||||||||||||||||
|
OTHER |
LEASE |
PLANNED |
||||||||||||||||||||||||||||
|
EMPLOYEE- |
CANCELLATION
& |
ASSET |
POSITION |
|||||||||||||||||||||||||||
| SEVERANCE | RELATED COSTS | OTHER COSTS | WRITE-OFFS | TOTAL | ELIMINATIONS | |||||||||||||||||||||||||
|
Fluid Technology
|
$ | 24.1 | $ | 0.2 | $ | 0.4 | $ | 0.1 | $ | 24.8 | 523 | |||||||||||||||||||
|
Defense Electronics & Services
|
8.3 | 0.7 | 0.4 | – | 9.4 | 144 | ||||||||||||||||||||||||
|
Motion & Flow Control
|
19.7 | 0.3 | 0.3 | 0.8 | 21.1 | 578 | ||||||||||||||||||||||||
|
Corporate and Other
|
0.9 | 0.1 | – | – | 1.0 | 13 | ||||||||||||||||||||||||
| $ | 53.0 | $ | 1.3 | $ | 1.1 | $ | 0.9 | $ | 56.3 | 1,258 | ||||||||||||||||||||
The charges
associated with actions announced during the fourth quarter of
2008 primarily represent a reduction of structural costs in all
business segments and the planned closure of a facility within
the Motion & Flow Control business segment. Planned
position eliminations total 1,258, including 601 factory
workers, 629 office workers and 28 management employees.
The projected future
savings over a five-year horizon from restructuring actions
announced during the fourth quarter of 2008 are approximately
$63 during 2009, and $267 between 2010 and 2013.
Additionally, during
the fourth quarter of 2008, we recorded a net restructuring and
asset impairment charge of $5.3, reflecting costs of $3.9
related to prior actions and the reversal of $0.4 of
restructuring accruals that management determined would not be
required, as well as an asset impairment charge of $1.8 related
to the write-down of software due to a decision to cancel a
project as a result of an organizational realignment.
2008
Restructuring Activities
During 2008, we
recorded a net restructuring charge of $74.6, reflecting costs
of $66.9 related to new actions and $9.3 related to prior
years’ plans, as well as the reversal of $1.6 of
restructuring accruals that management determined would not be
required.
28
Table of Contents
Components of
Charges
| 2008 ACTIONS | ||||||||||||||||||||||||||||||||||||||||
|
PRIOR |
||||||||||||||||||||||||||||||||||||||||
|
OTHER |
LEASE |
PLANNED |
YEARS’
PLANS |
|||||||||||||||||||||||||||||||||||||
|
EMPLOYEE- |
CANCELLATION
& |
ASSET |
POSITION |
ADDITIONAL |
REVERSAL OF |
|||||||||||||||||||||||||||||||||||
| SEVERANCE | RELATED COSTS | OTHER COSTS | WRITE-OFFS | TOTAL | ELIMINATIONS | COSTS | ACCRUALS | |||||||||||||||||||||||||||||||||
|
Fluid Technology
|
$ | 30.7 | $ | 0.4 | $ | 0.9 | $ | 0.1 | $ | 32.1 | 600 | $ | 3.2 | $ | (1.0 | ) | ||||||||||||||||||||||||
|
Defense Electronics & Services
|
9.6 | 0.7 | 0.6 | – | 10.9 | 157 | 0.1 | (0.2 | ) | |||||||||||||||||||||||||||||||
|
Motion & Flow Control
|
20.5 | 0.6 | 0.4 | 0.8 | 22.3 | 589 | 6.0 | (0.4 | ) | |||||||||||||||||||||||||||||||
|
Corporate and Other
|
1.4 | 0.1 | 0.1 | – | 1.6 | 14 | – | – | ||||||||||||||||||||||||||||||||
| $ | 62.2 | $ | 1.8 | $ | 2.0 | $ | 0.9 | $ | 66.9 | 1,360 | $ | 9.3 | $ | (1.6 | ) | |||||||||||||||||||||||||
The charges
associated with actions announced during 2008 primarily
represent a reduction of structural costs in all business
segments and the planned closure of a facility in the
Motion & Flow Control business segment and a facility
in the Defense Electronics & Services business
segment. Planned position eliminations total 1,360, including
614 factory workers, 704 office workers and 42 management
employees. The costs associated with the prior years’ plans
primarily reflect severance and lease cancellation related costs.
Payments of $16.1
were made during 2008 related to actions announced during 2008.
The projected future
savings over a five year horizon from restructuring actions
announced during 2008 are approximately $73 during 2009 (of
which $69 is incremental to savings realized in 2008), and $308
between 2010 and 2013.
2008 Asset
Impairment Charges
During 2008, we
recognized $2.9 of charges related to the impairment of
long-lived assets. During the fourth quarter of 2008, we
recognized an asset impairment charge of $1.8 related to the
write-down of software due to a decision to cancel a project as
a result of an organizational realignment. During the third
quarter of 2008, we recognized an impairment charge of $1.1
related to one of our Motion & Flow Control
businesses, reflecting the reduction of our expected future
earnings for this business.
2007
Restructuring Activities
During 2007, we
recorded a net restructuring charge of $61.1, reflecting costs
of $57.9 related to new actions and $7.4 related to prior year
plans, as well as the reversal of $4.2 of restructuring accruals
that management determined would not be required.
Components of
Charges
| 2007 ACTIONS |
PRIOR |
|||||||||||||||||||||||||||||||||||||||
|
OTHER |
LEASE |
PLANNED |
YEARS’ PLANS |
|||||||||||||||||||||||||||||||||||||
|
EMPLOYEE- |
CANCELLATION
& |
ASSET |
POSITION |
ADDITIONAL |
REVERSAL OF |
|||||||||||||||||||||||||||||||||||
| SEVERANCE | RELATED COSTS | OTHER COSTS | WRITE-OFFS | TOTAL | ELIMINATIONS | COSTS | ACCRUALS | |||||||||||||||||||||||||||||||||
|
Fluid Technology
|
$ | 32.7 | $ | 0.5 | $ | 1.4 | $ | 2.1 | $ | 36.7 | 410 | $ | 3.5 | $ | (1.1 | ) | ||||||||||||||||||||||||
|
Defense Electronics & Services
|
6.2 | – | 1.5 | – | 7.7 | 115 | 2.9 | (0.9 | ) | |||||||||||||||||||||||||||||||
|
Motion & Flow Control
|
9.5 | – | 0.3 | 0.4 | 10.2 | 201 | 1.0 | (0.5 | ) | |||||||||||||||||||||||||||||||
|
Corporate and Other
|
3.3 | – | – | – | 3.3 | 3 | – | (1.7 | ) | |||||||||||||||||||||||||||||||
| $ | 51.7 | $ | 0.5 | $ | 3.2 | $ | 2.5 | $ | 57.9 | 729 | $ | 7.4 | $ | (4.2 | ) | |||||||||||||||||||||||||
The charges
associated with actions announced during 2007 represent a
reduction of structural costs in all business segments and the
planned closure of four facilities in the Fluid Technology
business segment, one facility in the Motion & Flow
Control business segment and two facilities in the Defense
Electronics & Services business segment. Planned
position eliminations total 729, including 341 factory workers,
345 office workers and 43 management employees. The costs
associated with prior years’ plans primarily reflect
additional costs related
29
Table of Contents
to an adjustment to
the write-off of leased space as well as asset write-offs and
severance costs.
Payments of $26.8
were made during 2007 related to actions announced during 2007.
The projected future
savings over a four-year horizon from restructuring actions
announced during 2007 are approximately $57 during 2009, and
$173 between 2010 and 2012.
2007 Asset
Impairment Charges
During the fourth
quarter of 2007, we recognized $5.0 of charges related to the
impairment of long-lived assets. The impairment was the result
of our determination that two businesses, one within the
Motion & Flow Control business segment and one within
the Fluid Technology business segment, were experiencing lower
than expected financial results, and as a result certain
long-lived assets of those businesses may be impaired. After
revising the earnings forecasts for those businesses to reflect
current business conditions, asset impairment charges of $4.2
and $0.8 were recorded within the Motion & Flow
Control and Fluid Technology business segments, respectively.
2006
Restructuring Activities
During 2006, we
recorded a net restructuring charge of $51.7, reflecting costs
of $52.7 related to new actions and $3.8 related to prior year
plans, as well as the reversal of $4.8 of restructuring accruals
that management determined would not be required.
Components of
Charges
| 2006 ACTIONS |
PRIOR |
|||||||||||||||||||||||||||||||||||||||
|
OTHER |
LEASE |
PLANNED |
YEARS’ PLANS |
|||||||||||||||||||||||||||||||||||||
|
EMPLOYEE- |
CANCELLATION
& |
ASSET |
POSITION |
ADDITIONAL |
REVERSAL OF |
|||||||||||||||||||||||||||||||||||
| SEVERANCE | RELATED COSTS | OTHER COSTS | WRITE-OFFS | TOTAL | ELIMINATIONS | COSTS | ACCRUALS | |||||||||||||||||||||||||||||||||
|
Fluid Technology
|
$ | 17.0 | $ | 2.8 | $ | 5.7 | $ | 1.2 | $ | 26.7 | 441 | $ | 0.9 | $ | (0.9 | ) | ||||||||||||||||||||||||
|
Defense Electronics & Services
|
3.2 | 0.1 | 3.9 | – | 7.2 | 113 | – | (0.9 | ) | |||||||||||||||||||||||||||||||
|
Motion & Flow Control
|
11.3 | 0.1 | 4.1 | 1.2 | 16.7 | 236 | 2.8 | (3.0 | ) | |||||||||||||||||||||||||||||||
|
Corporate and Other
|
2.1 | – | – | – | 2.1 | 26 | 0.1 | – | ||||||||||||||||||||||||||||||||
| $ | 33.6 | $ | 3.0 | $ | 13.7 | $ | 2.4 | $ | 52.7 | 816 | $ | 3.8 | $ | (4.8 | ) | |||||||||||||||||||||||||
The charges
associated with actions announced during 2006 represent a
reduction of structural costs in all business segments and the
closure of three facilities in the Fluid Technology business
segment, two in the Motion & Flow Control business
segment and one in the Defense Electronics & Services
business segment. Planned position eliminations total 816,
including 427 factory workers, 360 office workers and
29 management employees. The costs associated with prior
years’ plans primarily reflect additional severance costs.
Payments of $20.5
were made during 2006 related to actions announced during 2006.
The projected future
savings over a three-year horizon from restructuring actions
announced during 2006 are approximately $49 during 2009, and $97
between 2010 and 2011.
Employee Benefit
Plans
Pension
Expense
We recorded $0.3 of
net periodic pension income in the Consolidated Income Statement
in 2008, compared with net periodic pension cost of $61.7 in
2007. As more fully described in Note 16, “Employee
Benefit Plans,” in the Notes to Consolidated Financial
Statements, the primary drivers behind the decrease in the net
periodic pension cost were the effect of a higher expected
return on plan assets and a decrease in the amortization of
deferred losses.
In 2009, we expect
to incur approximately $40.6 of net periodic pension cost that
will be recorded in the Consolidated Income Statement. The
increase in net periodic pension cost is primarily due to the
effect of an increase in the amortization of deferred losses
partially offset by an increase in the discount rate for the
foreign plans.
Funded Status,
Plan Contributions and Other
During the fourth
quarter of 2008, we recognized a substantial decline in the fair
market value of our employee pension plan assets, contributing
to a pre-tax charge to other comprehensive loss of
$2.1 billion and a decrease of $1.3 billion in
shareholders’ equity. Further, this decline also
contributed to a reduction in the funded status of our
U.S. Salaried Pension Plan, which represents approximately
78% of out total pension obligation.
At December 31,
2008, the U.S. Salaried Pension Plan had an unfunded
deficit of $1.1 billion. For the balance of our funded
pension plans, including foreign and affiliate plans, the
aggregate funded status decreased by $274.4 resulting in a net
unfunded balance at December 31, 2008 of $222.2. In
addition, we had $359.2 in pension plans where funding is
30
Table of Contents
not permitted or, in
foreign environments, where funding is not feasible.
Funding requirements
under IRS rules are a major consideration in making
contributions to our pension plans. With respect to qualified
pension plans, we intend to contribute annually not less than
the minimum required by applicable law and regulations. In 2008,
we contributed $24.1 to pension plans. We currently anticipate
making contributions to pension plans in the range of $20 to $25
during 2009.
The Pension
Protection Act of 2006 (the “Pension Act”) contains
funding requirements for defined benefit pension plans. The
Pension Act establishes a 100% funding target over 7 years
for plan years beginning after December 31, 2007. No
shortfall amortization payments are required if the pension plan
meets the following targets: 92% funded in 2008; 94% funded in
2009; and 96% funded in 2010. The Worker, Retiree, and Employer
Recovery Act of 2008 (“WRERA”) was passed in December
2008. WRERA provides (i) the shortfall amortization charge
will be based on the transition percentages (92% in 2008, 94% in
2009, 96% in 2010 and 100% thereafter as opposed to the original
PPA language of 100% of funding target, (ii) clarification
that the averaging method used to value assets is to be adjusted
for expected earnings which results in “asset
smoothing”, and (iii) relief from the restriction on
benefit accruals in 2009, by allowing a plan sponsor to use the
greater of the Adjusted Funding Target Attainment Percentage
from January 1, 2008 and January 1, 2009.
In 2009, we are not
required to make any mandatory contributions to our
U.S. Salaried Plan to satisfy minimum statutory funding
requirements. Further, assuming that actual plan returns are
consistent with our expected plan return of nine percent in
2009, interest rates remain constant, and there are no
additional changes to U.S. pension funding legislation, we
would not be required to make any mandatory contributions in
2010. We may, however, make voluntary contributions over the
next two years to improve the funded status of our
U.S. Salaried Plan.
Funded status at the
end of 2009, and future required contributions, will depend
primarily on the actual return on assets during the year and the
discount rate at the end of the year. Depending on these
factors, and the resulting funded status of our pension plans,
the level of future contributions could be material.
Recoverable
Pension Costs and Plan Contributions
U.S. Government
Cost Accounting Standards govern the extent to which pension
costs and plan contributions are allocable to and recoverable
under contracts with the U.S. Government. The Defense
Electronics & Services business segment represents
approximately 70% of the active U.S. Salaried Plan
participants. As a result, we have sought and would seek
reimbursement from the Department of Defense for a portion of
our pension costs and plan contributions.
Cash Flow
Summary
| YEAR ENDED DECEMBER 31 | 2008 | 2007 | 2006 | ||||||||||||
|
Operating Activities
|
$ | 1,119.6 | $ | 798.1 | $ | 780.7 | |||||||||
|
Investing Activities
|
(502.9 | ) | (1,958.1 | ) | (46.3 | ) | |||||||||
|
Financing Activities
|
(1,407.4 | ) | 1,981.1 | (370.2 | ) | ||||||||||
|
Discontinued Operations – Operating Activities
|
(9.1 | ) | (16.2 | ) | 80.2 | ||||||||||
Operating
Activities
Cash provided by
operating activities in 2008 increased $321.5 from the prior
year. This significant increase is partially due to a $235.1
increase in income from continuing operations, excluding
non-cash increases in depreciation and amortization, combined
with a reduction in contributions to the U.S. Salaried
Pension Plan (reflected within the change of other current and
non-current assets). There were no contributions to the
U.S. Salaried Pension Plan made in 2008 as compared to
$50.0 in 2007. Working capital provided a modest increase in
cash from last year as a $123.8 reduction in the use of cash
from accounts receivable, primarily driven by improved cash
collections within the Fluid Technology business segment, was
largely offset by reduced sources of cash of $75.9 from accounts
payable and accrued expenses and $41.4 from inventories. Each of
the business segments contributed to the accounts payable and
accrued expenses impact, led by lower volumes and timing of
payments, while the change in inventories was primarily
attributable to the Defense Electronics & Services
business segment due to the ramp up of CREW units, coupled with
delayed international shipments. Additionally, EDO businesses
were a significant contribution underlying the overall operating
cash flow performance.
Cash provided by
operating activities in 2007 increased $17.4 from the prior
year. This increase is due to a $133.3 increase in income from
continuing operations, combined with a $213.2 improvement in
cash from inventories across all three business segments. These
increases in cash were partially offset by a $175.5 increased
use of cash for accounts receivable mainly due to the Fluid
Technology business segment, reflecting higher volumes overall,
including increased sales in Europe, which have longer payment
terms, and the Defense Electronics & Services business
segment primarily due to higher overall volumes, and the
increase in EDO receivables since the acquisition date. Also,
accounts payable and accrued expenses were a reduced source of
cash totaling $109.2, primarily due to contract reserve
adjustments as well as a payment of $30.0 towards $50.0 in
fines, forfeitures and penalties we agreed to in
31
Table of Contents
conjunction with our
settlement with the U.S. Government relating to an Night
Vision Division compliance matter. See Note 19,
“Commitments and Contingencies,” in the Notes to
Consolidated Financial Statements for further discussion of the
Night Vision matter. Additionally, accrued and deferred taxes
mitigated the increase in cash by $64.4, primarily related to
increased tax payments of $116.3, partially offset by increased
accrued and deferred tax liabilities.
Investing
Activities
Additions to
Plant, Property and Equipment:
Capital expenditures
during 2008 were $248.7, an increase of $9.4 as compared to
2007. The increase is driven by higher spending of $30.3 in the
Defense Electronics & Services business segment
primarily due to the acquisition of EDO at the end of 2007, an
$18.5 increase in the Motion & Flow Control business
segment as a result of the purchase of a manufacturing facility
in Mexico, combined with timing of investments as compared to
last year. These increases were offset by net reductions of
$39.4 largely reflecting the absence of a prior year cash
payment of $44.8 related to the renewal of the sale leaseback
arrangement for ITT’s corporate aircraft whose term expired
in December 2007 (see Note 20, “Guarantees,
Indemnities and Warranties,” in the Notes to Consolidated
Financial Statements for further discussion). This was partially
offset by payments related to the leasehold improvements for
ITT’s new headquarters that consolidates its corporate
headquarters and the headquarters operations of its Fluid
Technology and Motion & Flow Control business segments.
Capital expenditures
during 2007 were $239.3, an increase of $62.2 from 2006. The
Fluid Technology business segment increased its capital
expenditures by $21.4, largely related to incremental
investments in facilities in Asia and Eastern Europe. Also
reflected in 2007 capital expenditures was a cash payment of
$44.8 related to the renewal of the sale leaseback arrangement
for ITT’s corporate aircraft whose term expired in December
2007 (see Note 20, “Guarantees, Indemnities and
Warranties,” in the Notes to Consolidated Financial
Statements for further discussion).
Acquisitions:
2008
Acquisitions
During 2008, we
spent $226.5 related to additional costs for 2007 acquisitions
including, the EDO acquisition within the Defense
Electronics & Services business segment, largely for
repayment of debt acquired. We also spent $49.2 on acquisitions
of several other smaller companies, including two companies in
Motion & Flow Control and two companies in Fluid
Technology, as well as other acquisition-related costs.
2007
Acquisitions
During 2007, we
spent $2,009.2 for the acquisition of six companies. The
acquisitions of EDO for $1,598.7 within our Defense
Electronics & Services business segment and of IMC for
$390.5 within our Motion & Flow Control business
segment comprised most of the total spending. Of the other
acquisitions, one was in the Defense Electronics &
Services business segment and three were in the Fluid Technology
business segment.
2006
Acquisitions
During 2006, we
spent $89.5, primarily for the acquisition of three entities,
one within the Fluid Technology business segment, one in the
Defense Electronics & Services business segment and
one in the Motion & Flow Control business segment.
Proceeds from
Sale of Assets and Businesses:
During 2008, we
completed the sale of the remaining component of the Switches
businesses, for net proceeds of $5.1. In 2007, we had sold the
substantial part of our Switches businesses for net proceeds of
$223.2, with the buyer to acquire the remainder once asset
transfer issues were resolved.
Additionally, as
part of ITT’s renewal of its corporate aircraft sale
leaseback, in 2007 we received a cash payment of $50.2 for the
sale of the aircraft to the lessor (see Note 20,
“Guarantees, Indemnities and Warranties,” in the Notes
to Consolidated Financial Statements for further discussion).
In the first quarter
of 2006, we completed the sale of Fluid Handling Systems and
Richter for net proceeds of $212.5.
Financing
Activities
Short-term
debt:
During 2008, our use
of cash related to short-term debt increased $3,540.9 over the
prior year, reflecting net payments of $1,229.0 in 2008
primarily related to the financing of the EDO acquisition as
compared to net short-term borrowings of $2,311.9 in 2007.
During 2007, our net
short-term borrowings provided a $2,467.5 increased source of
cash as compared to the prior year largely due to debt used to
finance the EDO acquisition.
Share
Repurchases:
In 2008, we spent
$75.0, including commission fees, on the repurchase of common
stock. As of December 31, 2008, we had repurchased
7.1 shares for $430.8, including commission fees, under our
$1 billion share repurchase program.
In 2007, we spent
$299.1, including commission fees, on the repurchase of common
stock. Of this amount, $48.6 relates to 0.9 shares which
were acquired at the end of 2006 and settled in January 2007.
The remaining $250.5 relates to 4.1 shares repurchased in
2007.
32
Table of Contents
In December 2006, we
purchased 1.9 shares for $105.3, including commission fees.
Of this activity, 0.9 shares were acquired at the end of
2006 and settled in January 2007 for $48.6. This activity was
part of a $1 billion share repurchase program announced
during the fourth quarter of 2006, which replaces our previous
practice of covering shares granted or exercised in the context
of ITT’s performance incentive plans. Additionally, in
2006, we repurchased 2.8 shares for $153.4 to offset the
dilutive effect of exercised stock options and restricted stock
issuances.
Dividends:
In 2008, we made
$120.9 of dividend payments to shareholders, a 25% increase over
2007.
In 2007, we made
$96.6 of dividend payments to shareholders, a 25% increase over
2006.
Discontinued
Operations – Operating Activities
During 2008, cash
used in operating activities of discontinued operations declined
$7.1 from the prior year primarily due to a decrease in cash
used by our Switches businesses as a result of the disposition
of substantially all of the businesses during third quarter of
2007.
During 2007, cash
from operating activities of discontinued operations declined
$96.4 due to a use of cash of $16.2 in the current year as
compared to an $80.2 source in the prior year. The primary
driver of the decrease in cash flow was the absence of operating
cash flows from our Switches businesses (sold in the third
quarter of 2007) and our FHS and Richter businesses (sold
in the first quarter of 2006).
Liquidity and
Capital Resources
Our principal source
of liquidity is operating cash flows, and we have demonstrated
the ability to meet our additional funding requirements through
the issuance of commercial paper. Our funding needs are
monitored and strategies are executed to meet overall cash
requirements, including the management of our capital structure
on a short and long-term basis. Significant factors that affect
our overall management of liquidity include the adequacy of
commercial paper and bank lines of credit, and the ability to
attract long-term capital at satisfactory terms. We assess these
factors along with current market conditions on a continuous
basis, and as a result may alter the mix of our short- and
long-term financing, when advantageous to do so.
We manage our
worldwide cash requirements considering available funds among
the many subsidiaries through which we conduct business and the
cost effectiveness with which those funds can be accessed. We
have and will continue to transfer cash from those subsidiaries
to U.S. and to other international subsidiaries when it is
cost effective to do so.
We believe that
available cash, committed credit facilities and access to the
public debt markets provide adequate short-term and long-term
liquidity.
Recent declines in
the worldwide debt and equity markets have had an adverse impact
on market participants including, among other things, volatility
in security prices, diminished liquidity, and limited access to
funding. We have assessed the implications of these factors on
our current business and determined that there has not been a
significant impact to our financial position, results of
operations, or liquidity during 2008. If our access to the
commercial paper market is adversely affected, we believe that
alternative sources of liquidity, including available cash and
existing committed credit facilities, would be sufficient to
meet our short-term funding requirements.
Current debt ratios
have positioned us to grow our business with investments for
organic growth and through strategic acquisitions, while
providing the ability to return value to shareholders through
increased dividends and share repurchases.
| DECEMBER 31, | 2008 | 2007 | ||||||||
|
Cash and cash equivalents
|
$ | 964.9 | $ | 1,840.0 | ||||||
|
Short-term debt and current maturities of long-term debt
|
$ | 1,679.0 | $ | 3,083.0 | ||||||
|
Long-term debt
|
467.9 | 483.0 | ||||||||
|
Total debt
|
2,146.9 | 3,566.0 | ||||||||
|
Total shareholders’ equity
|
3,059.9 | 3,944.8 | ||||||||
|
Total capitalization (debt plus equity)
|
$ | 5,206.8 | $ | 7,510.8 | ||||||
|
Debt to total capitalization
|
41.2 | % | 47.5 | % | ||||||
|
Net debt (debt less cash and cash equivalents)
|
1,182.0 | 1,726.0 | ||||||||
|
Net capitalization (debt plus equity less cash and cash
equivalents)
|
4,241.9 | 5,670.8 | ||||||||
|
Net debt to net capitalization
|
27.9 | % | 30.4 | % | ||||||
Short-term debt,
including current maturities of long-term debt, was $1,679.0 and
$3,083.0 at December 31, 2008 and 2007, respectively. Net
debt at December 31, 2008 was $1,182.0 compared to $1,726.0
at December 31, 2007. This decrease primarily reflects the
pay down of debt during 2008, subsequent to our funding for the
acquisition of EDO.
We expect that cash
flows from operations and our access to the commercial paper
market will be sufficient to meet our short-term funding
requirements. We anticipate that cash flows from operations will
be utilized to further decrease our net debt balance during 2009.
Credit
Facilities and Commercial Paper Program
In November 2005,
ITT entered into a five-year revolving credit agreement (the
“November 2005 Credit Facility”), in the
33
Table of Contents
aggregate principal
amount of $1.25 billion. Effective November 8, 2007,
ITT exercised the option to increase the principal amount under
the revolving credit agreement to $1.75 billion. In March
2008, ITT entered into a new
364-day
revolving credit agreement (the “March 2008 Credit
Facility”), providing an additional $1.0 billion
principal amount of available borrowings. As a result, the
maximum amount of available borrowings under both facilities is
now $2.75 billion.
The provisions of
this agreement require that we maintain a minimum interest
coverage ratio. At December 31, 2008, we were in compliance
with our financial covenants.
Prior to December
2007, borrowing through commercial paper and under the revolving
credit agreements could not exceed $1.25 billion in the
aggregate outstanding. In December 2007 and March 2008, the ITT
Board of Directors approved commercial paper borrowings to
increase up to $1.75 billion and $2.75 billion,
respectively. At December 31, 2008, commercial paper
borrowings were $1,618.7.
The revolving credit
agreements are intended to provide additional liquidity as a
source of funding for the commercial paper program, if needed.
Our policy is to maintain unused committed bank lines of credit
in an amount greater than outstanding commercial paper balances.
|
AMOUNT IN |
|||||||||||||||
|
CREDIT |
COMMERCIAL |
EXCESS OF |
|||||||||||||
|
FACILITY |
PAPER |
COMMERCIAL |
|||||||||||||
| AMOUNT | OUTSTANDING | PAPER BALANCE | |||||||||||||
|
November 2005 Credit Facility
|
$ | 1,750.0 | $ | 1,618.7 | $ | 131.3 | |||||||||
|
March 2008 Credit Facility
|
1,000.0 | — | 1,000.0 | ||||||||||||
| $ | 2,750.0 | $ | 1,618.7 | $ | 1,131.3 | ||||||||||
The March 2008
Credit Facility will expire during the first quarter of 2009. We
believe that funds available to us under the November 2005
Credit Facility are more than sufficient to cover the level of
expected commercial paper borrowings in 2009, and to satisfy any
remaining cash requirements.
Contractual
Obligations
ITT’s
commitment to make future payments under long-term contractual
obligations was as follows, as of December 31, 2008:
| PAYMENTS DUE BY PERIOD | ||||||||||||||||||||||||||||||
|
LESS THAN |
MORE THAN |
ALL |
||||||||||||||||||||||||||||
| CONTRACTUAL OBLIGATIONS | TOTAL | 1 YEAR | 1-3 YEARS | 3-5 YEARS | 5 YEARS | OTHER | ||||||||||||||||||||||||
|
Long-term
debt(1)
|
$ | 434.9 | $ | 13.1 | $ | 90.1 | $ | 23.0 | $ | 308.7 | $ | – | ||||||||||||||||||
|
Interest
payments(2)
|
349.4 | 28.1 | 52.1 | 42.8 | 226.4 | – | ||||||||||||||||||||||||
|
Operating
leases(3)
|
721.2 | 126.4 | 196.8 | 149.4 | 248.6 | – | ||||||||||||||||||||||||
|
Purchase
obligations(4)(5)
|
695.7 | 451.8 | 228.8 | 15.1 | – | – | ||||||||||||||||||||||||
|
FIN 48
liability(6)
|
144.9 | – | – | – | – | 144.9 | ||||||||||||||||||||||||
|
Other long-term obligations reflected on balance
sheet(7)
|
187.4 | 39.2 | 48.1 | 25.1 | 75.0 | — | ||||||||||||||||||||||||
|
Total
|
$ | 2,533.5 | $ | 658.6 | $ | 615.9 | $ | 255.4 | $ | 858.7 | $ | 144.9 | ||||||||||||||||||
| (1) | See Note 14, “Debt,” in the Notes to Consolidated Financial Statements, for discussion of the use and availability of debt and revolving credit agreements. Amounts represent total long-term debt, including current maturities and unamortized discount and exclude deferred gain on interest rate swaps. |
| (2) | Amounts represent estimate of future interest payments on long-term debt outstanding as of December 31, 2008 utilizing year end interest rates. |
| (3) | Refer to Note 13, “Leases and Rentals,” in the Notes to Consolidated Financial Statements, for further discussion of lease and rental agreements. |
| (4) | The unconditional purchase commitments are principally take or pay obligations related to the purchase of certain raw materials and subcontract work. |
| (5) | Purchase obligations include a three-year obligation in the amount of $9.2 that would require a termination penalty based on the number of remaining months. As of December 31, 2008, this fee would have been $2.3. |
| (6) | As of December 31, 2008, our liability in connection with Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109,” (“FIN 48”) was $144.9. ITT was unable to reasonably estimate the timing of FIN 48 liability payments in individual years beyond 12 months due to uncertainties in the timing of the effective settlement of tax positions. (See the section entitled “Critical Accounting Estimates – Income Taxes”). |
| (7) | Other long-term obligations include estimated environmental payments. We estimate, based on historical experience, that we will spend between $8.0 and $12.0 per year on environmental investigation and remediation. We are contractually required to spend a portion of these monies based on existing agreements with various governmental agencies and other entities. At December 31, 2008, our best estimate for environmental liabilities is $135.0. In addition, other long-term obligations include letters of credit, and payments in connection with our settlement of compliance issues in the Defense Electronics & Services business segment. |
34
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Off-Balance Sheet
Arrangements
Guarantees &
Indemnities
Since ITT’s
incorporation in 1920, we have acquired and disposed of numerous
entities. The related acquisition and disposition agreements
contain various representation and warranty clauses and may
provide indemnities for a misrepresentation or breach of the
representations and warranties by either party. The indemnities
address a variety of subjects; the term and monetary amounts of
each such indemnity are defined in the specific agreements and
may be affected by various conditions and external factors. Many
of the indemnities have expired either by operation of law or as
a result of the terms of the agreement. We do not have a
liability recorded for the historic indemnifications and are not
aware of any claims or other information that would give rise to
material payments under such indemnities.
In December of 2007,
we entered into a sale leaseback type agreement for our
corporate aircraft, with the aircraft leased back under a
five-year operating lease. We have provided, under the lease, a
residual value guarantee to the counterparty in the amount of
$50.2, which is the maximum amount of undiscounted future
payments. We would have to make payments under the residual
value guarantee only if the fair value of the aircraft was less
than the residual value guarantee upon termination of the
agreement. At December 31, 2008, the projected fair value
of the aircraft at the end of the lease is estimated to be $2.4
less than the residual value guarantee. Since this estimated
loss does not exceed the $5.4 gain we realized from the sale of
the aircraft, but deferred as a loss contingency for the
residual value guarantee, we have not recorded any additional
accrual in our financial statements.
ITT has a number of
individually immaterial guarantees outstanding at
December 31, 2008, that may be affected by various
conditions and external forces, some of which could require that
payments be made under such guarantees. We do not believe these
payments will have any material adverse impact on the financial
position, results of operations or cash flow on a consolidated
basis in the foreseeable future.
Critical
Accounting Estimates
The preparation of
financial statements in conformity with accounting principles
generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses. Significant
accounting policies used in the preparation of the Consolidated
Financial Statements are discussed in Note 1, “Summary
of Significant Accounting Policies,“ in the Notes to
Consolidated Financial Statements. Accounting estimates and
assumptions discussed in this section are those that we consider
most critical to an understanding of our financial statements
because they inherently involve significant judgments and
uncertainties. Actual results in these areas could differ from
management’s estimates.
Contingent
Liabilities
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 against the Company relating to environmental
liabilities, product liabilities (including asbestos),
employment and pension matters, government contract issues and
commercial or contractual disputes, sometimes related to
acquisitions or divestitures. Accruals for anticipated
settlements have been established where the outcome of the
matter is probable and can be reasonably estimated. In addition,
accruals for legal fees for various matters have been
established where the fees are probable of payment and can be
reasonably estimated. Based on present information, including
our assessment of the merits of claims, 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 position, results of operations or cash flows, on a
consolidated basis.
However, because of
uncertainties related to these matters, we can only record
accruals based on currently available information. As additional
information becomes available, we reassess the potential
liability related to our pending claims and litigation and may
revise our estimates. Such revisions in the estimates of the
potential liabilities could have a material impact on our
consolidated financial position, results of operations or cash
flows. For a discussion of these contingencies, including
management’s judgment applied in the recognition and
measurement of specific liabilities, refer to Note 19,
“Commitments and Contingencies,” in the Notes to
Consolidated Financial Statements.
Employee
Benefit Plans
ITT sponsors
numerous employee pension and welfare benefit plans. The
determination of projected benefit obligations and the
recognition of expenses related to pension and other
postretirement obligations are dependent on assumptions used in
calculating these amounts. These assumptions include: discount
rates, expected rates of return on plan assets, rate of future
compensation increases, mortality, termination, health care
inflation trend rates (some of which are disclosed in
Note 16, “Employee Benefit Plans,” in the Notes
to Consolidated Financial Statements) and other factors.
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Key
Assumptions
A summary of the
significant assumptions used for the pension benefit plans are
as follows:
| WEIGHTED AVERAGE ASSUMPTIONS | 2008 | 2007 | ||||||||
|
Expected rate of return on plan assets used to determine net
periodic benefit cost
|
8.87 | % | 8.87 | % | ||||||
|
Discount rate used to determine net periodic benefit cost
|
6.19 | % | 5.87 | % | ||||||
|
Discount rate used to determine benefit obligation at December 31
|
6.24 | % | 6.19 | % | ||||||
|
Rate of future compensation increase used to determine benefit
obligation at December 31
|
3.97 | % | 4.45 | % | ||||||
Management develops
each assumption using relevant company experience in conjunction
with market-related data for each individual country in which
such plans exist. All assumptions are reviewed periodically with
third party actuarial consultants and adjusted as necessary.
We determine our
expected return on plan assets assumption by evaluating both
historical returns and estimates of future returns.
Specifically, we analyze the plan’s actual historical
annual return on assets over the past 10, 15, 20 and
25 years; make estimates of future returns using a Capital
Asset Pricing Model; and evaluate historical broad market
returns over the past 75 years based on our strategic asset
allocation, which is detailed in Note 16, “Employee
Benefit Plans,” in the Notes to Consolidated Financial
Statements.
Based on the
approach described above, we estimate the long-term annual rate
of return on assets for domestic pension plans at 9.0%. For
reference, our actual geometric average annual return on plan
assets for domestic pension plans stood at 9.9%, 11.8%, 12.0%
and 12.4%, for the past 10, 15, 20, and 25 year periods,
respectively.
The chart below
shows actual versus the expected long-term returns for our
domestic pension plans that are utilized in the calculation of
the net periodic benefit cost. See Note 16, “Employee
Benefit Plans,” in the Notes to Consolidated Financial
Statements for more information.
| 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||||
|
Expected rate of return on plan assets
|
9.0 | % | 9.0 | % | 9.0 | % | 9.0 | % | 9.0 | % | |||||||||||||||
|
Actual rate of return on plan assets
|
(31.2 | )% | 12.7 | % | 13.8 | % | 13.2 | % | 15.2 | % | |||||||||||||||
Our weighted average
expected return on plan assets for all pension plans, including
foreign affiliate plans, at December 31, 2008 is 8.9%.
We utilize the
assistance of our plan actuaries in determining the discount
rate assumption. As a service to their clients, the plan
actuaries have developed and published an interest rate yield
curve comprising AAA/AA bonds with maturities between zero and
thirty years. The plan actuaries then discount the annual
benefit cash flows of ITT’s pension plan using this yield
curve and develop a single-point discount rate matching the
plan’s characteristics.
Our weighted average
discount rate for all pension plans, including foreign affiliate
plans, at December 31, 2008, is 6.24%. Also, at
December 31, 2008, we raised the discount rate on our
postretirement welfare plans to 6.25% from 6.0%.
At December 31,
2008, we lowered our expected rate of future compensation
increases for domestic plan participants to 4.0% from 4.5%,
based on recent historical experience and expectations for
future economic conditions.
Pension
Expense
A 25 basis
point change in the expected rate of return on plan assets,
discount rate, or rate of future compensation increases, would
have the following effect on 2009 pension expense:
|
INCREASE/(DECREASE) |
||||||||||
| IN PENSION EXPENSE | ||||||||||
|
25 BASIS |
25 BASIS |
|||||||||
| POINT INCREASE | POINT DECREASE | |||||||||
|
Long-term rate of return on assets used to determine net
periodic benefit cost
|
$ | (10.1 | ) | $ | 10.1 | |||||
|
Discount rate used to determine net periodic benefit cost
|
(27.0 | )* | 13.3 | |||||||
|
Rate of future compensation increases used to determine net
periodic pension cost
|
4.6 | (4.2 | ) | |||||||
| * | This scenario eliminates any amortization of deferred losses, since the amount subject to amortization must exceed 10 percent of the greater of the projected benefit obligation or the market-related value of plan assets. |
Funded
Status
Funded status is
derived by subtracting the respective year-end values of the
projected benefit obligations from the fair value of plan
assets. ITT’s U.S. Salaried Pension Plan represents
approximately 78% of the total pension obligation, and therefore
the funded status of the U.S. Salaried Pension Plan has a
considerable impact on the overall funded status of our pension
plans.
We estimate that
every 25 basis point change in the discount rate impacts
the funded status of the U.S. Salaried
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Pension Plan by
approximately $110. Similarly, every five percentage point
change in the actual 2009 rate of return on assets impacts the
same plan by approximately $150.
Fair Value of
Plan Assets
Our pension and
welfare benefit plans’ assets are comprised of a broad
range of investments including domestic and foreign securities,
private equity and fixed income investments, investments in
hedge funds, commodities and cash and cash equivalents. When
available, we have valued our investments based on observable
market inputs.
Observable inputs
are inputs that market participants would use in pricing the
investment based on market data obtained from independent
sources. These include inputs with quoted prices in active
markets, and inputs other than quoted prices in active markets
that are either directly or indirectly observable.
Unobservable inputs
are inputs that reflect the Company’s assumptions about the
estimates market participants would use in pricing the
investment, based on the best information available in the
circumstances. To the extent that valuation is based on inputs
that are less observable or unobservable in the market, the
determination of the fair value requires more judgment.
A substantial
portion of our pension and welfare benefit plan assets portfolio
is comprised of hedge fund and private equity investments. The
private equity and a portion of the hedge fund investments do
not have directly observable inputs, and as such, require
significant judgment to determine fair value.
Plan assets are
based on year-end fair market values. Absent the timely
availability of audited year-end financial statements for these
investments, from which we derive our allocable portion of each
investment’s fair value, management has incorporated its
own judgment and set of assumptions to value the investments as
of year-end.
See Note 16,
“Employee Benefit Plans” in the Notes to Consolidated
Financial Statements for further information.
Revenue
Recognition
ITT recognizes
revenue as services are rendered and when title transfers for
products, subject to any special terms and conditions of
specific contracts. For the majority of our product sales, title
transfers when products are shipped. Under certain
circumstances, title passes when products are delivered.
Further, some sales are recognized when the customer picks up
the product. In the Defense Electronics & Services
business segment, certain contracts require the delivery,
installation, testing, certification and customer acceptance
before revenue can be recorded.
The Defense
Electronics & Services business segment and certain
businesses in our Fluid Technology business segment generally
recognize sales and anticipated profits under long-term
fixed-price contracts based on units of delivery, completion of
scheduled performance milestones, or percentage of costs
incurred to total costs. Estimated contract profits are recorded
into earnings in proportion to recorded sales. During the
performance of such contracts, estimated final contract prices
and costs are periodically reviewed and revisions are made as
required. The effect of these revisions to estimates is included
in earnings in the period in which the revisions are made. Sales
under cost-reimbursement contracts are recorded as costs are
incurred and include estimated earned fees or profits calculated
on the basis of the relationship between costs incurred and
total estimated costs. For
time-and-material
contracts, revenue is recognized to the extent of billable rates
times hours incurred plus material and other reimbursable costs
incurred. Anticipated losses on contracts are recorded when
first identified by ITT. Revenue arising from the claims process
is not recognized either as income or as an offset against a
potential loss until it can be reliably estimated and
realization is probable.
Income
Taxes
Deferred tax assets
and liabilities are determined based on temporary differences
between the financial reporting and tax bases of assets and
liabilities, applying enacted tax rates that we expect to be in
effect for the year in which we expect the differences will
reverse. Based on the evaluation of available evidence, we
recognize future tax benefits, such as net operating loss
carryfowards, to the extent that we believe it is more likely
than not we will realize these benefits. We periodically assess
the likelihood that we will be able to recover our deferred tax
assets and reflect any changes in our estimates in the valuation
allowance, with a corresponding adjustment to earnings or other
comprehensive income (loss), as appropriate.
In assessing the
need for a valuation allowance, we look to the future reversal
of existing taxable temporary differences, taxable income in
carryback years, the feasibility of tax planning strategies and
estimated future taxable income. The valuation allowance can be
affected by changes to tax laws, changes to statutory tax rates
and changes to future taxable income estimates.
The calculation of
our tax liabilities involves dealing with uncertainties in the
application of complex tax regulations in a multitude of
jurisdictions across our global operations. We recognize
potential liabilities and record tax liabilities for anticipated
tax audit issues in the U.S. and other tax jurisdictions
based on our estimate of whether, and to the extent to which,
additional taxes will be due. Furthermore, in accordance with
FIN 48, we recognize the tax benefit from an uncertain tax
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position only if it
is more likely than not that the tax position will be sustained
on examination by the taxing authorities, based on the technical
merits of the position. The tax benefits recognized in the
financial statements from such a position are measured based on
the largest benefit that has a greater than 50% likelihood of
being realized upon ultimate settlement.
We adjust these
reserves in light of changing facts and circumstances; however,
due to the complexity of some of these uncertainties, the
ultimate resolution may result in a payment that is materially
different from our current estimate of the tax liabilities. If
our estimate of tax liabilities proves to be less than the
ultimate assessment, an additional charge to expense would
result. If a payment of these amounts ultimately proves to be
less than the recorded amounts, the reversal of the liabilities
would result in tax benefits being recognized in the period when
we determine the liabilities are no longer necessary.
Goodwill and
Other Intangible Assets
We account for
goodwill and indefinite-lived intangibles in accordance with
Statement of Financial Accounting Standards (“SFAS”)
No. 142, “Goodwill and Other Intangible Assets”
(“SFAS 142)”. SFAS 142 states that
goodwill and indefinite-lived intangible assets are not
amortized, but are instead reviewed for impairment annually (or
more frequently if impairment indicators arise). We conduct our
annual impairment testing on October 1 to determine if we will
be able to recover all or a portion of the carrying value of
goodwill and indefinite-lived intangibles.
The application of
the impairment test requires judgment, including the
identification of reporting units, assignments of assets and
liabilities to reporting units and the determination of the fair
value of each reporting unit. Further, the impairment test
involves the use of accounting estimates and assumptions related
to future operating results. Consistent with the requirements of
SFAS 142, the fair values of our reporting units generally
are based on discounted cash flow projections that are believed
to be reasonable under current and forecasted circumstances, the
results of which form the basis for making judgments about
carrying values of the reported net assets of our reporting
units.
We conducted our
annual goodwill impairment test as of October 1, 2008, and
determined that there was no impairment. Subsequently, we
updated our forecast assumptions to reflect declining economic
conditions. As a result, we reassessed goodwill for impairment
for those reporting units significantly affected by changes to
our initial projections. Despite declines in the estimated fair
value for certain reporting units since our annual impairment
test, we concluded that there were no impairments as of the
interim test dates.
We will continue to
closely monitor the 2009 results and projections for these units
and the economic conditions of their product end-markets. Any
significant change in market conditions and estimates or
judgments could give rise to impairment in the period that the
change becomes known.
Other Intangible
Assets
Prior to performing
the goodwill impairment testing process for a reporting unit
under SFAS 142, if there is reason to believe that other
non-goodwill related intangible assets may be impaired, these
other intangible assets must first be tested for impairment
under SFAS 142 or SFAS No. 144, “Accounting for
the Impairment or Disposal of Long-Lived Assets,”
(“SFAS 144”). Assets governed by SFAS 144
require a recoverability test for impairment whereby the gross
undiscounted cash flows are determined specific to the asset.
For non-goodwill related indefinite-lived assets, a fair value
determination is made. If the carrying value of the asset
exceeds the fair value, then impairment occurs. The carrying
values of these assets are impaired as necessary to provide the
appropriate carrying value for the goodwill impairment
calculation.
These impairment
tests also involve the use of accounting estimates and
assumptions believed to be reasonable, the results of which form
the basis for our conclusions. Significant changes to these
estimates and assumptions could adversely impact our conclusion
to these impairment tests.
New Accounting
Pronouncements
See Note 2,
“New Accounting Pronouncements,” in the Notes to the
Consolidated Financial Statements for a complete discussion of
recent accounting pronouncements. There were no new
pronouncements which we expect to have a material impact on our
financial condition and results of operations in future periods.
Forward-Looking
Statements
Certain statements
contained in this document, including within this
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (most particularly, material presented
under “Executive Summary,” “2009 Outlook,”
“Known Trends and Uncertainties,” “Restructuring
and Asset Impairment Charges,” “Employee Benefit
Plans,” “Liquidity and Capital Resources,” and
“Critical Accounting Estimates,” that are not
historical facts, constitute “Forward-Looking
Statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements, in
general, predict, forecast, indicate or imply future results,
performance or achievements and generally use words so
indicative. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause
the actual results or performance of ITT and its businesses to
be materially
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different from that
expressed or implied by such forward-looking statements. Such
factors may be described or referred to from time to time in
filings made by ITT with the Securities and Exchange Commission.
Included in those factors are the following: general economic
and business conditions; foreign currency exchange rates;
political, social and economic conditions and local regulations
in the countries in which ITT conducts its businesses;
government regulations and compliance therewith; demographic
changes; sales and revenues mix; pricing levels; changes in
sales and revenues to, or the identity of, significant
customers; changes in technology; industry capacity and
production rates; ability of outside third parties to comply
with their commitments; competition; capacity constraints;
availability of raw materials and adequate labor; availability
of appropriate professional expertise; projected savings from
restructuring actions; potential future employee benefit plan
contributions; availability of liquidity sufficient to meet
ITT’s needs; the ability to adapt to changes resulting from
acquisitions and divestitures and to affect cost reduction
programs; and various other factors referenced in this
Management’s Discussion and Analysis and under the caption
“Risk Factors.” In some areas, the availability of
energy sources may affect our production processes or customer
demand for our products or services. In addition to these
factors, our business segments may be affected by the more
specific factors referred to below and as included in
Item 1A.
The Defense
Electronics & Services business segment will be
affected by factors including the level of defense funding by
domestic and foreign governments; changes in the portion of the
U.S. Defense budget devoted to products and services of the
types of products we provide; our ability to receive contract
awards; government investigations; government contracts subject
to security and facility clearances; our ability to obtain and
maintain export licenses; our ability to sell to international
markets and our ability to develop and market products and
services for customers outside of traditional markets.
The Fluid Technology
business segment will be affected by factors including broad
economic conditions in markets served; governmental funding
levels; raw material prices; international demand for fluid
management products; the ability to successfully expand into new
geographic markets; weather conditions; and continued demand for
replacement parts and servicing.
The
Motion & Flow Control business segment will be
affected by the cyclical nature of the transportation industry;
economic conditions in its major markets; weather conditions;
production levels of major auto producers; and demand for
replacement parts.
ITT assumes no
obligation to update forward-looking statements to reflect
actual results or changes in or additions to the factors
affecting such forward-looking statements.
ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(In millions,
unless otherwise stated)
MARKET RISK
EXPOSURES
At December 31,
2008, our short-term and long-term debt obligations totaled
$2.1 billion. In addition, our cash and cash equivalents
balances at December 31, 2008 was $964.9. Based on these
positions, and our overall exposure to interest rates, a change
of 61 basis points (equivalent to 10% of ITT’s weighted
average short-term interest rates at December 31,
2008) on our cash and marketable securities and on our
floating rate debt obligations would have a $4.4 effect on our
pretax earnings for the year ended December 31, 2008.
ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
See Index to
Consolidated Financial Statements and Schedule herein.
ITEM 9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
| ITEM 9A. | CONTROLS AND PROCEDURES |
Attached as exhibits
to the
Form 10-K
are certifications of the Company’s Chief Executive Officer
(“CEO”) and Chief Financial Officer (“CFO”),
which are required in accordance with
Rule 13a-14
of the Securities Exchange Act of 1934 (“Act”), as
amended.
| (a) | Evaluation of Disclosure Controls and Procedures |
The Company, with
the participation of various levels of management, including the
CEO and CFO, conducted an evaluation of effectiveness of the
design and operation of our disclosure controls and procedures
(as defined in the
Rules 13a-15(e)
and
15d-15(e) of
the Act) as of December 31, 2008.
On the basis of this
review, management, including the CEO and the CFO, concluded
that our disclosure controls and procedures are designed, and
are effective, to give reasonable assurance that the information
required to be disclosed in our reports filed under the Act is
assembled, recorded, processed, summarized and reported within
the time periods specified in the SEC’s forms and reports,
and to ensure that information required to be disclosed in the
reports submitted under the Act is accumulated and communicated
to our management,
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including our CEO
and CFO, in a manner that allows timely decisions regarding
required disclosure.
In 2002, the Company
established a Disclosure Committee with responsibility for
considering and evaluating the materiality of information and
reviewing disclosure obligations on a timely basis. The
Disclosure Committee meets regularly, reports to the General
Counsel and the CFO and assists the CEO and the CFO in
designing, establishing, reviewing and evaluating the
Company’s disclosure controls and procedures.
| (b) | Management’s Report on Internal Control Over Financial Reporting |
The Company’s
management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Act. The Company’s internal control over
financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the
United States of America.
Internal control
over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in
reasonable detail, completely, accurately and fairly reflect the
transactions and dispositions of the Company’s assets;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of the financial
statements in accordance with accounting principles generally
accepted in the United States of America; (iii) provide
reasonable assurance that Company receipts and expenditures are
made only in accordance with the authorization of management and
the directors of the Company, and (iv) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of assets that
could have a material effect on the consolidated financial
statements. Internal control over financial reporting includes
the controls themselves, monitoring and internal auditing
practices and actions taken to correct deficiencies as
identified.
Management assessed
the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2008. Management
based this assessment on criteria for effective internal control
over financial reporting described in “Internal
Control – Integrated Framework” issued by the
Committee of Sponsoring Organizations (“COSO”) of the
Treadway Commission. Management’s assessment included an
evaluation of the design of the Company’s internal control
over financial reporting and testing of the operational
effectiveness of its internal control over financial reporting.
Management reviewed the results of its assessment with the Audit
Committee of our Board of Directors.
Based on this
assessment, management determined that, as of December 31,
2008, the Company maintained effective internal control over
financial reporting.
The Company’s
management, including the CEO and the CFO, does not expect that
our internal controls over financial reporting, because of
inherent limitations, will prevent or detect all errors and all
fraud. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may be
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management’s
assessment, included herein, should be read in conjunction with
the certifications and the report issued by Deloitte &
Touche LLP (“Deloitte & Touche”), an
independent registered public accounting firm, as stated in
their report, which appears subsequent to Item 9A(d) in
this Annual Report on
Form 10-K.
| (c) | Remediation of Prior Year Material Weakness |
A material weakness
is a deficiency, or combination of deficiencies, in internal
control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the
Company’s annual or interim financial statements will not
be prevented or detected on a timely basis.
As discussed in
“Item 9A Controls and Procedures –
Management Report on Internal Control Over Financial
Reporting” in our Annual Report on
Form 10-K
for the year ended December 31, 2007, a material weakness
existed in the Company’s internal control over financial
reporting related to income tax accounting. Specifically, the
Company did not maintain adequate processes and a sufficient
number of technically qualified personnel during the year to
facilitate the timely identification of all issues associated
with the Company’s income tax closing process.
During 2008, the
Company implemented the following measures to remediate the
material weakness related to financial reporting for income
taxes:
| n | Conducted a comprehensive evaluation of the income tax department organizational structure and processes. | |
| n | Expanded technical resources and management in the income tax accounting function, including the hiring of a Chief Tax Officer and Director of Tax Operations. | |
| n | Enhanced review procedures for ongoing as well as non-routine complex transactions in the income tax accounting function. | |
| n | Performed a detailed review of income tax payable accounts to substantiate existing balances. | |
| n | Performed a comprehensive reconciliation of the differences between the income tax basis and financial reporting basis of assets and liabilities to effectively reconcile and substantiate deferred tax balances. |
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| n | Assessed the existing internal control structure and implemented new controls, including enhanced reconciliations and analyses of income tax provisions and formal procedures to reconcile payable and deferred tax balances. |
The Company has
tested the effectiveness of the newly implemented controls and
found them to be operating effectively for a sufficient period
of time to reduce to a remote likelihood the possibility of
material misstatement. As a result, management has concluded
that, as of December 31, 2008, the material weakness
described above has been remediated.
| (d) | Changes in Internal Control over Financial Reporting |
Other than the
remediation of the income tax accounting material weakness
described in Item 9A(c) above, there were no changes during
the fourth quarter that have materially affected, or are
reasonably likely to materially affect, the Company’s
internal control over financial reporting.
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REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of
Directors and Shareholders of
ITT Corporation
White Plains, New York
ITT Corporation
White Plains, New York
We have audited the
internal control over financial reporting of ITT Corporation and
subsidiaries (the “Company”) as of December 31,
2008, based on criteria established in Internal
Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. The Company’s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based
on our audit.
We conducted our
audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s
internal control over financial reporting is a process designed
by, or under the supervision of, the company’s principal
executive and principal financial officers, or persons
performing similar functions, and effected by the company’s
board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of the
inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely
basis. Also, projections of any evaluation of the effectiveness
of the internal control over financial reporting to future
periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008,
based on the criteria established in Internal
Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also
audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States) the consolidated
financial statements as of and for the year ended
December 31, 2008, of the Company and our report dated
February 25, 2009 expressed an unqualified opinion on those
financial statements.
/s/ Deloitte
& Touche
LLP
New York, New York
February 25,
2009
42
Table of Contents
| ITEM 9B. | OTHER INFORMATION |
None.
PART III
ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information
called for by Item 10 with respect to directors is
incorporated herein by reference to the portions of the
definitive proxy statement for the Company’s 2009 annual
meeting of shareholders to be filed pursuant to
Regulation 14A of the Exchange Act set forth under the
captions “Election of Directors,” “Information
About the Board of Directors” and “Report of the Audit
Committee.”
The information
called for by Item 10 with respect to executive officers is
set forth above in Part I under the caption “Executive
Officers of the Registrant.”
ITT has adopted
corporate governance principles and charters for each of its
standing committees. The principles address director
qualification standards, election and selection of an
independent presiding director as well as responsibilities,
access to management and independent advisors, compensation,
orientation and continuing education, management succession
principles and board and committee self-evaluation. The
corporate governance principles and charters are available on
the company’s website at
www.itt.com/responsibility/governance/#principles-charters. A
copy of the corporate governance principles and charters are
also available to any shareholder who requests them from the
Company’s secretary.
ITT has also adopted
a written code of ethics, the “Code of Corporate
Conduct,” which is applicable to all ITT directors,
officers and employees, including the Company’s Chief
Executive Officer, Chief Financial Officer, and Chief Accounting
Officer and other executive officers identified pursuant to this
Item 10 (collectively, the “Selected Officers”).
In accordance with the SEC’s rules and regulations, a copy
of the code was filed as an exhibit to the 2002
Form 10-K
and has been posted on our website and a copy of the code is
also available to any shareholder who requests it. ITT intends
to disclose any changes in or waivers from its code of ethics
applicable to any Selected Officer or director on its website at
www.itt.com.
Pursuant to New York
Stock Exchange (“NYSE”) Listing Company Manual
Section 303A.12(a), the Company submitted a
Section 12(a) CEO Certification to the NYSE in 2008. The
Company also filed with the SEC, as exhibits to the
Company’s current Annual Report on
Form 10-K,
the certifications required under Section 302 of the
Sarbanes-Oxley Act for its Chief Executive Officer and Chief
Financial Officer.
| ITEM 11. | EXECUTIVE COMPENSATION |
The information
called for by Item 11 is incorporated herein by reference
to the portions of the definitive proxy statement referred to in
Item 10 set forth under the caption “Executive
Compensation.”
ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information
called for by Item 12 is incorporated herein by reference
to the portions of the definitive proxy statement referred to in
Item 10 set forth under the captions “Beneficial
Ownership of ITT Corporation Common Stock” and “Equity
Compensation Plan Information.”
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information
called for by Item 13 is incorporated herein by reference
portions to the definitive proxy statement referred to in
Item 10.
ITEM 14. PRINCIPAL
ACCOUNTING FEES AND SERVICES
The information
called for by Item 14 is incorporated herein by reference
to the portions of the definitive proxy statement referred to in
Item 10 set forth under the caption “Independent
Auditor Fees.”
43
Table of Contents
PART IV
ITEM 15. EXHIBITS AND
FINANCIAL STATEMENT SCHEDULE
(a) Documents
filed as a part of this report:
| 1. | See Index to Consolidated Financial Statements appearing on page 45 for a list of the financial statements filed as a part of this report. | |
| 2. | See Exhibit Index beginning on pages II-2 for a list of the exhibits filed or incorporated herein as a part of this report. |
| (b) | Financial Statement Schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the Consolidated Financial Statements filed as part of this report. |
44
Table of Contents
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
| PAGE | ||
| 46 | ||
| 47 | ||
| 48 | ||
| 49 | ||
| 50 | ||
| 51 | ||
| 52 |
45
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of
Directors and Shareholders of
ITT Corporation
White Plains, New York
ITT Corporation
White Plains, New York
We have audited the
accompanying consolidated balance sheets of ITT Corporation and
subsidiaries (the “Company”) as of December 31,
2008 and 2007, and the related consolidated statements of
income, comprehensive income, cash flows, and changes in
shareholders’ equity for each of the three years in the
period ended December 31, 2008. These financial statements
are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our
audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such
consolidated financial statements present fairly, in all
material respects, the financial position of ITT Corporation and
subsidiaries as of December 31, 2008 and 2007, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2008, in
conformity with accounting principles generally accepted in the
United States of America.
As discussed in
Note 1 to the consolidated financial statements, the
Company changed its method of accounting for uncertain income
tax positions in 2007.
As discussed in
Note 1 to the consolidated financial statements, the
Company changed its method of accounting for defined pension and
other postretirement plans in 2006.
We have also
audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Company’s
internal control over financial reporting as of
December 31, 2008, based on the criteria established in
Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 25, 2009 expressed
an unqualified opinion on the Company’s internal control
over financial reporting.
/s/ Deloitte
& Touche
LLP
New York, New York
February 25,
2009
46
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
CONSOLIDATED
INCOME STATEMENTS
|
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS) |
|||||||||||||||
| YEAR ENDED DECEMBER 31 | 2008 | 2007 | 2006 | ||||||||||||
|
Product sales
|
$ | 9,181.2 | $ | 7,057.5 | $ | 6,198.1 | |||||||||
|
Service revenues
|
2,513.6 | 1,945.8 | 1,609.8 | ||||||||||||
|
Total sales and revenues
|
11,694.8 | 9,003.3 | 7,807.9 | ||||||||||||
|
Costs of product sales
|
6,255.1 | 4,746.4 | 4,224.5 | ||||||||||||
|
Costs of service revenues
|
2,184.3 | 1,688.6 | 1,393.9 | ||||||||||||
|
Total costs of sales and revenues
|
8,439.4 | 6,435.0 | 5,618.4 | ||||||||||||
|
Gross profit
|
3,255.4 | 2,568.3 | 2,189.5 | ||||||||||||
|
Selling, general and administrative expenses
|
1,723.5 | 1,342.7 | 1,175.9 | ||||||||||||
|
Research and development expenses
|
244.3 | 182.3 | 160.9 | ||||||||||||
|
Restructuring and asset impairment charges, net
|
77.5 | 66.1 | 51.7 | ||||||||||||
|
Operating income
|
1,210.1 | 977.2 | 801.0 | ||||||||||||
|
Interest income
|
31.3 | 49.6 | 25.4 | ||||||||||||
|
Interest expense
|
140.8 | 114.9 | 86.2 | ||||||||||||
|
Miscellaneous expense, net
|
13.1 | 13.4 | 12.9 | ||||||||||||
|
Income from continuing operations before income tax expense
|
1,087.5 | 898.5 | 727.3 | ||||||||||||
|
Income tax expense
|
312.3 | 265.5 | 227.6 | ||||||||||||
|
Income from continuing operations
|
775.2 | 633.0 | 499.7 | ||||||||||||
|
Discontinued operations:
|
|||||||||||||||
|
Income from discontinued operations, including tax benefit of
$6.9, $26.1, and $1.0, respectively
|
19.5 | 109.1 | 81.4 | ||||||||||||
|
Net income
|
$ | 794.7 | $ | 742.1 | $ | 581.1 | |||||||||
|
Earnings Per Share:
|
|||||||||||||||
|
Income from continuing operations:
|
|||||||||||||||
|
Basic
|
$ | 4.29 | $ | 3.51 | $ | 2.71 | |||||||||
|
Diluted
|
$ | 4.23 | $ | 3.44 | $ | 2.67 | |||||||||
|
Discontinued operations:
|
|||||||||||||||
|
Basic
|
$ | 0.11 | $ | 0.60 | $ | 0.44 | |||||||||
|
Diluted
|
$ | 0.10 | $ | 0.59 | $ | 0.43 | |||||||||
|
Net income:
|
|||||||||||||||
|
Basic
|
$ | 4.40 | $ | 4.11 | $ | 3.15 | |||||||||
|
Diluted
|
$ | 4.33 | $ | 4.03 | $ | 3.10 | |||||||||
|
Average Common Shares – Basic
|
180.7 | 180.6 | 184.3 | ||||||||||||
|
Average Common Shares – Diluted
|
183.4 | 184.0 | 187.4 | ||||||||||||
The
accompanying Notes to Consolidated Financial Statements are an
integral part of the above statements.
47
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
|
(IN MILLIONS) |
PRE-TAX |
TAX |
NET OF TAX |
||||||||||||
| YEAR ENDED DECEMBER 31, 2008 | (LOSS) | BENEFIT | AMOUNT | ||||||||||||
|
Net income
|
$ | 794.7 | |||||||||||||
|
Other comprehensive loss:
|
|||||||||||||||
|
Net foreign currency translation adjustments (refer to table
below)
|
$ | (221.2 | ) | $ | – | (221.2 | ) | ||||||||
|
Changes in pension and other benefit plans
|
(2,118.8 | ) | 781.1 | (1,337.7 | ) | ||||||||||
|
Other
|
(0.1 | ) | – | (0.1 | ) | ||||||||||
|
Other comprehensive loss
|
$ | (2,340.1 | ) | $ | 781.1 | (1,559.0 | ) | ||||||||
|
Comprehensive loss
|
$ | (764.3 | ) | ||||||||||||
|
Disclosure of 2008 foreign currency translation
reclassification:
|
|||||||||||||||
|
Foreign currency translation adjustments
|
$ | (214.7 | ) | ||||||||||||
|
Less: Reclassification adjustment for gains included in net
income
|
(6.5 | ) | |||||||||||||
|
Net foreign currency translation adjustments
|
$ | (221.2 | ) | ||||||||||||
|
(IN MILLIONS) |
PRE-TAX |
TAX |
NET OF TAX |
||||||||||||
| YEAR ENDED DECEMBER 31, 2007 | INCOME | EXPENSE | AMOUNT | ||||||||||||
|
Net income
|
$ | 742.1 | |||||||||||||
|
Other comprehensive income:
|
|||||||||||||||
|
Net foreign currency translation adjustments (refer to table
below)
|
$ | 276.1 | $ | – | 276.1 | ||||||||||
|
Changes in pension and other benefit plans
|
427.2 | (126.3 | ) | 300.9 | |||||||||||
|
Other
|
1.5 | (0.5 | ) | 1.0 | |||||||||||
|
Other comprehensive income
|
$ | 704.8 | $ | (126.8 | ) | 578.0 | |||||||||
|
Comprehensive income
|
$ | 1,320.1 | |||||||||||||
|
Disclosure of 2007 foreign currency translation reclassification:
|
|||||||||||||||
|
Foreign currency translation adjustments
|
$ | 235.7 | |||||||||||||
|
Add: Reclassification adjustment for losses included in net
income
|
40.4 | ||||||||||||||
|
Net foreign currency translation adjustments
|
$ | 276.1 | |||||||||||||
|
(IN MILLIONS) |
PRE-TAX |
TAX |
NET OF TAX |
||||||||||||
| YEAR ENDED DECEMBER 31, 2006 | INCOME | EXPENSE | AMOUNT | ||||||||||||
|
Net income
|
$ | 581.1 | |||||||||||||
|
Other comprehensive income:
|
|||||||||||||||
|
Net foreign currency translation adjustments (refer to table
below)
|
$ | 161.2 | $ | – | 161.2 | ||||||||||
|
Minimum pension liability
|
88.9 | (30.8 | ) | 58.1 | |||||||||||
|
Other
|
0.3 | (0.1 | ) | 0.2 | |||||||||||
|
Other comprehensive income
|
$ | 250.4 | $ | (30.9 | ) | 219.5 | |||||||||
|
Comprehensive income
|
$ | 800.6 | |||||||||||||
|
Disclosure of 2006 foreign currency translation reclassification:
|
|||||||||||||||
|
Foreign currency translation adjustments
|
$ | 177.7 | |||||||||||||
|
Less: Reclassification adjustment for gains included in net
income
|
(16.5 | ) | |||||||||||||
|
Net foreign currency translation adjustments
|
$ | 161.2 | |||||||||||||
The
accompanying Notes to Consolidated Financial Statements are an
integral part of the above statements.
48
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS, UNLESS OTHERWISE STATED) |
||||||||||
| DECEMBER 31 | 2008 | 2007 | ||||||||
|
Assets
|
||||||||||
|
Current assets:
|
||||||||||
|
Cash and cash equivalents
|
$ | 964.9 | $ | 1,840.0 | ||||||
|
Receivables, net
|
1,961.1 | 1,935.0 | ||||||||
|
Inventories, net
|
803.8 | 887.6 | ||||||||
|
Deferred income taxes
|
203.4 | 105.9 | ||||||||
|
Other current assets
|
131.0 | 161.3 | ||||||||
|
Total current assets
|
4,064.2 | 4,929.8 | ||||||||
|
Plant, property and equipment, net
|
993.9 | 980.3 | ||||||||
|
Deferred income taxes
|
608.5 | 29.7 | ||||||||
|
Goodwill
|
3,831.3 | 3,829.7 | ||||||||
|
Other intangible assets, net
|
616.5 | 733.0 | ||||||||
|
Other assets
|
365.8 | 1,050.2 | ||||||||
|
Total non-current assets
|
6,416.0 | 6,622.9 | ||||||||
|
Total assets
|
$ | 10,480.2 | $ | 11,552.7 | ||||||
|
Liabilities and Shareholders’ Equity
|
||||||||||
|
Current liabilities:
|
||||||||||
|
Accounts payable
|
$ | 1,234.6 | $ | 1,296.8 | ||||||
|
Accrued expenses
|
991.2 | 958.9 | ||||||||
|
Accrued taxes
|
30.2 | 40.9 | ||||||||
|
Short-term debt and current maturities of long-term debt
|
1,679.0 | 3,083.0 | ||||||||
|
Pension and postretirement benefits
|
68.8 | 68.5 | ||||||||
|
Deferred income taxes
|
26.7 | 8.2 | ||||||||
|
Total current liabilities
|
4,030.5 | 5,456.3 | ||||||||
|
Pension benefits
|
1,689.9 | 381.4 | ||||||||
|
Postretirement benefits other than pensions
|
451.7 | 383.2 | ||||||||
|
Long-term debt
|
467.9 | 483.0 | ||||||||
|
Other liabilities
|
780.3 | 904.0 | ||||||||
|
Total non-current liabilities
|
3,389.8 | 2,151.6 | ||||||||
|
Total liabilities
|
7,420.3 | 7,607.9 | ||||||||
|
Shareholders’ Equity:
|
||||||||||
|
Common stock: Authorized – 500 shares,
$1 par value per share, outstanding –
181.7 shares and 181.5 shares,
respectively(1)
|
180.6 | 180.7 | ||||||||
|
Retained earnings
|
4,203.0 | 3,528.8 | ||||||||
|
Accumulated other comprehensive (loss) income:
|
||||||||||
|
Pension and other benefits
|
(1,534.1 | ) | (196.4 | ) | ||||||
|
Cumulative translation adjustments
|
209.8 | 431.0 | ||||||||
|
Unrealized gain on investment securities
|
0.6 | 0.7 | ||||||||
|
Total accumulated other comprehensive (loss) income
|
(1,323.7 | ) | 235.3 | |||||||
|
Total shareholders’ equity
|
3,059.9 | 3,944.8 | ||||||||
|
Total liabilities and shareholders’ equity
|
$ | 10,480.2 | $ | 11,552.7 | ||||||
| (1) | Shares outstanding include unvested restricted common stock of 1.1 and 0.8 at December 31, 2008 and 2007, respectively. |
The
accompanying Notes to Consolidated Financial Statements are an
integral part of the above statements.
49
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
(IN MILLIONS) |
|||||||||||||||
| YEAR ENDED DECEMBER 31 | 2008 | 2007 | 2006 | ||||||||||||
|
Operating Activities
|
|||||||||||||||
|
Net income
|
$ | 794.7 | $ | 742.1 | $ | 581.1 | |||||||||
|
Less: Income from discontinued operations
|
19.5 | 109.1 | 81.4 | ||||||||||||
|
Income from continuing operations
|
775.2 | 633.0 | 499.7 | ||||||||||||
|
Adjustments to income from continuing operations:
|
|||||||||||||||
|
Depreciation and amortization
|
278.3 | 185.4 | 171.6 | ||||||||||||
|
Stock-based compensation
|
30.8 | 34.6 | 22.9 | ||||||||||||
|
Restructuring and asset impairment charges, net
|
77.5 | 66.1 | 51.7 | ||||||||||||
|
Payments for restructuring
|
(54.1 | ) | (51.5 | ) | (43.4 | ) | |||||||||
|
Change in receivables
|
(112.9 | ) | (236.7 | ) | (61.2 | ) | |||||||||
|
Change in inventories
|
70.4 | 111.8 | (101.4 | ) | |||||||||||
|
Change in accounts payable and accrued expenses
|
61.3 | 137.2 | 246.4 | ||||||||||||
|
Change in accrued and deferred taxes
|
19.7 | (34.1 | ) | 30.3 | |||||||||||
|
Change in other current and non-current assets
|
(21.9 | ) | (106.0 | ) | (74.0 | ) | |||||||||
|
Change in other current and non-current liabilities
|
(0.8 | ) | 47.2 | 30.7 | |||||||||||
|
Other, net
|
(3.9 | ) | 11.1 | 7.4 | |||||||||||
|
Net Cash – operating activities
|
1,119.6 | 798.1 | 780.7 | ||||||||||||
|
Investing Activities
|
|||||||||||||||
|
Additions to plant, property and equipment
|
(248.7 | ) | (239.3 | ) | (177.1 | ) | |||||||||
|
Acquisitions, net of cash acquired
|
(275.7 | ) | (2,009.2 | ) | (89.5 | ) | |||||||||
|
Proceeds from sale of assets and businesses
|
21.6 | 283.6 | 226.6 | ||||||||||||
|
Other, net
|
(0.1 | ) | 6.8 | (6.3 | ) | ||||||||||
|
Net Cash – investing activities
|
(502.9 | ) | (1,958.1 | ) | (46.3 | ) | |||||||||
|
Financing Activities
|
|||||||||||||||
|
Short-term debt, net
|
(1,229.0 | ) | 2,311.9 | (155.6 | ) | ||||||||||
|
Long-term debt repaid
|
(23.3 | ) | (15.2 | ) | (13.3 | ) | |||||||||
|
Long-term debt issued
|
0.6 | 0.5 | 0.5 | ||||||||||||
|
Repurchase of common stock
|
(75.0 | ) | (299.0 | ) | (210.0 | ) | |||||||||
|
Proceeds from issuance of common stock
|
34.4 | 65.4 | 69.0 | ||||||||||||
|
Dividends paid
|
(120.9 | ) | (96.6 | ) | (77.6 | ) | |||||||||
|
Tax benefit from stock option exercises and restricted stock
award lapses
|
6.7 | 15.0 | 16.7 | ||||||||||||
|
Other, net
|
(0.9 | ) | (0.9 | ) | 0.1 | ||||||||||
|
Net Cash – financing activities
|
(1,407.4 | ) | 1,981.1 | (370.2 | ) | ||||||||||
|
Exchange Rate Effects on Cash and Cash Equivalents
|
(73.4 | ) | 103.0 | 50.6 | |||||||||||
|
Net Cash – Discontinued Operations:
|
|||||||||||||||
|
Operating Activities
|
(9.1 | ) | (16.2 | ) | 80.2 | ||||||||||
|
Investing Activities
|
(1.9 | ) | (4.0 | ) | (9.3 | ) | |||||||||
|
Financing Activities
|
— | (1.0 | ) | 0.4 | |||||||||||
|
Net change in cash and cash equivalents
|
(875.1 | ) | 902.9 | 486.1 | |||||||||||
|
Cash and cash equivalents – beginning of year
|
1,840.0 | 937.1 | 451.0 | ||||||||||||
|
Cash and Cash Equivalents – End of Year
|
$ | 964.9 | $ | 1,840.0 | $ | 937.1 | |||||||||
|
Supplemental Disclosures of Cash Flow Information
|
|||||||||||||||
|
Cash paid during the year for:
|
|||||||||||||||
|
Interest
|
$ | 135.5 | $ | 96.0 | $ | 80.4 | |||||||||
|
Income taxes (net of refunds received)
|
$ | 281.6 | $ | 313.6 | $ | 197.3 | |||||||||
The
accompanying Notes to Consolidated Financial Statements are an
integral part of the above statements.
50
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ITT CORPORATION AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
|
(IN MILLIONS) |
SHARES | DOLLARS | ||||||||||||||||||||||||||
| YEAR ENDED DECEMBER 31 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | ||||||||||||||||||||||
|
Common Stock
|
||||||||||||||||||||||||||||
|
Beginning balance
|
180.7 | 182.6 | 184.6 | $ | 180.7 | $ | 182.6 | $ | 184.6 | |||||||||||||||||||
|
Stock incentive plans
|
1.1 | 2.2 | 2.6 | 1.1 | 2.2 | 2.6 | ||||||||||||||||||||||
|
Repurchases
|
(1.2 | ) | (4.1 | ) | (4.6 | ) | (1.2 | ) | (4.1 | ) | (4.6 | ) | ||||||||||||||||
|
Ending balance
|
180.6 | 180.7 | 182.6 | $ | 180.6 | $ | 180.7 | $ | 182.6 | |||||||||||||||||||
|
Retained Earnings
|
||||||||||||||||||||||||||||
|
Beginning balance
|
$ | 3,528.8 | $ | 3,029.5 | $ | 2,666.0 | ||||||||||||||||||||||
|
Net income
|
794.7 | 742.1 | 581.1 | |||||||||||||||||||||||||
|
Cash dividend declared on common stock — $0.70, $0.56,
and $0.44 per share, respectively
|
(127.3 | ) | (101.7 | ) | (81.3 | ) | ||||||||||||||||||||||
|
Net repurchase of common stock and other
|
6.8 | (141.1 | ) | (136.3 | ) | |||||||||||||||||||||||
|
Ending balance
|
$ | 4,203.0 | $ | 3,528.8 | $ | 3,029.5 | ||||||||||||||||||||||
|
Accumulated Other Comprehensive (Loss) Income
|
||||||||||||||||||||||||||||
|
Pension and postretirement benefit plans:
|
||||||||||||||||||||||||||||
|
Beginning balance
|
$ | (196.4 | ) | $ | (497.3 | ) | $ | (120.4 | ) | |||||||||||||||||||
|
Changes in pension and other benefit plans, net of tax
|
(1,337.7 | ) | 300.9 | — | ||||||||||||||||||||||||
|
Cumulative effect of adopting SFAS 158 (net of deferred
income tax benefit of $231.3)
|
— | — | (435.0 | ) | ||||||||||||||||||||||||
|
Recognition of minimum pension liability
|
— | — | 58.1 | |||||||||||||||||||||||||
|
Ending balance
|
$ | (1,534.1 | ) | $ | (196.4 | ) | $ | (497.3 | ) | |||||||||||||||||||
|
Cumulative translation adjustments:
|
||||||||||||||||||||||||||||
|
Beginning balance
|
$ | 431.0 | $ | 154.9 | $ | (6.3 | ) | |||||||||||||||||||||
|
Reclassification adjustment for (gains) losses included in net
income
|
(6.5 | ) | 40.4 | (16.5 | ) | |||||||||||||||||||||||
|
Foreign currency translation
|
(214.7 | ) | 235.7 | 177.7 | ||||||||||||||||||||||||
|
Ending balance
|
$ | 209.8 | $ | 431.0 | $ | 154.9 | ||||||||||||||||||||||
|
Unrealized (loss) gain on investment securities:
|
||||||||||||||||||||||||||||
|
Beginning balance
|
$ | 0.7 | $ | (0.3 | ) | $ | (0.5 | ) | ||||||||||||||||||||
|
Unrealized (loss) gain
|
(0.1 | ) | 1.0 | 0.2 | ||||||||||||||||||||||||
|
Ending balance
|
$ | 0.6 | $ | 0.7 | $ | (0.3 | ) | |||||||||||||||||||||
|
Total accumulated other comprehensive (loss) income
|
$ | (1,323.7 | ) | $ | 235.3 | $ | (342.7 | ) | ||||||||||||||||||||
|
Total Shareholders’ Equity
|
$ | 3,059.9 | $ | 3,944.8 | $ | 2,869.4 | ||||||||||||||||||||||
The
accompanying Notes to Consolidated Financial Statements are an
integral part of the above statements.
51
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ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
Impairment
Charges,” for further discussion on impairment losses.
Plant,
Property and Equipment
Plant, property and
equipment, including capitalized interest applicable to major
project expenditures, are recorded at cost. For financial
reporting purposes, depreciation is provided on a straight-line
basis over the economic useful lives of the assets involved as
follows: buildings and improvements – five to
40 years, machinery and equipment – two to
10 years, furniture and office equipment – three
to seven years, and other – five to 40 years. See
Note 10, “Plant, Property and Equipment, Net,”
for further information.
Goodwill and
Other Intangible Assets
In accordance with
Statement of Financial Accounting Standards (“SFAS”)
No. 142, “Goodwill and Other Intangible Assets”
(“SFAS 142”), goodwill, the excess of cost over
the fair value of net assets acquired, and indefinite-lived
intangible assets are tested for impairment on an annual basis,
or more frequently if circumstances warrant.
See Note 11,
“Goodwill and Other Intangible Assets, Net,” for
further information.
Foreign
Currency Translation
Balance sheet
accounts are translated at the exchange rate in effect at the
end of each period; income statement accounts are translated at
the average rates of exchange prevailing during the period.
Gains and losses on foreign currency translations are reflected
in the cumulative translation adjustments component of
shareholders’ equity. The national currencies of the
foreign companies are generally the functional currencies. Net
gains/(losses) from foreign currency transactions are reported
currently in selling, general and administrative expenses
(“SG&A”) and were $3.9, $1.7, and $(0.7), in
2008, 2007, and 2006, respectively.
Employee
Benefit Plans
ITT accounts for its
defined benefit pension plans and other postretirement benefit
plans using actuarial models as required by
SFAS No. 87, “Employers’ Accounting for
Pensions” (“SFAS 87”), and
SFAS No. 106, “Employers’ Accounting for
Postretirement Benefits Other Than Pensions”
(“SFAS 106”), respectively. These models use an
attribution approach that generally spreads individual events
over the service lives of the employees in the plan. Examples of
“events” are changes in actuarial assumptions such as
discount rate, rate of compensation increase and mortality.
Effective
December 31, 2006, we adopted SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans – an amendment of FASB
Statements No. 87, 88, 106 and 132(R)”
(“SFAS 158”), which effectively requires balance
sheet recognition of the underfunded or overfunded status of
pension and postretirement benefit plans and to recognize
changes in the funded status through comprehensive income.
Actuarial gains and losses and prior service costs or credits
that have not been recognized under SFAS 87 and
SFAS 106 must be recognized in accumulated other
comprehensive income within shareholders’ equity, net of
taxes, until they are amortized as a component of net periodic
benefit cost.
See Note 16,
“Employee Benefit Plans,” for further information on
our benefit plans.
Stock-Based
Compensation
ITT adopted
SFAS No. 123(R), “Share-Based Payment”
(“SFAS 123R”), effective January 1, 2006 on
a prospective basis in accounting for stock-based compensation.
Accordingly, we recognize the employee services received in
exchange for awards of equity instruments based on the
grant-date fair value of the award as determined by option
pricing models. The calculated compensation cost is recognized
over the period that the employee is required to provide
services per the conditions of the award. Generally, stock-based
compensation costs are reflected in selling, general and
administrative expenses. See Note 17, “Stock-Based and
Long-Term Incentive Employee Compensation,” for further
detail.
Income
Taxes
We determine the
provision for income taxes using the asset and liability
approach. Under this approach, deferred income taxes represent
the expected future tax consequences of temporary differences
between the carrying amounts and tax basis of assets and
liabilities. We record a valuation allowance to reduce deferred
tax assets when uncertainty regarding their reliability exists.
ITT adopted the
Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes – an interpretation of FASB Statement
No. 109” (“FIN 48”), effective
January 1, 2007 which effectively changed the accounting
for uncertain tax positions and related disclosures. See
Note 6, “Income Taxes,” for further details.
Commitments
and Contingencies
We record accruals
for commitments and loss contingencies for those which are both
probable and the amount can be reasonably estimated. In
addition, legal fees are accrued, for cases where a loss is
probable and the related fees can be reasonably estimated.
Accruals for
environmental matters are recorded on a site by site basis when
it is probable that a liability has been incurred and the amount
of the liability can be reasonably estimated, based on current
law and existing technologies. Our estimated liability is
reduced to reflect the anticipated participation of
53
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ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
other potentially
responsible parties in those instances where it is probable that
such parties are legally responsible and financially capable of
paying their respective shares of the relevant costs. These
accruals are adjusted periodically as assessment and remediation
efforts progress or as additional technical or legal information
becomes available. Actual costs to be incurred at identified
sites in future periods may vary from the estimates, given
inherent uncertainties in evaluating environmental exposures.
Accruals for environmental liabilities are primarily included in
other liabilities at undiscounted amounts and exclude claims for
recoveries from insurance companies or other third parties.
Recoveries from insurance companies or other third parties are
included in other assets when it is known that a claim will be
realized.
See Note 19,
“Commitments and Contingencies,” for further details.
Earnings Per
Share
Basic earnings per
share is based on the weighted average number of common shares
outstanding. Diluted earnings per share is based on the weighted
average number of common shares outstanding and potentially
dilutive common shares, which include stock options and
restricted stock. See Note 7, “Earnings Per
Share,” for further information.
Fair Value
Measurements
In accordance with
SFAS No. 157, “Fair Value Measurements”
(“SFAS 157”), we determine fair value as the
price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction. We use a
hierarchical structure to prioritize the inputs to valuation
techniques used to measure fair value into three broad levels.
The fair value hierarchy gives the highest priority to quoted
prices in active markets for identical assets or liabilities
(“Level 1”), then to quoted market prices for
similar assets or liabilities in active markets
(“Level 2”) and the lowest priority to
unobservable inputs (e.g., discounted cash flows)
(“Level 3”).
NOTE 2
New Accounting
Pronouncements
In September 2006,
the FASB issued SFAS 157, which became effective
January 1, 2008, except as amended by FASB Staff Positions
(“FSP”)
157-1,
157-2 and
157-3.
SFAS 157 defines fair value, establishes a framework for
measuring fair value and expands the related disclosure
requirements.
FSP 157-1
excludes SFAS No. 13, “Accounting for
Leases,” and its related interpretive accounting
pronouncements that address leasing transactions, while
FSP 157-2
delays the effective date of SFAS 157 for all nonfinancial
assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial
statements on a recurring basis, until fiscal years beginning
after November 15, 2008.
FSP 157-3
clarifies the application of SFAS 157 in a market that is
not active and provides an example of how to determine the fair
value of a financial asset in an inactive market. ITT adopted
the provisions of SFAS 157, as amended, with the exception
of the application of the statement to non-recurring
nonfinancial assets and nonfinancial liabilities. The adoption
of this statement did not have a material effect on ITT’s
financial statements for fair value measurements made during the
year ended December 31, 2008. ITT will adopt the provisions
of the statement related to non-recurring nonfinancial assets
and nonfinancial liabilities effective January 1, 2009, and
does not expect its adoption to have a material effect on
ITT’s financial statements.
In February 2007,
the FASB issued SFAS No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities”
(“SFAS 159”) effective January 1, 2008.
SFAS 159, issued by the FASB in February 2007, permits an
entity to measure certain financial assets and financial
liabilities at fair value. Under SFAS 159, entities
electing the fair value option will report unrealized gains and
losses in earnings as of each subsequent reporting date. The
fair value option may be elected on an
instrument-by-instrument
basis with few exceptions, as long as it is applied to the
instrument in its entirety. SFAS 159 establishes
presentation and disclosure requirements to help financial
statement users understand the effect of an entity’s
election on its earnings. SFAS 159 requires prospective
application. If an entity elects the fair value option for items
existing as of the date of adoption, the difference between
their carrying amount and fair value should be included in a
cumulative-effect adjustment to the opening balance of retained
earnings. ITT adopted this statement as of January 1, 2008,
but has not elected to apply the fair value option to any
eligible assets or liabilities. Thus, the adoption of this
statement did not have a material effect on ITT’s financial
statements for the year ended December 31, 2008.
In December 2007,
the FASB issued SFAS No. 141 (revised 2007),
“Business Combinations”
(“SFAS 141(R)”), which replaces
SFAS No. 141, “Business Combinations.”
SFAS 141(R) retains the fundamental requirements in
SFAS 141 that the acquisition method of accounting be used
for all business combinations and for an acquirer to be
identified for each business combination. However,
SFAS 141(R) changes the method of applying the acquisition
method in a number of significant areas, including that
acquisition costs will generally be expensed as incurred;
noncontrolling interests will be valued at fair value at the
acquisition date; in-process research and development will be
recorded at fair value as an indefinite-lived intangible asset
at the acquisition date; restructuring costs
54
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ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
associated with a
business combination will generally be expensed subsequent to
the acquisition date; and changes in deferred tax asset
valuation allowances and income tax uncertainties after the
acquisition date generally will affect income tax expense.
SFAS 141(R) is effective on a prospective basis for all
business combinations for which the acquisition date is on or
after the beginning of the first annual period subsequent to
December 15, 2008, with the exception of the accounting for
valuation allowances on deferred taxes and acquired tax
contingencies. SFAS 141(R) amends SFAS No. 109,
“Accounting for Income Taxes,” such that adjustments
made to valuation allowances on deferred taxes and acquired tax
contingencies associated with acquisitions that closed prior to
the effective date of SFAS 141(R) would also apply the
provisions of SFAS 141(R). See Note 6, “Income
Taxes,” for further discussion. Early adoption of
SFAS 141(R) is not permitted. ITT will adopt this statement
effective January 1, 2009. While we do not expect a
material impact on ITT’s financial statements upon
adoption, the effects on future periods will depend upon the
nature and significance of future business combinations subject
to this statement.
In December 2007,
the FASB issued SFAS No. 160, “Noncontrolling
Interests in Consolidated Financial Statements – an
amendment of ARB No. 51.” This statement requires the
recognition of a noncontrolling interest (minority interest) as
a separate component within equity within the consolidated
balance sheet. It also requires the amount of consolidated net
income attributable to the parent and the noncontrolling
interest be clearly identified and presented within the
consolidated statement of income. This statement also amends
certain of ARB No. 51’s consolidation procedures to
make them consistent with the requirements of SFAS 141(R).
SFAS 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after
December 15, 2008. Earlier adoption is prohibited. ITT will
adopt this statement effective January 1, 2009 and does not
expect its adoption to have a material effect on ITT’s
financial statements.
In March 2008, the
FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities – an
amendment of FASB Statement No. 133.” This statement
amends SFAS No. 133 by requiring enhanced disclosures
about an entity’s derivative instruments and hedging
activities, but does not change SFAS No. 133’s
scope or accounting. SFAS No. 161 requires increased
qualitative, quantitative and credit-risk disclosures about the
entity’s derivative instruments and hedging activities.
SFAS 161 is effective for fiscal years, and interim periods
within those fiscal years, beginning after November 15,
2008, with earlier adoption permitted. ITT will adopt this
statement effective January 1, 2009. This statement will
not impact ITT’s financial results as the statement is
disclosure only in nature.
In June 2008, the
FASB issued FSP
No. EITF 03-6-1,
“Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities.” This
FSP concluded that all outstanding unvested share-based payment
awards that contain rights to nonforfeitable dividends
participate in undistributed earnings with common shareholders
and therefore are considered participating securities for
purposes of computing earnings per share. Entities that have
participating securities that are not convertible into common
stock are required to use the “two-class” method of
computing earnings per share. The two-class method is an
earnings allocation formula that determines earnings per share
for each class of common stock and participating security
according to dividends declared (or accumulated) and
participation rights in undistributed earnings. This FSP is
effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. Early
adoption is prohibited. ITT will adopt this statement effective
January 1, 2009 and does not expect its adoption to have a
material effect on ITT’s financial statements.
In December 2008,
the FASB issued FSP No. FAS 132(R)-1,
“Employers’ Disclosure about Postretirement Benefit
Plan Assets,” which amends SFAS No. 132(R) to
require more disclosures about employers’ plan assets of a
defined benefit pension or other postretirement plan, including
employers’ investing strategies, major categories of plan
assets, concentrations of risk within plan assets, and valuation
techniques used to measure the fair value of plan assets. This
FSP is effective for fiscal years ending after December 15,
2009. Earlier application of the provisions of this FSP is
permitted. This statement will not impact ITT’s financial
results as the statement is disclosure only in nature.
NOTE 3
Acquisitions
2008
Acquisitions
During 2008, we
spent $49.2, net of cash acquired on acquisitions that we do not
believe are material individually or in the aggregate to our
results of operations or financial position, as well as other
acquisition-related costs. Additionally, we spent $226.5 in
connection with companies acquired during 2007. See below for
further information.
2007
Acquisitions
EDO
Corporation
On December 20,
2007, ITT acquired all of the outstanding shares of EDO
Corporation (“EDO”), a global aerospace and
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ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
defense company, for
$56 per outstanding share of EDO plus the assumption of debt,
which valued the transaction at approximately $1.8 billion.
There was no contingent consideration related to the acquisition.
EDO designs and
manufactures a diverse range of products for defense,
intelligence and commercial markets, and provides related
engineering and professional services. The addition of EDO
allows our Defense Electronics & Services business
segment to provide a broader set of solutions to a wider band of
customers. Furthermore, we expect to be better positioned to
play an important role in some of the U.S. military’s
vital transformational initiatives.
ITT’s results
of operations for the year ended December 31, 2007 reflect
the impact of results of operations for EDO from
December 20, 2007.
As of
December 31, 2007, the excess of the purchase price over
the fair value of net assets acquired was $1,200.4 (none of
which is tax deductible), and was recorded as goodwill in the
Defense Electronics & Services business segment.
Intangible assets relating to this acquisition totaled $442.4 at
December 31, 2007, entirely consisting of customer
relationships, with a weighted average amortization period of
approximately 13 years.
The following table
summarizes the preliminary estimates of fair values of the
assets acquired and liabilities assumed from EDO as of
December 20, 2007, the effective date of the acquisition:
|
TOTAL |
|||||
| IMPACT | |||||
|
Current assets
|
$ | 534.6 | |||
|
Goodwill and intangible assets
|
1,642.8 | ||||
|
Other non-current assets
|
107.4 | ||||
|
Total assets acquired
|
$ | 2,284.8 | |||
|
Current liabilities
|
$ | 321.8 | |||
|
Long-term debt
|
567.0 | ||||
|
Pension and other benefit plan obligations, long-term
|
60.8 | ||||
|
Other long-term liabilities
|
150.0 | ||||
|
Net assets acquired
|
$ | 1,185.2 | |||
We finalized our
purchase price allocation during 2008, which resulted in an
increase to recorded goodwill of $36.6, and a decrease of $31.5
in amortizable intangible assets.
Other 2007
Acquisitions
During 2007, we
spent $410.5, net of cash acquired, and including direct
acquisition costs, on acquisitions that we do not believe are
material individually or in the aggregate to our results of
operations or financial position. The most significant of these
acquisitions was International Motion Control, Inc.
(“IMC”), which we acquired on September 10, 2007
for $390.5, net of cash acquired and including direct
acquisition costs. IMC is a global developer of motion control
products, and is a market leader in the manufacture of specialty
energy absorption, industrial and aviation control and
automation technology. IMC, which had 2006 revenues of
approximately $200, adds a complementary mix of highly
engineered, mission-critical products to ITT’s
Motion & Flow Control business segment.
2006
Acquisitions
During 2006, we
spent $89.5 on acquisitions that we do not believe are material
individually or in the aggregate to our results of operations or
financial position.
NOTE 4
Restructuring and
Asset Impairment Charges
Fourth Quarter
2008 Restructuring Activities and Asset Impairment
Charges
In response to
current and anticipated market conditions, we accelerated
restructuring activities across our businesses during the fourth
quarter of 2008. These restructuring actions resulted in a net
restructuring charge of $56.3 and related payments of $9.5. We
anticipate an additional $6.2 of restructuring charges will be
incurred and payments of $47.7 will occur during 2009 related to
these actions.
56
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ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
Components of
Charges
| FOURTH QUARTER 2008 ACTIONS | ||||||||||||||||||||||||||||||
|
OTHER |
LEASE |
PLANNED |
||||||||||||||||||||||||||||
|
EMPLOYEE- |
CANCELLATION
& |
ASSET |
POSITION |
|||||||||||||||||||||||||||
| SEVERANCE | RELATED COSTS | OTHER COSTS | WRITE-OFFS | TOTAL | ELIMINATIONS | |||||||||||||||||||||||||
|
Fluid Technology
|
$ | 24.1 | $ | 0.2 | $ | 0.4 | $ | 0.1 | $ | 24.8 | 523 | |||||||||||||||||||
|
Defense Electronics & Services
|
8.3 | 0.7 | 0.4 | – | 9.4 | 144 | ||||||||||||||||||||||||
|
Motion & Flow Control
|
19.7 | 0.3 | 0.3 | 0.8 | 21.1 | 578 | ||||||||||||||||||||||||
|
Corporate and Other
|
0.9 | 0.1 | – | – | 1.0 | 13 | ||||||||||||||||||||||||
| $ | 53.0 | $ | 1.3 | $ | 1.1 | $ | 0.9 | $ | 56.3 | 1,258 | ||||||||||||||||||||
The charges
associated with actions announced during the fourth quarter of
2008 primarily represent a reduction of structural costs in all
business segments and the planned closure of a facility within
the Motion & Flow Control business segment. Planned
position eliminations total 1,258, including 601 factory
workers, 629 office workers and 28 management employees.
Additionally, during
the fourth quarter of 2008, we recorded a net restructuring and
asset impairment charge of $5.3, reflecting costs of $3.9
related to prior actions and the reversal of $0.4 of
restructuring accruals that management determined would not be
required, as well as an asset impairment charge of $1.8 related
to the write-down of software due to a decision to cancel a
project as a result of an organizational realignment.
2008
Restructuring Activities
During 2008, we
recorded a net restructuring charge of $74.6, reflecting costs
of $66.9 related to new actions and $9.3 related to prior
years’ plans, as well as the reversal of $1.6 of
restructuring accruals that management determined would not be
required.
Components of
Charges
| 2008 ACTIONS | ||||||||||||||||||||||||||||||||||||||||
|
PRIOR |
||||||||||||||||||||||||||||||||||||||||
|
OTHER |
LEASE |
PLANNED |
YEARS’
PLANS |
|||||||||||||||||||||||||||||||||||||
|
EMPLOYEE- |
CANCELLATION
& |
ASSET |
POSITION |
ADDITIONAL |
REVERSAL OF |
|||||||||||||||||||||||||||||||||||
| SEVERANCE | RELATED COSTS | OTHER COSTS | WRITE-OFFS | TOTAL | ELIMINATIONS | COSTS | ACCRUALS | |||||||||||||||||||||||||||||||||
|
Fluid Technology
|
$ | 30.7 | $ | 0.4 | $ | 0.9 | $ | 0.1 | $ | 32.1 | 600 | $ | 3.2 | $ | (1.0 | ) | ||||||||||||||||||||||||
|
Defense Electronics & Services
|
9.6 | 0.7 | 0.6 | – | 10.9 | 157 | 0.1 | (0.2 | ) | |||||||||||||||||||||||||||||||
|
Motion & Flow Control
|
20.5 | 0.6 | 0.4 | 0.8 | 22.3 | 589 | 6.0 | (0.4 | ) | |||||||||||||||||||||||||||||||
|
Corporate and Other
|
1.4 | 0.1 | 0.1 | – | 1.6 | 14 | – | – | ||||||||||||||||||||||||||||||||
| $ | 62.2 | $ | 1.8 | $ | 2.0 | $ | 0.9 | $ | 66.9 | 1,360 | $ | 9.3 | $ | (1.6 | ) | |||||||||||||||||||||||||
The charges
associated with actions announced during 2008 primarily
represent a reduction of structural costs in all business
segments and the planned closure of a facility in the
Motion & Flow Control business segment and a facility
in the Defense Electronics & Services business
segment. Planned position eliminations total 1,360, including
614 factory workers, 704 office workers and 42 management
employees. The costs associated with the prior years’ plans
primarily reflect severance and lease cancellation related costs.
2008 Asset
Impairment Charges
During 2008, we
recognized $2.9 of charges related to the impairment of
long-lived assets. During the fourth quarter of 2008, we
recognized an asset impairment charge of $1.8 related to the
write-down of software due to a decision to cancel a project as
a result of an organizational realignment. During the third
quarter of 2008, we recognized an impairment charge of $1.1
related to one of our Motion & Flow Control
businesses, reflecting the reduction of our expected future
earnings for this business.
57
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
2007
Restructuring Activities
During 2007, we
recorded a net restructuring charge of $61.1, reflecting costs
of $57.9 related to new actions and $7.4 related to prior year
plans, as well as the reversal of $4.2 of restructuring accruals
that management determined would not be required.
Components of
Charges
| 2007 ACTIONS | ||||||||||||||||||||||||||||||||||||||||
|
PRIOR |
||||||||||||||||||||||||||||||||||||||||
|
OTHER |
LEASE |
PLANNED |
YEARS’ PLANS |
|||||||||||||||||||||||||||||||||||||
|
EMPLOYEE- |
CANCELLATION
& |
ASSET |
POSITION |
ADDITIONAL |
REVERSAL OF |
|||||||||||||||||||||||||||||||||||
| SEVERANCE | RELATED COSTS | OTHER COSTS | WRITE-OFFS | TOTAL | ELIMINATIONS | COSTS | ACCRUALS | |||||||||||||||||||||||||||||||||
|
Fluid Technology
|
$ | 32.7 | $ | 0.5 | $ | 1.4 | $ | 2.1 | $ | 36.7 | 410 | $ | 3.5 | $ | (1.1 | ) | ||||||||||||||||||||||||
|
Defense Electronics & Services
|
6.2 | – | 1.5 | – | 7.7 | 115 | 2.9 | (0.9 | ) | |||||||||||||||||||||||||||||||
|
Motion & Flow Control
|
9.5 | – | 0.3 | 0.4 | 10.2 | 201 | 1.0 | (0.5 | ) | |||||||||||||||||||||||||||||||
|
Corporate and Other
|
3.3 | – | – | – | 3.3 | 3 | – | (1.7 | ) | |||||||||||||||||||||||||||||||
| $ | 51.7 | $ | 0.5 | $ | 3.2 | $ | 2.5 | $ | 57.9 | 729 | $ | 7.4 | $ | (4.2 | ) | |||||||||||||||||||||||||
The charges
associated with actions announced during 2007 represent a
reduction of structural costs in all business segments and the
planned closure of four facilities in the Fluid Technology
business segment, one facility in the Motion & Flow
Control business segment and two facilities in the Defense
Electronics & Services business segment. Planned
position eliminations total 729, including 341 factory workers,
345 office workers and 43 management employees. The costs
associated with prior years’ plans primarily reflect
additional costs related to an adjustment to the write-off of
leased space as well as asset write-offs and severance costs.
2007 Asset
Impairment Charges
During the fourth
quarter of 2007, we recognized $5.0 of charges related to the
impairment of long-lived assets. The impairment was the result
of our determination that two businesses, one within the
Motion & Flow Control business segment and one within
the Fluid Technology business segment, were experiencing lower
than expected financial results, and as a result certain
long-lived assets of those businesses may be impaired. After
revising the earnings forecasts for those businesses to reflect
current business conditions, asset impairment charges of $4.2
and $0.8 were recorded within the Motion & Flow
Control and Fluid Technology business segments, respectively.
2006
Restructuring Activities
During 2006, we
recorded a net restructuring charge of $51.7, reflecting costs
of $52.7 related to new actions and $3.8 related to prior year
plans, as well as the reversal of $4.8 of restructuring accruals
that management determined would not be required.
Components of
Charges
| 2006 ACTIONS | ||||||||||||||||||||||||||||||||||||||||
|
OTHER |
LEASE |
PRIOR |
||||||||||||||||||||||||||||||||||||||
|
EMPLOYEE- |
CANCELLATION |
PLANNED |
YEARS’ PLANS |
|||||||||||||||||||||||||||||||||||||
|
RELATED |
& OTHER |
ASSET |
POSITION |
ADDITIONAL |
REVERSAL OF |
|||||||||||||||||||||||||||||||||||
| SEVERANCE | COSTS | COSTS | WRITE-OFFS | TOTAL | ELIMINATIONS | COSTS | ACCRUALS | |||||||||||||||||||||||||||||||||
|
Fluid Technology
|
$ | 17.0 | $ | 2.8 | $ | 5.7 | $ | 1.2 | $ | 26.7 | 441 | $ | 0.9 | $ | (0.9 | ) | ||||||||||||||||||||||||
|
Defense Electronics & Services
|
3.2 | 0.1 | 3.9 | – | 7.2 | 113 | – | (0.9 | ) | |||||||||||||||||||||||||||||||
|
Motion & Flow Control
|
11.3 | 0.1 | 4.1 | 1.2 | 16.7 | 236 | 2.8 | (3.0 | ) | |||||||||||||||||||||||||||||||
|
Corporate and Other
|
2.1 | – | – | – | 2.1 | 26 | 0.1 | – | ||||||||||||||||||||||||||||||||
| $ | 33.6 | $ | 3.0 | $ | 13.7 | $ | 2.4 | $ | 52.7 | 816 | $ | 3.8 | $ | (4.8 | ) | |||||||||||||||||||||||||
The charges
associated with actions announced during 2006 represent a
reduction of structural costs in all business segments and the
closure of three facilities in the Fluid Technology business
segment, two in the Motion & Flow Control business
segment and one in the Defense Electronics & Services
business segment. Planned position eliminations total 816,
including 427 factory workers, 360 office workers and 29
management employees. The costs associated with prior
years’ plans primarily reflect additional severance costs.
58
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
The following table
displays a rollforward of restructuring accruals:
|
DEFENSE |
MOTION |
||||||||||||||||||||||
|
ELECTRONICS |
FLUID |
& FLOW |
CORPORATE |
||||||||||||||||||||
| & SERVICES | TECHNOLOGY | CONTROL | AND OTHER | TOTAL | |||||||||||||||||||
|
Balance, January 1 2006
|
$ | – | $ | 19.0 | $ | 8.9 | $ | 0.2 | $ | 28.1 | |||||||||||||
|
Additional charges for prior year plans
|
– | 0.9 | 2.8 | 0.1 | 3.8 | ||||||||||||||||||
|
Cash payments and other related to prior charges
|
– | (14.1 | ) | (8.0 | ) | (0.3 | ) | (22.4 | ) | ||||||||||||||
|
Reversals of prior charges
|
– | (0.7 | ) | (2.7 | ) | – | (3.4 | ) | |||||||||||||||
|
Charges for 2006 actions
|
7.2 | 26.7 | 16.7 | 2.1 | 52.7 | ||||||||||||||||||
|
Reversal of 2006 charges
|
(0.9 | ) | (0.2 | ) | (0.3 | ) | – | (1.4 | ) | ||||||||||||||
|
Cash payments and other related to 2006 charges
|
(3.0 | ) | (8.0 | ) | (8.9 | ) | (0.5 | ) | (20.4 | ) | |||||||||||||
|
Asset write-offs
|
– | (1.2 | ) | (1.2 | ) | – | (2.4 | ) | |||||||||||||||
|
Balance December 31, 2006
|
3.3 | 22.4 | 7.3 | 1.6 | 34.6 | ||||||||||||||||||
|
Additional charges for prior year plans
|
2.9 | 3.5 | 1.0 | – | 7.4 | ||||||||||||||||||
|
Cash payments and other related to prior charges
|
(2.0 | ) | (17.9 | ) | (5.3 | ) | (1.2 | ) | (26.4 | ) | |||||||||||||
|
Reversals of prior charges
|
(0.6 | ) | (1.1 | ) | (0.3 | ) | – | (2.0 | ) | ||||||||||||||
|
Charges for 2007 actions
|
7.7 | 36.7 | 10.2 | 3.3 | 57.9 | ||||||||||||||||||
|
Reversal of 2007 charges
|
(0.3 | ) | – | (0.2 | ) | (1.7 | ) | (2.2 | ) | ||||||||||||||
|
Cash payments and other related to 2007 charges
|
(3.1 | ) | (20.5 | ) | (3.2 | ) | – | (26.8 | ) | ||||||||||||||
|
Asset write-offs
|
– | (2.1 | ) | (0.4 | ) | – | (2.5 | ) | |||||||||||||||
|
Balance December 31, 2007
|
7.9 | 21.0 | 9.1 | 2.0 | 40.0 | ||||||||||||||||||
|
Additional charges for prior year plans
|
0.1 | 3.2 | 6.0 | – | 9.3 | ||||||||||||||||||
|
Cash payments and other related to prior charges
|
(5.1 | ) | (20.8 | ) | (10.4 | ) | (1.5 | ) | (37.8 | ) | |||||||||||||
|
Reversals of prior charges
|
(0.2 | ) | (0.6 | ) | (0.3 | ) | – | (1.1 | ) | ||||||||||||||
|
Charges for 2008 actions
|
10.9 | 32.1 | 22.3 | 1.6 | 66.9 | ||||||||||||||||||
|
Reversal of 2008 charges
|
– | (0.4 | ) | (0.1 | ) | – | (0.5 | ) | |||||||||||||||
|
Cash payments and other related to 2008 charges
|
(3.1 | ) | (8.5 | ) | (5.5 | ) | (0.4 | ) | (17.5 | ) | |||||||||||||
|
Asset write-offs
|
– | (0.1 | ) | (0.8 | ) | – | (0.9 | ) | |||||||||||||||
|
Balance December 31, 2008
|
$ | 10.5 | $ | 25.9 | $ | 20.3 | $ | 1.7 | $ | 58.4 | |||||||||||||
59
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
The accrual balance
as of December 31, 2008 of $58.4 includes $51.2 for
severance and $7.2 for facility carrying costs and other.
The following is a
reconciliation of employee position eliminations associated with
restructuring activities through 2008:
|
Planned reductions as of January 1, 2006
|
204 | ||||
|
Planned reductions from 2006 actions
|
816 | ||||
|
Actual reductions, January 1 – December 31, 2006
|
(750 | ) | |||
|
Planned reductions as of December 31, 2006
|
270 | ||||
|
Planned reductions from 2007 actions
|
729 | ||||
|
Actual reductions, January 1 – December 31, 2007
|
(686 | ) | |||
|
Planned reductions as of December 31, 2007
|
313 | ||||
|
Planned reductions from 2008 actions
|
1,360 | ||||
|
Actual reductions, January 1 – December 31,
2008
|
(1,165 | ) | |||
|
Planned reductions as of December 31, 2008
|
508 | ||||
As of the end of
2008, of the planned facility closures, one facility in the
Motion & Flow Control business segment remains to be
closed. This closure is expected during the first half of 2009.
NOTE 5
Discontinued
Operations
Switches
During 2007, we sold
the majority of the Switches businesses to a private equity
firm, for net proceeds of $223.2, and an after-tax gain of
$84.4. During the third quarter of 2008, we completed the sale
of the remaining component of the Switches businesses to the
same buyer, for net proceeds of $5.1. As a result, we recorded
an after-tax gain on sale of $5.4 for the year ended
December 31, 2008.
Revenues and
operating income for the Switches businesses reported in
discontinued operations were as follows:
| YEAR ENDED DECEMBER 31 | 2008 | 2007 | 2006 | |||||||||||
|
Revenues
|
$ | 7.7 | $ | 177.8 | $ | 374.8 | ||||||||
|
Operating income
|
$ | 0.2 | $ | 11.0 | $ | 30.6 | ||||||||
Fluid Handling
Systems
In the first quarter
of 2006, we completed the sale of our automotive brake and
fueling tubing and components business (“Fluid Handling
Systems” or “FHS”) to a privately held company
for net proceeds of $187.7 and a gain of $19.0. The business,
which was a component of our Motion & Flow Control
business segment, manufactures steel and plastic tubing for fuel
and brake lines, quick-connects, and serves the transportation
industry.
Revenues and
operating income were $41.2 and $2.6, respectively, for the year
ended December 31, 2006.
Richter
During the first
quarter of 2006, we also completed the sale of our industrial
non-metallic lined pumps and valves business
(“Richter”) to a private equity investor for net
proceeds of $24.8 and a gain of $22.2. The business, which was a
component of the Fluid Technology business segment, was a
manufacturer of pumps and valves for selected segments in the
chemical, fine chemical and pharmaceutical industries.
Revenues and
operating income were $2.0 and $0.2, respectively, for the year
ended December 31, 2006.
60
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
NOTE 6
Income
Taxes
Income tax data from
continuing operations is as follows:
| YEAR ENDED DECEMBER 31 | 2008 | 2007 | 2006 | ||||||||||||
|
U.S. and foreign components of income from continuing operations
before income taxes:
|
|||||||||||||||
|
U.S.
|
$ | 662.6 | $ | 454.9 | $ | 367.1 | |||||||||
|
Foreign
|
424.9 | 443.6 | 360.2 | ||||||||||||
| $ | 1,087.5 | $ | 898.5 | $ | 727.3 | ||||||||||
|
Provision (benefit) for income tax:
|
|||||||||||||||
|
Current
|
|||||||||||||||
|
U.S. federal
|
$ | 160.2 | $ | 89.8 | $ | 62.5 | |||||||||
|
State and local
|
4.8 | 8.1 | 7.5 | ||||||||||||
|
Foreign
|
130.6 | 133.5 | 94.4 | ||||||||||||
| $ | 295.6 | $ | 231.4 | $ | 164.4 | ||||||||||
|
Deferred:
|
|||||||||||||||
|
U.S. federal
|
$ | 23.0 | $ | 21.8 | $ | 53.2 | |||||||||
|
State and local
|
(0.4 | ) | 4.1 | 0.6 | |||||||||||
|
Foreign
|
(5.9 | ) | 8.2 | 9.4 | |||||||||||
| 16.7 | 34.1 | 63.2 | |||||||||||||
|
Total income tax expense
|
$ | 312.3 | $ | 265.5 | $ | 227.6 | |||||||||
A reconciliation of
the tax provision at the U.S. statutory rate to the
effective income tax expense rate as reported is as follows:
| YEAR ENDED DECEMBER 31 | 2008 | 2007 | 2006 | ||||||||||||
|
Tax provision at U.S. statutory rate
|
35.0 | % | 35.0 | % | 35.0 | % | |||||||||
|
Foreign tax rate differential
|
(2.2 | ) | (1.4 | ) | (3.1 | ) | |||||||||
|
Effect of repatriation of foreign earnings
|
(0.4 | ) | (0.7 | ) | (2.4 | ) | |||||||||
|
State and local income tax
|
0.4 | 1.4 | 0.7 | ||||||||||||
|
Research credit
|
(0.2 | ) | (0.3 | ) | (0.4 | ) | |||||||||
|
Tax examinations
|
– | (4.9 | ) | – | |||||||||||
|
Domestic manufacturing deduction
|
(0.3 | ) | (1.0 | ) | (1.1 | ) | |||||||||
|
Penalty
|
– | – | 2.4 | ||||||||||||
|
Tax account validation adjustment
|
(3.8 | ) | – | – | |||||||||||
|
Other
|
0.2 | 1.4 | 0.2 | ||||||||||||
|
Effective income tax expense rate
|
28.7 | % | 29.5 | % | 31.3 | % | |||||||||
Deferred income
taxes are established for temporary differences between the
amount of assets and liabilities recognized for financial
reporting purposes and for tax reporting purposes and for
carryforwards.
Deferred tax assets
(liabilities) include the following:
| 2008 | 2007 | |||||||||||||||||||
|
DEFERRED |
DEFERRED |
DEFERRED |
DEFERRED |
|||||||||||||||||
| DECEMBER 31 | ASSETS | LIABILITIES | ASSETS | LIABILITIES | ||||||||||||||||
|
Employee benefits
|
$ | 936.5 | $ | – | $ | 172.0 | $ | – | ||||||||||||
|
Accelerated depreciation
|
– | (6.3 | ) | – | (34.3 | ) | ||||||||||||||
|
Accruals
|
198.3 | – | 185.3 | – | ||||||||||||||||
|
Uniform capitalization
|
11.7 | – | 4.5 | – | ||||||||||||||||
|
Investment
|
– | (108.5 | ) | – | (112.3 | ) | ||||||||||||||
|
Loss carryforwards
|
293.0 | – | 302.8 | – | ||||||||||||||||
|
Foreign tax credit
|
1.1 | – | 1.1 | – | ||||||||||||||||
|
State credit carryforwards
|
7.8 | – | 8.6 | – | ||||||||||||||||
|
Intangibles
|
– | (322.4 | ) | – | (327.2 | ) | ||||||||||||||
|
Other
|
– | (22.3 | ) | – | (70.3 | ) | ||||||||||||||
|
Subtotal
|
1,448.4 | (459.5 | ) | 674.3 | (544.1 | ) | ||||||||||||||
|
Valuation allowance
|
(265.4 | ) | – | (212.2 | ) | – | ||||||||||||||
| $ | 1,183.0 | $ | (459.5 | ) | $ | 462.1 | $ | (544.1 | ) | |||||||||||
Deferred taxes in
the Consolidated Balance Sheets consist of the following:
| DECEMBER 31 | 2008 | 2007 | ||||||||
|
Current assets
|
$ | 203.4 | $ | 105.9 | ||||||
|
Non-current assets
|
608.5 | 29.7 | ||||||||
|
Other current liabilities
|
(26.7 | ) | (8.2 | ) | ||||||
|
Other liabilities
|
(61.7 | ) | (209.4 | ) | ||||||
| $ | 723.5 | $ | (82.0 | ) | ||||||
No provision was
made for U.S. taxes payable on accumulated undistributed
foreign earnings of certain subsidiaries amounting to
approximately $1,474.8 because these amounts are permanently
reinvested. While the amount of federal income taxes, if such
earnings are distributed in the future, cannot be determined,
such taxes may be reduced by tax credits and other deductions.
Taxes have not been provided for other outside basis differences
since these differences are not expected to reverse in the
foreseeable future.
61
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
We have the
following attributes available for utilization:
| ATTRIBUTE: | AMOUNT | FIRST YEAR OF EXPIRATION | ||||||||
|
U.S. net operating loss
|
$ | 25.9 | December 31, 2020 | |||||||
|
State net operating losses
|
$ | 2,794.5 | December 31, 2009 | |||||||
|
Federal and state captial loss
|
$ | 136.3 | December 31, 2012 | |||||||
|
State tax credits
|
$ | 7.8 | December 31, 2012 | |||||||
|
U.S. foreign tax credits
|
$ | 1.1 | December 31, 2009 | |||||||
|
Foreign net operating loss
|
$ | 554.5 | December 31, 2009 | |||||||
As of
December 31, 2008, a valuation allowance of $265.4 exists
for certain U.S. subsidiary state net operating loss
carryforwards, certain foreign net operating loss carryforwards,
and certain U.S. federal capital loss carryforwards that
may not be realized. As of December 31, 2007, a valuation
allowance of $212.2 existed for certain U.S. subsidiary
state net operating loss carryforwards, certain foreign net
operating loss carryforwards, and certain U.S. federal
capital loss carryforwards that may not be realized. During
2008, the valuation allowance increased by $53.2 resulting from
the following: increase of $4.1 attributable to foreign net
operation loss carryforwards, decrease of $13.6 attributable to
state net operating loss carryforwards, an increase of $57.0
attributable to the state deferred tax asset for pension, and an
increase of $5.7 attributable to U.S. federal and state
capital loss carryforwards.
Shareholders’
equity at December 31, 2008 and 2007 reflects tax benefits
related to stock-based compensation in 2008 and 2007 of
approximately $8.6 and $21.5, respectively.
The Internal Revenue
Service (“IRS”) is currently examining our federal
consolidated income tax returns for the years ended
December 31, 2004 through December 31, 2006. The IRS
has completed its examination of all years through 2003. As of
December 31, 2008 we believe the accrual for income taxes
payable is sufficient to cover potential liabilities arising
from these examinations.
Uncertain Tax
Positions
Under FIN 48,
we recognize tax benefits from uncertain tax positions only if
it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in
the Consolidated Financial Statements from such positions are
measured based on the largest benefit that has a greater than
50% likelihood of being realized upon ultimate settlement.
A reconciliation of
the beginning and ending amount of unrecognized tax benefits as
of December 31, 2008 is as follows:
| 2008 | |||||
|
Balance at January 1
|
$ | 103.3 | |||
|
Additions based on tax positions related to the current year
|
6.6 | ||||
|
Additions based on tax positions related to purchase accounting
|
2.4 | ||||
|
Additions for tax positions of prior years
|
66.2 | ||||
|
Reductions for tax positions of prior years
|
(13.5 | ) | |||
|
Reductions for tax positions related to purchase accounting
|
(2.2 | ) | |||
|
Settlements
|
(15.3 | ) | |||
|
Lapse of statute of limitations
|
(2.6 | ) | |||
|
Balance at December 31
|
$ | 144.9 | |||
As of
January 1, 2009, we will adopt FAS 141(R) and
subsequent recognition, if any, of a previously unrecognized tax
position will be reflected in tax expense attributable to
continuing or discontinued operations. As of December 31,
2008, the recognition of the uncertain tax positions that would
affect the effective tax rate is $76.9. Included in the balance
at December 31, 2008 are tax positions of $59.8, which
because of deferred tax accounting would not impact the annual
effective rate, but could accelerate the payment of cash to the
taxing authority. In addition, tax positions of $8.2
attributable to discontinued operations would not impact the
annual effective tax rate.
We do not believe
that the unrecognized tax benefits will significantly change
within twelve months of the reporting date.
In many cases,
uncertain tax positions are related to tax years that remain
subject to examination by the relevant taxing authorities. The
following table summarizes these open tax years by major
jurisdiction:
| JURISDICTION | EARLIEST OPEN YEAR | ||||
|
Austria
|
2004 | ||||
|
Canada
|
1999 | ||||
|
Germany
|
2000 | ||||
|
Italy
|
2003 | ||||
|
Netherlands
|
2002 | ||||
|
Sweden
|
2003 | ||||
|
United Kingdom
|
2003 | ||||
|
United States
|
2004 | ||||
62
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
We classify interest
relating to tax matters as a component of interest expense and
tax penalties as a component of income tax expense in our
Consolidated Income Statement. During the years ended
December 31, 2008 and 2007, we recognized $9.7 and $6.7 in
interest and penalties, respectively. We had $28.1 and $36.2 for
the payment of interest and penalties accrued for as of
December 31, 2008 and 2007, respectively.
NOTE 7
Earnings Per
Share
A reconciliation of
the data used in the calculation of basic and diluted earnings
per share computations for income from continuing operations is
as follows:
| YEAR ENDED DECEMBER 31 | 2008 | 2007 | 2006 | ||||||||||||
|
Basic Earnings Per Share:
|
|||||||||||||||
|
Income from continuing operations
|
$ | 775.2 | $ | 633.0 | $ | 499.7 | |||||||||
|
Average common shares outstanding
|
180.7 | 180.6 | 184.3 | ||||||||||||
|
Basic earnings per share
|
$ | 4.29 | $ | 3.51 | $ | 2.71 | |||||||||
|
Diluted Earnings Per Share:
|
|||||||||||||||
|
Income from continuing operations
|
$ | 775.2 | $ | 633.0 | $ | 499.7 | |||||||||
|
Average common shares outstanding
|
180.7 | 180.6 | 184.3 | ||||||||||||
|
Add: Impact of stock options and restricted stock
|
2.7 | 3.4 | 3.1 | ||||||||||||
|
Average common shares outstanding on a diluted basis
|
183.4 | 184.0 | 187.4 | ||||||||||||
|
Diluted earnings per share
|
$ | 4.23 | $ | 3.44 | $ | 2.67 | |||||||||
Shares underlying
stock options excluded from the computation of diluted earnings
per share because they were anti-dilutive were as follows:
| DECEMBER 31 | 2008 | 2007 | 2006 | ||||||||||||
|
Stock options
|
4.1 | 0.5 | 0.8 | ||||||||||||
|
Average exercise price
|
$ | 49.29 | $ | 56.78 | $ | 52.60 | |||||||||
|
Years of expiration
|
2012- | 2012- | 2012- | ||||||||||||
| 2015 | 2014 | 2013 | |||||||||||||
The amounts of
anti-dilutive restricted common stock excluded from the
computation of diluted earnings per share for 2008, 2007 and
2006 were insignificant.
NOTE 8
Receivables,
Net
| DECEMBER 31 | 2008 | 2007 | ||||||||
|
Trade
|
$ | 1,909.4 | $ | 1,843.3 | ||||||
|
Other
|
92.9 | 127.9 | ||||||||
|
Less – allowance for doubtful accounts and cash
discounts
|
(41.2 | ) | (36.2 | ) | ||||||
| $ | 1,961.1 | $ | 1,935.0 | |||||||
NOTE 9
Inventories,
Net
| DECEMBER 31 | 2008 | 2007 | ||||||||
|
Finished goods
|
$ | 196.2 | $ | 209.4 | ||||||
|
Work in process
|
323.0 | 304.0 | ||||||||
|
Raw materials
|
365.5 | 470.8 | ||||||||
|
Less – progress payments
|
(80.9 | ) | (96.6 | ) | ||||||
| $ | 803.8 | $ | 887.6 | |||||||
NOTE 10
Plant, Property
and Equipment, Net
| DECEMBER 31 | 2008 | 2007 | ||||||||
|
Land and improvements
|
$ | 59.0 | $ | 58.7 | ||||||
|
Buildings and improvements
|
575.9 | 573.3 | ||||||||
|
Machinery and equipment
|
1,620.2 | 1,598.8 | ||||||||
|
Furniture, fixtures and office equipment
|
230.9 | 232.6 | ||||||||
|
Construction work in progress
|
132.4 | 93.3 | ||||||||
|
Other
|
82.3 | 76.5 | ||||||||
| 2,700.7 | 2,633.2 | |||||||||
|
Less – accumulated depreciation and amortization
|
(1,706.8 | ) | (1,652.9 | ) | ||||||
| $ | 993.9 | $ | 980.3 | |||||||
63
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
NOTE 11
Goodwill and
Other Intangible Assets, Net
Changes in the
carrying amount of goodwill for the years ended
December 31, 2008 and 2007 by business segment are as
follows:
|
DEFENSE |
MOTION & |
||||||||||||||||||||||
|
ELECTRONICS
& |
FLUID |
FLOW |
CORPORATE |
||||||||||||||||||||
| SERVICES | TECHNOLOGY | CONTROL | AND OTHER | TOTAL | |||||||||||||||||||
|
Balance as of January 1, 2007
|
$ | 962.3 | $ | 1,123.9 | $ | 245.6 | $ | 5.0 | $ | 2,336.8 | |||||||||||||
|
Goodwill acquired during the period
|
1,214.4 | 5.4 | 236.9 | – | 1,456.7 | ||||||||||||||||||
|
Other-net,
including foreign currency translation
|
0.1 | 38.1 | (2.0 | ) | – | 36.2 | |||||||||||||||||
|
Balance as of December 31, 2007
|
2,176.8 | 1,167.4 | 480.5 | 5.0 | 3,829.7 | ||||||||||||||||||
|
Goodwill acquired during the period
|
– | 7.0 | 16.2 | – | 23.2 | ||||||||||||||||||
|
Adjustments to purchase price allocations
|
34.0 | – | 3.0 | – | 37.0 | ||||||||||||||||||
|
Other-net,
including foreign currency translation
|
(0.2 | ) | (52.1 | ) | (6.3 | ) | – | (58.6 | ) | ||||||||||||||
|
Balance as of December 31, 2008
|
$ | 2,210.6 | $ | 1,122.3 | $ | 493.4 | $ | 5.0 | $ | 3,831.3 | |||||||||||||
Information
regarding our other intangible assets is as follows:
|
GROSS |
|||||||||||||||
|
CARRYING |
ACCUMULATED |
NET |
|||||||||||||
| AMOUNT | AMORTIZATION | INTANGIBLES | |||||||||||||
|
2007
|
|||||||||||||||
|
Finite-lived
intangibles:
|
|||||||||||||||
|
Customer
relationships
|
$ | 672.9 | $ | (62.1 | ) | $ | 610.8 | ||||||||
|
Proprietary
technology
|
63.2 | (15.5 | ) | 47.7 | |||||||||||
|
Trademarks
|
28.3 | (2.3 | ) | 26.0 | |||||||||||
|
Patents and other
|
53.2 | (22.2 | ) | 31.0 | |||||||||||
|
Indefinite-lived
intangibles- Brands and trademarks
|
17.5 | – | 17.5 | ||||||||||||
|
Balance as of
December 31, 2007
|
$ | 835.1 | $ | (102.1 | ) | $ | 733.0 | ||||||||
|
2008
|
|||||||||||||||
|
Finite-lived
intangibles:
|
|||||||||||||||
|
Customer
relationships
|
$ | 643.7 | $ | (149.9 | ) | $ | 493.8 | ||||||||
|
Proprietary
technology
|
68.4 | (20.2 | ) | 48.2 | |||||||||||
|
Trademarks
|
32.1 | (4.9 | ) | 27.2 | |||||||||||
|
Patents and
other
|
54.7 | (25.7 | ) | 29.0 | |||||||||||
|
Indefinite-lived
intangibles- Brands and trademarks
|
18.3 | – | 18.3 | ||||||||||||
|
Balance as of
December 31, 2008
|
$ | 817.2 | $ | (200.7 | ) | $ | 616.5 | ||||||||
Amortization expense
related to intangible assets for 2008, 2007 and 2006 was $100.0,
$35.3 and $26.7, respectively.
Estimated
amortization expense for each of the five succeeding years is as
follows:
| 2009 | 2010 | 2011 | 2012 | 2013 | ||||||||||||||||
|
$102.1
|
$ | 79.8 | $ | 67.0 | $ | 58.1 | $ | 42.0 | ||||||||||||
Customer
relationships, proprietary technology, trademarks and patents
and other are amortized over weighted average lives of
approximately 15 years, 13 years, 14 years and
16 years, respectively.
Impairment
Testing
We account for
goodwill and indefinite-lived intangibles in accordance with
SFAS 142. SFAS 142 states that goodwill and
indefinite-lived intangible assets are not amortized, but are
instead reviewed for impairment annually (or more frequently if
impairment indicators arise). We conduct our annual impairment
testing on October 1 to determine if we will be able to recover
all or a portion of the carrying value of goodwill and
indefinite-lived intangibles.
We conducted our
annual goodwill impairment test as of October 1, 2008, and
determined that there was no impairment. Subsequently, we
updated our forecast assumptions to reflect declining economic
conditions. As a result, we reassessed goodwill for impairment
for those reporting units significantly affected by changes to
our initial projections. Despite declines in the estimated fair
value for certain reporting units since our annual impairment
test, we concluded that there were no impairments as of the
interim test dates.
64
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
We will continue to
closely monitor the 2009 results and projections for these units
and the economic conditions of their product end-markets. Any
significant change in market conditions and estimates or
judgments could give rise to impairment in the period that the
change becomes known.
NOTE 12
Other
Assets
Other assets consist
of the following:
| DECEMBER 31 | 2008 | 2007 | ||||||||
|
Insurance receivables
|
$ | 198.3 | $ | 182.0 | ||||||
|
Other employee benefit-related assets
|
61.2 | 51.3 | ||||||||
|
Other long-term third party
receivables-net
|
46.7 | 54.3 | ||||||||
|
Capitalized software costs
|
26.4 | 27.0 | ||||||||
|
Investments in unconsolidated companies
|
8.4 | 9.3 | ||||||||
|
Environmental and employee benefit trusts
|
1.8 | 8.7 | ||||||||
|
Pension assets and prepaid benefit plan costs
|
1.7 | 675.6 | ||||||||
|
Other
|
21.3 | 42.0 | ||||||||
| $ | 365.8 | $ | 1,050.2 | |||||||
ITT recorded sales
to unconsolidated affiliates during 2008, 2007 and 2006 totaling
$17.3, $13.7 and $16.0, respectively. Additionally, ITT
purchased $18.1 of products from unconsolidated affiliates
during 2008. For all investments in unconsolidated companies,
our exposure is limited to the amount of the investment. All
investments accounted for under the cost method represent voting
rights interests of less than 20%.
NOTE 13
Leases and
Rentals
ITT leases certain
offices, manufacturing buildings, land, machinery, automobiles,
aircraft, computers and other equipment. Such leases expire at
various dates and may include renewals and escalations. ITT
often pays maintenance, insurance and tax expense related to
leased assets. Rental expenses under operating leases were
$133.3, $99.2 and $85.1, for 2008, 2007 and 2006, respectively.
Future minimum operating lease payments under long-term
operating leases as of December 31, 2008 are shown below.
|
2009
|
$ | 126.4 | |||
|
2010
|
105.7 | ||||
|
2011
|
91.1 | ||||
|
2012
|
75.8 | ||||
|
2013
|
73.6 | ||||
|
2014 and thereafter
|
248.6 | ||||
|
Total minimum lease payments
|
$ | 721.2 | |||
NOTE 14
Debt
Debt consists of the
following:
| December 31 | ||||||||||
| Short-term debt | 2008 | 2007 | ||||||||
|
Commercial
paper(1)
|
$ | 1,618.7 | $ | 1,589.7 | ||||||
|
Short-term
loans(1)
|
47.0 | 1,317.2 | ||||||||
|
Current maturities of long-term debt and
other(2)
|
13.3 | 176.1 | ||||||||
|
Short-term debt and current maturities of long-term debt
|
$ | 1,679.0 | $ | 3,083.0 | ||||||
|
INTEREST |
December 31 | ||||||||||||||
| Long-term debt | RATE | 2008 | 2007 | ||||||||||||
|
Notes and debentures:
|
|||||||||||||||
|
Maturity date
|
|||||||||||||||
|
2/1/2008
|
8.875 | % | $ | – | $ | 13.2 | |||||||||
|
5/1/2011
|
6.500 | % | 31.7 | 31.7 | |||||||||||
|
7/1/2011
|
7.500 | % | 37.4 | 37.4 | |||||||||||
|
2008-2014
|
4.700 | % | 82.2 | 89.9 | |||||||||||
|
11/15/2025
|
7.400 | % | 250.0 | 250.0 | |||||||||||
|
8/25/2048
|
(3 | ) | 17.3 | 17.3 | |||||||||||
|
2008 –
2022(2)
|
(4 | ) | 16.3 | 171.6 | |||||||||||
|
Deferred gain on interest rate
swaps(5)
|
54.7 | 59.2 | |||||||||||||
|
Subtotal
|
489.6 | 670.3 | |||||||||||||
|
Less – unamortized discount
|
(8.4 | ) | (11.2 | ) | |||||||||||
|
Long-term
debt(6)
|
481.2 | 659.1 | |||||||||||||
|
Less – current maturities of long-term debt and
other(2)
|
(13.3 | ) | (176.1 | ) | |||||||||||
|
Net long-term
debt(7)
|
$ | 467.9 | $ | 483.0 | |||||||||||
| (1) | The weighted average interest rate for short-term borrowings was 6.17% and 5.78% at December 31, 2008 and 2007, respectively. The fair value of our short-term loans approximates carrying value. |
65
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
| (2) | Includes $153.5 related to debt acquired in connection with the acquisition of EDO at December 31, 2007, which was repaid during 2008. |
| (3) | The interest rate was 0.16% and 4.52% at December 31, 2008 and 2007, respectively. |
| (4) | The weighted average interest rate was 5.38% and 2.62% at December 31, 2008 and 2007, respectively. |
| (5) | Deferred gain on terminated interest rate swaps accreted into income over the remaining terms of the underlying debt, which mature at various dates through 2025. |
| (6) | The fair value of long-term debt excluding the deferred gain on interest rate swaps was $450.4 and $474.7 as of December 31, 2008 and 2007, respectively. The year-over-year decrease in fair value primarily reflects the impact of principal payments on certain long-term debt. |
| (7) | The fair value of net long-term debt excluding the deferred gain on interest rate swaps was $437.1 and $460.2 as of December 31, 2008 and 2007, respectively. The year-over-year decrease in fair value primarily reflects the impact of principal payments on certain long-term debt. |
Principal payments
required on long-term debt and other for the next five years are:
| 2009 | 2010 | 2011 | 2012 | 2013 | ||||||||||||||||
|
$13.1
|
$ | 10.4 | $ | 79.7 | $ | 10.0 | $ | 13.0 | ||||||||||||
The book value of
assets pledged as collateral amounted to $46.6 as of
December 31, 2008.
In November 2005,
ITT entered into a five-year revolving credit agreement in the
aggregate principal amount of $1.25 billion. Effective
November 8, 2007, ITT exercised the option to increase the
principal amount under the revolving credit agreement to
$1.75 billion. In March 2008, ITT entered into a new
364-day
revolving credit agreement (the “March 2008 Credit
Facility”), providing an additional $1.0 billion
principal amount of available borrowings. As a result, the
maximum amount of outstanding borrowings under both facilities
is now $2.75 billion. The intended purpose of these credit
agreements is to provide additional liquidity as a source of
funding for the commercial paper program, if needed.
The interest rate
for borrowings under these agreements is generally based on the
London Interbank Offered Rate (“LIBOR”), plus a
spread, which reflects ITT’s debt rating. The commitment
fee on the November 2005 and March 2008 Credit Facilities is
0.08% and 0.06%, respectively, of the total commitment. The
provisions of this agreement require that we maintain a minimum
interest coverage ratio. At December 31, 2008, we were in
compliance with our financial covenants.
Prior to December
2007, borrowing through commercial paper and under the revolving
credit agreements could not exceed $1.25 billion in the
aggregate outstanding. In December 2007, the ITT Board of
Directors approved commercial paper borrowings to increase up to
$1.75 billion. At December 31, 2008, commercial paper
borrowings were $1,618.7.
As of
December 31, 2008, ITT had an $82.2 obligation associated
with a ten-year agreement involving the sale and the subsequent
lease back of certain properties. Under the terms of the
agreement, ITT is required to make annual payments of principal
and interest. At the end of the agreement in 2014, ITT has the
option to repurchase the applicable properties for a nominal
fee. This transaction is reflected as debt.
NOTE 15
Other
Liabilities
Other liabilities
consist of the following:
| DECEMBER 31 | 2008 | 2007 | ||||||||
|
Product liability, guarantees and other legal matters
|
$ | 275.1 | $ | 264.6 | ||||||
|
Deferred income taxes and other tax-related accruals
|
182.9 | 310.1 | ||||||||
|
Compensation and other employee-related benefits
|
133.8 | 139.5 | ||||||||
|
Environmental
|
119.5 | 110.2 | ||||||||
|
Other
|
69.0 | 79.6 | ||||||||
| $ | 780.3 | $ | 904.0 | |||||||
NOTE 16
Employee Benefit
Plans
Investment and
Savings Plans
ITT sponsors
numerous defined contribution savings plans, which allow
employees to contribute a portion of their pre-tax
and/or
after-tax income in accordance with specified guidelines.
Several of the plans require us to match a percentage of the
employee contributions up to certain limits. Matching
contributions charged to income amounted to $55.0, $36.6 and
$35.6 for the years ended 2008, 2007 and 2006, respectively.
Pension
Plans
ITT sponsors
numerous defined benefit pension plans. We fund employee pension
benefits, except in some countries outside the U.S., where
funding is not required. In addition to sponsored pension plans,
certain employees participate in multi-employer pension plans
sponsored by local or national unions. Our contribution to such
plans amounted to $0.6, $0.8 and $1.2, for 2008, 2007 and 2006,
respectively.
66
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
Postretirement
Health and Life Insurance Plans
ITT provides health
care and life insurance benefits for certain eligible retired
employees. We have pre-funded a portion of the health care and
life insurance obligations, where such pre-funding can be
accomplished on a tax-effective basis.
Changes in benefit
obligations, plan assets, and funded status for the years ended
2008 and 2007 were as follows:
| PENSION | OTHER BENEFITS | |||||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||||
|
Change in benefit obligation
|
||||||||||||||||||
|
Benefit obligation at beginning of year
|
$ | 5,380.7 | $ | 5,173.7 | $ | 740.9 | $ | 723.1 | ||||||||||
|
Service cost
|
98.9 | 97.8 | 7.6 | 7.6 | ||||||||||||||
|
Interest cost
|
324.7 | 297.4 | 41.9 | 41.9 | ||||||||||||||
|
Amendments made during the year/other
|
3.5 | 12.4 | (2.4 | ) | – | |||||||||||||
|
Actuarial (gain) loss
|
(9.9 | ) | (147.6 | ) | (36.6 | ) | 5.4 | |||||||||||
|
Benefits paid
|
(359.8 | ) | (327.1 | ) | (48.7 | ) | (44.7 | ) | ||||||||||
|
Liabilities assumed through acquisition/other
|
– | 228.7 | – | 7.6 | ||||||||||||||
|
Effect of currency translation
|
(115.1 | ) | 45.4 | – | – | |||||||||||||
|
Benefit obligation at end of year
|
$ | 5,323.0 | $ | 5,380.7 | $ | 702.7 | $ | 740.9 | ||||||||||
|
Change in plan assets
|
||||||||||||||||||
|
Fair value of plan assets at beginning of year
|
$ | 5,653.5 | $ | 5,051.9 | $ | 310.6 | $ | 283.7 | ||||||||||
|
Actual return on plan assets
|
(1,654.8 | ) | 622.2 | (98.6 | ) | 31.6 | ||||||||||||
|
Assets assumed through acquisition/other
|
– | 175.5 | – | – | ||||||||||||||
|
Employer contributions
|
24.1 | 83.1 | – | – | ||||||||||||||
|
Employee contributions
|
3.4 | 2.9 | – | – | ||||||||||||||
|
Benefits paid
|
(333.6 | ) | (304.8 | ) | (6.6 | ) | (4.7 | ) | ||||||||||
|
Effect of currency translation
|
(81.0 | ) | 22.7 | – | – | |||||||||||||
|
Fair value of plan assets at end of year
|
$ | 3,611.6 | $ | 5,653.5 | $ | 205.4 | $ | 310.6 | ||||||||||
|
Funded status at end of year
|
$ | (1,711.4 | ) | $ | 272.8 | $ | (497.3 | ) | $ | (430.3 | ) | |||||||
Amounts
recognized in the Consolidated Balance Sheets as of
December 31, 2008 and 2007 consist of:
| PENSION | OTHER BENEFITS | |||||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||||
|
Non-current assets
|
$ | 1.7 | $ | 675.6 | $ | – | $ | – | ||||||||||
|
Current liabilities
|
(23.2 | ) | (21.4 | ) | (45.6 | ) | (47.1 | ) | ||||||||||
|
Non-current liabilities
|
(1,689.9 | ) | (381.4 | ) | (451.7 | ) | (383.2 | ) | ||||||||||
| $ | (1,711.4 | ) | $ | 272.8 | $ | (497.3 | ) | $ | (430.3 | ) | ||||||||
Amounts
recognized in accumulated other comprehensive loss at
December 31, 2008 and 2007 consist of:
| PENSION | OTHER BENEFITS | |||||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||||
|
Net loss
|
$ | 2,219.5 | $ | 177.6 | $ | 200.0 | $ | 114.1 | ||||||||||
|
Prior service cost
|
25.6 | 29.3 | 6.4 | 11.7 | ||||||||||||||
| $ | 2,245.1 | $ | 206.9 | $ | 206.4 | $ | 125.8 | |||||||||||
During the fourth
quarter of 2008, we recognized a substantial decline in the fair
market value of our pension plan assets, contributing a pre-tax
charge to other comprehensive loss of $2,118.8. See the
“Fair Value of Plan Assets” section of this footnote
for further details related to the method and judgment used to
value our pension plan assets.
The estimated net
loss and prior service cost that will be amortized from
accumulated other comprehensive loss into net periodic benefit
cost over the next fiscal year is as follows:
| PENSION | OTHER BENEFITS | |||||||||
|
Net loss
|
$ | 41.6 | $ | 15.1 | ||||||
|
Prior service cost
|
3.8 | 3.5 | ||||||||
The accumulated
benefit obligation for all defined benefit pension plans was
$5,075.4 and $5,089.4 at December 31, 2008 and 2007,
respectively.
Information for
pension plans with an accumulated benefit obligation in excess
of plan assets:
| DECEMBER 31 | 2008 | 2007 | ||||||||
|
Projected benefit obligation
|
$ | 5,139.9 | $ | 710.4 | ||||||
|
Accumulated benefit obligation
|
4,898.2 | 685.6 | ||||||||
|
Fair value of plan assets
|
3,426.3 | 309.5 | ||||||||
67
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
Components of net
periodic benefit cost and other amounts recognized in other
comprehensive (loss) income for the years 2008, 2007 and 2006,
were as follows:
| PENSION | OTHER BENEFITS | |||||||||||||||||||||||||||
| 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||||||
|
Net periodic benefit cost
|
||||||||||||||||||||||||||||
|
Service cost
|
$ | 98.9 | $ | 97.8 | $ | 98.7 | $ | 7.6 | $ | 7.6 | $ | 8.0 | ||||||||||||||||
|
Interest cost
|
324.7 | 297.4 | 284.1 | 41.9 | 41.9 | 39.9 | ||||||||||||||||||||||
|
Expected return on plan assets
|
(445.2 | ) | (399.5 | ) | (375.6 | ) | (27.5 | ) | (25.1 | ) | (22.4 | ) | ||||||||||||||||
|
Amortization of net actuarial loss
|
17.6 | 63.3 | 87.9 | 3.8 | 2.4 | 9.4 | ||||||||||||||||||||||
|
Amortization of prior service cost
|
3.7 | 2.7 | 2.7 | 2.8 | 5.3 | 2.3 | ||||||||||||||||||||||
|
Total net periodic benefit (income) cost
|
(0.3 | ) | 61.7 | 97.8 | 28.6 | 32.1 | 37.2 | |||||||||||||||||||||
|
Other changes in plan assets and benefit obligations
recognized in other comprehensive (loss) income
|
||||||||||||||||||||||||||||
|
Net loss (gain)
|
2,059.5 | (365.9 | ) | – | 89.7 | (4.8 | ) | – | ||||||||||||||||||||
|
Prior service cost (benefit)
|
– | 13.2 | – | (2.5 | ) | 4.0 | – | |||||||||||||||||||||
|
Amortization of net actuarial loss
|
(17.6 | ) | (63.3 | ) | – | (3.8 | ) | (2.4 | ) | – | ||||||||||||||||||
|
Amortization of prior service cost
|
(3.7 | ) | (2.7 | ) | – | (2.8 | ) | (5.3 | ) | – | ||||||||||||||||||
|
Minimum pension liability income
|
– | – | (88.9 | ) | – | – | – | |||||||||||||||||||||
|
Total loss (income) recognized in other comprehensive (loss)
income
|
2,038.2 | (418.7 | ) | (88.9 | ) | 80.6 | (8.5 | ) | – | |||||||||||||||||||
|
Total charge/(income) recognized in net periodic benefit cost
and other comprehensive (loss) income
|
$ | 2,037.9 | $ | (357.0 | ) | $ | 8.9 | $ | 109.2 | $ | 23.6 | $ | 37.2 | |||||||||||||||
Assumptions
Weighted-average
assumptions used to determine benefit obligations at December
31:
| PENSION | OTHER BENEFITS | |||||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||||
|
Discount rate
|
6.24 | % | 6.19 | % | 6.25 | % | 6.00 | % | ||||||||||
|
Rate of future compensation increase
|
3.97 | % | 4.45 | % | 4.00 | % | 4.50 | % | ||||||||||
Weighted-average
assumptions used to determine net periodic benefit cost for the
years ended December 31:
| PENSION | OTHER BENEFITS | |||||||||||||||||||||||||||
| 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||||||
|
Discount rate
|
6.19 | % | 5.87 | % | 5.64 | % | 6.00 | % | 6.00 | % | 5.50 | % | ||||||||||||||||
|
Expected return on plan assets
|
8.87 | % | 8.87 | % | 8.88 | % | 9.00 | % | 9.00 | % | 9.00 | % | ||||||||||||||||
|
Rate of future compensation increase
|
4.45 | % | 4.48 | % | 4.44 | % | 4.50 | % | 4.50 | % | 4.50 | % | ||||||||||||||||
Management develops
each assumption using relevant company experience in conjunction
with market-related data for each individual country in which
such plans exist. All assumptions are reviewed periodically with
third party actuarial consultants and adjusted as necessary.
The assumed rate of
future increases in the per capita cost of health care (the
health care trend rate) is 7.5% for 2009, decreasing ratably to
5.0% in 2016. Increasing the health care trend rates by one
percent per year would have the effect of increasing the benefit
obligation by $37.2 and the aggregate service and interest cost
components by $2.9. A decrease of one percent in the health care
trend rate would reduce the benefit obligation by $31.9 and the
aggregate service and interest cost components by $2.4. To the
extent that actual experience differs from the inherent
assumptions, the effect will be amortized over the average
future service of the covered active employees.
The determination of
the assumptions shown in the table above and the discussion of
health care trend rates are based on the provisions of the
applicable accounting pronouncements,
68
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
the review of
various indices, discussion with our actuaries, and the review
of competitive surveys in the geographic areas where the plans
are sited. Changes in these assumptions would affect the
financial position and results of operations.
Plan
Assets
Domestic plan assets
held within the ITT Corporation Master Trust, which covers
relatively all of the domestic pension plans and the various
welfare benefit plan trusts, were as follows:
|
PENSION |
OTHER BENEFITS |
||||||||||||||||||
| DECEMBER 31 | DECEMBER 31 | ||||||||||||||||||
| ASSET CATEGORY | 2008 | 2007 | 2008 | 2007 | |||||||||||||||
|
Equity securities
|
37.8 | % | 57.7 | % | 42.4 | % | 60.5 | % | |||||||||||
|
Private equity
|
31.7 | 16.5 | 25.4 | 12.8 | |||||||||||||||
|
Hedge funds
|
21.4 | 16.1 | 17.1 | 12.4 | |||||||||||||||
|
Commodities
|
3.6 | 4.2 | 2.9 | 3.2 | |||||||||||||||
|
Fixed income securities
|
3.4 | 3.7 | 10.1 | 8.7 | |||||||||||||||
|
Cash and other
|
2.1 | 1.8 | 2.1 | 2.4 | |||||||||||||||
|
Total
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||
The current asset
allocation for the domestic pension funds apportions 69.5% to
equity market investments, including private equity investments,
and 30.5% to fixed income instruments, hedge funds and
commodities. The investment in our stock within the
U.S. Master Trust approximated 1% in 2008 and 2007.
Fair Value of
Plan Assets
Our pension and
welfare benefit plans’ assets are comprised of a broad
range of investments including domestic and foreign securities,
private equity and fixed income investments, investments in
hedge funds, commodities and cash and cash equivalents. When
available, we have valued our investments based on observable
market inputs.
Observable inputs
are inputs that market participants would use in pricing the
investment based on market data obtained from independent
sources. These include inputs with quoted prices in active
markets, and inputs other than quoted prices in active markets
that are either directly or indirectly observable.
Unobservable inputs
are inputs that reflect the Company’s assumptions about the
estimates market participants would use in pricing the
investment, based on the best information available in the
circumstances. To the extent that valuation is based on inputs
that are less observable or unobservable in the market, the
determination of the fair value requires more judgment.
A substantial
portion of our pension and welfare benefit plans’ assets
portfolio is comprised of hedge fund and private equity
investments. The private equity and a portion of the hedge fund
investments do not have directly observable inputs, and as such,
require significant judgment to determine fair value. Plan
assets are based on year-end fair market values. Absent the
timely availability of audited year-end financial statements for
investments, from which we derive our allocable portion of each
investment’s fair value, management has incorporated its
own judgment and assumptions to value the investments as of
year-end.
See “Critical
Accounting Estimates” within Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of
Operations, for further employee benefit plan information,
including the related estimates, assumptions, uncertainties, and
potential financial statement impact from revisions to our
estimates.
Contributions
Funding requirements
under IRS rules are a major consideration in making
contributions to our pension plans. With respect to qualified
pension plans, we intend to contribute annually not less than
the minimum required by applicable law and regulations. We
currently anticipate making contributions to our pension plans
in the range of $20.0 to $25.0 during 2009, of which $5.5 is
expected to be made in the first quarter.
Estimated
Future Benefit Payments
The following
benefit payments covering pension and other benefit plans have
been projected based on benefits earned to date and the
expectation that certain future service will be earned by
currently active employees:
|
OTHER |
||||||||||
| PENSION | BENEFITS | |||||||||
|
2009
|
$ | 338.0 | $ | 52.6 | ||||||
|
2010
|
344.7 | 54.1 | ||||||||
|
2011
|
352.6 | 55.8 | ||||||||
|
2012
|
360.3 | 56.4 | ||||||||
|
2013
|
369.5 | 57.1 | ||||||||
|
2014 – 2018
|
1,985.8 | 293.2 | ||||||||
69
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
NOTE 17
Stock-Based and
Long-Term Incentive Employee Compensation
Stock-based and
long-term incentive employee compensation cost reduced
consolidated results of operations as follows:
| YEAR ENDED DECEMBER 31 | 2008 | 2007 | 2006 | ||||||||||||
|
Pre-tax compensation cost
|
$ | 55.2 | $ | 57.9 | $40 | .2 | |||||||||
|
Future tax benefit
|
$ | 18.2 | $ | 19.0 | $14 | .1 | |||||||||
Stock Option
and Restricted Stock Compensation Plans
Our stock option and
restricted share award incentive plans provide for the awarding
of options on common shares and restricted common shares to
employees and non-employee directors. The options are
exercisable in seven or ten-year periods, except in certain
instances of death, retirement or disability. Certain options
become exercisable upon the earlier of the attainment of
specified market price appreciation of our common shares or at
six or nine years after the date of grant. Other options become
exercisable upon the earlier of the attainment of specified
market price appreciation of ITT’s common shares or over a
three-year period commencing with the date of grant. The
exercise price per share is the fair market value of the
underlying common stock on the date each option is granted.
Restricted shares typically vest three years from the date of
grant. ITT makes shares available for the exercise of stock
options or the vesting of restricted shares by purchasing shares
in the open market or by issuing shares from Treasury.
The ITT Amended and
Restated 2003 Equity Incentive Plan (“2003 Equity Incentive
Plan”) was approved by shareholders and established in May
of 2003. This plan provides for the grant of stock options,
stock appreciation rights, restricted stock and restricted stock
units. The number of shares initially available for awards under
this plan was 12.2. As of December 31, 2008,
5.0 shares were available for future grants.
The 2003 Equity
Incentive Plan replaced the 2002 ITT Stock Option Plan for
Non-Employee Directors, the ITT 1996 Restricted Stock Plan for
Non-Employee Directors and the 1994 ITT Incentive Stock Plan on
a prospective basis. All awards granted under these prior plans
will continue to vest and be exercisable in accordance with
their original terms; however, no future grants will be made
under these prior plans.
A summary of the
status of our stock option and restricted stock shares as of
December 31, 2008, 2007 and 2006 and changes during the
years then ended is presented below:
| 2008 | 2007 | 2006 | ||||||||||||||||||||||||||
|
WEIGHTED- |
WEIGHTED- |
WEIGHTED- |
||||||||||||||||||||||||||
|
AVERAGE |
AVERAGE |
AVERAGE |
||||||||||||||||||||||||||
|
EXERCISE |
EXERCISE |
EXERCISE |
||||||||||||||||||||||||||
| STOCK OPTIONS | SHARES | PRICE | SHARES | PRICE | SHARES | PRICE | ||||||||||||||||||||||
|
Outstanding at beginning of year
|
8.7 | $ | 38.13 | 10.6 | $ | 35.50 | 13.1 | $ | 32.88 | |||||||||||||||||||
|
Granted
|
0.6 | 53.57 | 0.5 | 58.52 | 0.6 | 52.59 | ||||||||||||||||||||||
|
Exercised
|
(1.0 | ) | 32.82 | (2.2 | ) | 29.92 | (2.5 | ) | 27.04 | |||||||||||||||||||
|
Canceled or expired
|
(0.2 | ) | 44.31 | (0.2 | ) | 42.14 | (0.6 | ) | 31.45 | |||||||||||||||||||
|
Outstanding at end of year
|
8.1 | $ | 39.83 | 8.7 | $ | 38.13 | 10.6 | $ | 35.50 | |||||||||||||||||||
|
Options exercisable at end of year
|
6.8 | $ | 37.02 | 6.4 | $ | 33.83 | 7.4 | $ | 30.62 | |||||||||||||||||||
Restricted shares
and restricted stock unit awards were granted during the years
ended December 31, 2008, 2007, and 2006 with fair market
values based on ITT’s stock price on the date of grant and
have vesting periods of three years.
70
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
| YEAR ENDED DECEMBER 31, 2008 | ||||||||||||||||||||
| UNVESTED | OUTSTANDING | |||||||||||||||||||
|
WEIGHTED- |
WEIGHTED- |
|||||||||||||||||||
|
AVERAGE |
AVERAGE |
|||||||||||||||||||
|
GRANT DATE |
GRANT DATE |
|||||||||||||||||||
| RESTRICTED SHARES/STOCK UNITS | AWARDS | FAIR VALUE | AWARDS | FAIR VALUE | ||||||||||||||||
|
Unvested/outstanding at beginning of year
|
1.1 | $ | 52.64 | 1.3 | $ | 50.93 | ||||||||||||||
|
Granted
|
0.4 | 53.57 | 0.4 | 53.57 | ||||||||||||||||
|
Vested/lapsed
|
(0.2 | ) | 47.65 | (0.1 | ) | 45.76 | ||||||||||||||
|
Canceled or expired
|
(0.1 | ) | 55.89 | (0.1 | ) | 55.89 | ||||||||||||||
|
Unvested/outstanding at end of year
|
1.2 | $ | 53.75 | 1.5 | $ | 51.96 | ||||||||||||||
| YEAR ENDED DECEMBER 31, 2007 | ||||||||||||||||||||
| UNVESTED | OUTSTANDING | |||||||||||||||||||
|
WEIGHTED- |
WEIGHTED- |
|||||||||||||||||||
|
AVERAGE |
AVERAGE |
|||||||||||||||||||
|
GRANT DATE |
GRANT DATE |
|||||||||||||||||||
| RESTRICTED SHARES/STOCK UNITS | AWARDS | FAIR VALUE | AWARDS | FAIR VALUE | ||||||||||||||||
|
Unvested/outstanding at beginning of year
|
0.9 | $ | 48.45 | 1.0 | $ | 46.87 | ||||||||||||||
|
Granted
|
0.4 | 59.16 | 0.4 | 59.16 | ||||||||||||||||
|
Vested/lapsed
|
(0.2 | ) | 45.89 | (0.1 | ) | 44.08 | ||||||||||||||
|
Unvested/outstanding at end of year
|
1.1 | $ | 52.64 | 1.3 | $ | 50.93 | ||||||||||||||
| YEAR ENDED DECEMBER 31, 2006 | ||||||||||||||||||||
| UNVESTED | OUTSTANDING | |||||||||||||||||||
|
WEIGHTED- |
WEIGHTED- |
|||||||||||||||||||
|
AVERAGE |
AVERAGE |
|||||||||||||||||||
|
GRANT DATE |
GRANT DATE |
|||||||||||||||||||
| RESTRICTED SHARES/STOCK UNITS | AWARDS | FAIR VALUE | AWARDS | FAIR VALUE | ||||||||||||||||
|
Unvested/outstanding at beginning of year
|
0.4 | $ | 43.00 | 0.5 | $ | 41.03 | ||||||||||||||
|
Granted
|
0.5 | 52.62 | 0.5 | 52.62 | ||||||||||||||||
|
Unvested/outstanding at end of year
|
0.9 | $ | 48.45 | 1.0 | $ | 46.87 | ||||||||||||||
The outstanding
restricted shares include 0.1 shares issued to non-employee
directors in-payment for part of the annual retainer. This cost
is expected to be recognized ratably over a weighted average
period of 1.5 years.
The intrinsic value
of options exercised (which is the amount by which the stock
price exceeded the exercise price of the options on the date of
exercise) during 2008, 2007 and 2006 was $29.5, $70.7 and
$100.8, respectively.
For 2008, the amount
of cash received from the exercise of stock options was $34.4
with an associated tax benefit realized of $12.1. SFAS 123R
requires that we classify as a financing activity the cash flows
attributable to excess tax benefits from stock option exercises.
Cash provided by operating activities decreased and cash
provided by financing activities increased by $6.7, $15.0 and
$16.7 for the years ended December 31, 2008, 2007 and 2006,
respectively, related to excess tax benefits from stock options
and restricted stock.
71
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
The following table
summarizes information about ITT’s stock options at
December 31, 2008:
| OPTIONS OUTSTANDING | OPTIONS EXERCISABLE | |||||||||||||||||||||||||||||||||||||||||
|
WEIGHTED- |
WEIGHTED- |
|||||||||||||||||||||||||||||||||||||||||
|
AVERAGE |
WEIGHTED- |
AVERAGE |
WEIGHTED- |
|||||||||||||||||||||||||||||||||||||||
|
REMAINING |
AVERAGE |
AGGREGATE |
REMAINING |
AVERAGE |
AGGREGATE |
|||||||||||||||||||||||||||||||||||||
|
CONTRACTUAL |
EXERCISE |
INTRINSIC |
CONTRACTUAL |
EXERCISE |
INTRINSIC |
|||||||||||||||||||||||||||||||||||||
| RANGE OF EXERCISE PRICES | NUMBER | LIFE (IN YEARS) | PRICE | VALUE | NUMBER | LIFE (IN YEARS) | PRICE | VALUE | ||||||||||||||||||||||||||||||||||
| $ | 15.44 – 19.78 | 0.7 | 1.48 | $ | 17.88 | $ | 21.0 | 0.7 | 1.48 | $ | 17.88 | $ | 21.0 | |||||||||||||||||||||||||||||
| 25.32 – 26.91 | 0.7 | 3.02 | 25.36 | 13.6 | 0.7 | 3.02 | 25.36 | 13.7 | ||||||||||||||||||||||||||||||||||
| 30.91 – 38.74 | 2.5 | 4.62 | 34.63 | 28.0 | 2.5 | 4.62 | 34.63 | 28.0 | ||||||||||||||||||||||||||||||||||
| 41.52 – 49.91 | 2.5 | 3.43 | 45.18 | 2.1 | 2.5 | 3.35 | 45.29 | 1.8 | ||||||||||||||||||||||||||||||||||
| 50.24 – 57.99 | 1.6 | 5.09 | 54.49 | (13.7 | ) | 0.4 | 4.29 | 54.35 | (3.6 | ) | ||||||||||||||||||||||||||||||||
| 60.72 – 69.00 | 0.1 | 6.03 | 66.76 | (1.0 | ) | – | – | – | – | |||||||||||||||||||||||||||||||||
| 8.1 | $ | 50.0 | 6.8 | $ | 60.9 | |||||||||||||||||||||||||||||||||||||
The aggregate
intrinsic value in the preceding table represents the total
pre-tax intrinsic value, based on ITT’s closing stock price
of $45.99 as of December 31, 2008, which would have been
received by the option holders had all option holders exercised
their options as of that date. The number of options
“out-of-the-money” as of December 31, 2008,
included as exercisable in the preceding table was
0.5 million.
As of
December 31, 2008, the total number of stock options ITT
expects to vest (including those that have already vested) was
8.0 million. These stock options have a weighted-average
exercise price of $39.51, an aggregate intrinsic value of $61.3,
and a weighted-average remaining contractual life of
3.9 years.
At December 31,
2008, there was $39.8 of total unrecognized compensation cost
related to non-vested awards granted under the stock option and
restricted stock plans. This cost is expected to be recognized
ratably over a weighted-average period of 1.8 years.
The fair value of
each option grant was estimated on the date of grant using the
binomial lattice pricing model in 2008, 2007 and 2006. The
following are weighted-average assumptions for 2008, 2007 and
2006:
| 2008 | 2007 | 2006 | |||||||||||||
|
Dividend yield
|
1.31 | % | 0.96 | % | 0.84 | % | |||||||||
|
Expected volatility
|
28.69 | % | 23.09 | % | 24.07 | % | |||||||||
|
Expected life (in years)
|
4.7 | 4.8 | 4.8 | ||||||||||||
|
Risk-free rates
|
2.31 | % | 4.39 | % | 4.73 | % | |||||||||
|
Weighted-average grant date fair value
|
$ | 13.46 | $ | 14.68 | $ | 14.09 | |||||||||
Expected
volatilities are based on ITT’s stock price history,
including implied volatilities from traded options on our stock.
ITT uses historical data to estimate option exercise and
employee termination behavior within the valuation model.
Employee groups and option characteristics are considered
separately for valuation purposes. The expected life represents
an estimate of the period of time options are expected to remain
outstanding. The expected life provided above represents the
weighted average of expected behavior for certain groups of
employees who have historically exhibited different behavior.
The risk-free rate is based on the U.S. Treasury yield
curve in effect at the time of option grant.
Long-Term
Incentive Plan
The ITT 1997
Long-Term Incentive Plan (the “LTIP”), approved by
shareholders in 1997, authorizes performance awards to be made
to key employees of ITT. The LTIP is considered a liability
plan, under the provisions of SFAS 123R. Accordingly, we
reassess the fair value of its LTIP awards at the end of each
reporting period.
Payment, if any, of
target cash awards will be made at the end of the applicable
three-year performance period and will be based on ITT’s
total shareholder return performance measured against the total
shareholder return performance of other stocks generally
comprising the S&P Industrials Index.
The fair value of
each award is calculated on a quarterly basis using Monte Carlo
simulations. The three-year volatility of the outstanding awards
as of December 31, 2008 was approximately 26%. The number
of companies included in the applicable benchmark group range
from 300 to 342 for the awards outstanding as of
December 31, 2008.
72
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
At December 31,
2008, there was $20.0 of total unrecognized compensation cost
related to non-vested awards granted under the LTIP. This cost
is expected to be recognized ratably over a weighted-average
period of 1.3 years. The total cash paid to settle the LTIP
liability was $19.3, $17.6 and $17.2, during the years ended
2008, 2007 and 2006, respectively.
NOTE 18
Capital
Stock
ITT has authority to
issue an aggregate of 550 shares of capital stock, of which
500 shares have been designated as “Common Stock”
having a par value of $1 per share and 50 shares have been
designated as “Preferred Stock” not having any par or
stated value.
As of
December 31, 2008 and 2007, 25.2 and 25.4 shares of
Common Stock were held in Treasury, respectively.
NOTE 19
Commitments and
Contingencies
ITT Corporation and
its subsidiaries from time to time are involved in legal
proceedings that are incidental to the operation of their
businesses. Some of these proceedings allege damages relating to
environmental liabilities, intellectual property matters,
copyright infringement, personal injury claims, employment and
pension matters, government contract issues and commercial or
contractual disputes, sometimes related to acquisitions or
divestitures. ITT will continue to vigorously defend itself
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 such legal proceedings will have
any material adverse impact on the cash flow, results of
operations, or financial condition of ITT on a consolidated
basis in the foreseeable future, unless otherwise noted below.
See “Critical
Accounting Estimates” within Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of
Operations, for a discussion of contingent liabilities,
including the related estimates, assumptions, uncertainties, and
potential financial statement impact from revisions to our
estimates.
Environmental
In the ordinary
course of business, ITT is subject to federal, state, local, and
foreign environmental laws and regulations. ITT is responsible,
or is alleged to be responsible, for ongoing environmental
investigation and remediation of sites in various countries.
These sites are in various stages of investigation
and/or
remediation and in many of these proceedings ITT’s
liability is considered de minimis. ITT has 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 impacted from those
operations, contain disposed or recycled materials or wastes and
require environmental investigation
and/or
remediation. These sites include instances where ITT has been
identified as a potentially responsible party under federal and
state environmental laws and regulations.
Accruals for
environmental matters are recorded on a site by site basis when
it is probable that a liability has been incurred and the amount
of the liability can be reasonably estimated, based on current
law and existing technologies. ITT’s accrued liabilities
for these environmental matters represent the best estimates
related to the investigation and remediation of environmental
media such as water, soil, soil vapor, air and structures, as
well as related legal fees. These estimates, and related
accruals, are reviewed periodically and updated for progress of
investigation and remediation efforts and changes in facts and
legal circumstances. Liabilities for these environmental
expenditures are recorded on an undiscounted basis.
It is difficult to
estimate the final total costs of investigation and remediation
due to various factors, including incomplete information
regarding particular sites and other potentially responsible
parties, uncertainty regarding the extent of investigation or
remediation and our share, if any, of liability for such
conditions, the selection of alternative remedial approaches,
and changes in environmental standards and regulatory
requirements. In management’s opinion, the total amount
accrued is appropriate based on existing facts and
circumstances. Management does not anticipate that these
liabilities will have a material adverse effect on the
consolidated financial position, results of operations or cash
flows.
The following table
illustrates the activity related to ITT’s accrued
liabilities for these environmental matters.
| 2008 | 2007 | |||||||||
|
Beginning balance January 1
|
$ | 124.7 | $ | 114.4 | ||||||
|
Additional accruals attributable to acquisitions in the period
|
8.1 | 3.0 | ||||||||
|
Accruals added during the period
|
0.5 | 6.2 | ||||||||
|
Change in estimates for pre-existing accruals
|
19.6 | 13.0 | ||||||||
|
Payments
|
(17.9 | ) | (11.9 | ) | ||||||
|
Ending balance December 31
|
$ | 135.0 | $ | 124.7 | ||||||
73
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
The following table
illustrates the low- and high-end range of estimated liability,
and number of active sites for these environmental matters.
| YEAR ENDED DECEMBER 31 | 2008 | 2007 | ||||||||
|
Low-end range
|
$ | 101.2 | $ | 94.6 | ||||||
|
High-end range
|
$ | 229.3 | $ | 213.2 | ||||||
|
Number of active environmental investigation and remediation
sites
|
102 | 90 | ||||||||
In a suit filed in
1991, in the California Superior Court, Los Angeles County,
ITT Corporation, et al. v. Pacific Indemnity Corporation et
al., against our insurers, we are seeking recovery of costs
incurred in connection with certain environmental liabilities.
Discovery, procedural matters, changes in California law, and
various appeals have prolonged this case. For several years, the
case had been on appeal before the California Court of Appeals
from a decision by the California Superior Court dismissing
certain claims made by ITT. The dismissed claims were claims
where the costs incurred were solely due to administrative
(versus judicial) actions. However, in April 2007, the Superior
Court vacated its earlier ruling, dismissing the claims based on
the California Supreme Court’s decision in Powerine Oil
Co. v. Superior Court. As a result, the Court of
Appeals dismissed the appeal as moot. The case is now back
before the Superior Court and the parties are engaged in further
discovery. During the course of the litigation, we have
negotiated settlements with certain defendant insurance
companies and are prepared to pursue legal remedies where
reasonable negotiations are not productive.
Product
Liability and Other Matters
ITT, including its
subsidiary Goulds Pumps, Inc. (“Goulds”), has been
joined as a defendant with numerous other companies in product
liability lawsuits alleging injury due to asbestos. These claims
allege that our products sold prior to 1985 contained a part
manufactured by a third party, e.g., a gasket, which contained
asbestos. The asbestos was encapsulated in the gasket (or other)
material and was non-friable. In certain other cases, it is
alleged that former ITT companies were distributors for other
manufacturers’ products that may have contained asbestos.
As of
December 31, 2008, there were 103,006 open claims against
ITT. Frequently, the plaintiffs are unable to demonstrate any
injury or do not identify any ITT or Goulds product as a source
of asbestos exposure. During 2008, we resolved 5,894 claims.
Most of these claims were dismissed, with settlement on a modest
percentage of claims. The average amount of settlement per claim
has been nominal.
Additionally, a
large majority of all defense and settlement costs have been
covered by insurance. Within the past several years, we have
negotiated
coverage-in-place
agreements with our more significant insurance carriers. We are
continuing to seek payment for our net exposure to these costs
from our other insurers.
Our estimated
accrued costs, net of expected insurance recoveries, for the
resolution of all of these pending claims were $27.6 and $24.8
as of December 31, 2008 and 2007, respectively.
The table below
provides additional information regarding asbestos-related
claims filed against ITT.
| 2008 | 2007 | 2006 | |||||||||||||
|
Open claims – January 1
|
102,568 | 110,602 | 124,122 | ||||||||||||
|
New claims filed
|
6,332 | 4,147 | 4,482 | ||||||||||||
|
Claims closed
|
(5,894 | ) | (12,181 | ) | (18,002 | ) | |||||||||
|
Open claims – December 31
|
103,006 | 102,568 | 110,602 | ||||||||||||
Although it is
impossible to predict the ultimate outcome of current open
claims, based on current information, our experience in handling
these matters, and our substantial insurance program, we do not
believe that these claims will have a material adverse effect on
our consolidated financial position, results of operations or
cash flows.
While it is probable
that we will incur additional costs for claims to be filed in
the future, these additional costs are not reasonably estimable
at this time. As part of the
coverage-in-place
agreements, we have assumed the primary responsibility for
administering our asbestos-related claims. Prior to these
agreements, the asbestos claims were administered and paid by
our primary insurance carriers and, as a result, we only have
limited information about those claims. We have engaged an
outside consultant to construct a comprehensive database of
existing claims. The database is expected to provide additional
information about the nature of the claims and will allow us to
re-assess whether a reasonable estimate of future claims and
associated costs can be developed. This effort is anticipated to
be completed in the second half of 2009. It is possible that the
estimated costs of these future claims, net of expected
insurance recoveries, may be material to our results of
operations in the period when recorded.
We provide an
indemnity to U.S. Silica Company for silica personal injury
suits filed prior to September 12, 2005 against our former
subsidiary Pennsylvania Glass Sand. ITT sold the stock of
Pennsylvania Glass Sand to U.S. Silica Company in
74
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
1985. Over the past
three years, the majority of the silica cases involving PGS have
been dismissed without payment. Currently there are less than
4,000 cases pending against PGS. The Company expects that the
majority of the remaining cases will also be dismissed. Our
indemnity had been paid in part by our historic product
liability carrier, however, in September 2005, the carrier
communicated to us that it would no longer provide insurance for
these claims. On October 4, 2005, we filed a suit against
the insurer, ITT v. Pacific Employers Insurance Co., CA
No. 05CV 5223, seeking defense costs and indemnity from
the insurance carrier for Pennsylvania Glass Sand product
liabilities. In April 2007, the Court granted our motion for
summary judgment on the carrier’s duty to defend the silica
cases; however, that decision was overturned on appeal. The
matter was returned to the Superior Court in part for
determination of several factual issues. We will continue to
seek past and future defense costs for these cases from this
carrier. We believe that these matters will not have a material
adverse effect on our consolidated financial position, results
of operations or cash flows. All silica-related costs, net of
insurance recoveries, are shared pursuant to the Distribution
Agreement. See “BUSINESS – Company History and
Certain Relationships” for a description of the
Distribution Agreement.
On October 25,
2006, Fencourt Reinsurance Company (“Fencourt”), a
subsidiary of The Hartford, filed a contribution claim against
ITT for losses incurred by Fencourt as a result of a reinsurance
contract obligation it owes to Century Indemnity Company,
Fencourt Reinsurance Co., Ltd. v. ITT Industries, Inc.
(C.A. No. 06-4786 U.S. D.Ct E.D.PA).
Century Indemnity Company was an insurer of ITT’s Domestic
Casualty Program from 1978 through 1992. Fencourt, formed in
1978, was a captive insurer of the predecessor ITT Corporation
and provided reinsurance to Century for certain ITT self-insured
losses. Fencourt was transferred to The Hartford in the demerger
of ITT in 1995. This matter is covered by the 1995 Distribution
Agreement (See “BUSINESS – Company History and
Certain Relationships”) and that agreement contains clear
language that The Hartford agreed to assume the liabilities of
Fencourt and indemnify ITT against all claims against Fencourt.
The case is stayed pending the resolution of an arbitration
proceeding pending before the American Arbitration Association
in New Jersey. On January 20, 2009, the arbitrator issued a
favorable decision that ITT is not liable for the losses
incurred by Fencourt. The parties are reviewing the case to
determine what other matters remain to be decided by the
arbitrator. Management believes that this matter will not have a
material adverse effect on our consolidated financial position,
results of operations or cash flows.
In December 2005,
the Company received an anonymous c omplaint regarding the
possible payment of commissions to foreign government officials
by employees of our Nanjing Goulds Pumps company, in Nanjing,
China. Such commission payments may violate the Foreign Corrupt
Practices Act. The Company conducted an investigation utilizing
internal and external resources and voluntarily disclosed the
results of the investigation to the United States Department of
Justice and the SEC. On February 11, 2009, the Company
entered into a settlement with the SEC in which the Company,
without admitting or denying liability, has agreed to pay $1.7
in total related to disgorged profits, prejudgment interest and
a civil penalty. The settlement also restrains and enjoins the
Company from violating Sections 13(b)(2)(A and
B) of the Securities and Exchange Act of 1934.
On March 27,
2007, we reached a settlement relating to an investigation of
our ITT Night Vision Division’s compliance with the
International Traffic in Arms Regulations (“ITAR”)
pursuant to which we pled guilty to two violations based on the
export of defense articles without a license and the omission of
material facts in required export reports. The Company was
assessed a total of $50.0 in fines, forfeitures and penalties,
which was accrued for fully as of December 31, 2006. We
also entered into a Deferred Prosecution Agreement with the
U.S. Government which deferred action regarding a third
count of violations related to ITAR pending our implementation
of a remedial action plan, including the appointment of an
independent monitor. ITT was also assessed a deferred
prosecution monetary penalty of $50.0 which ITT will reduce for
monies spent over the five years following the date of the Plea
Agreement, to accelerate and further the development and
fielding of advanced night vision technology. On
October 11, 2007, ITT and the Department of Defense
finalized an Administrative Compliance Agreement wherein we
agreed to take certain remedial actions including implementing
compliance programs and appointing an independent monitor for
the oversight of our compliance programs. On December 28,
2007, we finalized a Consent Agreement with the Department of
State wherein we agreed to undertake certain remedial actions,
including appointment of a Special Compliance Official. The
Company continues to perform under the terms of the agreements.
Management believes that these matters will not have a material
adverse effect on our consolidated financial position, results
of operations or cash flows.
On April 17,
2007, ITT’s Board of Directors received a letter on behalf
of a shareholder requesting that the Board take appropriate
action against the employees responsible for the violations at
our Night Vision facility described above, which were disclosed
on
Form 8-K
filed on March 30, 2007. The Board
75
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
of Directors
appointed a Special Litigation Committee to evaluate the
request. The Special Litigation Committee conducted an
investigation with the assistance of independent counsel and
concluded that no legal actions should be brought by ITT.
During 2007 and
2008, the Company received notice of four shareholder derivative
actions each filed in the U.S. District Court for the
Southern District of New York, known variously as, Sylvia
Piven trustee under trust agreement dated April 3, 1973
f/b/o Sylvia B. Piven, derivatively on behalf of ITT
Corporation v. Steve Loranger et al. and ITT Corporation
(the “Piven” action), Norman Levy,
derivatively on behalf of ITT Industries, Inc. v. Steven R.
Loranger et al. and ITT Industries, Inc., Anthony
Reale v. Steven R. Loranger et al. and ITT Company
[sic], and Robert Wilkinson v. Steven R. Loranger et
al. and ITT Corporation. Each case alleges that the
ITT’s Board of Directors breached their fiduciary duties by
failing to properly oversee ITT’s compliance programs at
its Night Vision business. The Complaints seeks compensatory and
punitive damages for ITT from its Directors, the removal of the
Directors, and the election of new directors. The four cases
were consolidated into one action In Re ITT Corporation
Derivative Litigation, CA
No. 07-CV-2878
(CLB). On motion by the Company, the Piven action was dismissed
for lack of diversity. On April 10, 2008, the Court denied
Company’s Motion to Dismiss the consolidated Complaint. ITT
filed a Motion for Reconsideration and on November 25,
2008, the Court granted the Motion and dismissed the matter
without prejudice. The Court provided the plaintiffs the
opportunity to refile the case upon the development of certain
additional facts. The plaintiffs refiled the case on
December 23, 2008. The Company has filed another Motion to
Dismiss which is currently before the Court. The Defendants have
also filed a Motion to Dismiss based on the Special Litigation
Committee’s report referenced above which is also currently
before the Court. Management believes that these derivative
suits will not have a material adverse effect on our
consolidated financial position, results of operations or cash
flows.
NOTE 20
Guarantees,
Indemnities and Warranties
Guarantees &
Indemnities
Since ITT’s
incorporation in 1920, we have acquired and disposed of numerous
entities. The related acquisition and disposition agreements
contain various representation and warranty clauses and may
provide indemnities for a misrepresentation or breach of the
representations and warranties by either party. The indemnities
address a variety of subjects; the term and monetary amounts of
each such indemnity are defined in the specific agreements and
may be affected by various conditions and external factors. Many
of the indemnities have expired either by operation of law or as
a result of the terms of the agreement. We do not have a
liability recorded for the historic indemnifications and are not
aware of any claims or other information that would give rise to
material payments under such indemnities.
In December of 2007,
we entered into a sale leaseback type agreement for our
corporate aircraft, with the aircraft leased back under a
five-year operating lease. We have provided, under the lease, a
residual value guarantee to the counterparty in the amount of
$50.2, which is the maximum amount of undiscounted future
payments. We would have to make payments under the residual
value guarantee only if the fair value of the aircraft was less
than the residual value guarantee upon termination of the
agreement. At December 31, 2008, the projected fair value
of the aircraft at the end of the lease is estimated to be $2.4
less than the residual value guarantee. Since this estimated
loss does not exceed the $5.4 gain we realized from the sale of
the aircraft but deferred as a loss contingency for the residual
value guarantee, we have not recorded any additional accrual in
our financial statements.
ITT has a number of
individually immaterial guarantees outstanding at
December 31, 2008, that may be affected by various
conditions and external forces, some of which could require that
payments be made under such guarantees. We do not believe these
payments will have any material adverse impact on the financial
position, results of operations or cash flow on a consolidated
basis in the foreseeable future.
Product
Warranties
ITT warrants
numerous products, the terms of which vary widely. In general,
ITT warrants its products against defect and specific
non-performance. In the automotive businesses, liability for
product defects could extend beyond the selling price of the
product and could be significant if the defect shuts down
production or results in a recall. Changes in product warranty
accruals for December 31, 2008 and 2007 were as follows:
| 2008 | 2007 | ||||||||
|
Beginning balance January 1
|
$ | 52.1 | $ | 46.8 | |||||
|
Accruals for product warranties issued in the period
|
38.0 | 30.5 | |||||||
|
Changes in pre-existing warranties, including changes in
estimates and foreign currency translation adjustments
|
(1.9 | ) | (2.1 | ) | |||||
|
Payments
|
(30.8 | ) | (23.1 | ) | |||||
|
Ending balance December 31
|
$ | 57.4 | $ | 52.1 | |||||
76
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
NOTE 21
Business Segment
Information
|
DEFENSE |
MOTION & |
|||||||||||||||||||||||||||
|
ELECTRONICS
& |
FLUID |
FLOW |
CORPORATE |
|||||||||||||||||||||||||
| SERVICES | TECHNOLOGY | CONTROL | AND OTHER | ELIMINATIONS | TOTAL | |||||||||||||||||||||||
|
2008
|
||||||||||||||||||||||||||||
|
Product
sales
|
$ | 3,924.9 | $ | 3,692.7 | $ | 1,575.1 | $ | – | $ | (11.5 | ) | $ | 9,181.2 | |||||||||||||||
|
Service
revenues
|
2,357.4 | 147.9 | 8.3 | – | – | 2,513.6 | ||||||||||||||||||||||
|
Total sales and
revenues
|
6,282.3 | 3,840.6 | 1,583.4 | – | (11.5 | ) | 11,694.8 | |||||||||||||||||||||
|
Operating income
(loss)
|
727.0 | 468.7 | 191.7 | (177.3 | ) | – | 1,210.1 | |||||||||||||||||||||
|
Plant, property
and equipment, net
|
369.3 | 372.3 | 229.1 | 23.2 | – | 993.9 | ||||||||||||||||||||||
|
Total
assets
|
4,464.5 | 2,878.3 | 1,357.8 | 1,779.6 | – | 10,480.2 | ||||||||||||||||||||||
|
Additions to
plant, property and equipment
|
88.0 | 80.5 | 63.7 | 16.5 | – | 248.7 | ||||||||||||||||||||||
|
Depreciation
|
65.8 | 63.0 | 48.7 | 2.1 | – | 179.6 | ||||||||||||||||||||||
|
Amortization
|
85.2 | 6.4 | 7.3 | (0.2 | ) | – | 98.7 | |||||||||||||||||||||
|
2007
|
||||||||||||||||||||||||||||
|
Product sales
|
$ | 2,381.7 | $ | 3,358.2 | $ | 1,332.1 | $ | – | $ | (14.5 | ) | $ | 7,057.5 | |||||||||||||||
|
Service revenues
|
1,794.5 | 150.9 | 0.4 | – | – | 1,945.8 | ||||||||||||||||||||||
|
Total sales and
revenues
|
4,176.2 | 3,509.1 | 1,332.5 | – | (14.5 | ) | 9,003.3 | |||||||||||||||||||||
|
Operating income
(loss)
|
502.7 | 432.7 | 187.4 | (145.6 | ) | – | 977.2 | |||||||||||||||||||||
|
Plant, property and
equipment, net
|
353.5 | 394.8 | 224.9 | 7.1 | – | 980.3 | ||||||||||||||||||||||
|
Total assets
|
4,466.2 | 3,106.4 | 1,364.5 | 2,615.6 | – | 11,552.7 | ||||||||||||||||||||||
|
Additions to plant,
property and equipment
|
57.7 | 88.6 | 45.2 | 47.8 | – | 239.3 | ||||||||||||||||||||||
|
Depreciation
|
48.4 | 61.1 | 44.6 | 1.4 | – | 155.5 | ||||||||||||||||||||||
|
Amortization
|
20.7 | 6.1 | 2.9 | 0.2 | – | 29.9 | ||||||||||||||||||||||
|
2006
|
||||||||||||||||||||||||||||
|
Product sales
|
$ | 2,183.9 | $ | 2,935.7 | $ | 1,092.9 | $ | – | $ | (14.4 | ) | $ | 6,198.1 | |||||||||||||||
|
Service revenues
|
1,475.4 | 134.4 | – | – | – | 1,609.8 | ||||||||||||||||||||||
|
Total sales and
revenues
|
3,659.3 | 3,070.1 | 1,092.9 | – | (14.4 | ) | 7,807.9 | |||||||||||||||||||||
|
Operating income
(loss)
|
404.3 | 370.6 | 149.7 | (123.6 | ) | – | 801.0 | |||||||||||||||||||||
|
Plant, property and
equipment, net
|
281.4 | 361.1 | 185.1 | 5.4 | – | 833.0 | ||||||||||||||||||||||
|
Total assets
|
2,052.3 | 2,846.9 | 860.3 | 1,641.1 | – | 7,400.6 | ||||||||||||||||||||||
|
Additions to plant,
property and equipment
|
60.9 | 67.2 | 44.3 | 4.7 | – | 177.1 | ||||||||||||||||||||||
|
Depreciation
|
45.2 | 59.3 | 39.0 | 1.4 | – | 144.9 | ||||||||||||||||||||||
|
Amortization
|
19.7 | 7.1 | 0.1 | (0.2 | ) | – | 26.7 | |||||||||||||||||||||
|
PLANT, PROPERTY
AND |
||||||||||||||||||||||||||||
| SALES AND REVENUES* | EQUIPMENT, NET | |||||||||||||||||||||||||||
| YEAR ENDED DECEMBER 31 | DECEMBER 31 | |||||||||||||||||||||||||||
| 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||||||
|
Geographical Information
|
||||||||||||||||||||||||||||
|
United States
|
$ | 7,998.0 | $ | 5,814.3 | $ | 5,041.2 | $ | 581.4 | $ | 557.5 | $ | 458.1 | ||||||||||||||||
|
Western Europe
|
2,098.3 | 1,896.4 | 1,683.9 | 313.7 | 337.1 | 317.3 | ||||||||||||||||||||||
|
Asia Pacific
|
603.6 | 474.4 | 411.2 | 64.5 | 58.3 | 31.1 | ||||||||||||||||||||||
|
Other
|
994.9 | 818.2 | 671.6 | 34.3 | 27.4 | 26.5 | ||||||||||||||||||||||
|
Total Segments
|
$ | 11,694.8 | $ | 9,003.3 | $ | 7,807.9 | $ | 993.9 | $ | 980.3 | $ | 833.0 | ||||||||||||||||
* Sales
and revenues to external customers are attributed to individual
regions based upon the destination of product or service
delivery.
77
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
Sales and revenues
by product category, net of intercompany balances, are as
follows:
| YEAR ENDED DECEMBER 31 | 2008 | 2007 | 2006 | ||||||||||||
|
Pumps & Complementary Products
|
$ | 3,840.3 | $ | 3,508.9 | $ | 3,070.1 | |||||||||
|
Defense Products
|
3,923.6 | 2,380.1 | 2,182.5 | ||||||||||||
|
Defense Services
|
2,357.4 | 1,794.5 | 1,475.4 | ||||||||||||
|
Connectors
|
444.6 | 417.1 | 370.1 | ||||||||||||
|
Flow Control
|
382.0 | 243.5 | 205.4 | ||||||||||||
|
Friction Materials
|
447.8 | 393.4 | 318.4 | ||||||||||||
|
Marine Products
|
185.7 | 121.5 | 98.7 | ||||||||||||
|
Shock Absorbers
|
113.4 | 144.3 | 87.3 | ||||||||||||
|
Total
|
$ | 11,694.8 | $ | 9,003.3 | $ | 7,807.9 | |||||||||
The Defense
Electronics & Services business segment had sales and
revenues from the United States Government of $5,893.8, $3,920.3
and $3,244.0, for 2008, 2007 and 2006, respectively. Apart from
the United States Government, no other government or commercial
customer accounted for 10% or more of sales and revenues.
78
Table of Contents
ITT CORPORATION AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS – (Continued)
NOTE 22
Quarterly Results
for 2008 and 2007 (Unaudited)
|
FULL |
|||||||||||||||||||||||
| THREE MONTHS ENDED | MAR. 31 | JUNE 30 | SEPT. 30 | DEC. 31 | YEAR | ||||||||||||||||||
|
2008
|
|||||||||||||||||||||||
|
Sales and
revenues
|
$ | 2,806.4 | $ | 3,064.1 | $ | 2,879.3 | $ | 2,945.0 | $ | 11,694.8 | |||||||||||||
|
Gross
profit
|
760.9 | 867.1 | 810.7 | 816.7 | 3,255.4 | ||||||||||||||||||
|
Income from
continuing operations
|
170.9 | 224.3 | 204.5 | 175.5 | 775.2 | ||||||||||||||||||
|
Net
income
|
171.9 | 221.0 | 216.3 | 185.5 | 794.7 | ||||||||||||||||||
|
Income from
continuing operations per share
|
|||||||||||||||||||||||
|
– Basic
|
$ | 0.94 | $ | 1.24 | $ | 1.13 | $ | 0.97 | $ | 4.29 | |||||||||||||
|
– Diluted
|
$ | 0.93 | $ | 1.22 | $ | 1.11 | $ | 0.96 | $ | 4.23 | |||||||||||||
|
Net income per
share
|
|||||||||||||||||||||||
|
– Basic
|
$ | 0.95 | $ | 1.22 | $ | 1.20 | $ | 1.03 | $ | 4.40 | |||||||||||||
|
– Diluted
|
$ | 0.94 | $ | 1.20 | $ | 1.18 | $ | 1.02 | $ | 4.33 | |||||||||||||
|
Common stock
information price per share range:
|
|||||||||||||||||||||||
|
High
|
$ | 66.01 | $ | 67.62 | $ | 69.73 | $ | 56.15 | $ | 69.73 | |||||||||||||
|
Low
|
$ | 50.94 | $ | 52.05 | $ | 52.25 | $ | 34.75 | $ | 34.75 | |||||||||||||
|
Close
|
$ | 51.81 | $ | 63.33 | $ | 55.61 | $ | 45.99 | $ | 45.99 | |||||||||||||
|
Dividends per
share
|
$ | 0.175 | $ | 0.175 | $ | 0.175 | $ | 0.175 | $ | 0.70 | |||||||||||||
|
2007
|
|||||||||||||||||||||||
|
Sales and revenues
|
$ | 2,070.3 | $ | 2,223.1 | $ | 2,181.2 | $ | 2,528.7 | $ | 9,003.3 | |||||||||||||
|
Gross profit
|
584.2 | 642.4 | 641.1 | 700.6 | 2,568.3 | ||||||||||||||||||
|
Income from
continuing operations
|
136.8 | 199.2 | 168.6 | 128.4 | 633.0 | ||||||||||||||||||
|
Net income
|
140.0 | 213.7 | 230.1 | 158.3 | 742.1 | ||||||||||||||||||
|
Income from
continuing operations per share
|
|||||||||||||||||||||||
|
– Basic
|
$ | 0.75 | $ | 1.11 | $ | 0.94 | $ | 0.71 | $ | 3.51 | |||||||||||||
|
– Diluted
|
$ | 0.74 | $ | 1.08 | $ | 0.92 | $ | 0.70 | $ | 3.44 | |||||||||||||
|
Net income per share
|
|||||||||||||||||||||||
|
– Basic
|
$ | 0.77 | $ | 1.19 | $ | 1.28 | $ | 0.88 | $ | 4.11 | |||||||||||||
|
– Diluted
|
$ | 0.76 | $ | 1.16 | $ | 1.25 | $ | 0.86 | $ | 4.03 | |||||||||||||
|
Common stock
information price per share range:
|
|||||||||||||||||||||||
|
High
|
$ | 62.33 | $ | 70.44 | $ | 73.44 | $ | 69.96 | $ | 73.44 | |||||||||||||
|
Low
|
$ | 56.30 | $ | 60.02 | $ | 58.09 | $ | 60.05 | $ | 56.30 | |||||||||||||
|
Close
|
$ | 60.32 | $ | 68.28 | $ | 67.93 | $ | 66.04 | $ | 66.04 | |||||||||||||
|
Dividends per share
|
$ | 0.14 | $ | 0.14 | $ | 0.14 | $ | 0.14 | $ | 0.56 | |||||||||||||
The above table
reflects the range of market prices of ITT’s common stock
for 2008 and 2007. The prices are as reported in the
consolidated transaction reporting system of the New York Stock
Exchange, the principal market in which ITT’s common stock
is traded, under the symbol “ITT.” Our common stock is
listed on the New York and Euronext exchanges.
During the period
from January 1, 2009 through January 31, 2009, the
high and low reported market prices of ITT’s common stock
were $50.80 and $44.36, respectively. ITT declared dividends of
$0.2125 per common share in the first quarter of 2009. There
were 21,381 holders of record of ITT’s common stock on
January 31, 2009.
79
Table of Contents
SIGNATURES
Pursuant to the
requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, and
by the undersigned in the capacity indicated.
ITT Corporation
(Registrant)
| By: |
/s/ Janice
M.
Klettner
|
Janice M.
Klettner
Vice President
and Chief Accounting Officer
(Principal
accounting officer)
February 25, 2009
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates
indicated.
| SIGNATURE | TITLE | DATE | ||||
|
/s/ Steven
R.
Loranger Steven R. Loranger (Principal executive officer) |
Chairman, President and Chief Executive Officer and Director |
February 25, 2009 | ||||
|
/s/ Denise
L.
Ramos Denise L. Ramos (Principal financial officer) |
Senior Vice President and Chief Financial Officer |
February 25, 2009 | ||||
|
/s/ Curtis
J.
Crawford Curtis J. Crawford |
Director | February 25, 2009 | ||||
|
/s/ Christina
A.
Gold Christina A. Gold |
Director | February 25, 2009 | ||||
|
/s/ Ralph
F.
Hake Ralph F. Hake |
Director | February 25, 2009 | ||||
|
/s/ John
J.
Hamre John J. Hamre |
Director | February 25, 2009 | ||||
|
/s/ Paul
J.
Kern Paul J. Kern |
Director | February 25, 2009 | ||||
|
/s/ Frank
T.
MacInnis Frank T. MacInnis |
Director | February 25, 2009 | ||||
|
/s/ Surya
N.
Mohapatra Surya N. Mohapatra |
Director | February 25, 2009 | ||||
|
/s/ Linda
S.
Sanford Linda S. Sanford |
Director | February 25, 2009 | ||||
|
/s/ Markos
I.
Tambakeras Markos I. Tambakeras |
Director | February 25, 2009 | ||||
II-1
Table of Contents
EXHIBIT INDEX
|
EXHIBIT |
||||||
|
NUMBER
|
DESCRIPTION | LOCATION | ||||
| (3 | ) | (a) ITT Corporation’s Articles of Amendment of the Restated Articles of Incorporation, effective as of May 13, 2008 | Incorporated by reference to Exhibit 3.1 of ITT Corporation’s Form 8-K Current Report dated May 14, 2008 (CIK No. 216228, File No. 1-5672). | |||
| (b) ITT Corporation’s By-laws, as amended May 13, 2008 | Incorporated by reference to Exhibit 3.2 of ITT Corporation’s Form 8-K Current Report dated May 14, 2008 (CIK No. 216228, File No. 1-5672). | |||||
| (4 | ) | Instruments defining the rights of security holders, including indentures | Not required to be filed. The Registrant hereby agrees to file with the Commission a copy of any instrument defining the rights of holders of long-term debt of the Registrant and its consolidated subsidiaries upon request of the Commission. | |||
| (10 | ) | Material contracts | ||||
| (10.1 | )* | Separation Agreement between Nicholas P. Hill and ITT Corporation dated February 20, 2009 | Attached. | |||
| (10.2 | )* | Employment Agreement dated as of June 28, 2004 between ITT Industries, Inc. and Steven R. Loranger (amended as of December 18, 2008). | Incorporated by reference to Exhibit 99.1 of ITT Corporation’s Form 8-K dated December 19, 2008. (CIK No. 216228, File No. 1-5672). | |||
| (10.3 | )* | Form of Non-Qualified Stock Option Award Agreement for Band A Employees | Incorporated by reference to Exhibit 10.3 of ITT Industries’ Form 10-K for the year ended December 31, 2004 (CIK No. 216228, File No. 1-5672). | |||
| (10.4 | )* | Form of Non-Qualified Stock Option Award Agreement for Band B Employees | Incorporated by reference to Exhibit 10.4 of ITT Industries’ Form 10-K for the year ended December 31, 2004 (CIK No. 216228, File No. 1-5672). | |||
| (10.5 | )* | ITT 2003 Equity Incentive Plan, amended and restated as of February 15, 2008 and approved by shareholders on May 13, 2008 (previously amended and restated as of July 13, 2004 and subsequently amended as of December 18, 2006) and previously known as ITT Industries, Inc. 2003 Equity Incentive Plan | Incorporated by reference to Exhibit 10.5 of ITT Corporation’s Form 10-Q for the quarter ended June 30, 2008 (CIK No. 216228, File No. 1-5672). | |||
| (10.6 | )* | ITT Corporation 1997 Long-Term Incentive Plan, amended and restated as of February 15, 2008 and approved by shareholders on May 13, 2008 (previously amended and restated as of July 13, 2004) and formerly known as ITT Industries, Inc. 1997 Long-Term Incentive Plan | Incorporated by reference to Exhibit 10.6 of ITT Corporation’s Form 10-Q for the quarter ended June 30, 2008 (CIK No. 216228, File No. 1-5672). | |||
| (10.7 | )* | ITT Corporation Annual Incentive Plan for Executive Officers, amended and restated as of February 15, 2008 and approved by shareholders on May 13, 2008 previously known as 1997 Annual Incentive Plan for Executive Officers (amended and restated as of July 13, 2004) and also previously known as ITT Industries, Inc. 1997 Annual Incentive Plan for Executive Officers (amended and restated as of July 13, 2004) | Incorporated by reference to Exhibit 10.7 of ITT Corporation’s Form 10-Q for the quarter ended June 30, 2008 (CIK No. 216228, File No. 1-5672). | |||
| (10.8 | )* | 1994 ITT Incentive Stock Plan (amended and restated as of July 13, 2004 and subsequently amended as of December 19, 2006) formerly known as 1994 ITT Industries Incentive Stock Plan (amended and restated as of July 13, 2004) | Incorporated by reference to Exhibit 10.8 of ITT Corporation’s Form 10-K for the year ended December 31, 2006 (CIK No. 216228, File No. 1-5672). | |||
| (10.9 | )* | ITT Corporation Special Senior Executive Severance Pay Plan amended and restated as of December 31, 2008 (previously amended and restated as of July 13, 2004) and formerly known as ITT Industries Special Senior Executive Severance Pay Plan | Attached. | |||
| (10.10 | )* | ITT 1996 Restricted Stock Plan for Non-Employee Directors (amended and restated as of July 13, 2004 and subsequently amended as of December 19, 2006) formerly known as ITT Industries 1996 Restricted Stock Plan for Non-Employee Directors (amended and restated as of July 13, 2004) | Incorporated by reference to Exhibit 10.10 of ITT Corporation’s Form 10-K for the year ended December 31, 2006 (CIK No. 216228, File No. 1-5672). | |||
| (10.11 | )* | ITT Corporation Enhanced Severance Pay Plan (amended and restated as of July 13, 2004) and formerly known as ITT Industries Enhanced Severance Pay Plan (amended and restated as of July 13, 2004). Amended and restated as of December 31, 2008. | Attached. | |||
II-2
Table of Contents
|
EXHIBIT |
||||||
|
NUMBER
|
DESCRIPTION | LOCATION | ||||
| (10.12 | )* | ITT Deferred Compensation Plan (Effective as of January 1, 1995 including amendments through July 13, 2004) formerly known as ITT Industries Deferred Compensation Plan (Effective as of January 1, 1995 including amendments through July 13, 2004). Amended and restated as of December 31, 2008. | Attached. | |||
| (10.13 | )* | ITT 1997 Annual Incentive Plan (amended and restated as of July 13, 2004) formerly known as ITT Industries 1997 Annual Incentive Plan (amended and restated as of July 13, 2004) | Incorporated by reference to Exhibit 10.12 of ITT Industries’ Form 10-Q for the quarter ended September 30, 2004 (CIK No. 216228, File No. 1-5672). | |||
| (10.14 | )* | ITT Excess Pension Plan IA formerly known as ITT Industries Excess Pension Plan IA. Originally effective as of July 1, 1975. Amended and restated as of December 31, 2008. | Attached. | |||
| (10.15 | )* | ITT Excess Pension Plan IB formerly known as ITT Industries Excess Pension Plan IB. Originally effective as of January 1, 1996. Amended and restated as of December 31, 2008. | Attached. | |||
| (10.16 | )* | ITT Excess Pension Plan IIA formally known as ITT Excess Pension Plan II, and ITT Industries Excess Pension Plan II (as amended and restated as of July 13, 2004) originally effective as of January 1, 1988. Amended and restated as of December 31, 2008. | Attached. | |||
| (10.17 | )* | ITT Excess Savings Plan (as amended and restated as of July 13, 2004) formerly known as ITT Industries Excess Savings Plan (as amended and restated as of July 13, 2004).Amended and restated effective December 31, 2008. | Attached. | |||
| (10.18 | )* | ITT Industries Excess Benefit Trust | Incorporated by reference to Exhibit 10.17 of ITT Industries’ Form 10-Q for the quarter ended September 30, 2004 (CIK No. 216228, File No. 1-5672). | |||
| (10.19 | ) | Form of indemnification agreement with directors | Incorporated by reference to Exhibit 10(h) to ITT Industries’ Form 10-K for the fiscal year ended December 31, 1996 (CIK No. 216228, File No. 1-5672). | |||
| (10.20 | ) | Distribution Agreement among ITT Corporation, ITT Destinations, Inc. and ITT Hartford Group, Inc. | Incorporated by reference to Exhibit 10.1 listed under ITT Industries’ Form 8-B dated December 20, 1995 (CIK No. 216228, File No. 1-5672). | |||
| (10.21 | ) | Intellectual Property License Agreement between and among ITT Corporation, ITT Destinations, Inc. and ITT Hartford Group, Inc. | Incorporated by reference to Exhibit 10.2 to ITT Industries’ Form 8-B dated December 20, 1995 (CIK No. 216228, File No. 1-5672). | |||
| (10.22 | ) | Tax Allocation Agreement among ITT Corporation, ITT Destinations, Inc. and ITT Hartford Group, Inc. | Incorporated by reference to Exhibit 10.3 to ITT Industries’ Form 8-B dated December 20, 1995 (CIK No. 216228, File No. 1-5672). | |||
| (10.23 | ) | Employee Benefit Services and Liability Agreement among ITT Corporation, ITT Destinations, Inc. and ITT Hartford Group, Inc. | Incorporated by reference to Exhibit 10.7 to ITT Industries’ Form 8-B dated December 20, 1995 (CIK No. 216228, File No. 1-5672). | |||
| (10.24 | ) | Five-year Competitive Advance and Revolving Credit Facility Agreement dated as of November 10, 2005 | Incorporated by reference to Exhibit 10.1 to ITT Industries’ Form 8-K Current Report dated November 10, 2005 (CIK No. 216228, File No. 1-5672). | |||
| (10.25 | ) | Agreement with Valeo SA with respect to the sale of the Automotive Electrical Systems Business | Incorporated by reference to Exhibit 10(b) to ITT Industries’ Form 10-Q Quarterly Report for the quarterly period ended September 30, 1998 (CIK No. 216228, File No. 1-5672). | |||
| (10.26 | ) | Agreement with Continental AG with respect to the sale of the Automotive Brakes and Chassis Business | Incorporated by reference to Exhibit 2.1 to ITT Industries’ Form 8-K Current Report dated October 13, 1998 (CIK No. 216228, File No. 1-5672). | |||
| (10.27 | ) | Participation Agreement among ITT Industries, Rexus L.L.C. (Rexus) and Air Bail S.A.S. and RBS Lombard, Inc., as investors, and master lease agreement, lease supplements and related agreements between Rexus as lessor and ITT Industries, as lessee | Incorporated by Reference to Exhibits listed under Item 9.01 to ITT Industries Form 8-K Current Report dated December 20, 2004 (CIK No. 216228, File No. 1-5672). | |||
| (10.28 | )* | Form of Restricted Stock Award for Non-Employee Directors | Incorporated by reference to Exhibit 10.28 of ITT Industries’ Form 10-Q for the quarter ended September 30, 2005 (CIK No. 216228, File No. 1-5672). | |||
II-3
Table of Contents
|
EXHIBIT |
||||||
|
NUMBER
|
DESCRIPTION | LOCATION | ||||
| (10.29 | )* | Form of Restricted Stock Award for Employees | Incorporated by reference to Exhibit 10.29 of ITT Industries’ Form 10-Q for the quarter ended September 30, 2005 (CIK No. 216228, File No. 1-5672). | |||
| (10.30 | ) | Amended and Restated 364-day Revolving Credit Agreement | Incorporated by reference to Exhibits 10.1 and 10.2 to ITT Industries’ Form 8-K dated March 28, 2005 (CIK No. 216228, File No. 1-5672). | |||
| (10.31 | )* | Transition Memorandum and Separation Agreement dated February 23, 2009 between Vincent A. Maffeo and ITT Corporation | Attached. | |||
| (10.32 | )* | ITT Corporation Senior Executive Severance Pay Plan. (previously known as the ITT Industries, Inc. Senior Executive Severance Pay Plan, dated December 20, 1995, amended and restated as of December 31, 2008) | Attached. | |||
| (10.33 | ) | Non-Employee Director Compensation Agreement | Incorporated by reference to Exhibit 10.1 to ITT Industries’ Form 8-K Current Report dated December 1, 2005 (CIK No. 216228, File No. 1-5672). | |||
| (10.34 | )* | Form of 2006 Non-Qualified Stock Option Award Agreement for Band A Employees | Incorporated by reference to Exhibit 10.34 of ITT Industries’ Form 10-Q for the quarter ended March 31, 2006 (CIK No. 216228, File No. 1-5672). | |||
| (10.35 | )* | Form of 2006 Non-Qualified Stock Option Award Agreement for Band B Employees | Incorporated by reference to Exhibit 10.35 of ITT Industries’ Form 10-Q for the quarter ended March 31, 2006 (CIK No. 216228, File No. 1-5672). | |||
| (10.36 | )* | Form of 2006 Restricted Stock Award Agreement for Employees | Incorporated by reference to Exhibit 10.36 of ITT Industries’ Form 10-Q for the quarter ended March 31, 2006 (CIK No. 216228, File No. 1-5672). | |||
| (10.37 | ) | Form of 2006 Non-Qualified Stock Option Award Agreement for Non-Employee Directors | Incorporated by reference to Exhibit 10.37 of ITT Industries’ Form 10-Q for the quarter ended March 31, 2006 (CIK No. 216228, File No. 1-5672). | |||
| (10.38 | ) | 2002 ITT Stock Option Plan for Non-Employee Directors formerly known as the 2002 ITT Industries, Inc. Stock Option Plan for Non-Employee Directors (as amended on December 19, 2006) | Incorporated by reference to Exhibit 10.38 of ITT Corporation’s Form 10-K for the year ended December 31, 2006 (CIK No. 216228, File No. 1-5672). | |||
| (10.39 | )* | Employment Agreement dated as of May 21, 2007 and effective as of July 1, 2007 between ITT Corporation and Denise L. Ramos | Incorporated by reference to Exhibit 99.1 to ITT Corporation Form 8-K dated July 2, 2007 (CIK No. 216228, File No. 1-5672). | |||
| (10.40 | )* | Separation Memorandum dated July 10, 2007 and effective as of July 18, 2007 between ITT Corporation and George E. Minnich | Incorporated by reference to Exhibit 10.1 to ITT Corporation Form 8-K Current Report dated July 19, 2007 (CIK No. 216228, File No. 1-5672). | |||
| (10.41 | ) | Agreement and Plan of Merger | Incorporated by reference to Exhibit 2.1 and 2.2 to ITT Corporation’s Form 8-K dated September 18, 2007 (CIK No. 216228, File No. 1-5672). | |||
| (10.42 | ) | Accession Agreement to Five-Year Competitive Advance and Revolving Credit Facility | Incorporated by reference to Exhibit 2.03 to ITT Corporation’s Form 8-K dated November 8, 2007 (CIK No. 216228, File No. 1-5672). | |||
| (10.43 | ) | Summary of material terms of amendments to ITT Excess Pension Plan 1A and the ITT Excess Pension Plan 1B, the ITT Excess Pension Plan II, the ITT Excess Savings Plan, the ITT Deferred Compensation Plan and the severance plans and policies of the Company and its subsidiaries and other affiliates | Incorporated by reference to Exhibit 5.02 to ITT Corporation’s Form 8-K dated December 19, 2007 (CIK No. 216228, File No. 1-5672). | |||
| (10.44 | ) | Reserved | ||||
| (10.45 | ) | Issuance of Commercial Paper | Incorporated by Reference to Exhibit 2.03 to ITT Corporation’s Form 8-K dated December 20, 2007 (CIK No. 216228, File No. 1-5672). | |||
| (10.46 | ) | ITT Corporation 2003 Equity Incentive Plan Restricted Stock Unit Award Agreement – Non-Employee Director | Incorporated by reference to Exhibit 10.46 of ITT Corporation’s Form 10-Q for the quarter ended June 30, 2008 (CIK No. 216228, File No. 1-5672). | |||
II-4
Table of Contents
|
EXHIBIT |
||||||
|
NUMBER
|
DESCRIPTION | LOCATION | ||||
| (10.47 | ) | ITT Corporation 2003 Equity Incentive Plan Director Restricted Stock Unit Award Deferral Election Form | Incorporated by reference to Exhibit 10.47 of ITT Corporation’s Form 10-Q for the quarter ended June 30, 2008 (CIK No. 216228, File No. 1-5672). | |||
| (10.48 | ) | ITT Corporation Deferred Compensation Plan for Non-Employee Directors | Incorporated by reference to Exhibit 10.48 of ITT Corporation’s Form 10-Q for the quarter ended September 30, 2008 (CIK No. 216228, File No. 1-5672). | |||
| (10.49 | ) | ITT Corporation Deferred Compensation Plan for Non-Employee Directors Deferral Election Form for those Directors without a Specified Distribution Date for Non-Grandfathered Deferrals | Incorporated by reference to Exhibit 10.49 of ITT Corporation’s Form 10-Q for the quarter ended September 30, 2008 (CIK No. 216228, File No. 1-5672). | |||
| (10.50 | ) | ITT Corporation Deferred Compensation Plan for Non-Employee Directors Deferral Election Form for those Directors with a Specified Distribution Date for Non-Grandfathered Deferrals | Incorporated by reference to Exhibit 10.50 of ITT Corporation’s Form 10-Q for the quarter ended September 30, 2008 (CIK No. 216228, File No. 1-5672). | |||
| (10.51 | ) | ITT Corporation Deferred Compensation Plan for Non-Employee Directors Subsequent Election Form | Incorporated by reference to Exhibit 10.51 of ITT Corporation’s Form 10-Q for the quarter ended September 30, 2008 (CIK No. 216228, File No. 1-5672). | |||
| (10.52 | ) | ITT 2003 Equity Incentive Plan Director Restricted Stock Unit Award Deferral Election Form | Incorporated by reference to Exhibit 10.52 of ITT Corporation’s Form 10-Q for the quarter ended September 30, 2008 (CIK No. 216228, File No. 1-5672). | |||
| (10.53 | ) |
ITT Corporation Non-Employee Director Deferred Restricted Stock
Unit Award Subsequent Election Form |
Attached. | |||
| (10.54 | ) | ITT Director Consent Letter – Required Modifications to Prior Annual Retainer Deferrals | Attached. | |||
| (10.55 | )* | ITT Excess Pension Plan IIB. Effective as of January 1, 1988. As Amended and Restated as of December 31, 2008. | Attached. | |||
| (11 | ) | Statement re computation of per share earnings | Not required to be filed. | |||
| (12 | ) | Statement re computation of ratios | Filed herewith. | |||
| (18 | ) | Letter re change in accounting principles | Incorporated by reference to Exhibit 18 of ITT Corporation’s Form 10-Q for the quarter ended September 30, 2006 (CIK No. 216228, File No. 1-5672). | |||
| (21 | ) | Subsidiaries of the Registrant | Filed herewith. | |||
| (22 | ) | Published report regarding matters submitted to vote of security holders | Not required to be filed. | |||
| (23.1 | ) | Consent of Deloitte & Touche LLP | Filed herewith. | |||
| (24 | ) | Power of attorney | None | |||
| (31.1 | ) | Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith. | |||
| (31.2 | ) | Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith. | |||
| (32.1 | ) | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | This Exhibit is intended to be furnished in accordance with Regulation S-K Item 601(b) (32) (ii) and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference. | |||
| (32.2 | ) | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | This Exhibit is intended to be furnished in accordance with Regulation S-K Item 601(b) (32) (ii) and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference. | |||
II-5
Table of Contents
|
EXHIBIT |
||||||
|
NUMBER
|
DESCRIPTION | LOCATION | ||||
| (99.1 | ) | Deferred Prosecution Agreement filed March 28, 2007 between ITT Corporation and the United States Attorney’s Office for the Western District of Virginia | Incorporated by reference to Exhibit 99.4 of ITT Corporation’s Form 8-K dated March 30, 2007 (CIK No. 216228, File No. 1-5672). | |||
| (99.2 | ) | Administrative Compliance Agreement filed October 11, 2007 between ITT Corporation and The United States Agency (Suspensions’ Department Affiliate for the U.S. Army) on behalf of the U.S. Government | Incorporated by reference to Exhibit 99.1 of ITT Corporation’s Form 8-K dated October 12, 2007 (CIK No. 216228, File No. 1-5672). | |||
* Management
compensatory plan
II-6
Exhibit 10.1
Personal and Confidential
Date:
|
February 20, 2009 | |
To:
|
Nicholas P. Hill — Senior Vice President — ITT Corporation and President Motion and Flow Control | |
From:
|
Scott A. Crum, Senior Vice President and Director Human Resources - - ITT Corporation | |
Subject:
|
Separation Memorandum |
The purpose of this Separation Memorandum (the “Memorandum”) is to confirm our understanding
regarding your severance arrangements and separation from employment from ITT Corporation and its
affiliates (ITT) as set forth in this Memorandum and under the terms of the ITT Senior Executive
Severance Pay Plan (the “Senior Plan”). We agree that the terms of this Memorandum will be
reviewed by the ITT Corporation Board of Directors or a committee thereof and in the event the
Board rejects any portion of this Memorandum, you and ITT agree that this Memorandum is void and
invalid and we agree to resume negotiations as soon as reasonably practicable towards a final
mutually acceptable separation memorandum. We further agree that the terms of this Memorandum will
govern your severance arrangements and separation, notwithstanding the terms of any other benefit
plan in which you participate, except that your rights under the ITT Industries General Pension
Plan will be governed by the terms of the plan, except as otherwise specifically noted herein. A
copy of the Senior Plan is attached. Upon the execution of the attached release and expiration of
the review and revocation period set forth in the Separation Agreement and General Release of
Claims (“Release”) to which this Memorandum is attached and incorporated by reference therein, ITT
agrees to make the payments and provide the benefits to you as set forth herein.
Expiration of Service and Severance Arrangements
Expiration of Service — You will continue to be employed as an active, full time employee through
March 31, 2009 (the “Termination Date”), at which time your active service shall terminate. You
will be paid your current annual base salary of $432,000 through the Termination Date, in
accordance with the Company’s standard payroll practices, procedures and dates. In addition,
subject to the terms and conditions of this Memorandum, you and your dependants will continue to
participate in applicable ITT benefit plans through the Termination Date and as described herein.
You will resign as an officer of ITT as of March 31, 2009.
Severance Pay You will receive twenty-four (24) months of severance pay, beginning April 1, 2009
through March 31, 2011 (“Severance End Date”). ITT will make these payments in the form of
severance pay on the regular payroll schedule (currently bi-weekly) through the period set forth
above. You will continue to be paid your current annual base salary of $432,000 throughout the
severance period, provided you have not become eligible for disability payments on or prior to your
Termination Date. In the event you become disabled on or prior to your Termination Date, your
entitlement to any short-term disability and/or long-term disability benefits shall be determined
in accordance with the applicable short-term or long-term disability plans and the treatment of any
such benefits in coordination with the above payments will be in accordance with the terms of such
disability plans and the Senior Plan. ITT agrees that it will not exercise any rights that it has
under the Senior Plan to pay any remainder of severance pay as a discounted lump sum. You will not
be entitled to receive any other pay or any other compensation from ITT except as described in this
Memorandum. In the event ITT determines that you are an individual described in Section 416(i) ITT
will not make any of the required severance payments for the first six months, and will make seven
payments on the first day of the 7th month in accordance with Treas. Reg. section
1.409A-3(i)(2)(ii).
Except as specifically set forth in this letter, for purposes of the various benefit, equity and
incentive plans discussed in this Memorandum (other than the ITT Industries General Pension Plan
and the ITT Deferred Compensation Plan), your separation date will be deemed to be the earlier of
(i) Severance End Date or (ii) the date of your engaging in any disqualifying conduct as defined
in the Senior Plan (referred to hereinafter as the “Severance End Date”), except that it is agreed
that ITT shall not unreasonably deny any specific request that work for a competitor not be deemed
a disqualifying event.
For purposes of paragraph 9 of the Senior Plan, the decision as to whether you have engaged in
disqualifying conduct shall be as reasonably determined by the ITT Senior Vice President, Director
Human Resources and, in the event that such a determination is made, you will be given reasonable
notice and opportunity to cure any such alleged disqualifying conduct, prior to any decision by ITT
to terminate your severance pay. Notwithstanding any thing to the contrary, any dispute in
connection with disqualifying conduct is subject to final and binding resolution pursuant to
Paragraph 11 of the Separation Agreement And General Release of Claims.
Responsibilities — Until the Termination Date, you will work with the SVP and President
Fluid and Motion Control and the SVP and Director Human Resources to transition responsibilities
and will provide such assistance with other matters as they may reasonably request consistent with
past responsibilities.
Annual Incentive (Bonus)
You will be eligible for an annual incentive award under the Annual Incentive Plan for performance
year 2008 based on twelve months of active service in 2008, subject to Company performance and
approval by the Compensation and Personnel Committee of the ITT Board of Directors (the
“Committee”). Your bonus shall be no less than the calculated target (i.e. $432,000 multiplied by
70%) multiplied by the approved performance payout factor for Motion and Flow Control. You will be
eligible for consideration for a bonus
2
for performance year 2009 based on the number of active months of service during 2009, provided it
is at least three months. You will not be eligible for any bonus for performance year 2010 or
beyond.
Stock Option Awards
Until your Severance End Date, you may exercise your stock options to the extent they are currently
exercisable or become exercisable prior to the Severance End Date (provided that no stock option
shall be exercisable beyond its original full term). For purposes of calculating the vesting of
your options and the exercise periods therefore, your employment period shall be deemed to continue
until the Severance End Date.
Grants Prior to 2006 under the 2003 Equity Incentive Plan:
| Ø | Options granted to you prior to March 8, 2005. These options are fully exercisable and will remain exercisable through the earlier of the option expiration date or five years following the Severance End Date. | ||
| Ø | Options granted on March 8, 2005. You have exercised these options in full, so there are no outstanding options associated with this grant.. |
2006 and 2007 Stock Option Grants:
| Ø | Options granted to you on March 6, 2006 are subject to cliff vesting on March 6, 2009. The option will become exercisable on March 6, 2009 and will remain exercisable for five years following the Severance End Date or the expiration date of the option (March 6, 2013), whichever is earlier. If the option is not vested on the Severance End Date, then a prorated portion will immediately vest upon the Severance End Date. The remaining portion will be forfeited. | ||
| Ø | Options granted to you on March 7, 2007 are subject to cliff vesting on March 7, 2010. The option will become exercisable on March 8,, 2010 and will remain exercisable for five years following the Severance End Date or the expiration date of the option (March 7, 2014), whichever is earlier. If the option is not vested on the Severance End Date, then a prorated portion will immediately vest upon the Severance End Date. The remaining portion will be forfeited. | ||
| Ø | Options granted to you on March 10, 2008 are subject to cliff vesting on March 10, 2011. The option will become exercisable on March 11, 2011 and will remain exercisable for five years following the Severance End Date or the expiration date of the option (March 10, 2015), whichever is earlier. If the option is not vested on the Severance End Date, then a prorated portion will immediately vest upon the Severance End Date. The remaining portion will be forfeited. |
The exercise of your options will be in accordance with the terms of the ITT 1994 Incentive Stock
Plan and the 2003 Equity Incentive Plan, as applicable, and the applicable Administrative Rules and
Regulations in effect at the time of exercise.
After September 30, 2009, you will no longer be subject to the requirement for prior approval
before the purchase or sale of ITT stock. You may continue to clear any transaction with respect
to such stock with the Company’s legal department. You are also subject to the securities laws and
ITT’s “insider trading” policies in respect of any transaction you effect while in possession of
material non-public information regarding ITT stock.
Restricted Stock Awards
| Ø | Your 2006 restricted stock award of 3,556 shares awarded on March 6, 2006 will continue to vest ratably on a monthly basis between the grant date and March 6, 2009 (except that vesting will cease upon the Severance End Date if that date occurs before March 6, 2009). |
3
| Ø | Your 2007 restricted stock award of 3,263 shares awarded on March 7, 2007 is subject to cliff vesting on March 7, 2010. However, this award will vest ratably on a monthly basis between the grant date and March 7, 2010 (except that vesting will cease upon the Severance End Date). | ||
| Ø | Your 2008 restricted stock award of 3,869 shares awarded on March 10, 2008 is subject to cliff vesting on March 10, 2011. However, this award will vest ratably on a monthly basis between the grant date and March 10, 2011 (except that vesting will cease upon the Severance End Date). |
The receipt of shares under these awards are subject to your payment to the company of any taxes
due with respect to those shares.
Long-Term Incentive Plan (TSR Awards)
Your 2006 Target Award of $375,000 is subject to a 36-month performance period, January 1, 2006
through December 31, 2008. The terms and conditions of that award provide that because you will be
an active, full-time employee through December 31, 2008, you are eligible for payment, if any, with
respect to this award.
You will be eligible to receive payment for your outstanding 2007 and 2008 TSR awards, following
the completion of the applicable performance period. Such payment, if any, will be based on the
number of full months of employment and full months after the Termination Date but before the
Severance End Date and any payment for these awards will be prorated on that basis over the
36-month performance period. Accordingly, any payment for your outstanding 2007 and 2008 target TSR
awards will be calculated as follows:
| Ø | 2007 Target Award of $400,000. Your final payment value, if any, will be prorated, calculated on the basis of the number of months of employment plus full months after the Termination Date but before the Severance End Date during the 36-month performance period ending December 31, 2009. | ||
| Ø | 2008 Target Award of $450,000. Your final payment value, if any, will be prorated, calculated on the basis of the number of months of employment plus full months after the Termination Date but before the Severance End Date during the 36-month performance period ending December 31, 2010. |
Nothwithstanding the foregoing, the 2007 and 2008 TSR Awards will be paid no earlier than six
months after the Termination Date.
The ultimate value, if any, of your outstanding TSR awards will be determined based on ITT’s TSR
performance at the end of the performance period as measured against the S&P Industrials and
approved by the Compensation and Personnel Committee of the Board of Directors. Further, the
terms of the ITT 1997 Long-Term Incentive Plan shall prevail, including any acceleration of
payments made under applicable provisions of any relevant plan.
Vacation
You will be eligible to receive a lump sum payment for any unused vacation for 2009 following your
Termination Date. Please note that payment for unused vacation will not count for any purpose
under any employee benefit plan. You will not be eligible for any vacation for the year 2010 or
after.
Automobile Allowance
You will continue to receive your current automobile allowance until your Severance End Date.
4
Benefit Plans
Benefit Plan Eligibility — During the active service period and until the Severance End Date, your
eligibility for certain employee benefit plans shall be as outlined in subsequent paragraphs of
this Memorandum, subject to the actual terms of the specific plans as contained in the various plan
documents. You will not be entitled to any benefits or perquisites not specifically covered in
this Memorandum. In the event of revisions to any or all of the subject plans, your benefits will
not be diminished except in accordance with the changes that are generally applicable to all
similarly-situated plan participants.
ITT Industries General Pension Plan — You may continue to participate in this Plan during
the Active Service Period but not thereafter. Your active participation in this Plan will cease at
the Termination Date. ITT agrees that for the purpose of the General Pension Plan you may opt to
take early retirement benefits at any time after the Termination Date, and those benefits will be
calculated in accordance with the normal early retirement provisions of the Plan.
Insurance Plans
Medical and Dental Insurance — You and your eligible dependants are eligible to continue coverage
under the same terms as an active employee until the Severance End Date. After the Severance End
Date, you shall be eligible for coverage under ITT’s retiree health plan under the same terms as
other retirees.
Group Life Insurance — Your life insurance under the ITT Salaried Life Insurance Plan will continue
through the last day of the month in which your severance payments cease. At the end of such
period, you will be eligible to convert the remainder without a medical examination, providing you
do so within 31 days of the end of coverage. Accidental Death and Dismemberment Insurance under
the ITT Salaried Life Insurance Plan ceases on March 31, 2009.
ITT Group Accident Insurance Program for Officers and Directors — You will be covered under this
Program through March 31, 2009. You will continue during this period to be eligible for the
non-contributory portion of this coverage and for any additional optional coverage you may have
purchased.
Life Plus — You are eligible to continue your coverage under Life Plus during the active service
period but not thereafter. At the end of such period, you may maintain all or part of your Life
Plus coverage by requesting direct billing of premiums from Marsh@WorkSolutions, the Program
Administrator, at 1-800-552-9665.
Short-Term Disability and Long-Term Disability Insurance — Coverage under these plans ceases on the
Termination Date.
Long Term Care Plan — If you or your spouse are currently enrolled in the ITT Long Term Care Plan,
this coverage will continue during the Severance Pay period for as long as your normal active
premium contributions continue to be deducted from your Severance Pay. At the end of your
Severance Pay period, this coverage can be ported to an outside billing arrangement if you so
choose. Please call John Hancock directly at 1-888-216-5054 to set up the transfer from a payroll
deduction to an individual billing process prior to your Severance End Date.
Flexible Spending Account Plan — If you are currently enrolled in this program, you can continue
to participate in the Flexible Spending Account Plan during the calendar year in which your
Severance Pay
5
period began. Therefore, you are eligible to continue participation in this plan until December 31,
2009. You will not be eligible to enroll for 2010.
Special Senior Executive Severance Pay Plan
During the active service period you will continue to be covered under the ITT Special Senior
Executive Severance Pay Plan (“Special Severance Plan”) in accordance with and subject to the terms
of said Plan. Accordingly, notwithstanding anything to the contrary herein, or in the Special
Severance Plan, if an Acceleration Event (as defined in the Special Severance Plan) shall occur on
or before the Termination Date, you will be deemed to be a full-time, regular salaried employee of
ITT in Band A whose employment is terminated by the company other than for Cause, or who has
terminated employment for Good Reason (as “Cause” and “Good Reason” are defined in the Special
Severance Plan). Hence, if an Acceleration Event occurs on or before the Termination Date, you
will be entitled to all of the benefits provided in the Special Severance Plan for special
severance executives in Band A, subject to offset as provided below. Any severance payments and
any other severance benefits to which you may be entitled pursuant to the Special Severance Plan
shall be subject to offset by the severance payments and other severance benefits provided pursuant
to this Memorandum, such offset to be in accordance with and subject to the terms of “Offset”
Paragraph 10 of the Special Severance Plan.
Tax Preparation and Financial Planning
You will be eligible for Financial Planning Assistance, which includes the Executive Tax Program,
through tax year 2011; reimbursement for 2009, 2010, and 2011 tax preparation work to be available
in 2010, 2011, and 2012 in accordance with the terms of the Program to be paid by the company in
accordance with its usual practice. The company will not take any action which is intended to deny
you continuing access to the Financial Planning Assistance for future years beyond 2011 at your own
cost. Any reimbursement made pursuant to this paragraph for fees under the Executive Tax Program
and/or fees for Financial Planning Assistance through tax year 2011 will be fully grossed-up for
federal, state and local tax purposes, including income tax purposes.
Payroll Deductions
To the extent applicable, payroll deductions and benefit plan elections currently authorized by
you, as well as appropriate tax withholding, will continue during the active service period and the
severance pay period. If you wish to change the deductions or an election at any time during the
active service period or severance pay period, please contact the Human Resources or Payroll
departments.
Annual Physical Examination Program
You will be eligible for company-paid annual physical examinations at a facility of your own
choosing, through 2011. You may avail yourself of a Company reimbursed health club membership in
accordance with the Company’s executive plan, if the plan is continued, through 2011.
Outplacement
In lieu of outplacement services, ITT will reimburse you up to $10,000 for costs associated with
your transition. Reimbursement will be subject to normal withholding.
6
Death
In the event of death prior to the termination of all payments and benefits hereunder, such
payments and benefits payable upon death in accordance with the applicable benefit plan shall be
made to your estate, except for any benefit for which you have already filed with ITT a designation
of a named beneficiary other than your estate or for which there is no benefit payable upon death.
Miscellaneous
ITT hereby conveys to you as of the Termination Date, and you may retain as your personal
property,your Company provided computer and Blackberry. Prior to the Termination Date, you will
arrange for an IT representative in White Plains to delete all ITT data not necessary for continued
e-mail access, and leave on the laptop only those programs and data that ITT is permitted to
transfer to you at no cost and in compliance with applicable law. You may remain on the Company
e-mail system through December 31, 2009.
(You are encouraged to review this Memorandum and the attached Release with an attorney of your own
choosing, with the fee to be reimbursed by ITT with an appropriate tax “gross-up” if necessary to
account for federal, state and local taxes.)
The parties hereby indicate their agreement with the terms and conditions of this Memorandum and
the attached Release by signing and dating this Memorandum in the space provided below.
EMPLOYEE: Nicholas P. Hill
/s/ Nicholas P. Hill
|
||
Employee’s Signature |
STATE OF NEW YORK
|
||
COUNTY OF WESTCHESTER
|
Subscribed
and sworn before me this 20th day
of February, 2009.
of February, 2009.
| /s/ Peter A. Timpano Jr | ||||
| PETER A. TIMPANO JR | ||||
| Notary Public, State of New York No. 01TI6090883 Qualified in Westchester County Commission Expires April 21, 2011 |
||||
EMPLOYER: ITT Corporation
/s/ Scott A. Crum
|
||
Scott A. Crum, Senior Vice President and Director, Human Resources |
STATE OF NEW YORK
|
||
COUNTY OF WESTCHESTER
|
Subscribed
and sworn before me this 20th day
of February, 2009.
of February, 2009.
| /s/ Peter A. Timpano Jr | ||||
| PETER A. TIMPANO JR | ||||
| Notary Public, State of New York No. 01TI6090883 Qualified in Westchester County Commission Expires April 21, 2011 |
||||
7
Separation Agreement and General Release of Claims
The Separation Agreement and General Release (“Release”) is made and entered into by and between
ITT Corporation (“ITT” or the “Company”) and Nicholas P. Hill (referred to herein in the first
person). In consideration of the mutual promises contained herein, it is agreed as follows:
| 1. | I will be employed with ITT for the active service period set forth in the Separation Memorandum entered into between ITT and myself (the “Memorandum”), to which this Release is attached and incorporated by reference. After my active service period ends, I will receive severance payments for twenty-four (24) months of my annualized base salary of $432,000, and the other benefits described in the Memorandum, subject to the terms and conditions set forth in the Memorandum. | |
| 2. | I agree to the following: |
| (a) | I am not eligible and will not receive any compensation, fringe benefits or employee benefits or any pay in lieu of notice or any severance or termination pay except as provided in the Memorandum. I agree and acknowledge that the pay set forth in the Memorandum is good and sufficient consideration for all of my promises, obligations, and covenants set forth in the Memorandum and in this Release. | ||
| (b) | On behalf of myself and my heirs, executors, administrators, personal and legal representatives, successors and assigns (“Releasors”), I waive, release and forever discharge ITT, its current and former subsidiaries, affiliates, divisions and related entities and their predecessors, successors and assigns, and all of their past and present officers, directors, shareholders, agents, representatives, administrators, employees, and benefit plans (collectively “Releasees”) from any and all claims, demands, debts, liabilities, obligations, expenses (including attorney’s fees and costs), promises, covenants, controversies, grievances, claims, suits, actions or causes of action, in law or in equity, known or unknown to me, foreseen or unforeseen, contingent or not contingent, liquidated or not liquidated, which I may have had in the past, may have now, or may in the future claim to have against Releasees arising with respect to any incident, event, act or omission occurring at any time prior to my signing of this Release. This Release shall not operate as a release or waiver of claims or rights that may arise after the date of its execution, for vested benefits, for indemnification pursuant to Company policy or applicable law, for coverage under any directors’ and officers’ personal liability or any fiduciary liability, insurance policy in accordance with the terms of such policy, or any rights you may have as a shareholder in a public company (collectively, the “Reserved Rights”) and this Release shall not affect my right to seek enforcement of the terms and conditions of the Memorandum and this Release. | ||
| (c) | There are various state and federal laws that prohibit employment discrimination including discrimination on the basis of age, sex, race, color, national origin, religion, disability and veteran status and these laws are enforced through the United States Equal Employment Opportunity Commission, the United States Department of Labor, various federal and state agencies, and the federal and state courts. This Release specifically includes, but is not limited to, any and all claims and causes of action arising under tort or contract law or specific statutes prohibiting discrimination based on sex, color, race, national origin, religion, disability, veteran status or age, including without limitation, the Americans With Disabilities Act, the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, the Civil Rights Acts of 1866 and 1871, the Equal Pay Act, or any other federal, state, city, or local laws. | ||
| (d) | In consideration of the benefits provided to me under the Memorandum and this Release, I agree to waive and will not assert any of the claims or causes of action that I have waived in this Release before any federal or state court, any federal or state agency, or in any public or private arbitration. This prohibition does not apply if it would be a |
| violation of applicable law or regulation. If this prohibition does not apply, however, and a charge or lawsuit is filed by or on behalf of me, I agree not to seek or accept any personal relief, award, monetary damages or other benefits in connection with or based on such charge or lawsuit. This paragraph is not intended to limit my right to commence and maintain legal action for the sole purpose of enforcing the Memorandum and this Release or the Reserved Rights. | |||
| (e) | I also agree to waive, release and forever discharge Releasees from any and all claims, causes of action and lawsuits that may arise from any incident, event, act or omission occurring during my active service period or severance pay period as those terms are defined in the Memorandum, except for the purpose of enforcing the Memorandum and this Release or the Reserved Rights. |
| 3. | Releasees hereby waive, release and forever discharge Releasors from all claims, demands, debts, liabilities, obligations, expenses (including attorney’s fees and costs), promises, covenants, controversies, grievances, claims, suits, actions or causes of action, in law or in equity, known or unknown, foreseen or unforeseen, contingent or not contingent, liquidated or not liquidated, which Releasees may have had in the past, may have now, or may in the future claim to have against Releasors arising with respect to any incident, event, act or omission occurring at any time prior to my signing of this Release, provided however, that this Release shall not operate as a release or waiver of claims or rights that arise after the date of its execution. Nor shall this Release in any way apply to or waive any of Releasees’ rights to enforce the terms and conditions of the Memorandum and this Release through legal action. | |
| 4. | After my service period ends, notwithstanding Section 7 of the ITT Senior Executive Severance Pay Plan, I will receive no future benefits, compensation or perquisites (including but not limited to severance pay and benefits) from ITT except as set forth in the Memorandum. | |
| 5. | Except as may be required under applicable law or the rules of a stock exchange or national securities quotation system, I agree to keep the Memorandum and this Release confidential and not to disclose their contents to anyone except my immediate family, my financial or legal consultants, and appropriate governmental agencies that require this information. | |
| 6. | I agree not to slander, defame or otherwise intentionally injure the reputation of ITT or its officers, directors, employees, agents, representatives, or products. | |
| 7. | I acknowledge that: (i) I have been advised in writing to consult with an attorney of my own choice regarding this Release and the Memorandum; (ii) I have been advised in writing that I may have at least 21 days from my receipt of this Release and the Memorandum to review and consider them; (iii) I actively participated in the negotiation of the terms and conditions of this Release and the Memorandum; (iv) I fully understand those terms and conditions; (v) I am voluntarily and of my own free will executing this Release and the Memorandum on the date reflected below; and (vi) during a period of seven days following my execution of this Release and the Memorandum, I may revoke such executions and this Release and the Memorandum shall not be effective or enforceable until such seven day period has expired. Should I desire to revoke this Release and the Memorandum, my revocation must be in writing and addressed to Scott A. Crum, Senior Vice President and Director Human Resources, ITT, 4 West Red Oak Lane, White Plains, NY 10604 and delivered to Mr. Crum within the seven day revocation period. | |
| 8. | ITT and any Releasee shall not be liable for any other monies or payment to me or on my behalf other than as described in this Release and the Memorandum. This Release and the Memorandum, which is incorporated herein, contain the entire agreement between me, ITT, and all Releasees relating to the subject matter thereof. This Release fully supersedes any and all prior agreements or understandings, whether oral or written. I represent and acknowledge that in signing this Release and the Memorandum, I have not relied upon any representation or statement, oral or written, not set |
2
| forth herein. No amendment to this Release or the Memorandum shall be binding unless it is in writing, expressly designated as an amendment, dated, and signed by the parties. | ||
| 9. | Nothing in this Release or the Memorandum constitutes an admission of liability by ITT or any Releasee or me, and this Release or the Memorandum will not be used by me, ITT or any other entity or person as evidence in any proceeding or trial, except to enforce the terms of this Release and Memorandum or the Reserved Rights. | |
| 10. | This Release and the Memorandum shall be construed in accordance with the laws of the State of New York. Should any provision of this Release or the Memorandum be determined invalid or unenforceable, the validity of the remaining provisions shall not be affected and shall remain in full force and effect to the maximum extent permitted by law. | |
| 11. | Any dispute, controversy or claim arising out of or relating to this Release or the Memorandum, or to an alleged breach thereof, shall be first submitted to non binding mediation, conducted by one mediator jointly agreed upon by ITT and me, or if we cannot agree, by one mediator appointed by the American Arbitration Association. If the matter cannot be resolved within three months of the appointment of a mediator, the matter shall be subject to exclusive and final resolution by arbitration. The arbitration shall be conducted by one (1) arbitrator jointly agreed to by ITT and me or, if we cannot agree on an arbitrator, appointed by the American Arbitration Association. Except to the extent inconsistent with any provision of this Release or the Memorandum, the arbitration shall be conducted in accordance with the Employment Dispute Resolution Rules then in effect of the American Arbitration Association, which shall administer the arbitration and act as appointing authority. The arbitration, including the rendering of the award, shall take place in White Plains, New York, and shall be the exclusive forum for resolving such dispute, controversy or claim. For the purpose of this arbitration, the provisions of this Release and Memorandum and all rights and obligations thereunder shall be governed and construed in accordance with the laws of New York, but the arbitrator shall not have the power to award punitive or exemplary damages. The mediation and arbitration proceedings, the subject matter thereof, and the award shall be maintained on a confidential basis by the parties, the mediator, the Arbitrator and the American Arbitration Association, all of whom shall be bound by this confidentiality provision, except to the extent such information is disclosed to a court in an action to enforce the arbitrator’s award. The decision of the arbitrator shall be binding upon the parties hereto, and each party shall be responsible for its own expenses and attorney’s fees in connection with the arbitration, except as expressly set forth herein. The decision of the arbitrator shall be executory, and judgment thereon may be entered by any court of competent jurisdiction. ITT will pay ninety percent of the American Arbitration Association’s mediation administrative fees and expenses of the mediator and I will pay ten percent. ITT will pay seventy-five percent of the American Arbitration Association’s arbitration administrative fees and the fees and expenses of the arbitrator, and I will pay twenty-five percent. | |
| 12. | The Memorandum and Release shall be binding upon, and assumed by, the successors and assigns of ITT. | |
| 13. | I have carefully read this Release and the Memorandum, fully understand their provisions, and my signature below indicates my understanding and agreement with their terms and conditions. |
The original executed Release and the Memorandum must be returned to Scott A. Crum, Senior Vice
President and Director Human Resources, ITT Corporation, 1133 Westchester Avenue, White Plains, NY
10604.
3
EMPLOYEE: Nicholas P. Hill
/s/ Nicholas P. Hill
|
STATE OF
NEW YORK
COUNTY OF
WESTCHESTER
Subscribed
and sworn before me this 20th day
of February, 2009
of February, 2009
| /s/ Peter A. Timpano Jr | ||||
| PETER A. TIMPANO JR | ||||
| Notary Public, State of New York No. 01TI6090883 Qualified in Westchester County Commission Expires April 21, 2011 |
||||
EMPLOYER: ITT Corporation.
/s/ Scott A. Crum
|
STATE OF NEW YORK
COUNTY OF WESTCHESTER
Subscribed
and sworn before me this 20th day
of February, 2009
of February, 2009
| /s/ Peter A. Timpano Jr | ||||
| PETER A. TIMPANO JR | ||||
| Notary Public, State of New York No. 01TI6090883 Qualified in Westchester County Commission Expires April 21, 2011 |
||||
4
Exhibit 10.9
ITT Corporation
Special Senior Executive Severance Pay Plan
(amended and restated as of December 31, 2008)
Special Senior Executive Severance Pay Plan
(amended and restated as of December 31, 2008)
1. Purpose
The purpose of this ITT Corporation Special Senior Executive Severance Pay Plan
(“Plan”) is to assist in occupational transition by providing Severance Benefits, as
defined herein, for employees covered by this Plan whose employment is terminated under conditions
set forth in this Plan.
2. Covered Employees
Covered employees under this Plan (“Special Severance Executives”) are active
full-time, regular salaried employees of ITT Corporation, (“ITT”) and of any subsidiary
company (“ITT Subsidiary”) (collectively or individually as the context requires
“Company”) (including Special Severance Executives who are short term disabled as of a
Potential Acceleration Event within the meaning of the Company’s short term disability plans)
(other than Special Severance Executives on periodic severance as of a Potential Acceleration
Event) who are in Band A or B or were in Band A or B at any time within the two year period
immediately preceding an Acceleration Event and such other employees of the Company who shall be
designated as covered employees in Band A or B under the Plan by the Compensation and Personnel
Committee of ITT’s Board of Directors.
“Bands A and B” shall have the meaning given such terms under the executive
classification system of the ITT Human Resources Department as in effect immediately preceding an
Acceleration Event. After the occurrence of an Acceleration Event, the terms “ITT”, “ITT
Subsidiary” and “Company” as used herein shall also include, respectively and as the context
requires, any successor company to ITT or any successor company to any ITT Subsidiary and any
affiliate of any such successor company.
3. Definitions
An “Acceleration Event” shall occur if (i) a report on Schedule 13D shall be filed
with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange
Act of 1934 (the “Act”) disclosing that any person (within the meaning of Section 13(d) of
the Act), other than ITT or a subsidiary of ITT or any employee benefit plan sponsored by ITT or a
subsidiary of ITT, is the beneficial owner directly or indirectly of twenty percent (20%) or more
of the outstanding Common Stock $1 par value, of ITT (the “Stock”); (ii) any person (within
the meaning of Section 13(d) of the Act), other than ITT or a subsidiary of ITT, or any employee
benefit plan sponsored by ITT or a subsidiary of ITT, shall purchase shares pursuant to a tender
offer or exchange offer to acquire any Stock of ITT (or securities convertible into Stock) for
cash, securities or any other consideration, provided that after consummation of the offer, the
person in question is the beneficial owner (as such term is defined in Rule 13d-3 under the Act),
2
directly or indirectly, of twenty percent (20%) or more of the outstanding Stock of ITT
(calculated as provided in paragraph (d) of Rule 13d-3 under the Act in the case of rights to
acquire Stock); (iii) the stockholders of ITT shall approve (A) any consolidation, business
combination or merger involving ITT, other than a consolidation, business combination or merger
involving ITT in which holders of Stock immediately prior to the consolidation, business
combination or merger (x) hold fifty percent (50%) or more of the combined voting power of ITT (or
the corporation resulting from the merger or consolidation or the parent of such corporation) after
the merger and (y) have the same proportionate ownership of common stock of ITT (or the corporation
resulting from the merger or consolidation or the parent of such corporation), relative to other
holders of Stock immediately prior to the merger, business combination or consolidation,
immediately after the merger as immediately before, or (B) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or substantially all the
assets of ITT, (iv) there shall have been a change in a majority of the members of the Board of
Directors of ITT within a 12-month period unless the election or nomination for election by ITT’
stockholders of each new director during such 12-month period was approved by the vote of
two-thirds of the directors then still in office who (x) were directors at the beginning of such
12-month period or (y) whose nomination for election or election as directors was recommended or
approved by a majority of the directors who where directors at the beginning of such 12-month
period or (v) any person (within the meaning of Section 13(d) of the Act) (other than ITT or any
subsidiary of ITT or any employee benefit plan (or related trust) sponsored by ITT or a subsidiary
of ITT) becomes the beneficial owner (as such term is defined in Rule 13d-3 under the Act) of
twenty percent (20%) or more of the Stock.
“Cause” shall mean action by the Special Severance Executive involving willful
malfeasance or gross negligence or the Special Severance Executive’s failure to act involving
material nonfeasance that would tend to have a materially adverse effect on the Company. No act or
omission on the part of the Special Severance Executive shall be considered “willful” unless it is
done or omitted in bad faith or without reasonable belief that the action or omission was in the
best interests of the Company.
“Good Reason” shall mean (i) without the Special Severance Executive’s express written
consent and excluding for this purpose an isolated, insubstantial and inadvertent action not taken
in bad faith and which is remedied by the Company or its affiliates within 30 days after receipt of
notice thereof given by the Special Severance Executive, (A) a reduction in the Special Severance
Executive’s annual base compensation (whether or not deferred), (B) the assignment to the Special
Severance Executive of any duties inconsistent in any material respect with the Special Severance
Executive’s position (including status, offices, titles and reporting requirements), authority,
duties or responsibilities, or (C) any other action by the Company or its affiliates which results
in a material diminution in such position, authority, duties or responsibilities; (ii) without the
Special Severance Executive’s express written consent, the Company’s requiring the Special
Severance Executive’s work location to be other than within twenty-five (25) miles of the location
where such Special Severance Executive was principally working immediately prior to the
Acceleration Event; or (iii) any failure by the Company to obtain the express written assumption of
this Plan from any successor to the Company; provided that “Good Reason” shall cease to
exist for an event on the 90th day following the later of its occurrence or the Special
Severance Executive’s knowledge thereof, unless the Special Severance Executive has given the
Company notice thereof prior to such date.
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“Potential Acceleration Event” shall mean any execution of an agreement, the
commencement of a tender offer or any other transaction or event that if consummated would result
in an Acceleration Event.
4. Severance Benefits Upon Termination of Employment
If, a Special Severance Executive’s employment with the Company is terminated due to a
Qualifying Termination, he or she shall receive the severance benefits set forth in Section 5
hereof (“Severance Benefits”). For purposes hereof, (i) a “Qualifying Termination” shall
mean a termination of a Special Severance Executive’s employment with the Company either (x) by the
Company without Cause (A) within the two (2) year period commencing on the date of the occurrence
of an Acceleration Event or (B) prior to the occurrence of an Acceleration Event and either
(1) following the public announcement of the transaction or event which ultimately results in such
Acceleration Event or (2) at the request of a party to, or participant in, the transaction or event
which ultimately results in an Acceleration Event; or (y) by a Special Severance Executive for Good
Reason within the two (2) year period commencing with the date of the occurrence of an Acceleration
Event and (ii) a determination by a Special Severance Executive that he or she has “Good Reason”
hereunder shall be final and binding on the parties hereto unless the Company can establish by a
preponderance of the evidence that “Good Reason” does not exist.
5. Severance Benefits
Band A Benefits
Severance Benefits for Special Severance Executives (i) in Band A at the time of a Qualifying
Termination or at any time during the two (2) year period immediately preceding the Acceleration
Event or (ii) designated as a covered employee in Band A in accordance with Section 2 hereof:
• Accrued Rights - The Special Severance Executive’s base salary through the date of
termination of employment, any annual bonus earned but unpaid as of the date of termination for any
previously completed fiscal year, reimbursement for any unreimbursed business expenses properly
incurred by the Special Severance Executive in accordance with Company policy prior to the date of
the Special Severance Executive’s termination of employment and such employee benefits, if any, as
to which the Special Severance Executive may be entitled under the employee benefit plans of the
Company, including without limitation, the payment of any accrued or unused vacation under the
Company’s vacation policy.
• Severance Pay – The sum of (x) three (3) times the highest annual base salary
rate paid (whether or not deferred) to the Special Severance Executive at any time during the three
year period immediately preceding the Special Severance Executive’s termination of employment, and
(y) three (3) times the highest annual bonus paid or awarded (whether or not deferred) to
the Special Severance Executive in respect of either (i) the three (3) years preceding an
Acceleration Event or (ii) the three (3) years preceding the Special Severance Executive’s
termination of employment.
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• Benefits and Perquisites
> Continued health and life insurance benefits and perquisites (including, without
limitation, any Company-provided automobile and any tax or financial advisory services) for a
three (3) year period following the Special Severance Executive’s termination of employment at the
same cost to the Special Severance Executive, and at the same coverage levels, as provided to the
Special Severance Executive (and the Special Severance Executive’s eligible dependents) immediately
prior to his or her termination of employment.
> Payment of a lump sum amount (“Pension Lump Sum Amount”) equal to the
difference between (i) the total lump sum value of the Special Severance Executive’s pension
benefit under the ITT Salaried Retirement Plan and, as applicable, Excess Pension Plan IA, Excess
Pension Plan IB and/or Excess Pension Plan II of the Company or any successor plan;
provided that the benefits under such successor plan is no less favorable than the benefits
under the plans set forth herein (or corresponding pension arrangements outside the United States)
(“Pension Plans”) as of the Special Severance Executive’s termination of employment and
(ii) the total lump sum value of the Special Severance Executive’s pension benefit under the
Pension Plans after crediting an additional three (3) years of age and three (3) years of
eligibility and benefit service to the Special Severance Executive and applying the highest annual
base salary rate and highest bonus determined above under “Severance Pay” with respect to each of
the additional three (3) years of service so credited for purposes of determining Final Average
Compensation under the Pension Plans. The above total lump sum values shall be determined in the
manner provided in the Excess Pension Plans of the Company for determination of lump sum benefits
upon the occurrence of an Acceleration Event, as defined in said Plans. This provision shall apply
to any Special Severance Executive having a pension benefit under any of the Pension Plans as of
the Special Severance Executive’s termination of employment. An example of the calculation of
benefits set forth in this paragraph is set forth on Schedule A.
> Crediting of an additional three (3) years of age and three (3) years of eligibility
service for purposes of the Company’s retiree health and retiree life insurance benefits. This
provision shall apply to any Special Severance Executives covered under such benefits any time
during the three (3) year period immediately preceding the Special Severance Executive’s
termination of employment.
> Payment of a lump sum amount (“Savings Plan Lump Sum Amount”) equal to
three (3) times the following amount: the highest annual base salary rate determined above under
“Severance Pay” times the highest percentage rate of Company Contributions (not to exceed
three and on-half percent (31/2%) with respect to the Special Severance Executive under the ITT
Investment and Savings Plan for Salaried Employees and/or the ITT Excess Savings Plan (or
corresponding savings plan arrangements outside the United States) (“Savings Plans”)
(including matching contributions and floor contributions) at any time during the three (3) year
period immediately preceding the Special Severance Executive’s termination of employment or the
three (3) year period immediately preceding the Acceleration Event. This provision shall apply to
any Special Severance Executive who is a member of any of the Savings Plans at any time during such
three (3) year period.
• Outplacement – Outplacement services for one (1) year.
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Band B Benefits
Severance Benefits for Special Severance Executives (i) in Band B at the time of a Qualifying
Termination or at any time during the two (2) year period immediately preceding the Acceleration
Event or (ii) designated as a covered employee in Band B in accordance with Section 2 hereof;
provided, that a Special Severance Executive who is in Band B at the time of a Qualifying
Termination but was in Band A anytime during the two (2) year period immediately preceding the
Acceleration Event shall be entitled to Severance Benefits as a Special Severance Executive in
Band A and shall not be entitled to the Severance Benefits set forth below:
• Accrued Rights - The Special Severance Executive’s base salary through the date of
termination of employment, any annual bonus earned but unpaid as of the date of termination for any
previously completed fiscal year, reimbursement for any unreimbursed business expenses properly
incurred by the Special Severance Executive in accordance with Company policy prior to the date of
the Special Severance Executive’s termination of employment and such employee benefits, if any, as
to which the Special Severance Executive may be entitled under the employee benefit plans of the
Company, including without limitation, the payment of any accrued or unused vacation under the
Company’s vacation policy.
• Severance Pay – The sum of (x) two (2) times the highest annual base salary
rate paid (whether or not deferred) to the Special Severance Executive at any time, during the
three (3) year period immediately preceding the Special Severance Executive’s termination of
employment, and (y) two (2) times the highest annual bonus paid or awarded (whether or not
deferred) to the Special Severance Executive in respect of either (i) the three (3) years preceding
an Acceleration Event or (ii) the three (3) years preceding the Special Severance Executive’s
termination of employment.
• Benefits and Perquisites
> Continued health and life insurance benefits and perquisites (including, without
limitation, any Company provided automobile and any tax or financial advisory services) for a two
year period following the Special Severance Executive’s termination of employment at the same cost
to the Special Severance Executive, and at the same coverage levels, as provided to the Special
Severance Executive (and the Special Severance Executive’s eligible dependents) immediately prior
to his or her termination of employment.
> Payment of a lump sum amount (“Pension Lump Sum Amount”) equal to the
difference between (i) the total lump sum value of the Special Severance Executive’s pension
benefit under the ITT Salaried Retirement Plan and, as applicable, Excess Pension Plan IA, Excess
Pension Plan IB and/or Excess Pension Plan II of the Company or any successor plan;
provided that the benefits under such successor plan is no less favorable than the benefits
under the plans set forth herein (or corresponding pension arrangements outside the United States)
(“Pension Plans”) as of the Special Severance Executive’s termination of employment and
(ii) the total lump sum value of the Special Severance Executive’s pension benefit under the
Pension Plans after crediting an additional two (2) years of age and two (2) years of eligibility
and benefit service to the Special Severance Executive and applying the highest annual base salary
rate and highest bonus determined above under “Severance Pay” with respect to each of
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the additional two (2) years of service so credited for purposes of determining Final Average
Compensation under the Pension Plans. The above total lump sum values shall be determined in the
manner provided in the Excess Pension Plans of the Company for determination of lump sum benefits
upon the occurrence of an Acceleration Event, as defined in said Plans. This provision shall apply
to any Special Severance Executive having a pension benefit under any of the Pension Plans as of
the Special Severance Executive’s termination of employment. An example of the calculation of
benefits set forth in this paragraph is set forth on Schedule A.
> Crediting of an additional two (2) years of age and two (2) years of eligibility
service for purposes of the Company’s retiree health and retiree life insurance benefits. This
provision shall apply to any Special Severance Executives covered under such benefits any time
during the three (3) year period immediately preceding the Special Severance Executive’s
termination of employment.
> Payment of a lump sum amount (“Savings Plan Lump Sum Amount”) equal to two (2)
times the following amount: the highest annual base salary rate determined above under “Severance
Pay” times the highest percentage rate of Company Contributions (not to exceed three and
one-half percent (31/2%)) with respect to the Special Severance Executive under the ITT Investment
and Savings Plan for Salaried Employees and/or the ITT Excess Savings Plan (or corresponding
savings plan arrangements outside the United States) (“Savings Plans”) (including matching
contributions and floor contributions) at any time during either the three (3) year period
immediately preceding the Special Severance Executive’s termination of employment or the three (3)
year period immediately preceding the Acceleration Event. This provision shall apply to any
Special Severance Executive who is a member of any of the Savings Plans at any time during such
three (3) year period.
• Outplacement – Outplacement services for one year.
General
With respect to the provision of benefit and perquisites during the above described respective
three and two year periods, if, for any reason at any time the Company is unable to treat the
Special Severance Executive as being eligible for ongoing participation in any Company employee
benefit plans or perquisites in existence immediately prior to the termination of employment of the
Special Severance Executive, and if, as a result thereof, the Special Severance Executive does not
receive a benefit or perquisite or receives a reduced benefit or perquisite, the Company shall
provide such benefits or perquisites by making available equivalent benefits or perquisites from
other sources in a manner consistent with Section 15 below.
6. Form of Payment of Severance Pay and Lump Sum Payments
Severance Pay shall be paid in cash, in non-discounted equal periodic installment payments
corresponding to the frequency and duration of the severance payments that the Special Severance
Executive would have been entitled to receive from the Company as a normal severance benefit in the
absence of the occurrence of an Acceleration Event. The Pension Lump
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Sum Amount and the Savings Plan Lump Sum Amount shall be paid in cash within thirty (30)
calendar days after the date the employment of the Special Severance Executive terminates.
7. Termination of Employment — Other
The Severance Benefits shall only be payable upon a Special Severance Executive’s termination
of employment due to a Qualifying Termination; provided, that if, following the occurrence
of an Acceleration Event, a Special Severance Executive is terminated due to the Special Severance
Executive’s death or disability (as defined in the long-term disability plan in which the Special
Severance Executive is entitled to participate (whether or not the Special Severance Executive
voluntarily participates in such plan)) and, at the time of such termination, the Special Severance
Executive had grounds to resign with Good Reason, such termination of employment shall be deemed to
be a Qualifying Termination.
8. Administration of Plan
This Plan shall be administered by ITT, who shall have the exclusive right to interpret this
Plan, adopt any rules and regulations for carrying out this Plan as may be appropriate and decide
any and all matters arising under this Plan, including but not limited to the right to determine
appeals. Subject to applicable Federal and state law, all interpretations and decisions by ITT
shall be final, conclusive and binding on all parties affected thereby.
Notwithstanding the preceding paragraph, following an Acceleration Event, any controversy or
claim arising out of or relating to this Plan, or the breach thereof, shall be settled by
arbitration administered by the American Arbitration Association under its Commercial Arbitration
Rules and the entire cost thereof shall be borne by the Company. The location of the arbitration
proceedings shall be reasonably acceptable to the Special Severance Executive. Judgment on the
award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The
Company shall pay all legal fees, costs of litigation, prejudgment interest, and other expenses
which are incurred in good faith by the Special Severance Executive as a result of the Company’s
refusal to provide any of the Severance Benefits to which the Special Severance Executive becomes
entitled under this Plan, or as a result of the Company’s (or any third party’s) contesting the
validity, enforceability, or interpretation of this Plan, or as a result of any conflict between
the Special Severance Executive and the Company pertaining to this Plan. The Company shall pay
such fees and expenses from the general assets of the Company.
9. Termination or Amendment
ITT may terminate or amend this Plan (“Plan Change”) at any time except, that
following the occurrence of (i) an Acceleration Event or (ii) a Potential Acceleration Event, no
Plan Change that would adversely affect any Special Severance Executive may be made without the
prior written consent of such Special Severance Executive affected thereby; provided,
however, that (ii) above shall cease to apply if such Potential Acceleration Event does not
result in the occurrence of an Acceleration Event.
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10. Offset
Any Severance Benefits provided to a Special Severance Executive under this Plan shall be
offset in a manner consistent with Section 15 by reducing (x) any Severance Pay hereunder by any
severance pay, salary continuation pay, termination pay or similar pay or allowance and (y) any
other Severance Benefits hereunder by corresponding employee benefits, perquisites or outplacement
services, which the Special Severance Executive receives or is entitled to receive, (i) under the
ITT Corporation Senior Executive Severance Pay Plan; (ii) pursuant to any other Company policy,
practice, program or arrangement; (iii) pursuant to any Company employment agreement or other
agreement with the Company; or (iv) by virtue of any law, custom or practice excluding, however,
any unemployment compensation in the United States, unless the Special Severance Executive
voluntarily expressly waives (which the Special Severance Executive shall have the exclusive right
to do) in writing any such respective entitlement.
11. Excise Tax
In the event that it shall be determined that any payment or distribution by the Company to or
for the benefit of the Special Severance Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Plan or otherwise, but determined without regard to any
additional payments required under this Section 11 such payments or distributions being referred to
herein as “Payments”) would give rise to liability of the Special Severance Executive for
the excise tax imposed by Section 4999 of the Internal Revenue Code, as amended (the
“Code”), or that any interest or penalties are incurred by the Special Severance Executive
with respect to such excise tax (such excise tax, together with any such interest and penalties,
are hereinafter collectively referred to as the “Excise Tax”), then the Special Severance
Executive shall be entitled to receive an additional payment (the “Gross-Up Payment”) in an
amount such that after payment by the Special Severance Executive of all Federal, state and local
taxes (including any interest or penalties imposed with respect to such taxes), including without
limitation, any income and employment taxes (and any interest and penalties imposed with respect to
such taxes) and Excise Tax imposed upon the Gross-Up Payment, the Special Severance Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
All determinations required to be made under this Section 11, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by a nationally recognized accounting
firm mutually agreed to by the Special Severance Executive and the Company (the “Accounting
Firm”) which shall provide detailed supporting calculations both to the Company and the Special
Severance Executive within ten (10) business days of the receipt of notice from the Special
Severance Executive that there has been a Payment, or such earlier time as is requested by the
Company; provided that for purposes of determining the amount of any Gross-Up Payment, the
Special Severance Executive shall be deemed to pay federal income tax at the highest marginal rates
applicable to individuals in the calendar year in which any such Gross-Up Payment is to be made and
deemed to pay state and local income taxes at the highest effective rates applicable to individuals
in the state or locality of the Special Severance Executive’s residence or place of employment,
whichever is higher, in the calendar year in which any such Gross-Up Payment is to be made. All
fees and expenses of the Accounting Firm shall
9
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 11, shall be paid by the Company to the Special Severance Executive when due. If the
Accounting Firm determines that no Excise Tax is payable by the Special Severance Executive, it
shall so indicate to the Special Severance Executive in writing. Any determination by the
Accounting Firm shall be binding upon the Company and the Special Severance Executive. As a result
of the uncertainty in the application of Section 4999 of the Code, it is possible that the amount
of the Gross-Up Payment determined by the Accounting Firm to be due to (or on behalf of) the
Special Severance Executive was lower than the amount actually due (“Underpayment”). In
the event that the Company exhausts its remedies pursuant to this Section 11 and the Special
Severance Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Special Severance Executive.
The Special Severance Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the Company of any
Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten
business days after Special Severance Executive is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date on which such claim is requested to be
paid. Special Severance Executive shall not pay such claim prior to the expiration of the thirty
day period following the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due). If the Company
notifies Special Severance Executive in writing prior to the expiration of such period that it
desires to contest such claim, Special Severance Executive shall (i) give the Company any
information reasonably requested by the Company relating to such claim, (ii) take such action in
connection with contesting such claim as the Company shall reasonably request in writing from time
to time, including, without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith
in order to effectively contest such claim and (iv) permit the Company to participate in any
proceedings relating to such claim; provided, however, that the Company shall bear
and pay directly all costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Special Severance Executive harmless,
on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this Section 11, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the Special Severance Executive to
pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the
Special Severance Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, further, that if the Company directs the
Special Severance Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Special Severance Executive, on an interest-free basis, and shall
indemnify and hold the Special Severance Executive harmless, on an after-tax basis, from any Excise
Tax or income tax (including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such
10
advance; provided, further, that if the Special Severance Executive is
required to extend the statute of limitations to enable the Company to contest such claim, the
Special Severance Executive may limit this extension solely to such contested amount. The
Company’s control of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Special Severance Executive shall be entitled to settle
or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
If, after the receipt by the Special Severance Executive of an amount paid or advanced by the
Company pursuant to this Section 11, the Special Severance Executive becomes entitled to receive
any refund with respect to a Gross-Up Payment, the Special Severance Executive shall (subject to
the Company’s complying with the requirements of Section 11) promptly pay to the Company the amount
of such refund received (together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Special Severance Executive of an amount advanced by the
Company pursuant to Section 11, a determination is made that the Special Severance Executive shall
not be entitled to any refund with respect to such claim and the Company does not notify the
Special Severance Executive in writing of its intent to contest such denial of refund prior to the
expiration of thirty (30) days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of the Gross-Up Payment required to be paid.
In the event the Gross-Up Payment shall fail to make the Special Severance Executive whole on
an after-tax basis, whether by reason of either (i) an adjustment made by the Internal Revenue
Service or state taxing authority or (ii) because the Special Severance Executive’s actual
effective tax rate was higher than the rate used by the Accounting Firm as determined pursuant to
Section 11 for the year in which the Gross-Up Payment was made, the Gross-Up Payment shall be
recalculated (“Recalculated Gross-Up Payment”), using the Special Severance Executive’s
actual effective tax rate, once it is known for the calendar year in which the Gross-Up Payment is
made, and the Company shall reimburse the Special Severance Executive for the full amount of any
amount by which the Recalculated Gross-Up Payment exceeds the Gross-Up Payment (“Additional
Gross-Up Payment”).
The Gross-Up Payment and any Additional Gross-Up Payment shall be paid out of the general
assets of the Company. Any payments that the Company is required to pay to or on behalf of the
Special Severance Executive pursuant to this Section 11 shall be paid to the Special Severance
Executive within the time periods specified above; provided, however, that in no
event shall such payments be made later than the end of the calendar year following the calendar
year during which the Special Severance Executive remits the corresponding Excise Tax payments to
any taxing authority or incurs the corresponding expenses.
12. Miscellaneous
The Special Severance Executive shall not be entitled to any notice of termination or pay in
lieu thereof.
11
Severance Benefits under this Plan are paid entirely by the Company from its general assets.
This Plan is not a contract of employment, does not guarantee the Special Severance Executive
employment for any specified period and does not limit the right of the Company to terminate the
employment of the Special Severance Executive at any time.
If a Special Severance Executive should die while any amount is still payable to the Special
Severance Executive hereunder had the Special Severance Executive continued to live, all such
amounts shall be paid in accordance with this Plan to the Special Severance Executive’s designated
heirs or, in the absence of such designation, to the Special Severance Executive’s estate.
The numbered section headings contained in this Plan are included solely for convenience of
reference and shall not in any way affect the meaning of any provision of this Plan.
If, for any reason, any one or more of the provisions or part of a provision contained in this
Plan shall be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision or part of a provision of this
Plan not held so invalid, illegal or unenforceable, and each other provision or part of a provision
shall to the full extent consistent with law remain in full force and effect.
The Plan shall be governed by and construed in accordance with the laws of the State of New
York without regard to the conflicts of laws provisions thereof.
The Plan shall be binding on all successors and assigns of the ITT and a Special Severance
Executive.
13. Notices
Any notice and all other communication provided for in this Plan shall be in writing and shall
be deemed to have been duly given when delivered by hand or overnight courier or three (3) days
after it has been mailed by United States registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth below, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
If to the Company:
ITT Corporation
1133 Westchester Avenue
White Plains, New York 10604
1133 Westchester Avenue
White Plains, New York 10604
Attention: General Counsel
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If to Special Severance Executive:
To the most recent address of Special Severance Executive set forth in the personnel records of ITT.
14. Adoption Date
This Plan was initially adopted by ITT on March 10, 1997 (“Adoption Date”) and does
not apply to any termination of employment which occurred or which was communicated to the Special
Severance Executive prior to the Adoption Date.
15. Section 409A
This Plan is intended to comply with Section 409A of the Code and will be interpreted in a
manner intended to comply with Section 409A of the Code. Notwithstanding anything herein to the
contrary, (i) if at the time of the Special Severance Executive’s termination of employment with
the Company the Special Severance Executive is a “specified employee” as defined in Section 409A of
the Code (and any related regulations or other pronouncements thereunder) and the deferral of the
commencement of any payments or benefits otherwise payable hereunder as a result of such
termination of employment is necessary in order to prevent any accelerated or additional tax under
Section 409A of the Code, then the Company will defer the commencement of the payment of any such
payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid
or provided to the Special Severance Executive) until the date that is six months following the
Special Severance Executive’s termination of employment with the Company (or the earliest date as
is permitted under Section 409A of the Code), at which point all payments deferred pursuant to this
Section 15 shall be paid to the Special Severance Executive in a lump sum and (ii) if any other
payments of money or other benefits due hereunder could cause the application of an accelerated or
additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if
deferral will make such payment or other benefits compliant under Section 409A of the Code, or
otherwise such payment or other benefits shall be restructured, to the extent possible, in a
manner, determined by the Company, that does not cause such an accelerated or additional tax. To
the extent any reimbursements or in-kind benefits due under this Plan constitute “deferred
compensation” under Section 409A of the Code, any such reimbursements or in-kind benefits shall be
paid in a manner consistent with Treas. Reg. Section 1.409A-3(i)(1)(iv). Each payment made under
this Plan shall be designated as a “separate payment” within the meaning of Section 409A of the
Code. The Company shall consult with Special Severance Executives in good faith regarding the
implementation of the provisions of this section; provided that neither the Company nor any of its
employees or representatives shall have any liability to Special Severance Executives with respect
thereto.
Exhibit 10.11
ITT Corporation
Enhanced Severance Pay Plan
(amended and restated as of December 31, 2008)
Enhanced Severance Pay Plan
(amended and restated as of December 31, 2008)
1. Purpose
The purpose of this ITT Corporation Enhanced Severance Pay Plan (“Plan”) is to assist in
occupational transition by providing Severance Benefits, as defined herein, for employees covered
by this Plan whose employment is terminated under conditions set forth in this Plan.
2. Covered Employees
Covered employees under this Plan (“Employees”) are active full-time, regular salaried
employees of ITT Corporation (“ITT”) and of any subsidiary company (“ITT Subsidiary”) (collectively
or individually as the context requires “Company”) (including Employees who are short term disabled
as of a Potential Acceleration event within the meaning of the Company’s short term disability
benefit plans) (other than Employees on periodic severance as of a Potential Acceleration Event)
who are or were, at any time within the two year period immediately preceding the Employees’
termination of employment (other than executives covered by the ITT Special Senior Executive
Severance Pay Plan), either (i) United States or Canadian citizens or who are employed in the
United States or Canada, whose primary employment location is at ITT Headquarters, White Plains,
New York (and satellite locations, including, without limitation, ITT Pension and Savings Plan
(Clifton, New Jersey), ITT TDS (Palm Coast, Florida), ITT Flight Operations (New Castle, Delaware),
ITT Shared Services (Ft. Wayne, Indiana and Seneca Falls, New York), ITT Industries of Canada
(Toronto, Ontario) and ITT Industries (Shanghai, China)) or (ii) worldwide staff whose primary
responsibility is in support of ITT Defense Headquarters (McLean, Virginia), ITT Fluid Technology
Headquarters (Upper Saddle River, New Jersey), ITT Motion and Flow Control Headquarters (Upper
Saddle River, New Jersey) or ITT Electronic Components Headquarters (Santa Ana, California) and
such other employees of the Company who shall be designated as covered employees thereunder by the
Chief Executive or the Senior Vice President, Director-Human Resources of ITT or a designee of such
officers (“Authorized Officers or Designees”). No person who is employed on a temporary,
occasional or seasonal basis is eligible under this Plan.
After the occurrence of an Acceleration Event, the terms “ITT”, “ITT Subsidiary” and “Company”
as used herein shall also include, respectively and as the context requires, any successor company
to ITT or any successor company to any ITT Subsidiary and any affiliate of any such successor
company.
3. Definitions
An “Acceleration Event” shall occur if (i) a report on Schedule 13D shall be filed with the
Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934
(the “Act”) disclosing that any person (within the meaning of Section 13(d) of the Act), other than
ITT or a subsidiary of ITT or any employee benefit plan sponsored by ITT or a
2
subsidiary of ITT, is the beneficial owner directly or indirectly of twenty percent (20%) or
more of the outstanding Common Stock $1 par value, of ITT (the “Stock”); (ii) any person (within
the meaning of Section 13(d) of the Act), other than ITT or a subsidiary of ITT, or any employee
benefit plan sponsored by ITT or a subsidiary of ITT, shall purchase shares pursuant to a tender
offer or exchange offer to acquire any Stock of ITT (or securities convertible into Stock) for
cash, securities or any other consideration, provided that after consummation of the offer,
the person in question is the beneficial owner (as such term is defined in Rule 13d-3 under the
Act), directly or indirectly, of twenty percent (20%) or more of the outstanding Stock of ITT
(calculated as provided in paragraph (d) of Rule 13d-3 under the Act in the case of rights to
acquire Stock); (iii) the stockholders of ITT shall approve (A) any consolidation, business
combination or merger involving ITT, other than a consolidation, business combination or merger
involving ITT in which holders of Stock immediately prior to the consolidation, business
combination or merger (x) hold fifty percent (50%) or more of the combined voting power of ITT (or
the corporation resulting from the merger or consolidation or the parent of such corporation) after
the merger and (y) have the same proportionate ownership of common stock of ITT (or the corporation
resulting from the merger or consolidation or the parent of such corporation), relative to other
holders of Stock immediately prior to the merger, business combination or consolidation,
immediately after the merger as immediately before, or (B) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or substantially all the
assets of ITT, (iv) there shall have been a change in a majority of the members of the Board of
Directors of ITT within a 12-month period unless the election or nomination for election by ITT’
stockholders of each new director during such 12-month period was approved by the vote of
two-thirds of the directors then still in office who (x) were directors at the beginning of such
12-month period or (y) whose nomination for election or election as directors was recommended or
approved by a majority of the directors who where directors at the beginning of such 12-month
period or (v) any person (within the meaning of Section 13(d) of the Act) (other than ITT or any
subsidiary of ITT or any employee benefit plan (or related trust) sponsored by ITT or a subsidiary
of ITT) becomes the beneficial owner (as such term is defined in Rule 13d-3 under the Act) of
twenty percent (20%) or more of the Stock.
“Cause” shall mean action by the Employee involving willful malfeasance or gross negligence or
the Employee’s failure to act involving material nonfeasance that would tend to have a materially
adverse effect on the Company. No act or omission on the part of the Employee shall be considered
“willful” unless it is done or omitted in bad faith or without reasonable belief that the action or
omission was in the best interests of the Company.
“Enhanced Severance Period” shall mean the period, expressed in weeks, equal to the sum of
(x) two times the normal severance pay or termination pay period of weeks for the Employee
(the “Normal Severance Period”), determined as if the Employee were an employee of the same grade,
and having the same years of service, covered by and eligible for the severance pay or termination
pay plans or policies at ITT Headquarters, White Plains, New York, as in effect immediately
preceding an Acceleration Event and (y) four (4) weeks (in lieu of notice of termination),
provided that the Enhanced Severance Period shall not exceed 108 weeks and shall not be
less than the Minimum Severance Period.
“Enhanced Week’s Pay” shall mean the sum of (x) the highest annual base salary rate paid to
the Employee at any time during the three (3) year period immediately preceding the
3
Employee’s termination of employment and (y) the highest annual bonus or service recognition
award paid or awarded to the Employee in respect of either (i) the three (3) years preceding an
Acceleration Event or (ii) the three (3) years preceding the Employee’s termination of employment,
including, among the bonuses and service recognition awards taken into account for this purpose,
any bonus or service recognition award paid or awarded by reason of an Acceleration Event, without
regard to whether such bonus or service recognition award is paid during such three year period or
after an Acceleration Event, divided by 52 weeks.
“Good Reason” shall mean (i) without the Employee’s express written consent and excluding for
this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company or its affiliates within 30 days after receipt of notice thereof given by
the Employee, (A) a reduction in the Employee’s annual base compensation (whether or not deferred),
(B) the assignment to the Employee of any duties inconsistent in any material respect with the
Employee’s position (including status, offices, titles and reporting requirements), authority,
duties or responsibilities, or (C) any other action by the Company or its affiliates which results
in a material diminution in such position, authority, duties or responsibilities; (ii) without the
Employee’s express written consent, the Company’s requiring the Employee’s work location to be
other than within twenty-five (25) miles of the location where such Employee was principally
working immediately prior to the Acceleration Event; or (iii) any failure by the Company to obtain
the express written assumption of this Plan from any successor to the Company; provided
that “Good Reason” shall cease to exist for an event on the 90th day following the later
of its occurrence or the Employee’s knowledge thereof, unless the Employee has given the Company
notice thereof prior to such date.
“Minimum Severance Period” shall mean (i) with respect to Employees with less than twenty (20)
years of service with the Company, twenty-six (26) weeks, (ii) with respect to Employees with
between twenty (20) and twenty-five (25) years of service with the Company, 52 weeks, (iii) with
respect to Employees with greater than twenty-five (25) years of service with the Company but less
than or equal to thirty (30) years of service with the Company, seventy-eight (78) weeks and
(iv) with respect to Employees with greater than thirty (30) years of service with the Company, one
hundred and four (104) weeks. For purposes hereof, “years of service” shall have the same meaning
as in the termination pay plans or policies at ITT Headquarters, White Plains, New York, as in
effect immediately preceding an Acceleration Event and shall be determined as of the date of the
Employee’s termination of employment with the Company.
“Potential Acceleration Event” shall mean any execution of an agreement, the commencement of a
tender offer or any other transaction or event that if consummated would result in an Acceleration
Event.
4. Severance Benefits Upon Termination of Employment
If an Employee’s employment with the Company is terminated due to a Qualifying Termination, he
or she shall receive the severance benefits set forth in Section 5 hereof (“Severance Benefits”).
For purposes hereof, (i) a “Qualifying Termination” shall mean a termination of an Employee’s
employment with the Company either (x) by the Company without Cause (A) within the two (2) year
period commencing on the date of the occurrence of an Acceleration Event or (B) prior to the
occurrence of an Acceleration Event and either
4
(1) following the public announcement of the transaction or event which ultimately results in
such Acceleration Event or (2) at the request of a party to, or participant in, the transaction or
event which ultimately results in an Acceleration Event; or (y) by an Employee for Good Reason
within the two (2) year period commencing with the date of the occurrence of an Acceleration Event
and (ii) a determination by an Employee that he or she has “Good Reason” hereunder shall be final
and binding on the parties hereto unless the Company can establish by a preponderance of the
evidence that “Good Reason” does not exist.
5. Severance Benefits
Severance Benefits for Employees:
• Accrued Rights — The Employee’s base salary through the date of termination of
employment, any annual bonus earned but unpaid as of the date of termination for any previously
completed fiscal year, reimbursement for any unreimbursed business expenses properly incurred by
the Employee in accordance with Company policy prior to the date of the Employee’s termination of
employment and such employee benefits, if any, as to which the Employee may be entitled under the
employee benefit plans of the Company, including without limitation, the payment of any accrued or
unused vacation under the Company’s vacation policy.
• Severance Pay — The number of weeks of the Employee’s Enhanced Severance Period times
the Employee’s Enhanced Week’s Pay, paid in the form described in Section 6 below.
• Benefits
- Continued health and life insurance benefits and perquisites (including, without
limitation, any Company-provided automobile and any tax or financial advisory services) for a
period equal to the Employee’s Enhanced Severance Period following the Employee’s termination of
employment at the same cost to the Employee, and at the same coverage levels, as provided to the
Employee (and the Employee’s eligible dependents) immediately prior to his or her termination of
employment.
- Payment of a lump sum amount (“Pension Lump Sum Amount”) equal to the difference
between (i) the total lump sum value of the Employee’s pension benefit under the ITT Salaried
Retirement Plan and, as applicable, ITT Excess Pension Plan II or any successor plan;
provided that the benefits under such successor plan is no less favorable than the benefits
under the plans set forth herein (or corresponding pension arrangements (i) outside the United
States or (ii) as may be designated by an Authorized Officer or Designee) (“Pension Plans”) as of
the Employee’s termination of employment and (ii) the total lump sum value of the Employee’s
pension benefit under the Pension Plans after crediting to the Employee an additional two (2) years
of age and two (2) years of eligibility and benefit service and applying the highest annual base
salary rate and highest bonus or service recognition award determined above under “Enhanced Week’s
Pay” with respect to the additional period of service so credited for purposes of determining the
Final Average Compensation under the Pension Plans. The above total lump sum values shall be
determined in the manner provided in the Excess Pension Plans of the Company for determination of
lump sum benefits upon the occurrence of an Acceleration Event, as defined in said Plans. This
provision shall apply to any Employee having a pension benefit
5
under any of the Pension Plans as of the Employee’s termination of employment. An example of
the calculation of benefits set forth in this paragraph is set forth on Schedule A.
- Crediting of an additional two (2) years of age and an additional two (2) years of
eligibility service equal to the Employee’s Enhanced Severance Period for purposes of the Company’s
retiree health and retiree life insurance benefits. This provision shall apply to any Employees
covered under such benefits any time during the three (3) year period immediately preceding the
Employee’s termination of employment.
- Payment of a lump sum amount (“Savings Plan Lump Sum Amount”) equal to the number of
weeks of the Employee’s Enhanced Severance Period times the following amount: the highest
annual base salary rate determined above under “Enhanced Week’s Pay”, divided by 52 weeks,
times the highest percentage rate of Company Contributions (not to exceed 31/2%) with respect to the
Employee under the ITT Investment and Savings Plan for Salaried Employees and/or the ITT Excess
Savings Plan (or corresponding savings plan arrangements (i) outside the United States or (ii) as
may be designated by an Authorized Officer of Designee) (“Savings Plans”) (including matching
contributions and floor contributions) at any time during the three (3) year period immediately
preceding the Employee’s termination of employment or the three (3) year period immediately
preceding the Acceleration Event. This provision shall apply to any Employee who is a member of
any of the Savings Plans at any time during such three (3) year period.
• Outplacement ¯ Outplacement services for one (1) year.
With respect to the provision of benefits during the above period equal to the Employee’s
Enhanced Severance Period, if, for any reason at any time the Company is unable to treat the
Employee as being eligible for ongoing participation in any Company employee benefit plans in
existence immediately prior to the termination of employment of the Employee, and if, as a result
thereof, the Employee does not receive a benefit or receives a reduced benefit the Company shall
provide such benefits by making available equivalent benefits from other sources in a manner
consistent with Section 15 below.
6. Form of Payment of Severance Pay and Lump Sum Payments
Severance Pay shall be paid in cash, in non-discounted equal periodic installment payments
corresponding to the frequency and duration of the severance payments that the Employee would have
been entitled to receive under the Normal Severance Period. The Pension Lump Sum Amount and the
Savings Plan Lump Sum Amount shall be paid in cash within thirty (30) calendar days after the date
the employment of the Employee terminates.
7. Termination of Employment — Other
The Severance Benefits shall only be payable upon an Employee’s termination of employment due
to a Qualifying Termination; provided, that if, following the occurrence of an Acceleration
Event, an Employee is terminated due to the Employee’s death or disability (as defined in the
long-term disability plan in which the Employee is entitled to participate (whether or not the
Employee voluntarily participates in such plan)) and, at the time of such termination,
6
the Employee had grounds to resign with Good Reason, such termination of employment shall be
deemed to be a Qualifying Termination.
8. Administration of Plan
This Plan shall be administered by ITT, who shall have the exclusive right to interpret this
Plan, adopt any rules and regulations for carrying out this Plan as may be appropriate and decide
any and all matters arising under this Plan, including but not limited to the right to determine
appeals. Subject to applicable Federal and state law, all interpretations and decisions by ITT
shall be final, conclusive and binding on all parties affected thereby.
Notwithstanding the preceding paragraph, following an Acceleration Event, any controversy or
claim arising out of or relating to this Plan, or the breach thereof, shall be settled by
arbitration administered by the American Arbitration Association under its Commercial Arbitration
Rules and the entire cost thereof shall be borne by the Company. The location of the arbitration
proceedings shall be reasonably acceptable to the Employee. Judgment on the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The Company shall pay all
legal fees, costs of litigation, prejudgment interest, and other expenses which are incurred in
good faith by the Employee as a result of the Company’s refusal to provide any of the Severance
Benefits to which the Employee becomes entitled under this Plan, or as a result of the Company’s
(or any third party’s) contesting the validity, enforceability, or interpretation of this Plan, or
as a result of any conflict between the Employee and the Company pertaining to this Plan. The
Company shall pay such fees and expenses from the general assets of the Company.
9. Termination or Amendment
ITT may terminate or amend this Plan (“Plan Change”) at any time except, that following the
occurrence of (i) an Acceleration Event or (ii) a Potential Acceleration Event, no Plan Change that
would adversely affect any Employee may be made without the prior written consent of such Employee
affected thereby; provided, however, that (ii) above shall cease to apply if such
Potential Acceleration Event does not result in the occurrence of an Acceleration Event.
10. Offset
Any Severance Benefits provided to an Employee under this Plan shall be offset in a manner
consistent with Section 15 by reducing (x) any Severance Pay hereunder by any severance pay, salary
continuation pay, termination pay or similar pay or allowance and (y) any other Severance Benefits
hereunder by corresponding employee benefits, or outplacement services, which the Employee receives
or is entitled to receive, (i) pursuant to any other Company policy, practice program or
arrangement, (ii) pursuant to any Company employment agreement or other agreement with the Company,
or (iii) by virtue of any law, custom or practice excluding, however, any unemployment compensation
in the United States, unless the Employee voluntarily expressly waives (which the Employee shall
have the exclusive right to do) in writing any such respective entitlement.
7
11. Excise Tax
In the event that it shall be determined that any payment or distribution by the Company to or
for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant
to the terms of this Plan or otherwise, but determined without regard to any additional payments
required under this Section 11 such payments or distributions being referred to herein as
“Payments”) would give rise to liability of the Employee for the excise tax imposed by Section 4999
of the Internal Revenue Code, as amended (the “Code”), or that any interest or penalties are
incurred by the Employee with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the
Employee shall be entitled to receive an additional payment (the “Gross-Up Payment”) in an amount
such that after payment by the Employee of all Federal, state and local taxes (including any
interest or penalties imposed with respect to such taxes), including without limitation, any income
and employment taxes (and any interest and penalties imposed with respect to such taxes) and Excise
Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments.
All determinations required to be made under this Section 11, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by a nationally recognized accounting
firm mutually agreed to by the Employee and the Company (the “Accounting Firm”) which shall provide
detailed supporting calculations both to the Company and the Employee within ten (10) business days
of the receipt of notice from the Employee that there has been a Payment, or such earlier time as
is requested by the Company; provided that for purposes of determining the amount of any
Gross-Up Payment, the Employee shall be deemed to pay federal income tax at the highest marginal
rates applicable to individuals in the calendar year in which any such Gross-Up Payment is to be
made and deemed to pay state and local income taxes at the highest effective rates applicable to
individuals in the state or locality of the Employee’s residence or place of employment, whichever
is higher, in the calendar year in which any such Gross-Up Payment is to be made. All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 11, shall be paid by the Company to the Employee when due. If
the Accounting Firm determines that no Excise Tax is payable by the Employee, it shall so indicate
to the Employee in writing. Any determination by the Accounting Firm shall be binding upon the
Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the
Code, it is possible that the amount of the Gross-Up Payment determined by the Accounting Firm to
be due to (or on behalf of) the Employee was lower than the amount actually due (“Underpayment”).
In the event that the Company exhausts its remedies pursuant to this Section 11 and the Employee
thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by
the Company to or for the benefit of the Employee.
The Employee shall notify the Company in writing of any claim by the Internal Revenue Service
that, if successful, would require the payment by the Company of any Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten business days after
Employee is informed in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. Employee shall
8
not pay such claim prior to the expiration of the thirty day period following the date on
which it gives such notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies Employee in writing
prior to the expiration of such period that it desires to contest such claim, Employee shall
(i) give the Company any information reasonably requested by the Company relating to such claim,
(ii) take such action in connection with contesting such claim as the Company shall reasonably
request in writing from time to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with
the Company in good faith in order to effectively contest such claim and (iv) permit the Company to
participate in any proceedings relating to such claim; provided, however, that the
Company shall bear and pay directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify and hold the Employee
harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties
with respect thereto) imposed as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this Section 11, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the Employee to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and the Employee
agrees to prosecute such contest to a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts, as the Company shall determine;
provided, further, that if the Company directs the Employee to pay such claim and
sue for a refund, the Company shall advance the amount of such payment to the Employee, on an
interest-free basis, and shall indemnify and hold the Employee harmless, on an after-tax basis,
from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed
with respect to such advance or with respect to any imputed income with respect to such advance;
provided, further, that if the Employee is required to extend the statute of
limitations to enable the Company to contest such claim, the Employee may limit this extension
solely to such contested amount. The Company’s control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be
entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
If, after the receipt by the Employee of an amount paid or advanced by the Company pursuant to
this Section 11, the Employee becomes entitled to receive any refund with respect to a Gross-Up
Payment, the Employee shall (subject to the Company’s complying with the requirements of
Section 11) promptly pay to the Company the amount of such refund received (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the
Employee of an amount advanced by the Company pursuant to Section 11, a determination is made that
the Employee shall not be entitled to any refund with respect to such claim and the Company does
not notify the Employee in writing of its intent to contest such denial of refund prior to the
expiration of thirty (30) days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of the Gross-Up Payment required to be paid.
In the event the Gross-Up Payment shall fail to make the Employee whole on an after-tax basis,
whether by reason of either (i) an adjustment made by the Internal Revenue Service or
9
state taxing authority or (ii) because the Employee’s actual effective tax rate was higher
than the rate used by the Accounting Firm as determined pursuant to Section 11 for the year in
which the Gross-Up Payment was made, the Gross-Up Payment shall be recalculated (“Recalculated
Gross-Up Payment”), using the Employee’s actual effective tax rate, once it is known for the
calendar year in which the Gross-Up Payment is made, and the Company shall reimburse the Employee
for the full amount of any amount by which the Recalculated Gross-Up Payment exceeds the Gross-Up
Payment (“Additional Gross-Up Payment”).
The Gross-Up Payment and any Additional Gross-Up Payment shall be paid out of the general
assets of the Company. Any payments that the Company is required to pay to or on behalf of the
Employee pursuant to this Section 11 shall be paid to the Employee within the time periods
specified above; provided, however, that in no event shall such payments be made
later than the end of the calendar year following the calendar year during which the Employee
remits the corresponding Excise Tax payments to any taxing authority or incurs the corresponding
expenses.
12. Miscellaneous
The Employee shall not be entitled to any notice of termination or pay in lieu thereof except
as included as part of Severance Pay as provided herein.
Severance Benefits under this Plan are paid entirely by the Company from its general assets.
This Plan is not a contract of employment, does not guarantee the Employee employment for any
specified period and does not limit the right of the Company to terminate the employment of the
Employee at any time.
If an Employee should die while any amount is still payable to the Employee hereunder had the
Employee continued to live, all such amounts shall be paid in accordance with this Plan to the
Employee’s designated heirs or, in the absence of such designation, to the Employee’s estate.
The numbered section headings contained in this Plan are included solely for convenience of
reference and shall not in any way affect the meaning of any provision of this Plan.
If, for any reason, any one or more of the provisions or part of a provision contained in this
Plan shall be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision or part of a provision of this
Plan not held so invalid, illegal or unenforceable, and each other provision or part of a provision
shall to the full extent consistent with law remain in full force and effect.
The Plan shall be governed by and construed in accordance with the laws of the State of New
York without regard to the conflicts of laws provisions thereof.
The Plan shall be binding on all successors and assigns of the ITT and an Employee.
10
13. Notices
Any notice and all other communication provided for in this Plan shall be in writing and shall
be deemed to have been duly given when delivered by hand or overnight courier or three days after
it has been mailed by United States registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other address as either party may
have furnished to the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
If to the Company:
ITT Corporation
1133 Westchester Avenue
White Plains, New York 10604
Attention: General Counsel
1133 Westchester Avenue
White Plains, New York 10604
Attention: General Counsel
If to Employee:
To the most recent address of Employee set forth in the personnel records of ITT.
14. Adoption Date
This Plan was initially adopted by ITT on April 15, 1997 (“Adoption Date”) and does not apply
to any termination of employment which occurred or which was communicated to the Employee prior to
the Adoption Date.
15. Section 409A
This Plan is intended to comply with Section 409A of the Code and will be interpreted in a
manner intended to comply with Section 409A of the Code. Notwithstanding anything herein to the
contrary, (i) if at the time of the Employee’s termination of employment with the Company the
Employee is a “specified employee” as defined in Section 409A of the Code (and any related
regulations or other pronouncements thereunder) and the deferral of the commencement of any
payments or benefits otherwise payable hereunder as a result of such termination of employment is
necessary in order to prevent any accelerated or additional tax under Section 409A of the Code,
then the Company will defer the commencement of the payment of any such payments or benefits
hereunder (without any reduction in such payments or benefits ultimately paid or provided to the
Employee) until the date that is six months following the Employee’s termination of employment with
the Company (or the earliest date as is permitted under Section 409A of the Code), at which point
all payments deferred pursuant to this Section 15 shall be paid to the Employee in a lump sum and
(ii) if any other payments of money or other benefits due hereunder could cause the application of
an accelerated or additional tax under Section 409A of the Code, such payments or other benefits
shall be deferred if deferral will make such payment or other benefits compliant under Section 409A
of the Code, or otherwise such payment or other benefits shall be restructured, to the extent
possible, in a manner, determined by the Company, that does not cause such an accelerated or
additional tax. To the extent any reimbursements or in-kind benefits due under this Plan
constitute “deferred compensation” under Section 409A of the Code, any such reimbursements or
in-kind benefits
11
shall be paid in a manner consistent with Treas. Reg. Section 1.409A-3(i)(1)(iv). Each
payment made under this Plan shall be designated as a “separate payment” within the meaning of
Section 409A of the Code. The Company shall consult with Employees in good faith regarding the
implementation of the provisions of this section; provided that neither the Company nor any of its
employees or representatives shall have any liability to Employees with respect thereto.
Exhibit 10.12
ITT
DEFERRED COMPENSATION PLAN
DEFERRED COMPENSATION PLAN
Effective as of January 1, 1995
as amended and restated as of December 31, 2008
as amended and restated as of December 31, 2008
ITT DEFERRED COMPENSATION PLAN
The ITT Deferred Compensation Plan (the “Plan”) was established by ITT Corporation, a Delaware
corporation (“Former ITT”), effective January 1, 1995. The purpose of the Plan is to provide each
Participant with a means of deferring compensation in accordance with the terms of the Plan.
Effective as of December 19, 1995, Former ITT split into three separate companies — ITT Hartford
Group, Inc., ITT Corporation, a Nevada corporation, and ITT Industries, Inc. an Indiana corporation
(the “Corporation”), which is the successor to Former ITT.
Under the Employee Benefits Service and Liability Agreement dated November 1, 1995 (the
“Agreement”) the Corporation agreed to continue the Plan for eligible employees of the Corporation
or of any of its subsidiaries and to transfer the liabilities attributable to participants who
become employees of ITT Corporation, a Nevada corporation, on December 19, 1995 to ITT Corporation.
Effective as of January 1, 1996, the Plan was amended to accept the liabilities under the ITT
Industries Excess Savings Plan attributable to salary deferrals, excess matching contributions, and
excess floor contributions credited with respect to Base Salary deferred under this Plan and hold
such amounts hereunder in accordance with the provisions of the ITT Industries Excess Savings Plan
as set forth in Appendix A, attached hereto and made part hereof.
Effective as of October 1, 1997, January 1, 1998, April 1, 1998, January 1, 1999, and November 1,
2000, the Plan was further amended to make certain administration changes to unify the form and
timing of Plan distributions, respectively. Effective as of March 1, 2004, the Plan was further
amended to provide that a Participant may make a separate investment election with respect to
future deferrals. Effective as of July 1, 2004, the Plan was amended and restated to make certain
administrative changes and to unify the definition of Acceleration Event with other employee
benefit plans of ITT Industries. Effective as of July 1, 2006, the Plan’s name was revised to the
ITT Deferred Compensation Plan.
The Plan is hereby amended and restated, effective as of December 31, 2008 to comply with the
provisions of Section 409A of the Internal Revenue Code and regulations promulgated thereunder.
The provisions of this Plan as herein amended shall apply to amounts deferred on or after January
1, 2005. Amounts deferred under the provisions of the Plan prior to January 1, 2005, which were
vested as of December 31, 2004, shall be subject to the provisions of the Plan as in effect on
October 3, 2004 (attached hereto as Appendix C and made part hereof) without regard to any Plan
amendments after October 3, 2004 which would constitute a material modification for Code Section
409A purposes, unless otherwise provided in Appendix B attached hereto.
All benefits payable under this Plan, which constitutes a nonqualified, unfunded deferred
compensation plan for a select group of management or highly-compensated employees under Title I of
ERISA, shall be paid out of the general assets of the Company.
ITT DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
| Page | ||||
ARTICLE 1 — DEFINITIONS |
3 | |||
ARTICLE 2 — PARTICIPATION |
7 | |||
2.01 Eligibility |
7 | |||
2.02 In General |
7 | |||
2.03 Termination of Participation |
7 | |||
ARTICLE 3 — DEFERRALS |
9 | |||
3.01 Filing Requirements |
9 | |||
3.02 Amount of Deferral |
10 | |||
3.03 Crediting to Deferral Account |
11 | |||
3.04 Vesting |
11 | |||
3.05 Unforeseeable Emergency |
11 | |||
ARTICLE 4 — MAINTENANCE OF ACCOUNTS |
12 | |||
4.01 Adjustment of Account |
12 | |||
4.02 Investment Performance Elections |
12 | |||
4.03 Changing Investment Elections |
13 | |||
4.04 Individual Accounts |
13 | |||
4.05 Valuation of Accounts |
14 | |||
4.06 Compliance with Securities Laws and Trading Policies and Procedures |
14 | |||
ARTICLE 5 — PAYMENT OF BENEFITS |
16 | |||
5.01 Commencement of Payment |
16 | |||
5.02 Method of Payment |
18 | |||
5.03 Change of Distribution Election |
20 | |||
5.04 Death |
22 | |||
5.05 Hardship |
22 | |||
5.06 Payment upon the Occurrence of a Change in Control |
23 | |||
5.07 Acceleration of or Delay in Payments |
23 | |||
5.08 Designation of Beneficiary |
23 | |||
5.09 Debiting Accounts |
24 | |||
ARTICLE 6 — AMENDMENT OR TERMINATION |
25 | |||
6.01 Right to Terminate |
25 | |||
6.02 Right to Amend |
25 | |||
| i |
||||
| Page | ||||
ARTICLE 7 — GENERAL PROVISIONS |
26 | |||
7.01 Funding |
26 | |||
7.02 No Contract of Employment |
26 | |||
7.03 Unsecured Interest |
26 | |||
7.04 Facility of Payment |
26 | |||
7.05 Withholding Taxes |
27 | |||
7.06 Nonalienation |
27 | |||
7.07 Transfers |
27 | |||
7.08 Claims Procedure |
28 | |||
7.09 Payment of Expenses |
29 | |||
7.10 Discharge of Corporation’s Obligation |
29 | |||
7.11 Successors |
30 | |||
7.12 Construction |
30 | |||
ARTICLE 8 — ADMINISTRATION |
31 | |||
8.01 Administration |
31 | |||
APPENDIX A |
32 | |||
APPENDIX B |
35 | |||
APPENDIX C |
37 | |||
ARTICLE 1 — DEFINITIONS
| 1.01 | “Acceleration Event” shall mean an “Acceleration Event” as such term is defined under the provisions of the Plan as in effect on October 3, 2004. |
| 1.02 | “Administrative Committee” shall mean the person or persons appointed to administer the Plan as provided in Section 8.01. |
| 1.03 | “Associated Company” shall mean any division, subsidiary or affiliated company of the Corporation which is an Associated Company or Participating Unit, as such terms are defined in the ITT Salaried Retirement Plan (formerly known as ITT Industries Salaried Retirement Plan) as amended from time to time. |
| 1.04 | “Base Salary” shall mean the annual base fixed compensation paid periodically during the calendar year, determined prior to any pre-tax contributions under a “qualified cash or deferred arrangement” (as defined under Code Section 401(k) and its applicable regulations) or under a “cafeteria plan” (as defined under Code Section 125 and its applicable regulations) or a qualified transportation fringe benefit under Section 132(f) of the Code and any deferrals under Article 3, Appendix A or another unfunded deferred compensation plan maintained by the Corporation, but excluding any overtime, bonuses, foreign service allowances or any other form of compensation, except to the extent otherwise deemed “Base Salary” for purposes of the Plan under rules as are adopted by the Compensation and Personnel Committee. |
| 1.05 | “Beneficiary” shall mean the person or persons designated by a Participant pursuant to the provisions of Section 5.08 in a time and manner determined by the Administrative Committee to receive the amounts, if any, payable under the Plan upon the death of the Participant. |
| 1.06 | “Bonus” shall mean the cash amount, if any, awarded to an employee of the Company under the Company’s executive bonus program, or other compensation program designated by the Compensation and Personnel Committee as a bonus hereunder, provided that such amount qualifies as “Performance Based Compensation”. |
| 1.07 | “Board of Directors” or “Board” shall mean the Board of Directors of the Corporation. |
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| 1.08 | “Change in Control” shall mean a “Change in Control” as such term is defined in the ITT Excess Pension Plan IIA, as amended from time to time. |
| 1.09 | “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time. |
| 1.10 | “Company” shall mean the Corporation and any successor thereto, with respect to its employees and any Associated Company authorized by the Compensation and Personnel Committee to participate in the Plan with respect to their employees. |
| 1.11 | “Compensation and Personnel Committee” shall mean the Compensation and Personnel Committee of the Board of Directors. |
| 1.12 | “Corporation” shall mean ITT Corporation, an Indiana corporation (successor by merger to and formerly known as ITT Industries, Inc.), or any successor by merger, purchase, or otherwise. |
| 1.13 | “Deferral Account” shall mean the bookkeeping account maintained for each Participant to record the amount of Bonus deferred on or after January 1, 2005 by a Participant in accordance with Article 3, adjusted pursuant to Article 4. The Deferral Account shall contain subaccounts, such as a Termination Subaccount, Special Purpose Subaccount(s), a Deferral 2005 Subaccount or any other subaccount established by the Administrative Committee. |
| 1.14 | “Deferral Agreement” shall mean the completed agreement, including any amendments, attachments and appendices thereto, in such form approved by the Administrative Committee, between an Eligible Executive and the Company, under which the Eligible Executive agrees to defer a portion of his Bonus. |
| 1.15 | “Deferrals” shall mean the amount of deferrals credited to a Participant pursuant to Section 3.02 with respect to Plan Years beginning on or after January 1, 2005. |
| 1.16 | “Effective Date” shall mean January 1, 1995. |
| 1.17 | “Eligible Executive” shall mean an Executive who is eligible to participate in the Plan as provided in Section 2.01. |
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| 1.18 | “Employee” shall mean a person who is employed by the Company. |
| 1.19 | “Executive” shall mean an Employee of the Company whose Base Salary equals or exceeds $200,000 (or as adjusted from time to time by the Administrative Committee). |
| 1.20 | “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. |
| 1.21 | “Grandfathered Deferral Account” shall mean the bookkeeping account maintained for each Participant to record the amount of Bonus and/or Base Salary deferred prior to January 1, 2005 by a Participant in accordance with Article 3 of the Plan as in effect on or prior to October 3, 2004, adjusted pursuant to Article 4. |
| 1.22 | “Participant” shall mean, except as otherwise provided in Article 2, each Eligible Executive who has executed a Deferral Agreement pursuant to the requirements of Section 2.02 and is credited with an amount under Section 3.03. |
| 1.23 | “Performance Based Compensation” shall mean a bonus where the amount of, or entitlement to, the bonus is contingent on the satisfaction of pre-established organizational or individual performance criteria relating to a performance period of at least twelve (12) consecutive months. Organizational or individual performance criteria are considered pre-established if established in writing by not later than ninety (90) days after the commencement of the period of service to which the criteria relate, provided that the outcome is substantially uncertain at the time the criteria are established. The determination of whether a Bonus qualifies as “Performance-Based Compensation” will be made in accordance with Treas. Reg. Section 1.409A-1(e) and subsequent guidance. |
| 1.24 | "Performance Period” shall mean the period of a least twelve (12) months over which an individual or a company’s performance is measured for purposes of the Company’s bonus program. |
| 1.25 | “Plan” shall mean the ITT Deferred Compensation Plan (which was formerly known as the ITT Industries Deferred Compensation Plan, ITT Deferred Compensation Plan for 1995, the ITT Industries Deferred Compensation Plan for 1996 and the ITT Industries Deferred Compensation |
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| Plan for 1997) as set forth in this document and the appendices and schedules thereto, as it may be amended from time to time. |
| 1.26 | “Plan Committee” shall mean the ITT Pension Fund Trust and Investment Committee established from time to time pursuant to the terms of the ITT Salaried Retirement Plan. |
| 1.27 | “Plan Year” shall mean the calendar year. |
| 1.28 | “Reporting Date” shall mean each business day on which the New York Stock Exchange is open or such other business day as the Administrative Committee may determine. |
| 1.29 | “Retirement” shall mean, with respect to an Eligible Executive, any termination of employment by an Eligible Executive after the date the Eligible Executive is eligible for an early, normal or postponed retirement benefit under the ITT Salaried Retirement Plan (formerly known as the ITT Industries Salaried Retirement Plan), or would have been eligible had he been a participant in such Plan. |
| 1.30. | "Special Purpose Subaccount(s)” shall mean the bookkeeping account(s) described in Section 5.01(a) maintained to record deferrals that a Participant has elected to have paid pursuant to clause (ii) of Section 5.01(a), adjusted pursuant to Article 4. |
| 1.31 | “Specified Distribution Date” shall mean the specific date designated by a Participant pursuant to clause (ii) of Section 5.01(a). |
| 1.32 | “Specified Employee” shall mean a “Specified Employee” as such term is defined in the ITT Excess Pension Plan IIA, as amended from time to time. |
| 1.33 | “Termination of Employment” shall mean “Termination of Employment” as such term is defined in the ITT Excess Pension Plan IIA, as amended from time to time. |
| 1.34 | “Termination Subaccount” shall mean the bookkeeping account described in Section 5.01(a) maintained to record deferrals that a Participant has elected to have paid pursuant to clause (i) of Section 5.01(a), adjusted pursuant to Article 4. |
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ARTICLE 2 — PARTICIPATION
| 2.01 | Eligibility |
| An Employee who is an Executive as of the last business day in June of a calendar year and who was employed by the Company or an Associated Company on the first day of the Performance Period beginning in that calendar year (or such other date in the first quarter of such Performance Period as specified by the Administrative Committee) shall be an Eligible Executive with respect to the Plan Year following such calendar year and thereby eligible to participate in this Plan and execute a Deferral Agreement authorizing Deferrals under this Plan with respect to his Bonus payable in the following Plan Year. |
| 2.02 | In General |
| (a) | An individual who is determined to be an Eligible Executive with respect to a Plan Year and who desires to have deferrals credited on his behalf pursuant to Article 3 for such Plan Year must execute a Deferral Agreement with the Administrative Committee authorizing Deferrals under this Plan for such year in accordance with the provisions of Sections 3.01 and 3.02. |
| (b) | The Deferral Agreement shall be in writing and be properly completed in the manner approved by the Administrative Committee, which shall be the sole judge of the proper completion thereof. Such Deferral Agreement shall provide, subject to the provisions of Section 3.02, for the deferral of a portion of the Eligible Executive’s Bonus. The Deferral Agreement shall include such other provisions as the Administrative Committee deems appropriate. |
| (c) | An Eligible Executive shall become a Participant when Deferrals are first credited on his behalf pursuant to Article 3. |
| 2.03 | Termination of Participation |
| (a) | Participation shall cease when all benefits to which a Participant is entitled to hereunder are distributed to him. |
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| (b) | Subject to the provisions of Section 3.01, a Participant shall only be eligible to have Deferrals credited on his behalf in accordance with Article 3 for as long as he remains an Eligible Executive. |
| (c) | If a former Participant who has incurred a Termination of Employment and whose participation in the Plan ceased under Section 2.03(a) is reemployed as an Eligible Executive, the former Participant may again become a Participant in accordance with the provisions of Section 2.02. |
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ARTICLE 3 — DEFERRALS
| 3.01 | Filing Requirements |
| (a) | Subject to the following provisions of this Section, prior to the close of an annual enrollment period established by the Administrative Committee, an Eligible Executive who was employed by the Company or an Associated Company on the first day of a Performance Period (or such other date in the first quarter of such Performance Period as specified by the Administrative Committee) and who remains continuously employed through the date his Deferral Agreement is submitted, may elect to defer a portion of his Bonus earned with respect to that Performance Period which is otherwise payable in the next Plan Year; provided the Deferral Agreement is filed with Plan Administrative Committee (or its delegates) by the date established by the Administrative Committee but no later than six months before the end of the applicable Performance Period (the “Deferral Deadline Date”). Notwithstanding the foregoing, any election to defer Bonus that is made in accordance with this paragraph and that becomes payable as a result of the Participant’s death or disability (as defined in Treas. Reg. Section 1.409A-1(e)) or upon a Change in Control prior to the satisfaction of the performance criteria, will be void. |
| (b) | A Participant’s election to defer a portion of his Bonus for any calendar year shall become irrevocable on the last day the deferral of such Bonus may be elected under Section 3.01(a), except as otherwise provided in Section 3.02(c) or 3.05. A Participant may revoke or change his election to defer a portion of Bonus at any time prior to the date the election becomes irrevocable. Any such revocation or change shall be made in a form and manner determined by the Administrative Committee. |
| (c) | Subject to the provisions of Section 3.02, an Eligible Executive must file, in accordance with the provisions of Section 3.01(a), a new Deferral Agreement for each calendar year the Eligible Executive is eligible for and elects to defer a portion of his Bonus. |
| (d) | Notwithstanding any provision of the Plan to the contrary, an Eligible Executive’s election to defer Bonus shall only be effective if (1) the Eligible Executive files the Deferral Agreement with respect to such Bonus no later than the earlier of (A) the applicable Deferral Election Deadline (as defined in paragraph (a) above) or (B) the date that is six months before the end of the Performance Period with respect to which the Bonus is payable, (2) the Participant |
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| performs services continuously from the later of the beginning of the Performance Period or the date the criteria are established through the date the Deferral Agreement is submitted and (3) the Bonus is not readily ascertainable as of the date the Deferral Agreement is filed. |
| (e) | If a Participant ceases to be an Eligible Executive but continues to be employed by the Company or an Associated Company, he shall continue to be a Participant and his Deferral Agreement currently in effect for the Plan Year shall remain in force for the remainder of such Plan Year, but such Participant shall not be eligible to defer any portion of his Bonus earned in a subsequent Plan Year until such time as he shall once again become an Eligible Executive. |
| (f) | The Eligible Executive shall submit the Deferral Agreement in the manner specified by the Administrative Committee and a Deferral Agreement that is not timely filed shall be considered void and shall have no effect. The Administrative Committee shall establish procedures that govern deferral elections under the Plan. |
| 3.02 | Amount of Deferral |
| (a) | The Compensation and Personnel Committee or its delegate may determine prior to June 30th of a calendar year that an Eligible Executive may defer all or a portion of his Bonus that is otherwise payable in the next Plan Year. An Eligible Executive shall be given written notice of the opportunity to defer all or a portion of his Bonus at least ten business days prior to the date the Deferral Agreement for the applicable Plan Year must be submitted to the Administrative Committee. |
| (b) | The Administrative Committee may establish maximum or minimum limits on the amount of any Bonus which may be deferred and/or the timing of such Deferral. Eligible Executives shall be given written notice of any such limits prior to the date they take effect. |
| (c) | Notwithstanding anything in this Plan to the contrary, if an Eligible Executive: |
| (i) | receives a withdrawal of deferred cash contributions on account of hardship from any plan which is maintained by the Company or an Associated Company and which meets the requirements of Code Section 401(k) (or any successor thereto), and |
| (ii) | is precluded from making contributions to such 401(k) plan for at least 6 months after receipt of the hardship withdrawal, |
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| the Eligible Executive’s Deferral Agreement with respect to Bonus in effect at that time shall be cancelled. Any Bonus payment which would have been deferred pursuant to that Deferral Agreement but for the application of this Section 3.02(c) shall be paid to the Eligible Executive as if he had not entered into the Deferral Agreement. |
| 3.03 | Crediting to Deferral Account |
| The amount of Deferrals shall be credited to such Participant’s Deferral Account on the day such Bonus would have otherwise been paid to the Participant in the absence of a Deferral Agreement. Deferrals credited to a Participant’s Deferral account which are deemed invested in a Corporation phantom stock fund will be credited based on the fair market value of the Corporation’s common stock on that day. |
| 3.04 | Vesting |
| A Participant shall at all times be 100% vested in his Deferral Account. | ||
| 3.05 | Unforeseeable Emergency |
| Notwithstanding the foregoing provisions of this Article 3, the Compensation and Personnel Committee may completely cease Deferrals made under all Deferral Agreements then in effect with respect to the Participant upon the Participant’s providing the Compensation and Personnel Committee with such evidence of an Unforeseeable Emergency (as defined in Section 5.05) as the Compensation and Personnel Committee may deem appropriate. In the event the Compensation and Personnel Committee finds the Participant has incurred an Unforeseeable Emergency (as defined in Section 5.05), the Participant’s Deferral Agreement in effect at that time shall be cancelled and Deferrals shall cease as of the first practicable payroll period following the Compensation and Personnel Committee’s decision. In the event the Participant wishes to recommence Deferrals starting in a subsequent calendar year, the Participant may do so by duly completing, executing, and filing the appropriate Deferral Agreement with the Administrative Committee in accordance with Section 3.01, provided said Participant is an Eligible Executive at that time. |
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ARTICLE 4 — MAINTENANCE OF ACCOUNTS
| 4.01 | Adjustment of Account |
| (a) | As of each Reporting Date, each Deferral Account (or subaccount thereof) and/or Grandfathered Deferral Account shall be credited or debited with the amount of earnings or losses with which such Deferral Account (or subaccounts thereof) and/or Grandfathered Deferral Account would have been credited or debited, assuming it had been invested in one or more investment funds, or earned the rate of return of one or more indices of investment performance, designated by the Administrative Committee and elected by the Participant pursuant to Section 4.02 for purposes of measuring the investment performance of such Accounts. Any portion of a Participant’s Deferral Account (or subaccount thereof) and/or Grandfathered Deferral Account deemed invested in a Corporation phantom stock fund shall be credited with dividend equivalents, as and when dividends are paid on the Corporation’s common stock, which shall be deemed invested in additional shares of such phantom stock. |
| (b) | The Plan Committee shall designate at least one investment fund or index of investment performance and may designate other investment funds or investment indices (including a Corporation phantom stock fund) to be used to measure the investment performance of a Participant’s Deferral Account and/or Grandfathered Deferral Account. The designation of any such investment funds or indices shall not require the Corporation to invest or earmark their general assets in any specific manner. The Plan Committee may change the designation of investment funds or indices from time to time, in its sole discretion, and any such change shall not be deemed to be an amendment affecting Participants’ rights under Section 6.02. |
| 4.02 | Investment Performance Elections |
| In the event the Plan Committee designates more than one investment fund or index of investment performance under Section 4.01, each Participant shall file an investment election with the Administrative Committee or its delegate with respect to the investment of his Deferral Account (or subaccount thereof) and/or Grandfathered Deferral Account within such time period and in such manner as the Administrative Committee may prescribe. The election shall designate the investment fund or funds or index or indices of investment performance which shall be used |
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| to measure the investment performance of the Participant’s Deferral Account (or subaccount thereof) and/or Grandfathered Deferral Account. |
| 4.03 | Changing Investment Elections |
| In the event the Plan Committee designates more than one investment fund or index of investment performance under Section 4.01, a Participant may change his election of the investment fund or funds or index or indices of investment performance used to measure the future investment performance of the existing account balance of his Deferral Account (or subaccount thereof) and/or his Grandfathered Deferral Account, by filing an appropriate written notice with the Administrative Committee or its delegate within such time periods and in such manner as prescribed by the Administrative Committee, in advance of the date such election is effective. The election shall be effective as soon as administratively practicable after the date on which notice is timely filed or at such other time as prescribed by the Administrative Committee on a basis uniformly applicable to all Participants similarly situated. |
| A Participant may change his or her election of the investment fund or funds or index or indices of investment performance used to measure the future investment performance of his future Deferrals within such time periods and in such manner prescribed by the Administrative Committee. The election shall be effective as soon as administratively practicable after the date in which notice is timely filed or at such other time as the Administrative Committee shall determine. In the absence of such an election, the Participant’s future Deferrals will be invested in accordance with his existing investment election with respect to the current balance of his Deferral Account (or subaccount thereof), provided, however, if such Participant is an “insider” (as defined in Section 16 of the Securities Exchange Act of 1934) and his existing investment elections include an investment in the Corporation’s phantom stock fund, his future Deferrals shall be allocated pro rata among the other funds or indices on his existing investment election based on the proportions as designated on such existing investment election. |
| 4.04 | Individual Accounts |
| (a) | The Administrative Committee shall maintain, or cause to be maintained on the books of the Corporation, records showing the individual balance of each Participant’s Deferral Account (or subaccount thereof) and/or Grandfathered Deferral Account. The Participant’s Deferral Account (or subaccount thereof) shall be credited with the Deferrals made by the Participant pursuant to the provisions of Article 3 and the |
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| Participant’s Deferral Account (or subaccount thereof) and/or Grandfathered Deferral Account shall be credited and debited, as the case may be, with hypothetical investment results determined pursuant to this Article 4. At least once a year each Participant shall be furnished with a statement setting forth the value of his Deferral Account (or subaccount thereof) and/or Grandfathered Deferral Account. |
| (b) | Within each Participant’s Deferral Account and/or Grandfathered Deferral Account, separate subaccounts shall be maintained to the extent necessary for the administration of the Plan. |
| (c) | The accounts established under this Article shall be hypothetical in nature and shall be maintained for bookkeeping purposes only so that hypothetical gains or losses on the deferrals made to the Plan can be credited or debited, as the case may be. |
| 4.05 | Valuation of Accounts |
| (a) | The Administrative Committee shall value or cause to be valued each Participant’s Deferral Account and/or Grandfathered Deferral Account at least monthly. On each Reporting Date there shall be allocated to the Deferral Account and/or Grandfathered Deferral Account of each Participant the appropriate amount determined in accordance with Section 4.01. |
| (b) | Whenever an event requires a determination of the value of a Participant’s Deferral Account and/or Grandfathered Deferral Account, the value shall be computed as of the Reporting Date immediately preceding the date of the event, except as otherwise specified in this Plan. |
| 4.06 | Compliance with Securities Laws and Trading Policies and Procedures |
| A Participant’s ability to direct investments into or out of a Corporation phantom stock fund shall be subject to such terms, conditions and procedures as the Plan Administrator may prescribe from time to time to assure compliance with Rule 16b-3 promulgated under Section 16(b) of the Securities Exchange Act of 1934, as amended (“Rule 16b-3”), and other applicable requirements. Such procedures also may limit or restrict a Participant’s ability to make (or modify previously made) Deferrals and distribution elections under the Plan. In furtherance, and not in limitation, of the foregoing, to the extent a Participant acquires any interest in an equity security under the Plan |
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| for purposes of Section 16(b), the Participant shall not dispose of that interest within six (6) months, unless such disposition is exempted by Section 16(b) or any rules or regulations promulgated thereunder or with respect thereto. Any election by a Participant to invest any amount in a Corporation phantom stock fund, and any elections to transfer amounts from or to the Corporation phantom stock fund to or from any other investment fund or indices, shall be subject to all applicable securities law requirements, including but not limited to the those reflected in the prior sentence and Rule 16b-3, as well as all applicable stock trading policies and procedures of the Corporation. To the extent any election violates any securities law requirement, applicable trading policies and procedures of the Corporation, or any terms or conditions established from time to time by the Administrative Committee relating to such elections (whether or not reflected in the Plan), the election shall be void. |
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ARTICLE 5 — PAYMENT OF BENEFITS
| 5.01 | Commencement of Payment |
| (a) | Subject to the limitations in Section 5.01(b) and except as otherwise provided below, each time a Participant completes a Deferral Agreement, a Participant shall designate on each applicable Deferral Agreement whether the related Deferrals, adjusted in accordance with Article 4, will be allocated to one of the following subaccounts: |
| (i) | Termination Subaccount | ||
| Except as otherwise provided in the Plan, amounts allocated to the Termination Subaccount (after adjustment pursuant to Article 4) will be paid on the first business day of the seventh month following the Participant’s Termination of Employment. | |||
| (ii) | Special Purpose Subaccount | ||
| Except as otherwise provided in the Plan, amounts allocated to the Special Purpose Subaccount (after adjustment pursuant to Article 4) will be paid as elected by the Participant, on either (1) the date specified by the Participant, or (2) the earlier of the date specified by the Participant or the first business day of the seventh month following the Participant’s Termination of Employment. The Specified Distribution Date for the Special Purpose Subaccount shall be the month and year designated by the Participant on his or her initial Deferral Agreement establishing that Special Purpose Subaccount, unless otherwise modified in accordance with the provisions of Section 5.03. |
| A Participant may elect to have all of his deferred Bonus allocated to the Termination Retirement Subaccount or the Special Purpose Subaccount or to have a specified portion of his Bonus allocated to one or more Subaccounts. | |||
| (b) | A Participant’s ability to elect to have his deferred Bonus allocated to the Special Purpose Subaccount and the Participant’s selection of a Specified Distribution Date shall be subject to the following limitations: |
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| (i) | deferred Bonus may only be allocated to the Participant’s Special Purpose Subaccount if the Specified Distribution Date applicable to that subaccount is at least twelve (12) months after the day of the Plan Year in which the Bonus being deferred was earned; and | ||
| (ii) | a Participant may have only two Special Purpose Subaccounts established on his behalf (and only one Specified Distribution Date applicable to each Special Purpose Subaccount) at any one time; provided, however, that if the Participant is prohibited from allocating any portion of a Deferral to his existing Special Purpose Subaccounts because of the limitation contained in Section 5.01(b)(i), the Participant may request pursuant to the procedures established by the Administrative Committee that a new Special Purpose Subaccount be established on his behalf in accordance with the provisions of Section 5.01. |
| (c) | (i) | Except as otherwise provided below, and notwithstanding the foregoing with respect to an Eligible Executive who completed a Deferral Agreement with respect to the Plan Year beginning as of January 1, 2005, the distribution of the Participant’s Deferral 2005 Subaccount (as defined below) shall commence, pursuant to Section 5.02, on the occurrence of the distribution event made available under procedures established from time to time by the Administrative Committee and as designated by the Participant on his 2005 Deferral Agreement (“Common Distribution Date”). For purposes of this Article a Participant Deferral 2005 Subaccount shall mean the bookkeeping account maintained for each Participant to record the amount of Bonus deferred in 2005 by a Participant in accordance with Article 3, adjusted as provided in Article 4. |
| (ii) | Notwithstanding the foregoing, in the event a Participant incurs a Termination of Employment for reasons other than Retirement prior to his Common Distribution Date , the distribution of his Deferral 2005 SubAccount shall commence, pursuant to Section 5.02, on the first business day of the seventh month following his Termination of Employment; provided, however, if a Participant has prior to the date of his Termination of Employment, in accordance with the procedures prescribed by the Administrative Committee, made a special termination election, the distribution of his Deferral 2005 Account shall commence, pursuant to Section |
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| 5.02, on the later of (1) the occurrence of the Termination Distribution Date designated by the Participant on the appropriate special termination election form prescribed by the Administrative Committee (“Special Effective Termination Distribution Date”) or (2) the first business day of the seventh month following such Participant’s Termination of Employment. | |||
| (iii) | In the event a Participant elects pursuant to the foregoing provisions of this paragraph (c) to defer to a specific calendar date in a specific calendar year, he may not elect a calendar date which occurs prior to the close of the calendar year following the calendar year in which he executed the Deferral Agreement. |
| (d) | A Participant shall not change his designation of the distribution event made pursuant to the foregoing provisions of this Section 5.01 which entitles him to a distribution of his Deferral Account, except as otherwise provided in Section 5.03 below. | ||
| (e) | Notwithstanding any Plan provisions to the contrary, the distribution of a Participant’s Grandfathered Deferral Account shall be made in accordance with provisions of the Plan as in effect on October 3, 2004, as modified in Appendix B and without regard to any Plan amendments after that date which would constitute a material modification for Code Section 409A purposes. |
| 5.02 | Method of Payment |
| (a) | Except as otherwise provided in paragraphs (b) and (c) below: |
| (i) | At the time a Participant makes an election of his distribution event pursuant to the provisions of Sections 5.01(a) or (c) the Participant shall elect that the portion of his Deferral Account (or any subaccount thereof) to which such distribution event is applicable shall be made payable as of such distribution event under one of the following methods of payment: |
| (1) | ratable annual cash installments for a period of years, not to exceed fifteen (15) years, designated by the Participant on his Deferral Agreement, or | ||
| (2) | a single lump sum cash payment. |
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| (ii) | Notwithstanding the foregoing, at the time a Participant makes an election of a Special Effective Termination Distribution Date pursuant to the provisions of Section 5.01(c)(ii), the Participant shall elect that the portion of his Deferral Account be distributed on his Special Effective Termination Distribution Date shall be made payable under one of the following methods of payment: |
| (1) | ratable annual cash installments for a period of five (5) years, or |
| (2) | a single lump sum cash payment. |
| During an installment payment period, the Participant’s Deferral Account (or subaccounts thereof) shall continue to be credited with earnings or losses as described in Section 4.01. The value of the first installment or lump sum payment shall be determined as of the first Reporting Date coincident with or next following the distribution event designated pursuant to Section 5.01 or 5.03 with respect to that portion of his Deferral Account. Subsequent installments, if any, shall be paid on the first business day following the anniversary of said distribution event in the following calendar year and each subsequent year of the installment period. The amount of each installment shall equal the balance in the applicable portion of the Participant’s Deferral Account (or subaccounts) as of each Reporting Date of determination divided by the number of remaining installments (including the installment being determined). |
| (b) | Notwithstanding the foregoing, in the event payment of a Participant’s Deferral 2005 Subaccount is to be made pursuant to Section 5.01(c) to a Participant who does not have a Special Effective Termination Distribution Date election in effect as of his date of Termination of Employment, a lump sum payment of his Deferral 2005 Subaccount shall be made as of the first business day of the seventh month following the Participant’s Termination of Employment. |
| (c) | A Participant shall not change his method of payment, except as otherwise provided in Section 5.03. |
| (d) | Notwithstanding any Plan provision to the contrary, the form of distribution of a Participant’s Grandfathered Deferral Account shall be made in accordance with the provisions of the Plan as in effect on October 3, 2004, as modified in Appendix B and |
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| without regard to any Plan amendments after that date which would constitute a material modification for Code Section 409A purposes. |
| 5.03 | Change of Distribution Election |
| (a) | Changes in Election | ||
| In accordance with such procedures as the Administrative Committee may prescribe, a Participant may elect to delay the payment of Deferrals by specifying a new Common Distribution Date, a Special Effective Termination Distribution Date or a Specified Distribution Date applicable to a portion of his Deferral Account (or subaccounts thereof) payable at said dates by duly completing, executing and filing with the Administrative Committee a new election, on an appropriate form designated by the Administrative Committee, subject to the following limitations: |
| (i) | such new election must be made at least twelve (12) months prior to the Common Distribution Date, Special Effective Termination Distribution Date or Specified Distribution Date, whichever is then in effect with respect to that portion of his Deferral Account (or subaccounts thereof), and such election will not become effective until at least twelve (12) months after the date on which the new election is made, and |
| (ii) | the new Common Distribution Date, Special Effective Termination Distribution Date or Specified Distribution Date, whichever is applicable, shall be a date that is not less than five (5) years from the Common Distribution Date, Special Effective Termination Distribution Date or Specified Distribution Date then in effect. |
| A Participant may elect to delay a Common Distribution Date, Special Effective Termination Distribution Date or Specified Distribution Date applicable to a specified portion of his Deferral Account pursuant to this Section 5.03(a) more than once, provided that all such elections comply with the provisions of this Section 5.03(a). |
| (b) | In accordance with such procedures as the Administrative Committee may prescribe, a Participant may elect to change the form of payment election under Section 5.02 applicable to the portion of his Deferral Account (or subaccounts thereof) that is deferred to a Common Distribution Date, Special Effective Termination Distribution Date or Specified |
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| Distribution Date by duly completing, executing and filing with the Administrative Committee a new form of payment election, subject to the following limitations: |
| (i) | such new election must be made at least twelve (12) months prior to the Common Distribution Date, Special Effective Termination Distribution Date or Specified Distribution Date, whichever is then in effect with respect to that portion of his Deferral Account (or subaccounts thereof), and such election will not become effective until at least twelve (12) months after the date on which the election is made, and | ||
| (ii) | the distribution of that portion of his Deferral Account (or subaccounts thereof) shall be deferred for five (5) years from the date such amount would otherwise have been paid absent this new election. |
| (c) | A Participant may change the election as applicable to his Grandfathered Deferral Accounts pursuant to the provisions of the Plan as in effect on October 3, 2004, as modified in Appendix B and without regard to any Plan amendments after that date which would constitute a material modification for Code Section 409A purposes. |
| (d) | It is the Company’s intent that the provisions of Section 5.03(a) and Section 5.03(b) comply with the subsequent election provisions in Code Section 409A(a)(4)(C), related regulations and other applicable guidance, and this Section 5.03(a) and Section 5.03(b) shall be interpreted accordingly. The Administrative Committee may impose additional restrictions or conditions on a Participant’s ability to elect a new specified distribution year pursuant to this Section 5.03(a) and Section 5.03(b). The Participant may revoke or change his election pursuant to this Section 5.03(a) and Section 5.03(b) at any time prior to the deadline for making such election, subject to such restrictions as the Administrative Committee may establish from time to time. Any such revocation or change shall be made in a form and manner determined by the Administrative Committee. For avoidance of doubt, a Participant may not elect to change the form of payment or delay payment of amounts deferred to Retirement or Termination of Employment. In addition a Participant may not transfer amounts between his Termination Subaccount and any Special Purpose Subaccount, or between Special Purposes Subaccounts. |
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| (e) | Transition Rules | ||
| Notwithstanding anything in the Plan to the contrary, the Administrative Committee may, in its discretion and subject to such terms and conditions as it may from time to time prescribe, allow Participants to change the time of payment or portion of payment of all or a portion of their Deferral Accounts (or subaccounts) prior to January 1, 2009 in accordance with applicable transition relief provided with respect to Code Section 409A, dated regulations and other applicable guidance. |
| 5.04 | Death |
| Notwithstanding any Plan provisions to the contrary, if a Participant dies before payment of the entire balance of his Deferral Account, an amount equal to the unpaid portion thereof as of the date of his death shall be payable in one lump sum to his Beneficiary. Such payment will be made in the month following the month the Participant’s death occurs. |
| 5.05 | Hardship |
| Notwithstanding anything in the Plan or in a Deferral Agreement to the contrary, the Administrative Committee may, if it determines an Unforeseeable Emergency exists which cannot be satisfied from other sources, approve a request by the Participant for a withdrawal from his Deferral Account. Such request shall be made in a time and manner determined by the Administrative Committee. The payment made from a Participant’s Deferral Account pursuant to the provisions of this Section 5.05 shall be limited to the amount reasonably necessary to satisfy the emergency need (which may include amounts necessary to pay any Federal, state, local or foreign income taxes or penalties reasonably anticipated to result from the distribution). Determinations of amounts necessary to satisfy the emergency need must take into account any additional compensation that is available, other than additional compensation that, due to the Unforeseeable Emergency, is available under another nonqualified deferred compensation plan but that has not actually been paid. This Section 5.05 is intended to comply with Code Section 409A, related regulations and any other applicable guidance and shall be interpreted accordingly so that distributions shall be permitted under this Section 5.05 only to the extent they comply with Code Section 409A and the regulations promulgated thereunder. For purposes of this Section 5.05 an “Unforeseeable Emergency” shall mean a severe financial hardship to a Participant resulting from (a) an illness or accident of the Participant or the Participant’s spouse, beneficiary or dependent (as defined in Code Section 152, without regard to Section 152(b)(1), (b)(2) and (d)(1)(B)), (b) loss of the Participant’s property due to casualty (including the need to rebuild a |
Page 23
| home following damage to the home not otherwise covered by insurance) or (c) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant; provided, however, that an Unforeseeable Emergency shall only exist to the extent the severe financial hardship would constitute an Unforeseeable Emergency under Code Section 409A, related regulations and other applicable guidance. Such payments shall be paid in a single lump sum within ninety (90) days of the date the Unforeseeable Emergency payment is approved by the Administrative Committee. |
| 5.06 | Payment upon the Occurrence of a Change in Control |
| Notwithstanding the foregoing provisions of this Article 5, upon the occurrence of a Change in Control, every Participant who is an Eligible Executive or a former Eligible Executive shall automatically receive the entire balance of his Deferral Accounts in a single lump sum payment. Such lump sum payment shall be made as soon as practicable on or after the Change in Control. If such Participant dies after such Change in Control, but before receiving such payment, it shall be made to his Beneficiary. |
| For avoidance of doubt, upon the occurrence of an Acceleration Event (either prior, after or simultaneously with the occurrence of a Change of Control), the provisions of Section 5.06 of the Plan as in effect on October 3, 2004 without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes, shall be applicable to a Participant’s Grandfathered Deferral Account. |
| 5.07 | Acceleration of or Delay in Payments |
| The Administrative Committee, in its sole and absolute discretion, may elect to accelerate the time or form of payment of a benefit owed to the Participant hereunder, provided such acceleration is permitted under Treas. Reg. Section 1.409A-3(j)(4). The Administrative Committee may also, in its sole and absolute discretion, delay the time for payment of a benefit owed to the Participant hereunder, to the extent permitted under Treas. Reg. Section 1.409A-2(b)(7). |
| 5.08 | Designation of Beneficiary |
| Each Participant shall file with the Administrative Committee a written designation of one or more persons as the Beneficiary who shall be entitled to receive the amount, if any, payable under the Plan upon his death pursuant to Section 5.04 or 5.06. A Participant may, from time to time, |
Page 24
| revoke or change his Beneficiary designation without the consent of any prior Beneficiary by filing a new designation with the Administrative Committee. The last such designation received by the Administrative Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Administrative Committee prior to the Participant’s death, and in no event shall it be effective as of a date prior to such receipt. If no such Beneficiary designation is in effect at the time of a Participant’s death, or if no designated Beneficiary survives the Participant, the Participant’s surviving spouse, if any, shall be his Beneficiary, otherwise the person designated as beneficiary by the Participant under the ITT Salaried Group Life Insurance Plan shall be his Beneficiary, and shall receive the payment of the amount, if any, payable under the Plan upon his death; provided, however, that if the life insurance benefit has been assigned, the Beneficiary shall be the Participant’s estate. |
| 5.09 | Debiting Accounts |
| Any amounts debited from a Participant’s Deferral Account or Granfathered Deferral Account by reason of a distribution, withdrawal, or otherwise under this Article 5, shall be debited from the Participant’s Deferral Account and/or Grandfathered Deferral Account and the investment options under which such amount is credited, and such other accounts, subaccounts, options, or other allocations, as determined by the Administrative Committee on a basis uniformly applicable to all Participants similarly situated. |
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ARTICLE 6 — AMENDMENT OR TERMINATION
| 6.01 | Right to Terminate |
| Notwithstanding any Plan provision to the contrary, the Corporation may, by action of the Board of Directors, terminate this Plan and the related Deferral Agreements at any time. To the extent consistent with the rules relating to plan terminations and liquidations in Treasury Regulation Section 1.409A-3(j)(4)(ix) or otherwise consistent with Code Section 409A, the Board may provide that, without the prior written consent of Participants, all of the Participants’ Deferral Accounts shall be distributed in a lump sum upon termination of the Plan. Unless so distributed, in the event of a Plan termination, the Corporation shall continue to maintain the Deferral Accounts until distributed pursuant to the terms of the Plan and Participants shall remain 100% vested in all amounts credited to their Deferral Accounts. For avoidance of doubt, in the event of a Plan termination, distribution of a Grandfathered Deferral Account shall be governed by the provisions of the Plan as in effect on October 3, 2004. |
| 6.02 | Right to Amend |
| The Compensation and Personnel Committee or its delegate may amend or modify this Plan and the related Deferral Agreements in any way either retroactively or prospectively. However, except that without the consent of the Participant or Beneficiary, if applicable, no amendment or modification shall reduce or diminish such person’s right to receive any benefit accrued hereunder prior to the date of such amendment or modification, and after the occurrence of an Acceleration Event, no modification or amendment shall be made to Section 5.06 or Section 6.01 under Appendix A, attached hereto and made part hereof. A change in any investment fund or index under Section 4.01 shall not be deemed to adversely affect any Participant’s rights to his Deferral Account or Grandfathered Deferral Account. Notice of an amendment or modification to the Plan shall be given in writing to each Participant and Beneficiary of a deceased Participant having an interest in the Plan. |
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ARTICLE 7 — GENERAL PROVISIONS
| 7.01 | Funding |
| All amounts payable in accordance with this Plan shall constitute a general unsecured obligation of the Corporation. Such amounts, as well as any administrative costs relating to the Plan, shall be paid out of the general assets of the Corporation. The Administrative Committee may decide that a Participant’s Deferral Account and/or Grandfather Deferral Account may be reduced to reflect allocable administrative expenses. |
| 7.02 | No Contract of Employment |
| The Plan is not a contract of employment and the terms of employment of any Participant shall not be affected in any way by this Plan or related instruments, except as specifically provided therein. The establishment of the Plan shall not be construed as conferring any legal rights upon any person for a continuation of employment, nor shall it interfere with the rights of the Company to discharge any person and to treat him without regard to the effect which such treatment might have upon him under this Plan. Each Participant and all persons who may have or claim any right by reason of his participation shall be bound by the terms of this Plan and all Deferral Agreements entered into pursuant thereto. |
| 7.03 | Unsecured Interest |
| Neither the Corporation, the Company nor the Compensation and Personnel Committee nor the Administrative Committee nor the Plan Committee in any way guarantees the performance of the investment funds or indices a Participant may designate under Article 4. No special or separate fund shall be established, and no segregation of assets shall be made, to assure the payments thereunder. No Participant hereunder shall have any right, title, or interest whatsoever in any specific assets of the Corporation. Nothing contained in this Plan and no action taken pursuant to its provisions shall create or be construed to create a trust of any kind or a fiduciary relationship between the Corporation and a Participant or any other person. To the extent that any person acquires a right to receive payments under this Plan, such right shall be no greater than the right of any unsecured creditor of the Corporation. |
| 7.04 | Facility of Payment |
| In the event that the Administrative Committee shall find that a Participant or Beneficiary is incompetent to care for his affairs or is a minor, the Administrative Committee may direct that |
Page 27
| any benefit payment due him, unless claim shall have been made therefore by a duly appointed legal representative, be paid on his behalf to his spouse, a child, a parent or other relative, and any such payment so made shall thereby be a complete discharge of the liability of the Coporation, the Company and the Plan for that payment. |
| 7.05 | Withholding Taxes |
| The Corporation shall have the right to deduct from each payment to be made under the Plan any required withholding taxes. |
| 7.06 | Nonalienation |
| Subject to any applicable law, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void, nor shall any such benefit be in any manner liable for or subject to garnishment, attachment, execution or levy, or liable for or subject to the debts, contracts, liabilities, engagements or torts of a person entitled to such benefits. |
| 7.07 | Transfers |
| (a) | Notwithstanding any Plan provision to the contrary, in the event the Corporation (i) sells, causes the sale of, or sold the stock or assets of any employing company in the controlled group of the Corporation to a third party or (ii) distributes or distributed to the holders of shares of the Corporation’s common stock all of the outstanding shares of common stock of a subsidiary or subsidiaries of the Corporation and, as a result of such sale or distribution, such company or its employees are no longer eligible to participate hereunder, the Compensation and Personnel Committee, in its sole discretion, may treat such event as not constituting a Termination of Employment and direct that the liabilities with respect to the benefits accrued under this Plan for a Participant who, as a result of such sale or distribution, is no longer eligible to participate in this Plan, shall (with the approval of the new employer), be transferred to a similar plan of such new employer and become a liability thereunder, provided that no provisions of such new plan or amendment thereof shall reduce the balance of the Participants’ Deferral Accounts and/or Grandfathered deferral Accounts as of the date of such transfer, as adjusted for investment gains or losses. Upon such transfer (and acceptance thereof), the liabilities for such transferred benefits shall become the obligation of the new employer and the liability under this Plan for such benefits shall cease. |
Page 28
| (b) | Notwithstanding any Plan provision to the contrary, at the discretion and direction of the Corporation, liabilities with respect to benefits accrued by a Participant under a plan maintained by such Participant’s former employer may be transferred to this Plan and upon such transfer become the obligation of the Corporation. |
| 7.08 | Claims Procedure |
| (a) | Submission of Claims | ||
| Claims for benefits under the Plan shall be submitted in writing to the Administrative Committee or to an individual designated by the Administrative Committee for this purpose. |
| (b) | Denial of Claim | ||
| If any claim for benefits is wholly or partially denied, the claimant shall be given
written notice within ninety (90) days following the date on which the claim is filed,
which notice shall set forth the following: |
| (i) | The specific reason or reasons for the denial; | ||
| (ii) | Specific reference to pertinent Plan provisions on which the denial is based; |
| (iii) | A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; |
| (iv) | An explanation of the Plan’s claim review procedure; and | ||
| (v) | The time limits for requesting a review under this Section. |
| If special circumstances require an extension of time for processing the claim, written notice of an extension shall be furnished to the claimant prior to the end of the initial period of ninety (90) days following the date on which the claim is filed. Such an extension may not exceed a period of ninety (90) days beyond the end of said initial period. | |||
| If the claim has not been granted and written notice of the denial of the claim, or that an extension has been granted is not furnished within ninety (90) days following the date on which the claim is filed, the claim shall be deemed denied for the purpose of proceeding to the claim review procedure. |
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| (c) | Claim Review Procedure | ||
| The claimant or his authorized representative shall have sixty (60) days after receipt of written notification of denial of a claim to request a review of the denial by making written request to the Administrative Committee, and may review pertinent documents and submit issues and comments in writing within such 60-day period. | |||
| Not later than sixty (60) days after receipt of the request for review, the persons designated by the Company to hear such appeals (the “Appeals Committee”) shall render and furnish to the claimant a written decision, which shall include specific reasons for the decision and shall make specific references to pertinent Plan provisions on which it is based. If special circumstances require an extension of time for processing, the decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review, provided that written notice and explanation of the delay are given to the claimant prior to commencement of the extension. Such decision by the Appeals Committee shall not be subject to further review. If a decision on review is not furnished to a claimant within the specified time period, the claim shall be deemed to have been denied on review. |
| (d) | Exhaustion of Remedy | ||
| No claimant shall institute any action or proceeding in any state or federal court of law or equity or before any administrative tribunal or arbitrator for a claim for benefits under the Plan until the claimant has first exhausted the procedures set forth in this section. |
| 7.09 | Payment of Expenses |
| All administrative expenses of the Plan and all benefits under the Plan shall be paid from the general assets of the Corporation, except as otherwise may be provided herein. |
| 7.10 | Discharge of Corporation’s Obligation |
| The payment by the Corporation of the benefits due under each and every Deferral Agreement to the Participant or his Beneficiary shall discharge the Corporation’s obligation under the Plan, and the Participant or Beneficiary shall have no further rights under this Plan or the Deferral Agreements upon receipt by the appropriate person of all such benefits. |
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| 7.11 | Successors |
| The Plan shall be binding upon the successors and assigns of the Corporation, whether such succession is by purchase, merger or otherwise. |
| 7.12 | Construction |
| (a) | The Plan is intended to constitute an unfunded deferred compensation arrangement for a select group of management or highly compensated employees and, therefore, is exempt from the requirements of parts 2, 3 and 4 of Subtitle B of Title I of ERISA (pursuant to Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA), and all rights hereunder shall be governed by ERISA. Subject to the preceding sentence, the Plan shall be construed, regulated and administered in accordance with the laws of the State of New York, subject to the provisions of applicable federal laws. |
| (b) | The masculine pronoun shall mean the feminine wherever appropriate. |
| (c) | The illegality of any particular provision of this document shall not affect the other provisions, and the document shall be construed in all respects as if such invalid provision were omitted. |
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ARTICLE 8 — ADMINISTRATION
| 8.01 | Administration |
| (a) | The Administrative Committee shall mean the ITT Benefits Administration Committee established from time to time pursuant to the terms of the ITT Salaried Retirement Plan. The Administrative Committee shall have the exclusive responsibility and complete discretionary authority to control the operation, management and administration of the Plan, with all powers necessary to enable it properly to carry out such responsibilities, including, but not limited to, the power to interpret the Plan and any related documents, to establish procedures for making any elections called for under the Plan, to make factual determinations regarding any and all matters arising hereunder, including, but not limited to, the right to determine eligibility for benefits, the right to construe the terms of the Plan, the right to remedy possible ambiguities, inequities, inconsistencies or omissions, and the right to resolve all interpretive, equitable or other questions arising under the Plan. The decisions of the Administrative Committee or such other party as is authorized under the terms of any grantor trust on all matters shall be final, binding and conclusive on all persons to the extent permitted by law. |
| (b) | To the extent permitted by law, all agents and representatives of the Administrative Committee shall be indemnified by the Corporation and held harmless against any claims and the expenses of defending against such claims, resulting from any action or conduct relating to the administration of the Plan, except claims arising from gross negligence, willful neglect or willful misconduct. |
| (c) | With respect to benefits hereunder subject to Code Section 409A, the Plan is intended to comply with the requirements of Code Section 409A and the provisions hereof shall be interpreted in a manner that satisfies the requirements of Code Section 409A and the regulations thereunder, and the Plan shall be operated accordingly. If any provision of the Plan would otherwise frustrate or conflict with this intent, the provision will be interpreted and deemed amended so as to avoid this conflict. The Plan has been administered in good faith compliance with Section 409A and the guidance issued thereunder from January 1, 2005 through December 31, 2008. |
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APPENDIX A
SPECIAL PROVISIONS APPLICABLE TO CERTAIN PARTICIPANTS
WHO DEFERRED BASE SALARY UNDER THIS PLAN
WHO DEFERRED BASE SALARY UNDER THIS PLAN
This Appendix A is applicable only with respect to a Participant who deferred all or a portion of
his Base Salary under the provisions of this Plan and who (i) lost matching or other employer
contributions under the ITT Industries Investment and Savings Plan for Salaried Employees (or any
predecessor plan) due to the deferral of his Base Salary under this Plan, or (ii) had salary
deferrals attributable to such Base Salary credited on his behalf to the ITT Industries Excess
Savings Plan (or a predecessor plan) prior to January 1, 1996.
SECTION 1 — DEFINITIONS
| 1.01 | “Accounts” shall mean the Deferred Account, Floor Contribution Account and the Matching Contribution Account. |
| 1.02 | “Deferred Account” shall mean the bookkeeping account maintained for each Participant covered under this Appendix A to record the portion of Base Salary deferred under this Plan which was credited as a Salary Deferral under the ITT Industries Excess Savings Plan (or any predecessor plan) prior to January 1, 1996. |
| 1.03 | “Matching Contribution Account” shall mean the bookkeeping account maintained for each Participant covered under this Appendix A to record the Excess Matching Contribution (as defined under the ITT Industries Excess Savings Plan) credited on such Participant’s behalf due to his deferral of Base Salary under this Plan. |
| 1.04 | “Floor Contribution Account” shall mean the bookkeeping account maintained for each Participant covered under this Appendix A to record the Excess Floor Contributions (as defined under the ITT Industries Excess Savings Plan) credited on such Participant’s behalf due to his deferral of Base Salary under this Plan. |
Page 33
SECTION 2. — INVESTMENT OF ACCOUNTS
| 2.01 | A Participant shall have no choice or election with respect to the investments of his Accounts. There shall be credited or debited an amount of earnings or losses on the balance of the Participant’s Accounts which would have been credited had the Participant’s Accounts been invested in the Stable Value Fund maintained under the ITT Salaried Investment and Savings Plan. |
SECTION 3. — VESTING OF ACCOUNTS
| 3.01 | A Participant shall be fully vested .in his Deferred Account and Floor Contribution Account. The Participant shall vest in the amounts credited to his Matching Contribution Account at the same rate and under the same conditions at which such contributions would have vested under the ITT Salaried Investment and Savings Plan had they been contributed thereunder. In the event the Participant terminates employment prior to vesting in all or any part of the amount credited on his behalf to his Matching Contribution Account, such contributions and earnings thereon shall be forfeited and shall not be restored in the event the Participant is subsequently reemployed by the Company. |
| 3.02 | Notwithstanding any provisions of this Plan or Appendix A to the contrary, upon the occurrence of an Acceleration Event, (as such term is defined in Article I of the Plan) a Participant shall become fully vested in the amounts credited to his Matching Contribution Account. |
SECTION 4. — COMMENCEMENT OF PAYMENT
| 4.01 | A Participant shall be entitled to receive payment of his Deferred Account, Floor Contribution Account and the vested portion of his Matching Contribution Account, as determined under Section 3.01, upon his termination of employment for any reason, other than death. The distribution of such Accounts shall be made as soon as practicable following such termination of employment. |
| 4.02 | In the event of the death of a Participant prior to the full payment of his Accounts, the unpaid portion of his Accounts shall be paid to his Beneficiary (as defined in Section 1.05 of the Plan) as soon as practicable following his date of death. |
SECTION 5. — METHOD OF PAYMENT
Page 34
| 5.01 | Payment of a Participant’s Deferred Account, Floor Contribution Account, and the vested portion of his Matching Contribution Account shall be made in a single lump sum payment. |
SECTION 6. — PAYMENT UPON THE OCCURRENCE OF AN ACCELERATION EVENT
| 6.01 | Upon the occurrence of an Acceleration Event, all Participants shall automatically receive the entire balance of their Accounts in a single lump sum payment. Such lump sum payment shall be made as soon as practicable on or after the Acceleration Event. If the Participant dies after such Acceleration Event, but before receiving such payment, it shall be made to his Beneficiary. |
Page 35
APPENDIX B
PROVISIONS APPLICABLE TO A PARTICIPANT’S
GRANDFATHERED DEFERRAL ACCOUNT
GRANDFATHERED DEFERRAL ACCOUNT
This Appendix B constitutes an integral part of the Plan and is applicable with respect to the
Grandfathered Deferral Account of those individuals who were Participants in the Plan on December
31, 2004. The Grandfathered Deferral Account is subject to all the terms and conditions of the
Plan as set forth on October 3, 2004, without regard to any Plan amendments after October 3, 2004,
which would constitute a material modification for Code Section 409A. Section references in this
Appendix B correspond to appropriate Sections of the Plan as in effect on October 3, 2004 as set
forth in Appendix C.
ARTICLE 1 — DEFINITIONS
| 1.13 | “Deferral Account” means the Participant’s Grandfathered Deferral Account as set forth in Section 1.21 of the foregoing provisions of the Plan. |
ARTICLE 3 — DEFERRALS
The provisions of Section 3.03, 3.04 and 3.05 shall continue to apply to a Participant’s
Grandfathered Deferral Account.
ARTICLE 4 — MAINTENANCE OF ACCOUNTS
The provisions of Section 4 as set forth in the foregoing provisions of the Plan as amended
and restated effective as December 31, 2008, shall be applicable to a Participant’s Grandfathered
Deferral Account on and after January 1, 2009.
ARTICLE 5 — PAYMENT OF BENEFITS
For purposes of this Article 5 — Payment of Benefits, the term “termination of employment” or any
other similar language means, with respect to a Participant, the complete cessation of providing
service to the Company and all Associated Companies as an employee.
Except as provided in the preceding sentence and below, the provisions of Article 5 shall continue
to apply to a Participant’s Grandfathered Deferral Account.
Page 36
| 5.04 | Hardship | |
| A distribution shall not be made pursuant to this Section 5.04,unless the Participant incurs an “unforeseeable emergency” as such term is defined in Section 5.06 of the foregoing provisions of this Plan. |
| 5.07 | Designation of Beneficiary |
| The provisions of Section 5.07 as set forth in the foregoing provisions of the Plan as amended and restated effective as December 31, 2008, shall be applicable to a Participant’s Grandfathered Deferral Account on and after January 1, 2009. |
| 5.08 | Debiting Accounts |
| The provisions of Section 5.08 as set forth in the foregoing provisions of the Plan as amended and restated effective as December 31, 2008, shall be applicable to a Participant’s Grandfathered Deferral Account on and after January 1, 2009. |
Page 37
APPENDIX C
PROVISIONS OF THE PLAN AS IN EFFECT ON OCTOBER 3, 2004
This Appendix C constitutes a part of this Plan and contains the Plan provisions as in effect on
October 3, 2004.
Exhibit 10.14
ITT EXCESS PENSION PLAN IA
Effective as of July 1, 1975
As Amended and Restated as of December 31, 2008
As Amended and Restated as of December 31, 2008
ITT EXCESS PENSION PLAN IA
The ITT Excess Benefit Plan I (the “Plan”) was effective as of July 1, 1975. The purpose of the
Plan was to provide those employees participating in the Retirement Plan for Salaried Employees of
ITT Corporation or any successor thereto (the “Retirement Plan”) benefits which would have been
payable under the Retirement Plan but for the limitations imposed on qualified plans by Section 415
of the Internal Revenue Code.
Effective as of October 7, 1986 the ITT Select Management Plan I was authorized by the Board of
Directors of ITT Corporation to pay supplemental benefits to certain select management highly
compensated employees who have qualified for benefits under the Retirement Plan. As of December 19,
1995, the ITT Select Management Plan I was merged into the ITT Excess Benefit Plan I and the
surviving Plan was renamed the ITT Industries Excess Pension Plan I.
As of January 1, 1996, the Plan was amended to solely provide to individuals who are designated
Eligible Employees under the Plan on and after December 19, 1995 benefits which would have been
payable on their behalf under the Retirement Plan but for the limitations on benefits imposed by
Section 415 and 401(a)(17) of the Internal Revenue Code (the “Code”), to transfer all liabilities
not attributable to such excess benefits into the ITT Industries Excess Pension Plan IB (which is
authorized to be effective as of January 1, 1996) and to rename the Plan, as amended, the ITT
Industries Excess Pension Plan IA.
The Plan was amended, effective as of January 1, 2000, to reflect the changes in the Retirement
Plan formula.
Effective as of July 13, 2004, the Plan was amended and restated to make certain administrative
changes and to unify the definition of Acceleration Event with other employee benefit plans of ITT
Corporation (formerly known as ITT Industries, Inc. (the “Corporation”). Effective as of July 13,
2004, the Plan was further amended to eliminate approval by the Compensation and Personnel
Committee of the Board of Directors for lump sum payments made on or after September 1, 2004 and to
revise the interest rate assumption utilized to calculate the amount of an elective lump sum
payment available upon retirement to a Participant who becomes an Eligible Employee after January
1, 2005. Effective as of July 1, 2006, the Plan’s name was revised to the ITT Excess Pension Plan
IA.
i
Effective as of January 1, 2008, the Plan was amended to freeze participation and to eliminate the
election of lump sum distribution after December 31, 2008. Effective as of December 31, 2008, the
Plan was amended and restated to comply with the provisions of Section 409A of the Code and the
regulations promulgated thereunder.
The benefits accrued and vested under the provisions of the Plan by a Participant who terminated
employment with the Corporation and all its Associated Companies prior to January 1, 2005 shall be
subject to the provisions of the Plan as in effect on October 3, 2004. In addition, with respect
to a Participant who was employed by the Corporation or one of its Associated Companies on January
1, 2005, the portion of his benefit payable under the provisions of this Plan equal to his
Grandfathered Pre-2005 Benefit (as defined herein) shall be subject to the provisions of the Plan
as in effect on October 3, 2004 (attached hereto as Appendix B and made part hereof) without regard
to any Plan amendments after October 3, 2004 which would constitute a material modification for
Code Section 409A purposes, unless otherwise provided in Appendix A.
All benefits payable under this Plan, which is intended to constitute both an unfunded excess
benefit plan under Section 3(36) of Title I of the Employee Retirement Income Security Act of 1974,
as amended (“ERISA”), and a nonqualified, unfunded deferred compensation plan for a select group of
management employees under Title I of ERISA, shall be paid out of the general assets of the
Corporation. The Corporation may establish and fund a trust in order to aid it in providing
benefits due under the Plan.
ii
ITT EXCESS PENSION PLAN IA
TABLE OF CONTENTS
TABLE OF CONTENTS
| Page | ||||
ARTICLE I. DEFINITIONS |
1 | |||
ARTICLE II. PARTICIPATION; AMOUNT AND PAYMENT OF BENEFITS |
6 | |||
2.01 Participation |
6 | |||
2.02 Amount of Supplemental Benefits |
6 | |||
2.03 Vesting |
8 | |||
2.04 Payment of Benefits |
8 | |||
2.05 Payment Upon the Occurrence of a Change in Control |
19 | |||
2.06 Reemployment of Former Participant or Retired Participant |
21 | |||
ARTICLE III. GENERAL PROVISIONS |
22 | |||
3.01 Funding |
22 | |||
3.02 Duration of Benefits |
23 | |||
3.03 Discontinuance and Amendment |
23 | |||
3.04 Termination of Plan |
23 | |||
3.05 Plan Not a Contract of Employment |
24 | |||
3.06 Facility of Payment |
24 | |||
3.07 Withholding Taxes |
24 | |||
3.08 Nonalienation |
25 | |||
3.09 Forfeiture for Cause |
25 | |||
3.10 Transfers |
25 | |||
3.11 Acceleration of or Delay in Payments |
26 | |||
3.12 Indemnification |
26 | |||
3.13 Claims Procedure |
27 | |||
3.14 Construction |
29 | |||
| Page | ||||
ARTICLE IV. PLAN ADMINISTRATION |
30 | |||
4.01 Responsibility for Benefit Determination |
30 | |||
4.02 Duties of Committee |
30 | |||
4.03 Procedure for Payment of Benefits Under the Plan |
30 | |||
4.04 Compliance |
31 | |||
APPENDIX A |
32 | |||
APPENDIX B |
36 | |||
ii
ITT EXCESS PENSION PLAN IA
ARTICLE I. DEFINITIONS
The following terms when capitalized herein shall have the meanings assigned below.
| 1.01 | Acceleration Event shall mean “Acceleration Event” as that term is defined under the provisions of the Plan as in effect on October 3, 2004. | |
| 1.02 | Annuity Starting Date shall mean, unless the Plan expressly provides otherwise, the first day of the first period for which an amount is due as an annuity or any other form. However, if a Change in Control occurs, the Annuity Starting Date of a Participant with regard to his 409A Supplemental Benefit shall be the date such Change in Control occurs. | |
| 1.03 | Associated Company shall mean any division, subsidiary or affiliated company of the Corporation not participating in the Plan which is an Associated Company, as defined in the Retirement Plan. | |
| 1.04 | Beneficiary shall mean the person designated pursuant to the provisions of the Retirement Plan to receive benefits under said Retirement Plan after a Participant’s death. In the absence of a beneficiary designation under the provisions of the Retirement Plan, the Participant’s Beneficiary shall be his spouse (or Registered Domestic Partner), if any, otherwise his estate. Notwithstanding the foregoing, with respect to any survivor benefit payable pursuant to the provision of Section 2.04(c)(ii) based on the Participant’s 409A Supplemental Benefit attributable to the Traditional Pension Plan (“TPP”) formula (as defined in Section 4.01(b) of the Retirement Plan), in the absence of a beneficiary designation under the provisions of the Retirement Plan, the Participant’s Beneficiary shall be his spouse (or Registered Domestic Partner), if any, otherwise the person or persons named as his beneficiary (or beneficiaries) under the ITT Salaried Investment and Savings Plan, if any, or if none, then the person or persons named as his beneficiary (or beneficiaries) under the Company’s life insurance program. For purposes of the Plan, a Registered Domestic Partner shall have the same meaning as set forth in the Retirement Plan. |
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| 1.05 | Board of Directors shall mean the Board of Directors of ITT Corporation or any successor thereto. | |
| 1.06 | Change in Control shall mean “Change in Control” as such term is defined under the terms of ITT Excess Pension Plan IIA, as amended from time to time. | |
| 1.07 | Code shall mean the Internal Revenue Code of 1986, as amended from time to time. | |
| 1.08 | Committee shall mean the Benefits Administration Committee under the Retirement Plan. | |
| 1.09 | Company shall mean the Corporation with respect to its employees and any Participating Unit (as that term is defined in the Retirement Plan) authorized by the Corporation to participate in the Plan with respect to its employees. | |
| 1.10 | Company Pension Plan shall mean any tax qualified defined benefit plan other than the Retirement Plan maintained by the Company or an Associated Company. | |
| 1.11 | Corporation shall mean ITT Corporation, an Indiana corporation, (successor by merger to and formerly known as ITT Industries, Inc.), or any successor by merger, purchase or otherwise. | |
| 1.12 | Deferred Compensation Program shall mean any nonqualified deferred compensation plan maintained by the Company or an Associated Company. | |
| 1.13 | Disability or Disabled shall mean “Disability” as defined under Treasury Regs. Section 1.409A-3(i)(4)(i) and (ii) and any subsequent guidance thereto. | |
| 1.14 | Eligible Employee shall mean a member of the Retirement Plan who occupies on December 31, 2007, or occupied prior to December 31, 2007, a position of senior management with the Corporation at the Vice President level or higher. | |
| 1.15 | ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. |
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| 1.16 | Excess Benefit Portion shall mean the portion of the Plan which is intended to constitute an unfunded excess benefit plan under Sections 3(36) and 4(b)(5) of Title I of ERISA which provides benefits not otherwise payable under the Retirement Plan due to restrictions imposed by Section 415 of the Code. | |
| 1.17 | Grandfathered Pre-2005 Benefit shall mean the portion of the Participant’s Supplemental Benefit, if any, that was accrued and vested before January 1, 2005, determined under the provisions of the Plan without regard to any amendments after October 3, 2004 which would cause a material modification for Code Section 409A purposes, the provisions of Section 409A, the regulations promulgated thereunder and other applicable guidance, adjusted for the passage of time based on actuarial equivalent assumptions and procedures established by the Committee in accordance with the provisions of Treasury Regs. 1.409A-6(a)(3)(iv). | |
| 1.18 | ITT Excess Benefit Trust shall mean the grantor trust established for this Plan effective as of January l, 1985. | |
| 1.19 | Participant shall mean an Eligible Employee who is participating in the Plan pursuant to Section 2.01 hereof. | |
| 1.20 | Plan shall mean the ITT Excess Pension Plan IA, as set forth herein or as amended from time to time. | |
| 1.21 | Plan Year shall mean the calendar year. | |
| 1.22 | Retirement Plan shall mean the ITT Salaried Retirement Plan (formerly known as the ITT Industries Salaried Retirement Plan), as amended from time to time. | |
| 1.23 | Select Management Portion shall mean the portion of the Plan, other than the Excess Benefit Portion, which is intended to constitute an unfunded deferred compensation plan for a select group of management or highly compensated employees under Title I of ERISA. | |
| 1.24 | Specified Employee shall mean a “specified employee” as such term is defined in the Income Tax Regulations under Section 409A as modified by the rules set forth below: |
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| (a) | For purposes of determining whether a Participant is a Specified Employee, the compensation of the Participant shall be determined in accordance with the definition of compensation provided under Treas. Reg. Section 1.415(c) 2(d)(3) (wages within the meaning of Code section 3401(a) for purposes of income tax withholding at the source, plus amounts excludible from gross income under Section 125(a), 132(f)(4), 402(e)(3), 402(h)(1)(B), 402(k) or 57(b), without regard to rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed). | ||
| (b) | The “Specified Employee Identification Date” means December 31, unless the Compensation Committee of the Board has elected a different date through action that is legally binding with respect to all nonqualified deferred compensation plans maintained by the Company or any Associated Company. | ||
| (c) | The “Specified Employee Effective Date” means the first day of the fourth month following the Specified Employee Identification Date or such earlier date as is selected by the Compensation Committee of the Board. |
| 1.25 | Supplemental Benefit shall mean the monthly benefit payable to a Participant as determined under Section 2.02. | |
| 1.26 | 409A Supplemental Benefit shall mean the portion of a Participant’s Supplemental Benefit, if any, in excess of his Grandfathered Pre-2005 Benefit. | |
| 1.27 | Termination of Employment shall mean a “Separation from Service” as such term is defined in the Treasury Regs. under Section 409A of the Code, as modified by the rules described below: |
| (a) | An Employee who is absent from work due to military leave, sick leave, or other bona fide leave of absence pursuant to Company policies shall incur a Termination of Employment on the first date immediately following the later of (i) the six-month |
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| anniversary of the commencement of the leave (eighteen month anniversary for a disability leave of absence) or (ii) the expiration of the Employee’s right, if any, to reemployment under statute or contract or pursuant to Company policies. For this purpose, a “disability leave of absence” is an absence due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 6 months, where such impairment causes the employee to be unable to perform the duties of his job or a substantially similar job.; | |||
| (b) | For purposes of determining whether another organization is an Associated Company of the Corporation, common ownership of at least 50% shall be determinative; | ||
| (c) | The Corporation specifically reserves the right to determine whether a sale or other disposition of substantial assets to an unrelated party constitutes a Termination of Employment with respect to the executive providing services to the seller immediately prior to the transaction and providing services to the buyer after the transaction. Such determination shall be made in accordance with the requirements of Code Section 409A. |
| Whether Termination of Employment has occurred shall be determined by the Committee in accordance with Code Section 409A, the regulations promulgated thereunder, and other applicable guidance, as modified by rules described above. The terms or phrases “terminates employment,” “termination of employment,” “employment is terminated,” or any other similar terminology shall have the same meaning as a “Termination of Employment.” |
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ARTICLE II. PARTICIPATION; AMOUNT AND PAYMENT OF BENEFITS
| 2.01 | Participation |
| (a) | Each Eligible Employee who is a Participant in the Plan as of January 1, 2008 shall continue to be a Participant in the Plan, subject to the provisions of paragraph (b) below. Effective as of January 1, 2008, participation in the Plan is frozen and there shall be no new Participants in the Plan on or after that date. | ||
| (b) | Each Eligible Employee’s annual retirement allowance or vested benefit which at the time of payment under the Retirement Plan exceeds the limitations imposed by Code Section 415(b) (or prior to January 1, 2000, Code Section 415(e)) shall be payable from the Excess Benefit Portion of the Plan. | ||
| (c) | Each Eligible Employee’s annual retirement allowance or vested benefit which at the time of payment under the Retirement Plan is limited by reason of the Code Section 401(a)(17) limitation on Compensation (as that term is defined in the Retirement Plan) shall be payable from the Select Management Portion of the Plan. | ||
| (d) | A Participant’s participation in the Plan shall terminate upon the Participant’s death or other Termination of Employment with the Company and all Associated Companies, unless a benefit is payable under the Plan with respect to the Participant or his Beneficiary under the provisions of this Article II. |
| 2.02 | Amount of Supplemental Benefits |
| (a) | A Participant’s Supplemental Benefit under this Article II shall be equal to the excess, if any, of (i) over (ii) as determined below: |
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| (i) | the monthly retirement allowance or vested benefit determined as of such Participant’s Termination of Employment which would have been payable to the Participant under Section 4.02, 4.03, 4.04, 4.05 or 4.06 of the Retirement Plan, whichever is applicable, assuming such benefit commences on the date set forth in Section 2.04(a)(i), (ii) or (iv), whichever is applicable, and |
| (1) | prior to the application of any offset required pursuant to Section 4.10 or to an applicable Appendix of the Retirement Plan with regard to benefits payable under any other Company Pension Plan; | ||
| (2) | without regard to the provisions contained in Section 415 of the Code relating to the maximum limitation on benefits, as incorporated into the Retirement Plan; and | ||
| (3) | without regard to the annual limitation on Compensation contained in Section 401(a)(17) of the Code, as incorporated into the Retirement Plan; |
over
| (ii) | the monthly retirement allowance or vested benefit which would have been payable for the Participant’s lifetime under Section 4.02, 4.03, 4.04, 4.05 or 4.06 of the Retirement Plan, whichever is applicable assuming such benefit commences on the date set forth in Section 2.04(a)(i), (ii) or (iv), whichever is applicable, and determined |
| (1) | prior to the application of any offset required pursuant to Section 4.10 or an applicable Appendix of the Retirement Plan with regard to benefits payable under any other Company Pension Plan; | ||
| (2) | with regard to the provisions contained in Section 415 of the Code relating to maximum limitation benefits as incorporated into the Retirement Plan; and |
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| (3) | with regard to the annual limitation on Compensation contained in Section 401(a)(17) of the Code, as incorporated into the Retirement Plan. |
| (b) | Except as otherwise provided below, if, after a Participant’s Annuity Starting Date, changes to the Code or ERISA permit the Retirement Plan to provide for payment of a Participant’s monthly retirement allowance or vested benefit in an amount greater than that permissible at that particular Annuity Starting Date, the Participant’s monthly benefit under this Plan shall be reduced by the portion of his retirement allowance or vested benefit thereafter paid from the Retirement Plan. This provision shall not be applicable to any portion of a Participant’s Supplemental Benefit received in the form of a lump sum payment. |
| 2.03 | Vesting |
| (a) | A Participant shall be vested in, and have a nonforfeitable right to, the benefit payable under this Article II to the same extent as the Participant is vested in his Accrued Benefit (as that term is defined in the Retirement Plan) under the provisions of the Retirement Plan. | ||
| (b) | Notwithstanding any provision of this Plan to the contrary, in the event of an Acceleration Event, all Participants and their Beneficiaries shall become fully vested in the benefits provided under this Plan. |
| 2.04 | Payment of Benefits |
| (a) | Timing of Payment |
| (i) | Subject to the provisions of clause (iii) below, the portion of any Participant’s 409A Supplemental Benefit payable under Section 2.02 attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan), to the extent vested pursuant to Section 2.03, shall commence as of the first day of the month following (1) the Participant’s Termination of Employment or (2) if the Participant is not at least age 50 on such date of Termination of |
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| Employment and his age and service as of such date does not equal 80 or more, the Participant’s attainment of age 55, if later. | |||
| (ii) | Notwithstanding the foregoing provisions of clause (i) above and subject to the provisions of clause (iii) below, the portion of any Participant’s 409A Supplemental Benefit payable under Section 2.02 attributable to the PEP formula (as defined in Section 4.01(c) of the Retirement Plan), to the extent vested pursuant to Section 2.03, shall commence as of the first day of the month following the Participant’s Termination of Employment. | ||
| (iii) | Notwithstanding the foregoing, the actual payment of a 409A Supplemental Benefit payable under Section 2.02 due to the Participant’s Termination of Employment for reasons other than death or Disability shall not commence prior to the first day of the seventh month following the Participant’s Termination of Employment. Any payment due the Participant which he would have otherwise received under Section 2.02 during the six month period immediately following such Participant’s Termination of Employment shall be accumulated, with interest, at the IRS Interest Rate (as defined in the Retirement Plan) in accordance with procedures established by the Committee. For the avoidance of doubt, the provisions of this clause (iii) shall not apply to a 409A Supplemental Benefit payable under (1) Section 2.04(c) due to the death of the Participant or (2) Section 2.04(d) due to the Participant’s Disability. | ||
| (iv) | Notwithstanding the foregoing, in the event a Participant who incurred a Termination of Employment prior to January 1, 2009 has not commence payment of his 409A Supplemental Benefit as of January 1, 2009, such Participant’s 409A Supplemental Benefit shall commence as of January 1, 2009 or, if later, the date specified in clause (i), (ii) or (iii) above, whichever is applicable. |
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| (v) | A Participant’s Grandfathered Pre-2005 Benefit shall commence in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A and without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. |
| (b) | Form of Benefit |
| (i) | Unless a Participant has a valid election under clause (ii) or (iii) below in effect, the portion of the Participant’s 409A Supplemental Benefit determined under Section 2.02 attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) shall be paid in the form of a single life annuity for the life of the Participant, if the Participant is not married on his Annuity Starting Date, or in the form of a 50% joint & survivor annuity, if the Participant is married (or has a Registered Domestic Partner) on his Annuity Starting Date. | ||
| (ii) | Subject to the provisions of clause (iv) below, a Participant may elect to convert his 409A Supplemental Benefit payable under Section 2.02 attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) into an optional annuity of equivalent actuarial value available to that Participant under the provisions of Section 4.07(b) of the Retirement Plan as of his Annuity Starting Date, provided said optional annuity satisfies the definition of “life annuity” as provided in Treasury Regs. 1.409A-(2)(b)(2)(ii) and any further guidance thereto. Such equivalent actuarial value shall be based on the applicable factors set forth in Appendix A of the Retirement Plan. | ||
| (iii) | Notwithstanding the foregoing provisions of clauses (i) and (ii) above, a Participant may, subject to the timing limitations and other restrictions as shall be prescribed by the Committee, elect, by written notice received by the Committee, to receive the portion of his entire Supplemental Benefit payable |
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| under this Plan attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) in the form of a single lump sum payment if upon his Termination of Employment he retires under the provisions of the Retirement Plan at his Postponed Retirement Date, Normal Retirement Date, Standard Early Retirement Date or Special Early Retirement Date (as such terms are defined under the Retirement Plan). Such election must be completed and filed with the Plan Committee no later than December 31, 2008 and shall become irrevocable as of January 1, 2009. However, if the Participant dies after his Early, Normal or Postponed Retirement Date but prior to receiving his lump sum payment, the payment shall be made to the Participant’s Beneficiary with the calculation of such payment based on the assumption that payment had been made immediately preceding the Participant’s date of death. For avoidance of doubt, if a Participant has not satisfied the eligibility requirements to retire under the Retirement Plan with an early, normal or postponed retirement allowance upon his Termination of Employment, the election of a lump sum payment under the provisions of the clause (iii) shall not be effective. | |||
| Such lump sum payment shall be calculated on an actuarial equivalent basis using the interest rate assumption for immediate annuities used by the Pension Benefit Guaranty Corporation (“PBGC”) for valuing benefits for single employer plans as published by the PBGC for the month in which the payment is effective and the mortality table utilized as of such date under the provisions of the Retirement Plan to calculate the amount of a small lump sum cashout. Notwithstanding the preceding sentence, with respect to a Participant who becomes an Eligible Employee (as defined in Section 1.14 of the Plan) after January 1, 2005, such lump sum payment shall be calculated on an actuarial equivalent basis using the IRS Interest Rate (as defined in the Retirement Plan) as published in the fourth month prior to the month following the month in which the Participant’s Termination of Employment occurs and the mortality table utilized as of such date under the provisions of |
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| the Retirement Plan to calculate the amount of a small lump sum cashout. The calculation of a lump sum payment under this clause (iii) shall be based on the Participant’s benefit determined pursuant to Section 2.02 attributable to the TPP formula portion (as defined in Section 4.01(b) of the Retirement Plan) of such benefit as if it were paid in the form of a single life annuity to the Participant. The calculation of a lump sum payment hereunder shall be made without regard to the possibility of any future changes after the Participant’s Annuity Starting Date in the amount of benefits payable under the Retirement Plan because of future changes in the limitations referred to in Section 2.02. This lump sum payment plus any payment made pursuant to the provisions of clause (v) below represents a complete settlement of all 409A Supplemental Benefits due on the Participant’s behalf under the Plan. | |||
| (iv) | Notwithstanding the foregoing and subject to the provisions of Section 409A of the Code, a Participant’s election to receive his 409A Supplemental Benefit attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) in an optional annuity form of payment as described in clause (ii) above shall be effective as of the Participant’s Annuity Starting Date applicable to that portion of his 409A Supplemental Benefit, provided the Participant makes and submits to the Committee in the manner prescribed by the Committee, his election of such optional annuity form prior to such applicable Annuity Starting Date. Unless otherwise provided under clause (iii) above, a Participant who fails to elect an optional annuity form of benefit applicable to the TPP formula portion of his 409A Supplemental Benefit in a timely manner shall receive such benefit in accordance with the provisions of clause (i) above. |
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| (v) | Notwithstanding the foregoing provisions of this Section 2.04(b), the portion of a Participant’s 409A Supplemental Benefit payable under Section 2.02 attributable to the PEP formula (as defined in Section 4.01(c) of the Retirement Plan) shall be payable in the form of a single lump sum payment. Such lump sum payment shall be calculated on the same basis as provided in Section 4.07(b)(v) of the Retirement Plan using the IRS Mortality Table and IRS Interest Rate (as defined in the Retirement Plan). | ||
| (vi) | The portion of the Participant’s Grandfathered Pre-2005 Benefit payable under Section 2.02 attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) shall commence and the form of payment of such benefit shall be determined in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A and without regard to any Plan amendments after that date which would constitute a material modification for Code Section 409A purposes, unless a Participant has a valid election under clause (iii) above in effect as of his date of Termination of Employment. The portion of the Participant’s Grandfathered Pre-2005 Benefit payable under Section 2.02 attributable to the PEP formula (as defined in Section 4.01(c) of the Retirement Plan) shall be payable in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A and without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. |
| (c) | Death Prior to a Participant’s Annuity Starting Date |
| (i) | If a Participant entitled to a vested benefit under the Retirement Plan dies (1) before meeting the eligibility requirements for an Automatic Pre-Retirement Survivor’s Benefit under Section 4.08(b) of the Retirement Plan and while in active service with the Company or any Associated Company or while Disabled but before his Annuity Starting Date, or (2) after Termination of Employment with entitlement to a vested benefit hereunder but prior to his |
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| Annuity Starting Date, the Participant’s spouse (or Registered Domestic Partner) shall receive a monthly payment for life equal to the monthly income which would have been payable to such spouse (or Registered Domestic Partner) under Section 4.08(a) of the Retirement Plan based on the hypothetical benefit attributable to his Supplemental Benefit as calculated under Section 2.02 hereof assuming payments commence as of the first day of the month following the Participant’s date of death, or attainment of age 55, if later. The portion of such benefit attributable to the Participant’s 409A Supplemental Benefit shall commence as of the first day of the month following the later of the Participant’s date of death, or the Participant’s attainment of age 55 (or in the event clause (iv) is applicable, the date specified in clause (iv).) Notwithstanding the foregoing, the portion of any benefit payable under this clause (i) attributable to the PEP formula portion (as defined in Section 4.01(c) of the Retirement Plan) of the benefit which would have been payable to the spouse based on the hypothetical 409A Supplemental Benefit as calculated under Section 2.02 shall be determined assuming that portion of the benefit commences as of the first day of the month following the Participant’s date of death (or the date specified in clause (iv), if later) and such benefit shall be payable in the form of a single lump sum payment as of the first day of the month following the Participant’s date of death. This lump sum payment shall be calculated on the same basis as provided in Section 4.08(a)(iii) of the Retirement Plan using the IRS Mortality Table and IRS Interest Rate (as defined in the Retirement Plan). Notwithstanding any Plan provision to the contrary, the portion of any survivor benefit payable under this clause (i) attributable to the Participant’s Grandfathered Pre-2005 Benefit shall be payable in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A, and without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. |
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| (ii) | Except as otherwise provided below or in clause (iii) of this Section 2.04(c), in the event a Participant who has satisfied the eligibility requirements for the Automatic Pre-Retirement Survivor’s Benefit under Section 4.08(b) of the Retirement Plan, dies (1) while in active service with the Company or any Associated Company or (2) after his Termination of Employment or the date he becomes Disabled, if earlier, but prior to his Annuity Starting Date, the Participant’s Beneficiary, if any, shall receive a monthly payment for the life of the Beneficiary equal to the monthly income which would have been payable to such Beneficiary under Section 4.08(b) of the Retirement Plan based on the hypothetical retirement benefit attributable to his Supplemental Benefit as calculated under Section 2.02 hereof assuming payments commence on the first day of the month following the Participant’s death (or the date specified in clause (iv), if later). Notwithstanding the foregoing, the portion of any benefit payable under this clause (ii) attributable to the PEP formula portion (as defined in Section 4.01(c) of the Retirement Plan) of the benefit which would have been payable to the Beneficiary based on the hypothetical 409A Supplemental Benefit as calculated under Section 2.02 shall be payable in the form of a single lump sum payment. This lump sum payment shall be calculated on the same basis as provided in Section 4.08(b)(iii) of the Retirement Plan using the IRS Mortality Table and IRS Interest Rate (as defined in the Retirement Plan). The portion of any benefit payable under this clause (ii) attributable to a Participant’s 409A Supplemental Benefit as calculated under Section 2.02 hereof shall commence on the first day of the month following the Participant’s death. | ||
| The portion of such survivor benefit payable under this clause (ii) of paragraph (c) attributable to the Participant’s Grandfathered Pre-2005 Benefit shall commence in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A, and without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. |
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| (iii) | Notwithstanding the foregoing, in the event a Participant, who has satisfied the eligibility requirements to retire under the Retirement Plan with an early, normal or postponed retirement allowance, has filed a valid election to receive a lump sum payment of benefits under the provisions of Section 2.04(b)(iii), dies on or after age 55 and prior to his Annuity Starting Date, the Beneficiary of such Participant shall receive a single lump sum amount determined as follows: |
| (A) | In the event of the Participant’s death (i) prior to his Termination of Employment or (ii) after he becomes Disabled but prior to his Annuity Starting Date, the lump sum payment shall be equal to the value of the Participant’s benefit attributable to his Supplemental Benefit, if any, accrued to his date of death as determined under the provisions of Section 2.02 hereof. | ||
| (B) | In the event of any other Participant’s death after his Termination of Employment and prior to his Annuity Starting Date, the lump sum payment shall be equal to the value of the Participant’s Supplemental Benefit accrued to the Participant’s Termination of Employment as determined under the provisions of Section 2.02 hereof. |
| The portion of the lump sum payment under this clause (iii) attributable to the PEP formula portion (as defined in Section 4.01(c) of the Retirement Plan) of his 409A Supplemental Benefit, if any, shall be calculated on the same basis as provided in Section 4.08(b)(iii) of the Retirement Plan using the IRS Mortality Table and IRS Interest Rate (as defined in the Retirement Plan) determined as if the Participant’s Annuity Starting Date was the first day of the month following the earlier of his Termination of Employment or his date of death. The portion of the lump sum payment under this clause (iii) attributable to the TPP formula portion (as defined in Section 4.01(b) of the Retirement Plan) of the Participant’s 409A Supplemental Benefit shall be (1) based on the Participant’s Plan benefit attributable to the TPP formula portion |
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| (as defined in Section 4.01(b) of the Retirement Plan) as if it were paid in the form of a single life annuity to the Participant and (2) calculated on an actuarial equivalent basis using the interest rate assumption for immediate annuities used by the PBGC for valuing benefits for single employer plans as published by the PBGC for the month following the Participant’s date of Termination of Employment or, if earlier, the date of his death and the mortality table utilized as of such date under the provisions of the Retirement Plan to calculate the amount of a small lump sum cashout. Notwithstanding the preceding sentence, with respect to a Participant who becomes an Eligible Employee (as defined in Section 1.14 of the Plan) after January 1, 2005, the lump sum payment in the preceding sentence shall be calculated on an actuarial equivalent basis using the IRS Interest Rate (as defined in the Retirement Plan) as published in the fourth month prior to the month in which the Participant’s Termination of Employment or, if earlier, date of death occurs and the mortality table utilized as of such date under the provisions of the Retirement Plan to calculate the amount of a small lump sum cashout. The calculation of a lump sum payment hereunder shall be made without regard to the possibility of any future changes after the Participant’s death in the amount of benefits payable under the Retirement Plan because of future changes in the limitations referred to in Section 2.02. | |||
| Notwithstanding the foregoing, the portion of such survivor benefit attributable to the Participant’s Grandfathered Pre-2005 Benefit shall be paid in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A, and without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. | |||
| Notwithstanding the foregoing, a total lump sum payment under this clause (iii) shall only be made to the Participant’s Beneficiary if the Participant has filed an election to receive a lump sum payment of any benefits under the |
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| provisions of Section 2.04(a)(iii) in accordance with the timing limitations and other restrictions prescribed by the Committee. Payment shall be made to the Participant’s Beneficiary as soon as practicable after the Participant’s date of death. The lump sum payment under this clause (iii) represents a complete settlement of all benefits due the Beneficiary on the Participant’s behalf under the Plan. | |||
| (iv) | Notwithstanding the foregoing, in the event the survivor benefit payable under this Section 2.04(c) to the spouse or Beneficiary of a Participant who died prior to January 1, 2009 has not commenced as of January 1, 2009, such survivor benefit shall commence as of January 1, 2009 or, if later, the date specified in clauses (i), (ii) or (iii) above, whichever is applicable. |
| (d) | Disability prior to Termination of Employment |
| (i) | Notwithstanding any Plan provision to the contrary, in the event a Participant becomes Disabled prior to his Termination of Employment, the Participant shall be entitled to a Disability Supplemental Benefit equal to the amount determined under the provisions of Section 2.02(a) based on his years of Benefit Service, as such term is defined in the Retirement Plan, accrued to the date he became Disabled plus the years of Benefit Service, as such term is defined in the Retirement Plan, such Participant accrues under the terms of the Retirement Plan after the date he becomes Disabled and prior to his attainment of age 65. | ||
| (ii) | The portion of the Disability Supplemental Benefit determined under the provisions of clause (i) in excess of the Participant’s Grandfathered Pre-2005 Benefit shall be paid in accordance with the provisions of paragraph (b) above and payments shall commence on the first day of the month following the month in which the Participant attains age 65. |
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| (iii) | Notwithstanding the foregoing, the portion of the Disability Supplemental Benefit attributable to the Participant’s Grandfathered Pre-2005 Benefit shall be paid in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A, and without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. |
| 2.05 | Payment Upon the Occurrence of a Change in Control | |
| Upon the occurrence of a Change in Control, (i) all retired Participants then receiving or then entitled to receive a 409A Supplemental Benefit under the Plan, (ii) all former Participants then receiving or then entitled to receive a 409A Supplemental Benefit hereunder, and (iii) all Participants who are then still in active service shall automatically receive, in a single lump sum payment, the 409A Supplemental Benefit remaining due as of the Change in Control to any such retired or former Participant or the benefit, if any, accrued by such active Participant up to the Change in Control event and as determined under Section 2.02 hereof. The amount of such lump sum payment attributable to the PEP formula portion (as defined in Section 4.01(c) of the Retirement Plan) of the Participant’s 409A Supplemental Benefit payable under this Plan not in payment status as of the occurrence of a Change in Control event shall be calculated on the same basis as provided in Section 4.07(b)(v) of the Retirement Plan using the IRS Mortality Table and IRS Interest Rate (as defined in the Retirement Plan) determined as if the date the Change in Control event occurs is the Participant’s Annuity Starting Date. The amount of the lump sum payment attributable to the TPP formula portion of the Participant’s 409A Supplemental Benefit payable under this Plan shall be calculated on an actuarial equivalent basis using (i) the interest rate assumption used by the PBGC for valuing benefits for single employer plans as published by the PBGC for the month in which such Change in Control event occurs and (ii) the mortality table utilized as of the day immediately preceding the date the Change in Control event occurs under the provisions of the Retirement Plan to calculate the amount of a small lump sum cashout. The interest rate for immediate annuities will be used, if the Participant has met the eligibility requirements to retire under the Retirement Plan with an early, normal or postponed |
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| retirement allowance as of the Change in Control or is then in receipt of monthly payments under this Plan, otherwise the Plan shall use the interest rate assumption for deferred annuities to the earliest date the Participant could have commenced payment of such benefit or, if it results in a larger lump sum, his Normal Retirement Date (as defined under the Retirement Plan). If the Participant is not in receipt of his monthly 409A Supplemental Benefit payments under this Plan as of the Change in Control, the calculation of a lump sum payment hereunder of the portion of the Participant’s accrued benefit payable under this Plan attributable to the TPP formula portion (as defined under Section 4.01(b) of the Retirement Plan) shall be based on the Participant’s 409A Supplemental Benefit payable under Section 2.02 attributable to such TPP formula as if it were paid in the form of a single life annuity to the Participant commencing on the Participant’s Annuity Starting Date; provided, however, if the Participant has not met the eligibility requirements to retire under the Retirement Plan with an early, normal or postponed retirement allowance, the calculation of such lump sum payment shall be based on the Participant’s accrued 409A Supplemental Benefit payable under Section 2.02 attributable to such TPP formula as if it were paid in the form of a single life annuity to the Participant commencing on the earliest date he could have commenced payment of such benefit. In no event, however, shall the lump sum payment determined under the preceding sentence be less than the lump sum payment based on the Participant’s accrued 409 Supplemental Benefit payable under Section 2.02 attributable to such TPP formula as if it were paid in the form of a single life annuity to the Participant commencing on his Normal Retirement Date. The calculation of a lump sum payment hereunder shall be made on the basis of the Participant’s age (and Beneficiary’s age, if applicable) at the Change in Control and without regard to the possibility of any future changes after the Change in Control in the amount of benefits payable hereunder because of future changes in the limitations referred to in Section 2.02. The lump sum payment shall be made within ninety (90) days of the date the Change in Control event occurs. In the event the Participant dies after such Change in Control event occurs but before receiving such payment, the lump sum payment shall be made to his Beneficiary. This lump sum payment represents a complete settlement of all benefits on the Participant’s behalf under the Plan. |
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| For avoidance of doubt, upon the occurrence of an Acceleration Event, (either prior, after or simultaneously with the occurrence of a Change of Control) the provisions of Section 2.05 of the Plan as in effect on October 3, 2004 without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes shall be applicable to a Participant’s Grandfathered Pre-2005 Benefit. | ||
| 2.06 | Reemployment of Former Participant or Retired Participant | |
| If a Participant who retired or otherwise terminated employment with the Company and all Associated Companies is reemployed as an employee by the Company or an Associated Company, such reemployment shall have no impact on the payment or timing of payment of any 409A Supplement Benefits earned prior to reemployment. |
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ARTICLE III. GENERAL PROVISIONS
| 3.01 | Funding |
| (a) | All amounts payable in accordance with this Plan shall constitute a general unsecured obligation of the Corporation. Such amounts, as well as any administrative costs relating to the Plan, shall be paid out of the general assets of the Corporation, to the extent not paid from the assets of any trust established pursuant to paragraph (b) below. | ||
| (b) | The Corporation may, for administrative reasons, establish a grantor trust for the benefit of Participants in the Plan. The assets placed in said trust shall be held separate and apart from other Corporation funds and shall be used exclusively for the purposes set forth in the Plan and the applicable trust agreement, subject to the following conditions: |
| (i) | the creation of said trust shall not cause the Plan to be other than “unfunded” for purposes of Title I of ERISA; | ||
| (ii) | the Corporation shall be treated as “grantor” of said trust for purposes of Section 677 of the Code; and | ||
| (iii) | the agreement of said trust shall provide that its assets may be used upon the insolvency or bankruptcy of the Corporation to satisfy claims of the Company’s general creditors and that the rights of such general creditors are enforceable by them under federal and state law. |
| (c) | To the extent that any person acquires a right to receive payments under the Plan, such right shall be no greater than the right of any unsecured creditor of the Corporation. |
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| 3.02 | Duration of Benefits | |
| Benefits shall accrue under the Plan on behalf of a Participant only for so long as the provisions of Section 415 or 401(a)(17) of the Code limit the benefits that are payable under the Retirement Plan. | ||
| 3.03 | Discontinuance and Amendment | |
| The Board of Directors reserves the right to modify, amend, or discontinue in whole or in part, benefit accruals under the Plan at any time. However, no modification, amendment, or discontinuance shall adversely affect the right of any Participant to receive the benefits accrued as of the date of such modification, amendment or discontinuance and after the occurrence of an Acceleration Event, no modification or amendment shall be made to Sections 2.03 or 2.05. Notwithstanding the foregoing, following any amendment and except as provided in Article II with respect to lump sum payments hereunder, benefits may be adjusted as required to take into account the amount of benefits payable under the Retirement Plan after the application of the limitations referred to in Section 2.02. | ||
| 3.04 | Termination of Plan | |
| The Board of Directors reserves the right to terminate the Plan at any time, provided, however, that no termination shall be effective retroactively. As of the effective date of termination of the Plan, |
| (a) | the benefits of any Participant or Beneficiary whose benefit payments have commenced shall continue to be paid, but only to the extent such benefits are not otherwise payable under the Retirement Plan because of the limitations referred to in Section 2.02, and | ||
| (b) | no further benefits shall accrue on behalf of any Participant whose benefits have not commenced, and such Participant and his Beneficiary shall retain the right to benefits hereunder; provided that, on or after the effective date of termination, |
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| (i) | the Participant is vested under the Retirement Plan; and | ||
| (ii) | such benefits are not at any time otherwise payable under the Retirement Plan because of the limitations imposed by IRC Section 415 or Section 401(a)(17). |
| All other provisions of this Plan shall remain in effect. | ||
| 3.05 | Plan Not a Contract of Employment | |
| This Plan is not a contract of employment, and the terms of employment of any Participant shall not be affected in any way by this Plan or related instruments, except as specifically provided therein. The establishment of this Plan shall not be construed as conferring any legal rights upon any person for a continuation of employment, nor shall it interfere with the rights of the Corporation to discharge any person and to treat him without regard to the effect which such treatment might have upon him under this Plan. Each Participant and all persons who may have or claim any right by reason of his participation shall be bound by the terms of this Plan and all agreements entered into pursuant thereto. | ||
| 3.06 | Facility of Payment | |
| In the event that the Committee shall find that a Participant is unable to care for his affairs because of illness or accident or is a minor or has died, the Committee may, unless claim shall have been made therefore by a duly appointed legal representative, direct that any benefit payment due him, to the extent not payable from a grantor trust, be paid on his behalf to his spouse, a child, a parent or other blood relative, or to a person with whom he resides, and any such payment so made shall be a complete discharge of the liabilities of the Corporation and the Plan therefore. | ||
| 3.07 | Withholding Taxes | |
| The Company and an Associated Company shall have the right to deduct from each payment to be made under the Plan any required withholding taxes. |
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| 3.08 | Nonalienation | |
| Subject to any applicable law, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void, nor shall any such benefit be in any manner liable for or subject to garnishment, attachment, execution or levy, or liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefits. | ||
| 3.09 | Forfeiture for Cause | |
| In the event that a Participant shall at any time be convicted of a crime involving dishonesty or fraud on the part of such Participant in his relationship with the Company or an Associated Company, all benefits that would otherwise be payable to him or to a Beneficiary under the Plan shall be forfeited. | ||
| 3.10 | Transfers |
| (a) | Notwithstanding any Plan provision to the contrary, in the event the Corporation (i) sells, causes the sale of, or sold the stock or assets of any employing company in the controlled group of the Corporation to a third party or (ii) distributes or distributed to the holders of shares of the Corporation’s common stock all of the outstanding shares of common stock of a subsidiary or subsidiaries of the Corporation, and, as a result of such sale or distribution, such company (or subsidiary) or its employees are no longer eligible to participate hereunder, the liabilities with respect to the benefits accrued under this Plan for a Participant who, as a result of such sale or distribution, is no longer eligible to participate in this Plan, shall, at the discretion and direction of the Corporation (and approval by the new employer), be transferred to a similar plan of such new employer and become a liability thereunder. Upon such transfer (and acceptance thereof by such new employer) the liabilities for such transferred benefits shall become the obligation of the new employer and the liability under this Plan for such benefits shall then cease. |
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| (b) | Notwithstanding any Plan provision to the contrary, at the discretion and direction of the Corporation, liabilities with respect to benefits accrued by a Participant under a plan maintained by such Participant’s former employer may be transferred to this Plan and upon such transfer shall become the obligation of the Corporation. |
| 3.11 | Acceleration of or Delay in Payments | |
| The Committee, in its sole and absolute discretion, may elect to accelerate the time or form of payment of a benefit owed to the Participant hereunder, provided such acceleration is permitted under Treasury Regulations Section 1.409A-3(j)(4). The Committee may also, in its sole and absolute discretion, delay the time for payment of a benefit owed to the Participant hereunder, to the extent permitted under Treasury Regulations Section 1.409A-2(b)(7). | ||
| 3.12 | Indemnification. | |
| The Company, the members of the Committee, and the officers, employees and agents of the Company shall, unless prohibited by any applicable law, be indemnified against any and all liabilities arising by reason of any act or failure to act in relation to the Plan including, without limitation, expenses reasonably incurred in the defense of any claim relating to the Plan, amounts paid in any compromise or settlement relating to the Plan and any civil penalty or excise tax imposed by any applicable statute, if |
| (a) | the act or failure to act shall have occurred |
| (i) | in the course of the person’s service as an officer, employee or agent of the Company or as a member of the Committee, or as the Plan administrator; or | ||
| (ii) | in connection with a service provided with or without charge to the Plan or to the Participants or Beneficiaries of the Plan, if such service was requested by the Committee or the Plan administrator; and |
| (b) | the act or failure to act is in good faith and in, or not opposed to, the best interests of the Corporation. |
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| This determination shall be made by the Corporation and, if such determination is made in good faith and not arbitrarily or capriciously, shall be conclusive. | ||
| The foregoing indemnification shall be from the assets of the Corporation. However, the Corporation’s obligation hereunder shall be offset to the extent of any otherwise applicable insurance coverage under a policy maintained by the Corporation or any other person, or other source of indemnification. |
| 3.13 | Claims Procedure |
| (a) | Submission of Claims | ||
| Claims for benefits under the Plan shall be submitted in writing to the Committee or to an individual designated by the Committee for this purpose. | |||
| (b) | Denial of Claim | ||
| If any claim for benefits is wholly or partially denied, the claimant shall be given written notice within 90 days following the date on which the claim is filed, which notice shall set forth |
| (i) | the specific reason or reasons for the denial; | ||
| (ii) | specific reference to pertinent Plan provisions on which the denial is based; | ||
| (iii) | a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and | ||
| (iv) | an explanation of the Plan’s claim review procedure, including information as to the steps to be taken if the claimant wishes to submit the claim for review and the time limits for requesting a review. |
| If special circumstances require an extension of time for processing the claim, written notice of an extension shall be furnished to the claimant prior to the end of the initial period of 90 days following the date on which the claim is filed. Such an extension may not exceed a period of 90 days beyond the end of said initial period. |
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| If the claim has not been granted and written notice of the denial of the claim is not furnished within 90 days following the date on which the claim is filed, the claim shall be deemed denied for the purpose of proceeding to the claim review procedure. | |||
| (c) | Claim Review Procedure | ||
| The claimant or his authorized representative shall have 60 days after receipt of written notification of denial of a claim to request a review of the denial by making written request to the Committee, and may review pertinent documents and submit issues and comments in writing within such 60-day period. | |||
| Not later than 60 days after receipt of the request for review, the persons designated by the Company to hear such appeals (the “Appeals Committee”) shall render and furnish to the claimant a written decision, which shall include specific reasons for the decision and shall make specific references to pertinent Plan provisions on which it is based. If special circumstances require an extension of time for processing, the decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review, provided that written notice and explanation of the delay are given to the claimant prior to commencement of the extension. Such decision by an Appeals Committee shall not be subject to further review. If a decision on review is not furnished to a claimant within the specified time period, the claim shall be deemed to have been denied on review. | |||
| (d) | Exhaustion of Remedy | ||
| No claimant shall institute any action or proceeding in any state or federal court of law or equity or before any administrative tribunal or arbitrator for a claim for benefits under the Plan until the claimant has first exhausted the procedures set forth in this section. |
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| 3.14 | Construction |
| (a) | The Plan is intended to constitute both an excess benefit arrangement and an unfunded deferred compensation arrangement maintained for a select group of management or highly compensated employees within the meaning of Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA, and all rights under this Plan shall be governed by ERISA. Subject to the preceding sentence, the Plan shall be construed, regulated and administered under the laws of the State of New York, to the extent such laws are not superseded by applicable federal law. | ||
| (b) | The masculine pronoun shall mean the feminine wherever appropriate. | ||
| (c) | The illegality of any particular provision of this document shall not affect the other provisions and the document shall be construed in all respects as if such invalid provision were omitted. | ||
| (d) | The headings and subheadings in the Plan have been inserted for convenience of reference only, and are to be ignored in any construction of the provisions thereof. | ||
| (e) | The Plan shall be construed, regulated and administered in accordance with the laws of the State of New York, subject to the provisions of applicable federal laws |
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ARTICLE IV. PLAN ADMINISTRATION
| 4.01 | Responsibility for Benefit Determination | |
| The benefit of a Participant or Beneficiary under this Plan shall be determined either by the Committee, as provided in Section 4.02 below, or such other party as is authorized under the terms of any grantor trust. | ||
| 4.02 | Duties of Committee | |
| The Committee shall calculate, in accordance with Article II, the benefit of each Participant or Beneficiary under the Plan. To the extent a Participant’s, spouse’s or Beneficiary’s benefit are payable from the Plan, the Committee shall have full discretionary authority to resolve any question which shall arise under the Plan as to any person’s eligibility for benefits, the calculation of benefits, the form, commencement date, frequency, duration of payment, or the identity of the Beneficiary. Such question shall be resolved by the Committee under rules uniformly applicable to all person(s) or employee(s) similarly situated. It is the intent of the Corporation that the provisions of Plan comply with the provisions of Section 409A of the Code, any regulations and other guidance promulgated with respect thereto and the provisions of the Plan shall be interpreted to be consistent therewith. | ||
| 4.03 | Procedure for Payment of Benefits Under the Plan | |
| With respect to any benefit to which a Participant or Beneficiary is entitled under this Plan which is not payable under the ITT Excess Benefit Trust, or any other applicable grantor trust established by the Corporation to pay benefits under the Plan, the Committee (i) shall direct the commencement of benefit payments hereunder in accordance with the applicable procedures established by the Corporation, the Company and/or the Committee regarding the disbursement of amounts from the general funds of the Corporation and (ii) shall arrange, in conjunction with any other applicable excess benefit plan, for the payment of benefits under this Plan and/or any other applicable excess benefit plan. |
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| With respect to any benefit to which a Participant or Beneficiary is entitled under this Plan which is payable under the ITT Excess Benefit Trust (or any other applicable grantor trust), the Committee, acting for the Corporation and in accordance with the terms of the ITT Excess Benefit Trust (or any other applicable grantor trust), shall forward the calculation of the Participant’s or Beneficiary’s benefit under Article II of the Plan to the Participant or Beneficiary for concurrence. Upon obtaining concurrence, the Committee, acting for the Corporation, shall forward such calculation and concurrence to the Trustee of the ITT Excess Benefit Trust for the purpose of commencing payment of benefits in accordance with the ITT Excess Benefit Trust (or any other applicable grantor trust). Any question that shall arise with regard to the benefits payable to a Participant or Beneficiary under the ITT Excess Benefit Trust (or any other applicable grantor trust) shall be resolved in accordance with the provisions of said trust. | ||
| 4.04 | Compliance | |
| With respect to benefits hereunder subject to Code Section 409A, the Plan is intended to comply with the requirements of Code Section 409A and the provisions hereof shall be interpreted in a manner that satisfies the requirements of Code Section 409A and the regulations thereunder, and the Plan shall be operated accordingly. If any provision of the Plan would otherwise frustrate or conflict with this intent, the provision will be interpreted and deemed amended so as to avoid this conflict. The Plan has been administered in good faith compliance with Section 409A and the guidance issued thereunder from January 1, 2005 through December 31, 2008. |
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APPENDIX A
Provisions Applicable to a Participant’s Grandfathered Pre-2005 Supplemental Benefit
This Appendix A constitutes an integral part of the Plan and is applicable with respect to the
Grandfathered Pre-2005 Benefit of those individuals who were Participants in the Plan on December
31, 2004. The portion of a Participant’s Benefit determined under the provisions of Section 2.02
and Section 2.04(d) of the foregoing provisions of the Plan equal to his Grandfathered Pre-2005
Benefit is subject to the provisions of the Plan as in effect on October 3, 2004, modified as set
forth in this Appendix A and without regard to any Plan amendments after October 3, 2004 which
would constitute a material modification for Code Section 409A purposes. Section references in
this Appendix A correspond to appropriate Sections of the said Plan as in effect on October 3, 2004
as set forth in Appendix B.
Article II — Participation Amount and Payment of Benefits
For purposes of Article II, the terms/phrases “termination of employment,” “terminates employment,”
“retirement”, “employment is terminated” or other similar language shall mean, with respect to a
Participant, the complete cessation of providing services to the Company and all Associated
Companies as an employee.
Section 2.04 Payment of Benefits
| (a) | Retirement or Termination of Employment Effective on and After December 31, 1995 |
| (i) | Following a Participant’s retirement or termination of employment with the Company and all Associated Companies other than by reason of death, a Participant shall receive his Grandfathered Pre-2005 Benefit in the same form and at the same time as the Participant receives his corresponding retirement allowance or vested benefit under the Retirement Plan, except as otherwise provided below. |
Page 33
| (ii) | Notwithstanding the foregoing provisions of clause (i) above, the portion of his Grandfathered Pre-2005 Benefit attributable to the PEP formula (as defined in Section 4.01(c) of the Retirement Plan shall be payable in the form of a lump sum payment and effective as of January 1, 2008 the Participant’s right to convert such PEP formula portion of his Grandfathered Pre-2005 Benefit into a form of life annuity is eliminated. | ||
| (iii) | Notwithstanding any provisions the of Plan to the contrary, the provisions of clause (iii) of Section 2.04(a) shall only apply if the Participant completed and filed such lump sum election with the Committee on or prior to December 31, 2008 in accordance with procedures established by the Committee of the Plan. In the event a Participant has made a valid lump sum election under the provisions of this clause (iii), his Grandfathered Pre-2005 Benefit attributable to the TPP formula shall be paid in accordance with the provisions of this clause (iii). | ||
| If a Participant becomes Disabled (as defined in Article I of the foregoing provisions of the Plan) prior to his Termination of Employment, the portion of his Disability Supplemental Benefit equal to his Grandfathered Pre-2005 Benefit shall be paid at the same time and in the same form as the Retirement Plan benefit is paid. |
| (b) | Death Prior to a Participant’s Annuity Starting Date |
| (i) | The portion of the death benefit determined under Section 2.04(b)(i) of the foregoing provisions of this Plan attributable to a Participant’s Grandfathered Pre-2005 Benefit payable to a Participant’s spouse (or Registered Domestic Partner) shall be paid in the same form and at the same time said spouse (or Registered Domestic Partner) receives payment under the Automatic Vested Spouse Benefit of the Retirement Plan. Notwithstanding the foregoing, effective on and after January 1, 2008, the portion of any benefit payable under this clause (i) attributable to the PEP |
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| formula (as defined in Section 4.01(c) of the Retirement Plan) based on his Grandfathered Pre-2005 Benefit shall be payable in a single lump sum payment and effective as of January 1, 2008, the spouse’s (or Registered Domestic Partner’s) right to convert such PEP formula portion of his Grandfathered Pre-2005 Benefit into a form of life annuity is eliminated. | |||
| (ii) | Except as therein provided in clause (iii) of this Section 2.04(b), the portion of the death benefit determined under Section 2.04(b)(ii) of the foregoing provisions of the Plan attributable to a Participant’s Grandfathered Pre-2005 Benefit shall be payable to the Participant’s Beneficiary at the same time said Beneficiary would have received a Pre-Retirement Survivor’s Benefit under Section 4.08(b) of the Retirement Plan, provided, however, the portion of such survivor benefit attributable to the PEP formula (as defined under Section 4.01(c) of the Retirement Plan) shall be paid in a single lump sum payment and effective as of January 1, 2008, the Beneficiary’s right to convert such PEP formula portion of his Grandfathered Pre-2005 Benefit into a form of life annuity is eliminated. | ||
| Notwithstanding any provisions of the Plan to the contrary, the provisions of clause (iii) of Section 2.04(b) shall only apply if the Participant completed and filed such lump sum election with the Committee on or prior to December 31, 2008 in accordance with procedures established by the Committee of the Plan. In the event a Participant has made a valid lump sum election under the provisions of said clause (iii), his Grandfathered Pre-2005 Benefit attributable to the TPP formula shall be paid in accordance with the provisions of said clause (iii). |
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Section 2.05 Payment Upon the Occurrence of an Acceleration Event
In the event an Acceleration Event occurs, regardless of whether or not such event
satisfies the definition of a Change in Control event as defined in the foregoing
provisions of this Plan, the provisions of this Section 2.05 shall apply to the
Participant’s Grandfathered Pre-2005 Benefit.
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APPENDIX B
Provisions of the Plan as in effect on October 3, 2004
This Appendix B constitutes a part of the Plan and contains the Plan provisions as in effect on
October 3, 2004.
Exhibit 10.15
ITT EXCESS PENSION PLAN IB
Effective as of January 1, 1996
As Amended and Restated as of December 31, 2008
As Amended and Restated as of December 31, 2008
ITT EXCESS PENSION PLAN IB
The ITT Industries Excess Pension Plan IB (the “Plan”) has been authorized and adopted by the Board
of Directors of ITT Industries, Inc. to be effective as of January 1, 1996. The purpose of the Plan
is to provide certain supplemental benefits to certain select management or highly compensated
employees who qualify for benefits under the ITT Salaried Retirement Plan (the “Retirement Plan”).
Effective as of January 1, 1996, the ITT Industries Excess Pension Plan I was amended (i) to solely
provide to individuals who are eligible employees thereunder on and after December 19, 1995, the
excess benefits which would have been payable under the Retirement Plan but for the limitations
imposed by Sections 415 and 401(a)(17) of the Internal Revenue Code (the “Code”) and (ii) to
transfer into the ITT Industries Excess Pension Plan IB all liabilities not attributable to such
excess benefits.
The Plan was amended, effective as of January 1, 2000, to reflect the changes in the Retirement
Plan formula.
Effective as of July 13, 2004, the Plan was amended and restated to make certain administrative
changes and to unify the definition of Acceleration Event with other employee benefit plans of ITT
Corporation (formerly known as ITT Industries, Inc. (the “Corporation”). Effective as of July 13,
2004, the Plan was further amended to eliminate approval by the Compensation and Personnel
Committee of the Board of Directors for lump sum payments made on or after September 1, 2004 and to
revise the interest rate assumption utilized to calculate the amount of an elective lump sum
payment available upon retirement to a Participant who becomes an Eligible Employee after January
1, 2005.
Effective as of July 1, 2006, the Plan’s name was revised to the ITT Excess Pension Plan IB.
Page 2
Effective as of January 1, 2008, the Plan was amended to freeze participation and to eliminate the
election of lump sum distribution after December 31, 2008. Effective as of December 21, 2008, the
Plan was amended and restated to comply with the provisions of Section 409A of the Code and the
regulations promulgated thereunder.
The benefits accrued and vested under the provisions of the Plan by a Participant who terminated
employment with the Corporation and all its Associated Companies prior to January 1, 2005 shall be
subject to the provisions of the Plan as in effect on October 3, 2004. In addition, with respect
to a Participant who was employed by the Corporation or one of its Associated Companies on January
1, 2005, the portion of his benefit payable under the provisions of this Plan equal to his
Grandfathered Pre-2005 Benefit (as defined herein) shall be subject to the provisions of the Plan
as in effect on October 3, 2004 (attached hereto as Appendix B and made part hereof) without regard
to any Plan amendments after October 3, 2004 which would constitute a material modification for
Code Section 409A purposes, unless otherwise provided in Appendix A.
All benefits payable under this Plan, which is intended to constitute both an unfunded excess
benefit plan under Section 3(36) of Title I of the Employee Retirement Income Security Act of 1974,
as amended (“ERISA”), and a nonqualified, unfunded deferred compensation plan for a select group of
management employees under Title I of ERISA, shall be paid out of the general assets of the
Corporation. The Corporation may establish and fund a trust in order to aid it in providing
benefits due under the Plan.
ITT EXCESS PENSION PLAN IB
TABLE OF CONTENTS
TABLE OF CONTENTS
| Page | ||||
ARTICLE I. DEFINITIONS |
1 | |||
ARTICLE II. PARTICIPATION; AMOUNT AND PAYMENT OF BENEFITS |
5 | |||
2.01 Participation |
5 | |||
2.02 Amount of Supplemental Benefits |
5 | |||
2.03 Vesting |
6 | |||
2.04 Payment of Benefits |
7 | |||
2.05 Payment upon the Occurrence of a Change in Control |
18 | |||
2.06 Reemployment of Former Participant or Retired Participant |
20 | |||
ARTICLE III. GENERAL PROVISIONS |
21 | |||
3.01 Funding |
21 | |||
3.02 Duration of Benefits |
22 | |||
3.03 Discontinuance and Amendment |
22 | |||
3.04 Termination of Plan |
22 | |||
3.05 Plan Not a Contract of Employment |
23 | |||
3.06 Facility of Payment |
23 | |||
3.07 Withholding Taxes |
23 | |||
3.08 Nonalienation |
24 | |||
3.09 Forfeiture for Cause |
24 | |||
3.10 Transfers |
24 | |||
3.11 Acceleration of or Delay in Payments |
25 | |||
3.12 Indemnification |
25 | |||
3.13 Claims Procedure |
26 | |||
3.14 Construction |
28 | |||
| Page | ||||
ARTICLE IV. PLAN ADMINISTRATION |
29 | |||
4.01 Responsibility for Benefit Determination |
29 | |||
4.02 Duties of Committee |
29 | |||
4.03 Procedure for Payment of Benefits Under the Plan |
29 | |||
4.04 Compliance |
30 | |||
APPENDIX A |
31 | |||
APPENDIX B |
35 | |||
ii
ITT EXCESS PENSION PLAN IB
ARTICLE I. DEFINITIONS
The following terms when capitalized herein shall have the meanings assigned below.
| 1.01 | Acceleration Event shall mean “Acceleration Event” as that term is defined under the provisions of the Plan as in effect on October 3, 2004. | |
| 1.02 | Annuity Starting Date shall mean, unless the Plan expressly provides otherwise, the first day of the first period for which an amount is due as an annuity or any other form. However, if a Change in Control occurs, the Annuity Starting Date of a Participant with regard to his 409A Supplemental Benefit shall be the date such Change in Control occurs. | |
| 1.03 | Associated Company shall mean any division, subsidiary or affiliated company of the Corporation not participating in the Plan which is an Associated Company, as defined in the Retirement Plan. | |
| 1.04 | Beneficiary shall mean the person designated pursuant to the provisions of the Retirement Plan to receive benefits under said Retirement Plan after a Participant’s death. In the absence of a beneficiary designation under the provisions of the Retirement Plan, the Participant’s Beneficiary shall be his spouse (or Registered Domestic Partner), if any, otherwise his estate. Notwithstanding the foregoing, with respect to any survivor benefit payable pursuant to the provision of Section 2.04(c)(ii) based on the Participant’s 409A Supplemental Benefit attributable to the Traditional Pension Plan (“TPP”) formula (as defined in Section 4.01(b) of the Retirement Plan), in the absence of a beneficiary designation under the provisions of the Retirement Plan, the Participant’s Beneficiary shall be his spouse (or Registered Domestic Partner), if any, otherwise the person or persons named as his beneficiary (or beneficiaries) under the ITT Salaried Investment and Savings Plan, if any, or if none, then the person or persons named as his beneficiary (or beneficiaries) under the Company’s life insurance program. For purposes of the Plan, a Registered Domestic Partner shall have the same meaning as set forth in the Retirement Plan. |
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| 1.05 | Board of Directors shall mean the Board of Directors of ITT Corporation or any successor thereto. | |
| 1.06 | Change in Control shall mean “Change in Control” as such term is defined under the terms of ITT Excess Pension Plan IIA, as amended from time to time. | |
| 1.07 | Code shall mean the Internal Revenue Code of 1986, as amended from time to time. | |
| 1.08 | Committee shall mean the Benefits Administration Committee under the Retirement Plan. | |
| 1.09 | Company shall mean the Corporation with respect to its employees and any Participating Unit (as that term is defined in the Retirement Plan) authorized by the Corporation to participate in the Plan with respect to its employees. | |
| 1.10 | Company Pension Plan shall mean any tax qualified defined benefit plan other than the Retirement Plan maintained by the Company or an Associated Company. | |
| 1.11 | Corporation shall mean ITT Corporation, an Indiana corporation, (successor by merger to and formerly known as ITT Industries, Inc.), or any successor by merger, purchase or otherwise. | |
| 1.12 | Deferred Compensation Program shall mean any nonqualified deferred compensation plan maintained by the Company or an Associated Company. | |
| 1.13 | Disability or Disabled shall mean “Disability” as defined under Treasury Regs. Section 1.409A-3(i)(4)(i) and (ii) and any subsequent guidance thereto. | |
| 1.14 | Eligible Employee shall mean a member of the Retirement Plan who occupies on December 31, 2007, or occupied prior to December 31, 2007, a position of senior management with the Corporation at the Vice President level or higher. | |
| 1.15 | ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. |
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| 1.16 | Excess Benefit Portion shall mean the portion of the Plan which is intended to constitute an unfunded excess benefit plan under Sections 3(36) and 4(b)(5) of Title I of ERISA which provides benefits not otherwise payable under the Retirement Plan due to restrictions imposed by Section 415 of the Code. | |
| 1.17 | Grandfathered Pre-2005 Benefit shall mean the portion of the Participant’s Supplemental Benefit, if any, that was accrued and vested before January 1, 2005, determined under the provisions of the Plan without regard to any amendments after October 3, 2004 which would cause a material modification for Code Section 409A purposes, the provisions of Section 409A, the regulations promulgated thereunder and other applicable guidance, adjusted for the passage of time based on actuarial equivalent assumptions and procedures established by the Committee in accordance with the provisions of Treasury Regs. 1.409A-6(a)(3)(iv). | |
| 1.18 | ITT Excess Benefit Trust shall mean the grantor trust established for this Plan effective as of January l, 1985. | |
| 1.19 | Participant shall mean an Eligible Employee who is participating in the Plan pursuant to Section 2.01 hereof. | |
| 1.20 | Plan shall mean the ITT Excess Pension Plan IB, as set forth herein or as amended from time to time. | |
| 1.21 | Plan Year shall mean the calendar year. | |
| 1.22 | Retirement Plan shall mean the ITT Salaried Retirement Plan (formerly known as the ITT Industries Salaried Retirement Plan), as amended from time to time. | |
| 1.23 | Select Management Portion shall mean the portion of the Plan, other than the Excess Benefit Portion, which is intended to constitute an unfunded deferred compensation plan for a select group of management or highly compensated employees under Title I of ERISA. | |
| 1.24 | Specified Employee shall mean a “specified employee” as such term is defined in the ITT Excess Pension Plan IA. |
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| 1.25 | Supplemental Benefit shall mean the monthly benefit payable to a Participant as determined under Section 2.02. | |
| 1.26 | 409A Supplemental Benefit shall mean the portion of a Participant’s Supplemental Benefit, if any, in excess of his Grandfathered Pre-2005 Benefit. | |
| 1.27 | Termination of Employment shall mean a “Separation from Service” as such term is defined in the ITT Excess Pension Plan IA. |
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ARTICLE II. PARTICIPATION; AMOUNT AND PAYMENT OF BENEFITS
| 2.01 | Participation |
| (a) | Each Eligible Employee who is a Participant in the Plan as of January 1, 2008 shall continue to be a Participant in the Plan, subject to the provisions of paragraph (b) below. Effective as of January 1, 2008, participation in the Plan is frozen and there shall be no new Participants in the Plan on or after that date | ||
| (b) | A Participant’s participation in the Plan shall terminate upon the Participant’s death or other Termination of Employment with the Company and all Associated Companies, unless a benefit is payable under the Plan with respect to the Participant or his Beneficiary under the provisions of this Article II. |
| 2.02 | Amount of Supplemental Benefits |
| (a) | A Participant’s Supplemental Benefit under this Article II shall be equal to the excess, if any, of (i) over (ii) as determined below: |
| (i) | the monthly retirement allowance or vested benefit determined as of such Participant’s Termination of Employment which would have been payable to the Participant under Section 4.02, 4.03, 4.04, 4.05 or 4.06 of the Retirement Plan, whichever is applicable, assuming such benefit commences on the date set forth in Section 2.04(a)(i), (ii) or (iv), whichever is applicable, and |
| (1) | prior to the application of any offset required pursuant to Section 4.10 or to an applicable Appendix of the Retirement Plan with regard to benefits payable under any other Company Pension Plan; | ||
| (2) | without regard to the provisions contained in Section 415 of the Code relating to the maximum limitation on benefits, as incorporated into the Retirement Plan; | ||
| (3) | without regard to the annual limitation on Compensation contained in Section 401(a)(17) of the Code, as incorporated into the Retirement Plan; and |
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| (4) | without regard to deferrals of Compensation made pursuant to a Deferred Compensation program. |
over
| (ii) | the monthly retirement allowance or vested benefit which would have been payable for the Participant’s lifetime under Section 4.02, 4.03, 4.04, 4.05 or 4.06 of the Retirement Plan, whichever is applicable, assuming such benefit commences on the date set forth in Section 2.04(a)(i), (ii) or (iv), whichever is applicable, and determined |
| (1) | prior to the application of any offset required pursuant to Section 4.10 or an applicable Appendix of the Retirement Plan with regard to benefits payable under any other Company Pension Plan; | ||
| (2) | without regard to the provisions contained in Section 415 of the Code relating to maximum limitation benefits, as incorporated into the Retirement Plan; and | ||
| (3) | without regard to the annual limitation on Compensation contained in Section 401(a)(17) of the Code, as incorporated into the Retirement Plan. |
| 2.03 | Vesting |
| (a) | A Participant shall be vested in, and have a nonforfeitable right to, the benefit payable under this Article II to the same extent as the Participant is vested in his Accrued Benefit (as that term is defined in the Retirement Plan) under the provisions of the Retirement Plan. | ||
| (b) | Notwithstanding any provision of this Plan to the contrary, in the event of an Acceleration Event, all Participants and their Beneficiaries shall become fully vested in the benefits provided under this Plan. |
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| 2.04 | Payment of Benefits |
| (a) | Timing of Payment |
| (i) | Subject to the provisions of clause (iii) below, the portion of any Participant’s 409A Supplemental Benefit payable under Section 2.02 attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan), to the extent vested pursuant to Section 2.03, shall commence as of the first day of the month following (1) the Participant’s Termination of Employment or (2) if the Participant is not at least age 50 on such date of Termination of Employment and his age and service as of such date does not equal 80 or more, the Participant’s attainment of age 55, if later. | ||
| (ii) | Notwithstanding the foregoing provisions of clause (i) above and subject to the provisions of clause (iii) below, the portion of any Participant’s 409A Supplemental Benefit payable under Section 2.02 attributable to the Pension Equity Plan (PEP) formula (as defined in Section 4.01(c) of the Retirement Plan), to the extent vested pursuant to Section 2.03, shall commence as of the first day of the month following the Participant’s Termination of Employment. | ||
| (iii) | Notwithstanding the foregoing, the actual payment of a 409A Supplemental Benefit payable under Section 2.02 due to the Participant’s Termination of Employment for reasons other than death or Disability shall not commence prior to the first day of the seventh month following the Participant’s Termination of Employment. Any payment due the Participant which he would have otherwise received under Section 2.02 during the six month period immediately following such Participant’s Termination of Employment shall be accumulated, with interest, at the IRS Interest Rate (as defined in the Retirement Plan) in accordance with procedures established by the Committee. For the avoidance of doubt, the provisions of this clause (iii) shall not apply to a 409A Supplemental Benefit payable under (1) |
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| Section 2.04(c) due to the death of the Participant or (2) Section 2.04(d) due to the Participant’s Disability. | |||
| (iv) | Notwithstanding the foregoing, in the event a Participant who incurred a Termination of Employment prior to January 1, 2009 has not commence payment of his 409A Supplemental Benefit as of January 1, 2009, such Participant’s 409A Supplemental Benefit shall commence as of January 1, 2009 or, if later, the date specified in clause (i), (ii) or (iii) above, whichever is applicable. | ||
| (v) | A Participant’s Grandfathered Pre-2005 Benefit shall commence in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A and without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. |
| (b) | Form of Benefit |
| (i) | Notwithstanding any provisions of the Plan to the contrary, the portion of the Participant’s 409A Supplemental Benefit determined under Section 2.02 attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) shall be paid in the same form as the Participant’s supplemental benefit determined under the provisions of the ITT Excess Pension Plan IA attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan), if any, is paid. However, if the Participant is not entitled to a supplemental benefit under the provisions of the ITT Excess Pension IA attributable to the TPP formula, then unless the Participant has a valid election under clause (ii) or (iii) below in effect , the portion of the Participant’s 409A Supplemental Benefit determined under Section 2.02 attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) shall be paid in the form of a single life annuity for the life |
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| of the Participant, if the Participant is not married on his Annuity Starting Date, or in the form of 50% joint & survivor annuity, if the Participant is married (or has a Registered Domestic Partner) on his Annuity Starting Date. | |||
| (ii) | Subject to the provisions of clause (iv) below, a Participant who is not entitled to a supplement benefit under the provisions of the ITT Excess Pension Plan IA attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) may elect to convert his 409A Supplemental Benefit payable under Section 2.02 attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) into an optional annuity of equivalent actuarial value available to that Participant under the provisions of Section 4.07(b) of the Retirement Plan as of his Annuity Starting Date, provided said optional annuity satisfies the definition of “life annuity” as provided in Treasury Regs. 1.409A-(2)(b)(2)(ii) and any further guidance thereto. Such equivalent actuarial value shall be based on the applicable factors set forth in Appendix A of the Retirement Plan. | ||
| (iii) | Notwithstanding the foregoing provisions of clause (ii) above, a Participant who is not entitled to a supplement benefit under the provisions of the ITT Excess Pension Plan IA attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) may, subject to the timing limitations and other restrictions as shall be prescribed by the Committee, elect, by written notice received by the Committee, to receive the portion of his entire Supplemental Benefit payable under this Plan attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) in the form of a single lump sum payment if upon his Termination of Employment he retires under the provisions of the Retirement Plan at his Postponed Retirement Date, Normal Retirement Date, Standard Early Retirement Date or Special Early Retirement Date (as such terms are defined under the Retirement Plan). Such election must be completed and filed with the Plan Committee no later than December 31, 2008 and shall become irrevocable as of January 1, 2009. |
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| However, if the Participant who has made a valid election under the provisions of this Section 2.04(b)(iii) or under Section 2.04(b)(iii) of the ITT Excess Pension Plan IA dies after his Early, Normal or Postponed Retirement Date (as such terms are defined under the Retirement Plan) but prior to receiving his lump sum payment, the payment shall be made to the Participant’s Beneficiary with the calculation of such payment based on the assumption that payment had been made immediately preceding the Participant’s date of death. For avoidance of doubt, if a Participant has not satisfied the eligibility requirements to retire under the Retirement Plan with an early, normal or postponed retirement allowance upon his Termination of Employment, the election of a lump sum payment under the provisions of the clause (iii) shall not be effective. | |||
| Such lump sum payment shall be calculated on an actuarial equivalent basis using the interest rate assumption for immediate annuities used by the Pension Benefit Guaranty Corporation (“PBGC”) for valuing benefits for single employer plans as published by the PBGC for the month in which the payment is effective and the mortality table utilized as of such date under the provisions of the Retirement Plan to calculate the amount of a small lump sum cashout. Notwithstanding the preceding sentence, with respect to a Participant who becomes an Eligible Employee (as defined in Section 1.14 of the Plan) after January 1, 2005, such lump sum payment shall be calculated on an actuarial equivalent basis using the IRS Interest Rate (as defined in the Retirement Plan) as published in the fourth month prior to the month following the month in which the Participant’s Termination of Employment occurs and the mortality table utilized as of such date under the provisions of the Retirement Plan to calculate the amount of a small lump sum cashout. The calculation of a lump sum payment under this clause (iii) shall be based on the Participant’s benefit determined pursuant to Section 2.02 attributable to the TPP formula portion (as defined in Section 4.01(b) of the Retirement Plan) of such benefit as if it were paid in the form of a single life annuity to the |
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| Participant. The calculation of a lump sum payment hereunder shall be made without regard to the possibility of any future changes after the Participant’s Annuity Starting Date in the amount of benefits payable under the Retirement Plan because of future changes in the limitations referred to in Section 2.02. This lump sum payment plus any payment made pursuant to the provisions of clause (v) below represents a complete settlement of all 409A Supplemental Benefits due on the Participant’s behalf under the Plan. | |||
| (iv) | Notwithstanding the foregoing and subject to the provisions of Section 409A of the Code, a Participant’s election to receive his 409A Supplemental Benefit attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) in an optional annuity form of payment as described in clause (ii) above shall be effective as of the Participant’s Annuity Starting Date applicable to that portion of his 409A Supplemental Benefit, provided the Participant makes and submits to the Committee in the manner prescribed by the Committee, his election of such optional annuity form prior to such applicable Annuity Starting Date. Unless otherwise provided under clause (iii) above, a Participant who fails to elect an optional annuity form of benefit applicable to the TPP formula portion of his 409A Supplemental Benefit in a timely manner shall receive such benefit in accordance with the provisions of clause (i) above, | ||
| (v) | Notwithstanding the foregoing provisions of this Section 2.04(b), the portion of a Participant’s 409A Supplemental Benefit payable under Section 2.02 attributable to the PEP formula (as defined in Section 4.01(c) of the Retirement Plan) shall be payable in the form of a single lump sum payment. Such lump sum payment shall be calculated on the same basis as provided in Section 4.07(b)(v) of the Retirement Plan using the IRS Mortality Table and IRS Interest Rate (as defined in the Retirement Plan). |
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| (vi) | The portion of the Participant’s Grandfathered Pre-2005 Benefit payable under Section 2.02 attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) shall commence and the form of payment of such benefit shall be determined in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A and without regard to any Plan amendments after that date which would constitute a material modification for Code Section 409A purposes, unless a Participant has a valid election under either clause (iii) above or Section 2.04(b)(ii) of the ITT Excess Pension Plan IA in effect as of his date of Termination of Employment. The portion of the Participant’s Grandfathered Pre-2005 Benefit payable under Section 2.02 attributable to the PEP formula (as defined in Section 4.01(c) of the Retirement Plan) shall be payable in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A and without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. |
| (c) | Death Prior to a Participant’s Annuity Starting Date |
| (i) | If a Participant entitled to a vested benefit under the Retirement Plan dies (1) before meeting the eligibility requirements for an Automatic Pre-Retirement Survivor’s Benefit under Section 4.08(b) of the Retirement Plan and while in active service with the Company or any Associated Company or while Disabled but before his Annuity Starting Date, or (2) after Termination of Employment with entitlement to a vested benefit hereunder but prior to his Annuity Starting Date, the Participant’s spouse (or Registered Domestic Partner) shall receive a monthly payment for life equal to the monthly income which would have been payable to such spouse (or Registered Domestic Partner) under Section 4.08(a) of the Retirement Plan based on the hypothetical benefit attributable to his Supplemental Benefit as calculated under Section 2.02 hereof assuming payments commence as of the first day of the month following the Participant’s date of death, or attainment of age 55, if |
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| later. The portion of such survivor benefit attributable to the Participant’s 409A Supplemental Benefit shall commence as of the first day of the month following the later of the Participant’s date of death or the Participant’s attainment of age 55 (or in the event clause (iv) is applicable, the date specified in clause (iv)) Notwithstanding the foregoing, the portion of any benefit payable under this clause (i) attributable to the PEP formula portion (as defined in Section 4.01(c) of the Retirement Plan) of the benefit which would have been payable to the spouse based on the hypothetical 409A Supplemental Benefit as calculated under Section 2.02 shall be determined assuming that portion of the survivor benefit commences as of the first day of the month following the Participant’s date of death (or the date specified in clause (iv), if later) and such benefit shall be payable in the form of a single lump sum payment as of the first day of the month following the Participant’s date of death. This lump sum payment shall be calculated on the same basis as provided in Section 4.08(a)(iii) of the Retirement Plan using the IRS Mortality Table and IRS Interest Rate (as defined in the Retirement Plan). Notwithstanding any Plan provision to the contrary, the portion of any survivor benefit payable under this clause (i) attributable to the Participant’s Grandfathered Pre-2005 Benefit shall be payable in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A, and without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. | |||
| (ii) | Except as otherwise provided below or in clause (iii) of this Section 2.04(c), in the event a Participant who has satisfied the eligibility requirements for the Automatic Pre-Retirement Survivor’s Benefit under Section 4.08(b) of the Retirement Plan, dies (1) while in active service with the Company or any Associated Company or (2) after his Termination of Employment or the date he becomes Disabled, if earlier, but prior to his Annuity Starting Date, the Participant’s Beneficiary, if any, shall receive a monthly payment for the life |
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| of the Beneficiary equal to the monthly income which would have been payable to such Beneficiary under Section 4.08(b) of the Retirement Plan based on the hypothetical retirement benefit attributable to his Supplemental Benefit as calculated under Section 2.02 hereof assuming payments commence on the first day of the month following the Participant’s death (or the date specified in clause (iv), if later). Notwithstanding the foregoing, the portion of any benefit payable under this clause (ii) attributable to the PEP formula portion (as defined in Section 4.01(c) of the Retirement Plan) of the benefit which would have been payable to the Beneficiary based on the hypothetical 409A Supplemental Benefit as calculated under Section 2.02 shall be payable in the form of a single lump sum payment. This lump sum payment shall be calculated on the same basis as provided in Section 4.08(b)(iii) of the Retirement Plan using the IRS Mortality Table and IRS Interest Rate (as defined in the Retirement Plan). The portion of any benefit payable under this clause (ii) attributable to a Participant’s 409A Supplemental Benefit as calculated under Section 2.02 hereof shall commence on the first day of the month following the Participant’s death. | |||
| The portion of such survivor benefit payable under this clause (ii) of paragraph (c) attributable to the Participant’s Grandfathered Pre-2005 Benefit shall commence in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A, and without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. | |||
| (iii) | Notwithstanding the foregoing, in the event a Participant, who has satisfied the eligibility requirements to retire under the Retirement Plan with an early, normal or postponed retirement allowance, has filed a valid election to receive a lump sum payment of benefits under the provisions of (1) Section 2.04(b)(iii) above or (2) Section 2.04(b)(iii) of the ITT Excess Pension Plan IA, dies on or after age 55 and prior to his Annuity Starting Date, the |
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| Beneficiary of such Participant shall receive a single lump sum amount determined as follows: |
| (A) | In the event of the Participant’s death (i) prior to his Termination of Employment or (ii) after he becomes Disabled but prior to his Annuity Starting Date, the lump sum payment shall be equal to the value of the Participant’s benefit attributable to his Supplemental Benefit, if any, accrued to his date of death as determined under the provisions of Section 2.02 hereof. | ||
| (B) | In the event of any other Participant’s death after his Termination of Employment and prior to his Annuity Starting Date, the lump sum payment shall be equal to the value of the Participant’s Supplemental Benefit accrued to the Participant’s Termination of Employment as determined under the provisions of Section 2.02 hereof. |
| The portion of the lump sum payment under this clause (iii) attributable to the PEP formula portion (as defined in Section 4.01(c) of the Retirement Plan) of his 409A Supplemental Benefit, if any, shall be calculated on the same basis as provided in Section 4.08(b)(iii) of the Retirement Plan using the IRS Mortality Table and IRS Interest Rate (as defined in the Retirement Plan) determined as if the Participant’s Annuity Starting Date was the first day of the month following the earlier of his Termination of Employment or his date of death. The portion of the lump sum payment under this clause (iii) attributable to the TPP formula portion (as defined in Section 4.01(b) of the Retirement Plan) of the Participant’s 409A Supplemental Benefit shall be (1) based on the Participant’s Plan benefit attributable to the TPP formula portion (as defined in Section 4.01(b) of the Retirement Plan) as if it were paid in the form of a single life annuity to the Participant and (2) calculated on an actuarial equivalent basis using the interest rate assumption for immediate annuities used by the PBGC for valuing benefits for single employer plans as published by the PBGC for the month following the Participant’s date of Termination of Employment or, if earlier, the date of his death and the |
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| mortality table utilized as of such date under the provisions of the Retirement Plan to calculate the amount of a small lump sum cashout. Notwithstanding the preceding sentence, with respect to a Participant who becomes an Eligible Employee (as defined in Section 1.14 of the Plan) after January 1, 2005, the lump sum payment in the preceding sentence shall be calculated on an actuarial equivalent basis using the IRS Interest Rate (as defined in the Retirement Plan) as published in the fourth month prior to the month in which the Participant’s Termination of Employment or, if earlier, date of death occurs and the mortality table utilized as of such date under the provisions of the Retirement Plan to calculate the amount of a small lump sum cashout. The calculation of a lump sum payment hereunder shall be made without regard to the possibility of any future changes after the Participant’s death in the amount of benefits payable under the Retirement Plan because of future changes in the limitations referred to in Section 2.02. | |||
| Notwithstanding the foregoing, a total lump sum payment under this clause (iii) shall only be made to the Participant’s Beneficiary if the Participant has filed an election to receive a lump sum payment of any benefits under the provisions of (i) Section 2.04(a)(iii) or (ii) Section 2.04(a)(iii) of the Excess Pension Plan IA in accordance with the timing limitations and other restrictions prescribed by the Committee. Payment shall be made to the Participant’s Beneficiary as soon as practicable after the Participant’s date of death. The lump sum payment under this clause (iii) represents a complete settlement of all benefits due the Beneficiary on the Participant’s behalf under the Plan. | |||
| Notwithstanding the foregoing, the portion of such survivor benefit attributable to the Participant’s Grandfathered Pre-2005 Benefit shall be paid in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A, and without regard to any Plan |
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| amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. |
| (iv) | Notwithstanding the foregoing, in the event the survivor benefit payable under this Section 2.04(c) to the spouse or Beneficiary of a Participant who died prior to January 1, 2009 has not commenced as of January 1, 2009, such survivor benefit shall commence as of January 1, 2009 or, if later, the date specified in clauses (i), (ii) or (iii) above, whichever is applicable. |
| (d) | Disability prior to Termination of Employment |
| (i) | Notwithstanding any Plan provision to the contrary, in the event a Participant becomes Disabled prior to his Termination of Employment, he shall be entitled to a Disability Supplemental Benefit equal to the amount determined under the provisions of Section 2.02(a) based on his years of Benefit Service (as such term is defined in the Retirement Plan) accrued to the date he came Disabled plus the years of Benefit Service (as such term is defined in the Retirement Plan) the Participant accrues under the terms of the Retirement Plan after the date he becomes Disabled and prior to his attainment of age 65. | ||
| (ii) | The portion of the Disability Supplemental Benefit determined under the provisions of clause (i) in excess of the Participant’s Grandfathered Pre-2005 Benefit shall be paid in accordance with the provisions of paragraph (b) above and payments shall commence on the first day of the month following the month in which the Participant attains age 65. | ||
| (iii) | Notwithstanding the foregoing, the portion of the Disability Supplemental Benefit attributable to the Participant’s Grandfathered Pre-2005 Benefit shall be paid in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A, and without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. |
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| 2.05 | Payment upon the Occurrence of a Change in Control | |
| Upon the occurrence of a Change in Control, (i) all retired Participants then receiving or then entitled to receive a 409A Supplemental Benefit under the Plan, (ii) all former Participants then receiving or then entitled to receive a 409A Supplemental Benefit hereunder, and (iii) all Participants who are then still in active service shall automatically receive, in a single lump sum payment, the 409A Supplemental Benefit remaining due as of the Change in Control to any such retired or former Participant or the benefit, if any, accrued by such active Participant up to the Change in Control event and as determined under Section 2.02 hereof. The amount of such lump sum payment attributable to the PEP formula portion (as defined in Section 4.01(c) of the Retirement Plan) of the Participant’s 409A Supplemental Benefit payable under this Plan not in payment status as of the occurrence of a Change in Control event shall be calculated on the same basis as provided in Section 4.07(b)(v) of the Retirement Plan using the IRS Mortality Table and IRS Interest Rate (as defined in the Retirement Plan) determined as if the date the Change in Control event occurs is the Participant’s Annuity Starting Date. The amount of the lump sum payment attributable to the TPP formula portion of the Participant’s 409A Supplemental Benefit payable under this Plan shall be calculated on an actuarial equivalent basis using (i) the interest rate assumption used by the PBGC for valuing benefits for single employer plans as published by the PBGC for the month in which such Change in Control event occurs and (ii) the mortality table utilized as of the day immediately preceding the date the Change in Control event occurs under the provisions of the Retirement Plan to calculate the amount of a small lump sum cashout. The interest rate for immediate annuities will be used, if the Participant has met the eligibility requirements to retire under the Retirement Plan with an early, normal or postponed retirement allowance as of the Change in Control or is then in receipt of monthly payments under this Plan, otherwise the Plan shall use the interest rate assumption for deferred annuities to the earliest date the Participant could have commenced payment of such benefit or, if it results in a larger lump sum, his Normal Retirement Date (as defined under the Retirement Plan) If the Participant is not in receipt of his monthly 409A Supplemental Benefit payments under this Plan as of the Change in Control, the |
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| calculation of a lump sum payment hereunder of the portion of the Participant’s accrued benefit payable under this Plan attributable to the TPP formula portion (as defined under Section 4.01(b) of the Retirement Plan) shall be based on the Participant’s 409A Supplemental Benefit payable under Section 2.02 attributable to such TPP formula as if it were paid in the form of a single life annuity to the Participant commencing on the Participant’s Annuity Starting Date; provided, however, if the Participant has not met the eligibility requirements to retire under the Retirement Plan with an early, normal or postponed retirement allowance, the calculation of such lump sum payment shall be based on the Participant’s accrued 409A Supplemental Benefit payable under Section 2.02 attributable to such TPP formula as if it were paid in the form of a single life annuity to the Participant commencing on the earliest date he could have commenced payment of such benefit. In no event, however, shall the lump sum payment determined under the preceding sentence be less than the lump sum payment based on the Participant’s accrued 409 Supplemental Benefit payable under Section 2.02 attributable to such TPP formula as if it were paid in the form of a single life annuity to the Participant commencing on his Normal Retirement Date. The calculation of a lump sum payment hereunder shall be made on the basis of the Participant’s age (and Beneficiary’s age, if applicable) at the Change in Control and without regard to the possibility of any future changes after the Change in Control in the amount of benefits payable hereunder because of future changes in the limitations referred to in Section 2.02. The lump sum payment shall be made within ninety (90) days of the date the Change in Control event occurs. In the event the Participant dies after such Change in Control event occurs but before receiving such payment, the lump sum payment shall be made to his Beneficiary. This lump sum payment represents a complete settlement of all benefits on the Participant’s behalf under the Plan. | ||
| For avoidance of doubt, upon the occurrence of an Acceleration Event, (either prior, after or simultaneously with the occurrence of a Change of Control) the provisions of Section 2.05 of the Plan as in effect on October 3, 2004 without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes shall be applicable to a Participant’s Grandfathered Pre-2005 Benefit. |
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| 2.06 | Reemployment of Former Participant or Retired Participant | |
| If a Participant who retired or otherwise terminated employment with the Company and all Associated Companies is reemployed as an employee by the Company or an Associated Company, such reemployment shall have no impact on the payment or timing of payment of any 409A Supplement Benefits earned prior to reemployment. |
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ARTICLE III. GENERAL PROVISIONS
| 3.01 | Funding |
| (a) | All amounts payable in accordance with this Plan shall constitute a general unsecured obligation of the Corporation. Such amounts, as well as any administrative costs relating to the Plan, shall be paid out of the general assets of the Corporation, to the extent not paid from the assets of any trust established pursuant to paragraph (b) below. | ||
| (b) | The Corporation may, for administrative reasons, establish a grantor trust for the benefit of Participants in the Plan. The assets placed in said trust shall be held separate and apart from other Corporation funds and shall be used exclusively for the purposes set forth in the Plan and the applicable trust agreement, subject to the following conditions: |
| (i) | the creation of said trust shall not cause the Plan to be other than “unfunded” for purposes of Title I of ERISA; | ||
| (ii) | the Corporation shall be treated as “grantor” of said trust for purposes of Section 677 of the Code; and | ||
| (iii) | the agreement of said trust shall provide that its assets may be used upon the insolvency or bankruptcy of the Corporation to satisfy claims of the Company’s general creditors and that the rights of such general creditors are enforceable by them under federal and state law. |
| (c) | To the extent that any person acquires a right to receive payments under the Plan, such right shall be no greater than the right of any unsecured creditor of the Corporation. |
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| 3.02 | Duration of Benefits | |
| Benefits shall accrue under the Plan on behalf of a Participant only for so long as the deferrals of compensation under a Deferred Compensation Program or other restrictions referred to in Section 2.02 reduce such benefits. . |
| 3.03 | Discontinuance and Amendment | |
| The Board of Directors reserves the right to modify, amend, or discontinue in whole or in part, benefit accruals under the Plan at any time. However, no modification, amendment, or discontinuance shall adversely affect the right of any Participant to receive the benefits accrued as of the date of such modification, amendment or discontinuance and after the occurrence of an Acceleration Event, no modification or amendment shall be made to Sections 2.03 or 2.05. Notwithstanding the foregoing, following any amendment and except as provided in Article II with respect to lump sum payments hereunder, benefits may be adjusted as required to take into account the amount of benefits payable under the Retirement Plan after the application of the limitations referred to in Section 2.02. |
| 3.04 | Termination of Plan | |
| The Board of Directors reserves the right to terminate the Plan at any time, provided, however, that no termination shall be effective retroactively. As of the effective date of termination of the Plan, |
| (a) | the benefits of any Participant or Beneficiary whose benefit payments have commenced shall continue to be paid, but only to the extent such benefits are not otherwise payable under the Retirement Plan because of the limitations referred to in Section 2.02, and | ||
| (b) | no further benefits shall accrue on behalf of any Participant whose benefits have not commenced, and such Participant and his Beneficiary shall retain the right to benefits hereunder; provided that, on or after the effective date of termination, |
| (i) | the Participant is vested under the Retirement Plan and |
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| (ii) | such benefits are not at any time otherwise payable under the Retirement Plan because of the limitations imposed by IRC Section 415 or Section 401(a)(17). |
| All other provisions of this Plan shall remain in effect. | ||
| 3.05 | Plan Not a Contract of Employment | |
| This Plan is not a contract of employment, and the terms of employment of any Participant shall not be affected in any way by this Plan or related instruments, except as specifically provided therein. The establishment of this Plan shall not be construed as conferring any legal rights upon any person for a continuation of employment, nor shall it interfere with the rights of the Corporation to discharge any person and to treat him without regard to the effect which such treatment might have upon him under this Plan. Each Participant and all persons who may have or claim any right by reason of his participation shall be bound by the terms of this Plan and all agreements entered into pursuant thereto. | ||
| 3.06 | Facility of Payment | |
| In the event that the Committee shall find that a Participant is unable to care for his affairs because of illness or accident or is a minor or has died, the Committee may, unless claim shall have been made therefore by a duly appointed legal representative, direct that any benefit payment due him, to the extent not payable from a grantor trust, be paid on his behalf to his spouse, a child, a parent or other blood relative, or to a person with whom he resides, and any such payment so made shall be a complete discharge of the liabilities of the Corporation and the Plan therefore. | ||
| 3.07 | Withholding Taxes | |
| The Company and an Associated Company shall have the right to deduct from each payment to be made under the Plan any required withholding taxes. |
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| 3.08 | Nonalienation | |
| Subject to any applicable law, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void, nor shall any such benefit be in any manner liable for or subject to garnishment, attachment, execution or levy, or liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefits. | ||
| 3.09 | Forfeiture for Cause | |
| In the event that a Participant shall at any time be convicted of a crime involving dishonesty or fraud on the part of such Participant in his relationship with the Company or an Associated Company, all benefits that would otherwise be payable to him or to a Beneficiary under the Plan shall be forfeited. | ||
| 3.10 | Transfers |
| (a) | Notwithstanding any Plan provision to the contrary, in the event the Corporation (i) sells, causes the sale of, or sold the stock or assets of any employing company in the controlled group of the Corporation to a third party or (ii) distributes or distributed to the holders of shares of the Corporation’s common stock all of the outstanding shares of common stock of a subsidiary or subsidiaries of the Corporation, and, as a result of such sale or distribution, such company (or subsidiary) or its employees are no longer eligible to participate hereunder, the liabilities with respect to the benefits accrued under this Plan for a Participant who, as a result of such sale or distribution, is no longer eligible to participate in this Plan, shall, at the discretion and direction of the Corporation (and approval by the new employer), be transferred to a similar plan of such new employer and become a liability thereunder. Upon such transfer (and acceptance thereof by such new employer) the liabilities for such transferred benefits shall become the obligation of the new employer and the liability under this Plan for such benefits shall then cease. |
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| (b) | Notwithstanding any Plan provision to the contrary, at the discretion and direction of the Corporation, liabilities with respect to benefits accrued by a Participant under a plan maintained by such Participant’s former employer may be transferred to this Plan and upon such transfer shall become the obligation of the Corporation. |
| 3.11 | Acceleration of or Delay in Payments | |
| The Committee, in its sole and absolute discretion, may elect to accelerate the time or form of payment of a benefit owed to the Participant hereunder, provided such acceleration is permitted under Treasury Regs. Section 1.409A-3(j)(4). The Committee may also, in its sole and absolute discretion, delay the time for payment of a benefit owed to the Participant hereunder, to the extent permitted under Treasury Regs. Section 1.409A-2(b)(7). | ||
| 3.12 | Indemnification. | |
| The Company, the members of the Committee, and the officers, employees and agents of the Company shall, unless prohibited by any applicable law, be indemnified against any and all liabilities arising by reason of any act or failure to act in relation to the Plan including, without limitation, expenses reasonably incurred in the defense of any claim relating to the Plan, amounts paid in any compromise or settlement relating to the Plan and any civil penalty or excise tax imposed by any applicable statue, if |
| (a) | the act or failure to act shall have occurred |
| (i) | in the course of the person’s service as an officer, employee or agent of the Company or as a member of the Committee, or as the Plan administrator, or | ||
| (ii) | in connection with a service provided with or without charge to the Plan or; to the Participants or Beneficiaries of the Plan, if such service was requested by the Committee or the Plan administrator; and |
| (b) | the act or failure to act is in good faith and in, or not opposed to, the best interests of the Corporation. |
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| This determination shall be made by the Corporation and, if such determination is made in good faith and not arbitrarily or capriciously, shall be conclusive. | ||
| The foregoing indemnification shall be from the assets of the Corporation. However, the Corporation’s obligation hereunder shall be offset to the extent of any otherwise applicable insurance coverage under a policy maintained by the Corporation or any other person, or other source of indemnification. | ||
| 3.13 | Claims Procedure |
| (a) | Submission of Claims | ||
| Claims for benefits under the Plan shall be submitted in writing to the Committee or to an individual designated by the Committee for this purpose. | |||
| (b) | Denial of Claim | ||
| If any claim for benefits is wholly or partially denied, the claimant shall be given written notice within 90 days following the date on which the claim is filed, which notice shall set forth |
| (i) | the specific reason or reasons for the denial; | ||
| (ii) | specific reference to pertinent Plan provisions on which the denial is based; | ||
| (iii) | a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and | ||
| (iv) | an explanation of the Plan’s claim review procedure, including information as to the steps to be taken if the claimant wishes to submit the claim for review and the time limits for requesting a review. |
| If special circumstances require an extension of time for processing the claim, written notice of an extension shall be furnished to the claimant prior to the end of the initial period of 90 days following the date on which the claim is filed. Such an extension may not exceed a period of 90 days beyond the end of said initial period. |
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| If the claim has not been granted and written notice of the denial of the claim is not furnished within 90 days following the date on which the claim is filed, the claim shall be deemed denied for the purpose of proceeding to the claim review procedure. | |||
| (c) | Claim Review Procedure | ||
| The claimant or his authorized representative shall have 60 days after receipt of written notification of denial of a claim to request a review of the denial by making written request to the Committee, and may review pertinent documents and submit issues and comments in writing within such 60-day period. | |||
| Not later than 60 days after receipt of the request for review, the persons designated by the Company to hear such appeals (the “Appeals Committee”) shall render and furnish to the claimant a written decision, which shall include specific reasons for the decision and shall make specific references to pertinent Plan provisions on which it is based. If special circumstances require an extension of time for processing, the decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review, provided that written notice and explanation of the delay are given to the claimant prior to commencement of the extension. Such decision by an Appeals Committee shall not be subject to further review. If a decision on review is not furnished to a claimant within the specified time period, the claim shall be deemed to have been denied on review. | |||
| (d) | Exhaustion of Remedy | ||
| No claimant shall institute any action or proceeding in any state or federal court of law or equity or before any administrative tribunal or arbitrator for a claim for benefits under the Plan until the claimant has first exhausted the procedures set forth in this section. |
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| 3.14 | Construction |
| (a) | The Plan is intended to constitute both an excess benefit arrangement and an unfunded deferred compensation arrangement maintained for a select group of management or highly compensated employees within the meaning of Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA, and all rights under this Plan shall be governed by ERISA. Subject to the preceding sentence, the Plan shall be construed, regulated and administered under the laws of the State of New York, to the extent such laws are not superseded by applicable federal law. | ||
| (b) | The masculine pronoun shall mean the feminine wherever appropriate. | ||
| (c) | The illegality of any particular provision of this document shall not affect the other provisions and the document shall be construed in all respects as if such invalid provision were omitted. | ||
| (d) | The headings and subheadings in the Plan have been inserted for convenience of reference only, and are to be ignored in any construction of the provisions thereof. | ||
| (e) | The Plan shall be construed, regulated and administered in accordance with the laws of the State of New York, subject to the provisions of applicable federal laws |
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ARTICLE IV. PLAN ADMINISTRATION
| 4.01 | Responsibility for Benefit Determination | |
| The benefit of a Participant or Beneficiary under this Plan shall be determined either by the Committee, as provided in Section 4.02 below, or such other party as is authorized under the terms of any grantor trust. | ||
| 4.02 | Duties of Committee | |
| The Committee shall calculate, in accordance with Article II, the benefit of each Participant or Beneficiary under the Plan. To the extent a Participant’s, spouse’s or Beneficiary’s benefit are payable from the Plan, the Committee shall have full discretionary authority to resolve any question which shall arise under the Plan as to any person’s eligibility for benefits, the calculation of benefits, the form, commencement date, frequency, duration of payment, or the identity of the Beneficiary. Such question shall be resolved by the Committee under rules uniformly applicable to all person(s) or employee(s) similarly situated. It is the intent of the Corporation that the provisions of the Plan comply with the provisions of Section 409A of the Code, any regulations and other guidance promulgated with respect thereto and the provisions of the Plan shall be interpreted to be consistent therewith. | ||
| 4.03 | Procedure for Payment of Benefits Under the Plan | |
| With respect to any benefit to which a Participant or Beneficiary is entitled under this Plan which is not payable under the ITT Excess Benefit Trust, or any other applicable grantor trust established by the Corporation to pay benefits under the Plan, the Committee (i) shall direct the commencement of benefit payments hereunder in accordance with the applicable procedures established by the Corporation, the Company and/or the Committee regarding the disbursement of amounts from the general funds of the Corporation and (ii) shall arrange, in conjunction with any other applicable excess benefit plan, for the payment of benefits under this Plan and/or any other applicable excess benefit plan. |
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| With respect to any benefit to which a Participant or Beneficiary is entitled under this Plan which is payable under the ITT Excess Benefit Trust (or any other applicable grantor trust), the Committee, acting for the Corporation and in accordance with the terms of the ITT Excess Benefit Trust (or any other applicable grantor trust), shall forward the calculation of the Participant’s or Beneficiary’s benefit under Article II of the Plan to the Participant or Beneficiary for concurrence. Upon obtaining concurrence, the Committee, acting for the Corporation, shall forward such calculation and concurrence to the Trustee of the II Excess Benefit Trust for the purpose of commencing payment of benefits in accordance with the ITT Excess Benefit Trust (or any other applicable grantor trust). Any question that shall arise with regard to the benefits payable to a Participant or Beneficiary under the ITT Excess Benefit Trust (or any other applicable grantor trust) shall be resolved in accordance with the provisions of said trust. | ||
| 4.04 | Compliance | |
| With respect to benefits hereunder subject to Code Section 409A, the Plan is intended to comply with the requirements of Code Section 409A and the provisions hereof shall be interpreted in a manner that satisfies the requirements of Code Section 409A and the regulations thereunder, and the Plan shall be operated accordingly. If any provision of the Plan would otherwise frustrate or conflict with this intent, the provision will be interpreted and deemed amended so as to avoid this conflict. The Plan has been administered in good faith compliance with Section 409A and the guidance issued thereunder from January 1, 2005 through December 31, 2008. |
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APPENDIX A
Provisions Applicable to a Participant’s Grandfathered Pre-2005 Supplemental Benefit
This Appendix A constitutes an integral part of the Plan and is applicable with respect to the
Grandfathered Pre-2005 Benefit of those individuals who were Participants in the Plan on December
31, 2004. The portion of a Participant’s Benefit determined under the provisions of Section 2.02
and Section 2.04(d) of the foregoing provisions of the Plan equal to his Grandfathered Pre-2005
Benefit is subject to the provisions of the Plan as in effect on October 3, 2004, modified as set
forth in this Appendix A and without regard to any Plan amendments after October 3, 2004 which
would constitute a material modification for Code Section 409A purposes.. Section references in
this Appendix A correspond to appropriate Sections of the said Plan as in effect on October 3, 2004
as set forth in Appendix B.
Article II – Participation Amount and Payment of Benefits
For purposes of Article II, the terms/phrases “termination of employment,” “terminates employment,”
“retirement”, “employment is terminated” or other similar language shall mean, with respect to a
Participant, the complete cessation of providing services to the Company and all Associated
Companies an employee.
Section 2.04 Payment of Benefits
| (b) | Retirement or Termination of Employment Effective on or After January 1, 1996 |
| (i) | Following a Participant’s retirement or termination of employment with the Company and all Associated Companies other than by reason of death, a Participant shall receive his Grandfathered Pre-2005 Benefit in the same form and at the same time as the Participant receives his corresponding retirement allowance or vested benefit under the Retirement Plan, except as otherwise provided below. |
Page 32
| (ii) | Notwithstanding the foregoing provisions of clause (i) above, the portion of his Grandfathered Pre-2005 Benefit attributable to the PEP formula (as defined in Section 4.01(c) of the Retirement Plan) shall be payable in the form of a lump sum payment and effective as of January 1, 2008, the Participant’s right to convert such PEP formula portion of his Grandfathered Pre-2005 Benefit into a form of life annuity is eliminated. | ||
| (iii) | Notwithstanding any provisions the of Plan to the contrary, the provisions of clause (iii) of Section 2.04(b) shall only apply if the Participant completed and filed a lump sum election pursuant to either the forgoing provisions of this Plan or Section 2.04(b)(iii) of the ITT Excess Pension Plan IA, whichever is applicable, with the Committee on or prior to December 31, 2008 in accordance with procedures established by the Committee of the Plan. In the event a Participant has made a valid lump sum election under the provisions of this clause (iii), his Grandfathered Pre-2005 Benefit attributable to the TPP formula shall be paid in accordance with the provisions of this clause (iii). |
| If a Participant becomes Disabled (as defined in Article I of the foregoing provisions of the Plan) prior to his Termination of Employment, the portion of his Disability Supplemental Benefit equal to his Grandfathered Pre-2005 Benefit shall be paid at the same time and in the same form as the Retirement Plan benefit is paid. | |||
| (c) | Death Prior to a Participant’s Annuity Starting Date |
| (i) | The portion of the death benefit determined under Section 2.04(c)(i) of the foregoing provisions of this Plan attributable to a Participant’s Grandfathered Pre-2005 Benefit payable to a Participant’s spouse (or Registered Domestic Partner) shall be paid in the same form and at the same time said spouse (or Registered Domestic Partner) receives payment under the Automatic Vested Spouse Benefit of the Retirement Plan. |
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| Notwithstanding the foregoing, effective on and after January 1, 2008, the portion of any benefit payable under this clause (i) attributable to the PEP formula (as defined in Section 4.01(c) of the Retirement Plan) based on his Grandfathered Pre-2005 Benefit shall be payable in a single lump sum payment and effective as of January 1, 2008, the spouse’s (or Registered Domestic Partner’s) right to convert such PEP formula portion of his Grandfathered Pre-2005 Benefit into a form of life annuity is eliminated. |
| (ii) | Except as therein provided in clause (iii) of this Section 2.04(c), the portion of the death benefit determined under Section 2.04(c)(ii) of the foregoing provisions of the Plan attributable to a Participant’s Grandfathered Pre-2005 Benefit shall be payable to the Participant’s Beneficiary at the same time said Beneficiary would have received a Pre-Retirement Survivor’s Benefit under Section 4.08(b) of the Retirement Plan, provided, however, the portion of such survivor benefit attributable to the PEP formula (as defined under Section 4.01(c) of the Retirement Plan) shall be paid in a single lump sum payment and effective as of January 1, 2008, the Beneficiary’s right to convert such PEP formula portion of his Grandfathered Pre-2005 Benefit into a form of life annuity is eliminated. | ||
| Notwithstanding any provisions the of Plan to the contrary, the provisions of clause (iii) of Section 2.04(c) shall only apply if the Participant completed and filed a lump sum election under the provisions of the Plan or Section 2.04(c)(iii) of the ITT Excess Pension Plan IA, whichever is applicable, with the Committee on or prior to December 31, 2008 in accordance with procedures established by the Committee of the Plan. In the event a Participant has made a valid lump sum election under the provisions of said clause (iii), his Grandfathered Pre-2005 Benefit attributable to the TPP formula shall be paid in accordance with the provisions of said clause (iii). |
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Section 2.05 Payment upon the Occurrence of an Acceleration Event
In the event an Acceleration Event occurs, regardless of whether or not such event
satisfies the definition of a Change in Control event as defined in the foregoing
provisions of this Plan, the provisions of this Section 2.05 shall apply to the
Participant’s Grandfathered Pre-2005 Benefit.
Page 35
APPENDIX B
Provisions of the Plan as in effect on October 3, 2004
This Appendix B constitutes a part of this Plan and contains the Plan provisions as in effect on
October 3, 2004.
Exhibit 10.16
ITT EXCESS PENSION PLAN IIA
Effective as of January 1, 1988
As Amended and Restated as of December 31, 2008
As Amended and Restated as of December 31, 2008
ITT EXCESS PENSION PLAN IIA
The ITT Excess Benefit Plan II (the “Plan”) was effective as of January 1, 1988. The purpose of
the Plan was to provide those employees participating in the Retirement Plan for Salaried Employees
of ITT Corporation or any successor plan thereto (the “Retirement Plan”) benefits which would have
been payable under the Retirement Plan but for the limitations imposed on qualified plans by
Section 415 of the Internal Revenue Code.
Effective as of January 1, 1988, the ITT Select Management Plan II was authorized by the Board of
Directors of ITT Corporation to pay supplemental benefits to certain select management highly
compensated employees who have qualified for benefits under the Retirement Plan. As of December
19, 1995, the ITT Select Management Plan II was merged into the ITT Excess Benefit Plan II and the
surviving Plan was amended to accept the liabilities under ITT Industries Excess Pension Plan I
attributable to all participants thereunder other than former or current Presidents, Chairmen,
Chief Executive Officers, Chief Operating Officers or Executive Vice Presidents of ITT Industries,
Inc. and was renamed the ITT Industries Excess Pension Plan II.
The Plan was amended, effective as of January 1, 2000, to reflect the changes in the Retirement
Plan formula.
Effective as of July 13, 2004, the Plan was amended and restated to make certain administrative
changes and to unify the definition of Acceleration Event with other employee benefit plans of ITT
Corporation (formerly known as ITT Industries, Inc.) (the “Corporation”).
As of January 1, 2008, the Plan was amended to solely provide to individuals who are designated
Eligible Employees under the Plan on and after January 1, 2008 benefits which would have been
payable on their behalf under the Retirement Plan but for the limitations on benefits imposed by
Section 415 and 401(a)(17) of the Internal Revenue Code (the “Code”), to transfer all liabilities
not attributable to such excess benefits into the ITT Excess Pension Plan IIB (which is authorized
to be effective as of January 1, 2008) and to rename the Plan, as amended, the ITT Excess Pension
Plan IIA.
i
With respect to a Participant who (i) terminated employment with the ITT Corporation (the
“Corporation”) and all its Associated Companies by December 31, 2008 or (ii) was employed by ITT
Corporation or one of its Associated Companies on October 1, 2008 and signs and submits his signed
acknowledgement of termination to the ITT HQ Compensation Department on or before December 31, 2008
formalizing his date of Termination of Employment in 2009, the portion of his benefit, if any,
payable under the provisions of this Plan equal to his Grandfathered Pre-2005 Benefit (as defined
herein) shall be subject to the provisions of the Plan as in effect on October 3, 2004 (attached
hereto as Appendix C and made part hereof) without regard to any Plan amendments after October 3,
2004 which would constitute a material modification for Code Section 409A purposes, unless
otherwise provided in Appendix A.
All benefits payable under this Plan, which is intended to constitute both an unfunded excess
benefit plan under Section 3(36) of Title I of the Employee Retirement Income Security Act of 1974,
as amended (“ERISA”), and a nonqualified, unfunded deferred compensation plan for a select group of
management employees under Title I of ERISA, shall be paid out of the general assets of the
Corporation. The Corporation may establish and fund a trust in order to aid it in providing
benefits due under the Plan.
ii
ITT EXCESS PENSION PLAN IIA
TABLE OF CONTENTS
| Page | ||||
ARTICLE I. DEFINITIONS |
1 | |||
ARTICLE II. PARTICIPATION; AMOUNT AND PAYMENT OF BENEFITS |
8 | |||
2.01 Participation |
8 | |||
2.02 Amount of Supplemental Benefits |
8 | |||
2.03 Vesting |
10 | |||
2.04 Payment of Benefits |
10 | |||
2.05 Payment Upon the Occurrence of a Change in Control |
17 | |||
2.06 Reemployment of Former Participant or Retired Participant |
19 | |||
ARTICLE III. GENERAL PROVISIONS |
20 | |||
3.01 Funding |
20 | |||
3.02 Duration of Benefits |
21 | |||
3.03 Discontinuance and Amendment |
21 | |||
3.04 Termination of Plan |
21 | |||
3.05 Plan Not a Contract of Employment |
22 | |||
3.06 Facility of Payment |
22 | |||
3.07 Withholding Taxes |
22 | |||
3.08 Nonalienation |
23 | |||
3.09 Forfeiture for Cause |
23 | |||
3.10 Transfers |
23 | |||
3.11 Acceleration of or Delay in Payments |
24 | |||
3.12 Indemnification |
24 | |||
3.13 Claims Procedure |
25 | |||
3.14 Construction |
26 | |||
ARTICLE IV. PLAN ADMINISTRATION |
28 | |||
4.01 Responsibility for Benefit Determination |
28 | |||
4.02 Duties of Committee |
28 | |||
4.03 Procedure for Payment of Benefits Under the Plan |
28 | |||
4.04 Compliance |
29 | |||
APPENDIX A |
30 | |||
APPENDIX B |
33 | |||
APPENDIX C |
34 | |||
ITT EXCESS PENSION PLAN IIA
ARTICLE I. DEFINITIONS
The following terms when capitalized herein shall have the meanings assigned below.
| 1.01 | Acceleration Event shall mean “Acceleration Event” as that term is defined under the provisions of the Plan as in effect on October 3, 2004. | |
| 1.02 | Annuity Starting Date shall mean, unless the Plan expressly provides otherwise, the first day of the first period for which an amount is due as an annuity or any other form. However, if a Change in Control occurs, the Annuity Starting Date of a Participant with regard to his 409A Supplemental Benefit shall be the date such Change in Control occurs. | |
| 1.03 | Associated Company shall mean any division, subsidiary or affiliated company of the Corporation not participating in the Plan which is an Associated Company, as defined in the Retirement Plan. | |
| 1.04 | Beneficiary shall mean the person designated pursuant to the provisions of the Retirement Plan to receive benefits under said Retirement Plan after a Participant’s death. In the absence of a beneficiary designation under the provisions of the Retirement Plan, the Participant’s Beneficiary shall be his spouse (or Registered Domestic Partner), if any, otherwise his estate. Notwithstanding the foregoing, with respect to any survivor benefit payable pursuant to the provision of Section 2.04(c)(ii) based on the Participant’s 409A Supplemental Benefit attributable to the Traditional Pension Plan (“TPP”) formula (as defined in Section 4.01(b) of the Retirement Plan), in the absence of a beneficiary designation under the provisions of the Retirement Plan, the Participant’s Beneficiary shall be his spouse (or Registered Domestic Partner), if any, otherwise the person or persons named as his beneficiary (or beneficiaries) under the ITT Salaried Investment and Savings Plan, if any, or if none, then the person or persons named as his beneficiary (or beneficiaries) under the Company’s life insurance program. For purposes of the Plan, |
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| a Registered Domestic Partner shall have the same meaning as set forth in the Retirement Plan. | ||
| 1.05 | Board of Directors shall mean the Board of Directors of ITT Corporation or any successor thereto. | |
| 1.06 | Change in Control shall mean an event which shall occur if there is: (i) a change in the ownership of the Corporation; (ii) a change in the effective control of the Corporation; or (iii) a change in the ownership of a substantial portion of the assets of the Corporation. | |
| For purposes of this Section, a change in the ownership occurs on the date on which any one person, or more than one person acting as a group (as defined in Treasury Regs. 1.409A-3(i)(5)(v)(B)), acquires ownership of stock that, together with stock held by such person or group constitutes more than 50% of the total fair market value or total voting power of the stock of the Corporation. | ||
| A change in the effective control occurs on the date on which either (i) a person, or more than one person acting as a group (as defined in Treasury Regs. 1.409A-3(i)(5)(v)(B)), acquires ownership of stock possessing 30% or more of the total voting power of the stock of the Corporation, taking into account all such stock acquired during the 12-month period ending on the date of the most recent acquisition, or (ii) a majority of the members of the Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of such Board of Directors prior to the date of the appointment or election, but only if no other corporation is a majority shareholder. | ||
| A change in the ownership of a substantial portion of assets occurs on the date on which any one person, or more than one person acting as a group (as defined in Treasury Regs. 1.409A-3(i)(5)(v)(B)), other than a person or group of persons that is related to the Corporation, acquires assets that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Corporation |
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| immediately prior to such acquisition or acquisitions, taking into account all such assets acquired during the 12-month period ending on the date of the most recent acquisition. | ||
| The determination as to the occurrence of a Change in Control shall be based on objective facts and in accordance with the requirements of Code Section 409A and the regulations promulgated thereunder. | ||
| 1.07 | Code shall mean the Internal Revenue Code of 1986, as amended from time to time. | |
| 1.08 | Committee shall mean the Benefits Administration Committee under the Retirement Plan. | |
| 1.09 | Company shall mean the Corporation with respect to its employees and any Participating Unit (as that term is defined in the Retirement Plan) authorized by the Corporation to participate in the Plan with respect to its employees. | |
| 1.10 | Company Pension Plan shall mean any tax qualified defined benefit plan other than the Retirement Plan maintained by the Company or an Associated Company. | |
| 1.11 | Corporation shall mean ITT Corporation, an Indiana corporation, (successor by merger to and formerly known as ITT Industries, Inc.), or any successor by merger, purchase or otherwise. | |
| 1.12 | Deferred Compensation Program shall mean any nonqualified deferred compensation plan maintained by the Company or an Associated Company. | |
| 1.13 | Disability or Disabled shall mean “Disability” as defined under Treasury Regs. Section 1.409A-3(i)(4)(i) and (ii) and any subsequent guidance thereto. | |
| 1.14 | Eligible Employee shall mean a member of the Retirement Plan who is not eligible to participate in the ITT Excess Pension Plan IA or IB. |
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| 1.15 | ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. | |
| 1.16 | Excess Benefit Portion shall mean the portion of the Plan which is intended to constitute an unfunded excess benefit plan under Sections 3(36) and 4(b)(5) of Title I of ERISA which provides benefits not otherwise payable under the Retirement Plan due to restrictions imposed by Section 415 of the Code. | |
| 1.17 | Grandfathered Pre-2005 Benefit shall mean, with respect to a Participant who (i) terminated employment on or prior to December 31, 2008 or (ii) was employed by the Company or an Associated Company on October 1, 2008 and signs and submits his acknowledgement of termination to ITT HQ Compensation Department on or before December 31, 2008 formalizing his date of Termination of Employment in 2009, the portion of such Participant’s Supplemental Benefit, if any, that was accrued and vested before January 1, 2005, determined under the provisions of the Plan without regard to any amendments after October 3, 2004 which would cause a material modification for Code Section 409A purposes, the provisions of Section 409A, the regulations promulgated thereunder and other applicable guidance, adjusted for the passage of time based on actuarial equivalent assumptions and procedures established by the Committee in accordance with the provisions of Treasury Regs. 1.409A-6(a)(3)(iv). | |
| 1.18 | Participant shall mean an Eligible Employee who is participating in the Plan pursuant to Section 2.01 hereof. | |
| 1.19 | Plan shall mean the ITT Excess Pension Plan IIA, as set forth herein or as amended from time to time. | |
| 1.20 | Plan Year shall mean the calendar year. |
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| 1.21 | Retirement Plan shall mean the ITT Salaried Retirement Plan (formerly known as the ITT Industries Salaried Retirement Plan), as amended from time to time. | |
| 1.22 | Select Management Portion shall mean the portion of the Plan, other than the Excess Benefit Portion, which is intended to constitute an unfunded deferred compensation plan for a select group of management or highly compensated employees under Title I of ERISA. | |
| 1.23 | Specified Employee shall mean a “specified employee” as such term is defined in the Income Tax Regulations under Section 409A as modified by the rules set forth below: |
| (a) | For purposes of determining whether a Participant is a Specified Employee, the compensation of the Participant shall be determined in accordance with the definition of compensation provided under Treas. Reg. Section 1.415(c) 2(d)(3) (wages within the meaning of Code section 3401(a) for purposes of income tax withholding at the source, plus amounts excludible from gross income under Section 125(a), 132(f)(4), 402(e)(3), 402(h)(1)(B), 402(k) or 57(b), without regard to rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed). | ||
| (b) | The “Specified Employee Identification Date” means December 31, unless the Compensation Committee of the Board has elected a different date through action that is legally binding with respect to all nonqualified deferred compensation plans maintained by the Company or any Associated Company. | ||
| (c) | The “Specified Employee Effective Date” means the first day of the fourth month following the Specified Employee Identification Date or such earlier date as is selected by the Compensation Committee of the Board. |
| 1.24 | Supplemental Benefit shall mean the monthly benefit payable to a Participant as determined under Section 2.02. |
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| 1.25 | 409A Supplemental Benefit shall mean the portion of a Participant’s Supplemental Benefit, if any, in excess of his Grandfathered Pre-2005 Benefit. | |
| 1.26 | Termination of Employment shall mean a “Separation from Service” as such term is defined in the Treasury Regs. under Section 409A of the Code, as modified by the rules described below: |
| (a) | An Employee who is absent from work due to military leave, sick leave, or other bona fide leave of absence pursuant to Company policies shall incur a Termination of Employment on the first date immediately following the later of (i) the six-month anniversary of the commencement of the leave (eighteen month anniversary for a disability leave of absence) or (ii) the expiration of the Employee’s right, if any, to reemployment under statute or contract or pursuant to Company policies. For this purpose, a “disability leave of absence” is an absence due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 6 months, where such impairment causes the employee to be unable to perform the duties of his job or a substantially similar job.; | ||
| (b) | For purposes of determining whether another organization is an Associated Company of the Corporation, common ownership of at least 50% shall be determinative; | ||
| (c) | The Corporation specifically reserves the right to determine whether a sale or other disposition of substantial assets to an unrelated party constitutes a Termination of Employment with respect to the executive providing services to the seller immediately prior to the transaction and providing services to the buyer after the transaction. Such determination shall be made in accordance with the requirements of Code Section 409A. |
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| Whether Termination of Employment has occurred shall be determined by the Committee in accordance with Code Section 409A, the regulations promulgated thereunder, and other applicable guidance, as modified by rules described above. The terms or phrases “terminates employment,” “termination of employment,” “employment is terminated,” or any other similar terminology shall have the same meaning as a “Termination of Employment.” |
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ARTICLE II. PARTICIPATION; AMOUNT AND PAYMENT OF BENEFITS
| 2.01 | Participation |
| (a) | Each Eligible Employee who is a Participant in the Plan as of December 31, 2008 shall continue to be a Participant in the Plan, subject to the provisions of paragraph (d) below. An Eligible Employee whose retirement allowance or vested benefit under the Retirement Plan exceeds the limitations imposed by Code Section 415(b) or Code Section 4019a)(17) shall become a Participant in the Plan. | ||
| (b) | Each Eligible Employee’s annual retirement allowance or vested benefit which at the time of payment under the Retirement Plan exceeds the limitations imposed by Code Section 415(b) (or prior to January 1, 2000, Code Section 415(e)) shall be payable from the Excess Benefit Portion of the Plan. | ||
| (c) | Each Eligible Employee’s annual retirement allowance or vested benefit at the time of payment under the Retirement Plan is limited by reason of the Code Section 401(a)(17) limitation on Compensation (as that term is defined in the Retirement Plan) shall be payable from the Select Management Portion of the Plan. | ||
| (d) | A Participant’s participation in the Plan shall terminate upon the Participant’s death or other Termination of Employment with the Company and all Associated Companies, unless a benefit is payable under the Plan with respect to the Participant or his Beneficiary under the provisions of this Article II. |
| 2.02 | Amount of Supplemental Benefits |
| (a) | A Participant’s Supplemental Benefit under this Article II shall be equal to the excess, if any, of (i) over (ii) as determined below: |
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| (i) | the monthly retirement allowance or vested benefit determined as of such Participant’s Termination of Employment which would have been payable to the Participant under Section 4.02, 4.03, 4.04, 4.05 or 4.06 of the Retirement Plan, whichever is applicable, assuming such benefit commences on the date set forth in Section 2.04(a)(i), (ii) or (iv), whichever is applicable, and |
| (1) | prior to the application of any offset required pursuant to Section 4.10 or to an applicable Appendix of the Retirement Plan with regard to benefits payable under any other Company Pension Plan; | ||
| (2) | without regard to the provisions contained in Section 415 of the Code relating to the maximum limitation on benefits, as incorporated into the Retirement Plan; and | ||
| (3) | without regard to the annual limitation on Compensation contained in Section 401(a)(17) of the Code, as incorporated into the Retirement Plan; |
over
| (ii) | the monthly retirement allowance or vested benefit which would have been payable for the Participant’s lifetime under Section 4.02, 4.03, 4.04, 4.05 or 4.06 of the Retirement Plan, whichever is applicable assuming such benefit commences on the date set forth in Section 2.04(a)(i), (ii) or (iv), whichever is applicable, and determined |
| (1) | prior to the application of any offset required pursuant to Section 4.10 or an applicable Appendix of the Retirement Plan with regard to benefits payable under any other Company Pension Plan; | ||
| (2) | with regard to the provisions contained in Section 415 of the Code relating to maximum limitation benefits as incorporated into the Retirement Plan; and | ||
| (3) | with regard to the annual limitation on Compensation contained in Section 401(a)(17) of the Code, as incorporated into the Retirement Plan. |
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| (b) | Except as otherwise provided below, if, after a Participant’s Annuity Starting Date, changes to the Code or ERISA permit the Retirement Plan to provide for payment of a Participant’s monthly retirement allowance or vested benefit in an amount greater than that permissible at that particular Annuity Starting Date, the Participant’s monthly benefit under this Plan shall be reduced by the portion of his retirement allowance or vested benefit thereafter paid from the Retirement Plan. This provision shall not be applicable to any portion of a Participant’s Supplemental Benefit received in the form of a lump sum payment. |
| 2.03 | Vesting |
| (a) | A Participant shall be vested in, and have a nonforfeitable right to, the benefit payable under this Article II to the same extent as the Participant is vested in his Accrued Benefit (as that term is defined in the Retirement Plan) under the provisions of the Retirement Plan. | ||
| (b) | Notwithstanding any provision of this Plan to the contrary, in the event of an Acceleration Event, all Participants and their Beneficiaries shall become fully vested in the benefits provided under this Plan. |
| 2.04 | Payment of Benefits |
| (a) | Timing of Payment |
| (i) | Subject to the provisions of clause (iii) below, the portion of any Participant’s 409A Supplemental Benefit payable under Section 2.02 attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan), to the extent vested pursuant to Section 2.03, shall commence as of the first day of the month following (1) the Participant’s Termination of Employment or (2) if the Participant is not at least age 50 on such date of Termination of Employment and his age and service as of such date does not equal 80 or more, the Participant’s attainment of age 55, if later. |
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| (ii) | Notwithstanding the foregoing provisions of clause (i) above and subject to the provisions of clause (iii) below, the portion of any Participant’s 409A Supplemental Benefit payable under Section 2.02 attributable to the PEP formula (as defined in Section 4.01(c) of the Retirement Plan), to the extent vested pursuant to Section 2.03, shall commence as of the first day of the month following the Participant’s Termination of Employment. | ||
| (iii) | Notwithstanding the foregoing if a Participant is classified as a “Specified Employee” on his date of Termination of Employment, the actual payment of a 409A Supplemental Benefit payable under Section 2.02 on account of such Participant’s Termination of Employment for reasons other than death or Disability shall not commence prior to the first day of the seventh month following the Participant’s Termination of Employment. Any payment due the Participant which he would have otherwise received under Section 2.02 during the six month period immediately following such Participant’s Termination of Employment shall be accumulated, with interest, at the IRS Interest Rate (as defined in the Retirement Plan) in accordance with procedures established by the Committee. For the avoidance of doubt, the provisions of this clause (iii) shall not apply to a 409A Supplemental Benefit payable under (1) Section 2.04(c) due to the death of the Participant or (2) Section 2.04(d) due to the Participant’s Disability. | ||
| (iv) | Notwithstanding the foregoing, in the event a Participant who incurred a Termination of Employment prior to January 1, 2009 has not commence payment of his 409A Supplemental Benefit as of January 1, 2009, such Participant’s 409A Supplemental Benefit shall commence as of April 1, 2009 (January 1, 2009, with respect to a Participant listed on Appendix B) or, if later, the date specified in clause (i), (ii) or (iii) above, whichever is applicable. |
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| (v) | A Participant’s Grandfathered Pre-2005 Benefit shall commence in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A and without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. |
| (b) | Form of Benefit |
| (i) | Unless a Participant has a valid election under clause (ii) below in effect, the portion of the Participant’s 409A Supplemental Benefit determined under Section 2.02 attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) shall be paid in the form of a single life annuity for the life of the Participant, if the Participant is not married on his Annuity Starting Date, or in the form of a 50% joint & survivor annuity, if the Participant is married (or has a Registered Domestic Partner) on his Annuity Starting Date. | ||
| (ii) | Subject to the provisions of clause (iii) below, a Participant may elect to convert his 409A Supplemental Benefit payable under Section 2.02 attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) into an optional annuity of equivalent actuarial value available to that Participant under the provisions of Section 4.07(b) of the Retirement Plan as of his Annuity Starting Date, provided said optional annuity satisfies the definition of “life annuity” as provided in Treasury Regs. 1.409A-(2)(b)(2)(ii) and any further guidance thereto. Such equivalent actuarial value shall be based on the applicable factors set forth in Appendix A of the Retirement Plan. | ||
| (iii) | Notwithstanding the foregoing and subject to the provisions of Section 409A of the Code, a Participant’s election to receive his 409A Supplemental Benefit attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) in an optional annuity form of payment as described in clause (ii) above shall be effective as of the Participant’s Annuity Starting |
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| Date applicable to that portion of his 409A Supplemental Benefit, provided the Participant makes and submits to the Committee in the manner prescribed by the Committee, his election of such optional annuity form prior to such applicable Annuity Starting Date. A Participant who fails to elect an optional annuity form of benefit applicable to the TPP formula portion of his 409A Supplemental Benefit in a timely manner shall receive such benefit in accordance with the provisions of clause (i) above, | |||
| (iv) | Notwithstanding the foregoing provisions of this Section 2.04(b), the portion of a Participant’s 409A Supplemental Benefit payable under Section 2.02 attributable to the PEP formula (as defined in Section 4.01(c) of the Retirement Plan) shall be payable in the form of a single lump sum payment. Such lump sum payment shall be calculated on the same basis as provided in Section 4.07(b)(v) of the Retirement Plan using the IRS Mortality Table and IRS Interest Rate (as defined in the Retirement Plan). | ||
| (v) | The portion of the Participant’s Grandfathered Pre-2005 Benefit payable under Section 2.02 attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) shall commence and the form of payment of such benefit shall be determined in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A and without regard to any Plan amendments after that date which would constitute a material modification for Code Section 409A purposes. The portion of the Participant’s Grandfathered Pre-2005 Benefit payable under Section 2.02 attributable to the PEP formula (as defined in Section 4.01(c) of the Retirement Plan) shall be payable in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A and without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. |
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| (c) | Death Prior to a Participant’s Annuity Starting Date |
| (i) | If a Participant entitled to a vested benefit under the Retirement Plan dies (1) before meeting the eligibility requirements for an Automatic Pre-Retirement Survivor’s Benefit under Section 4.08(b) of the Retirement Plan and while in active service with the Company or any Associated Company or while Disabled but before his Annuity Starting Date, or (2) after Termination of Employment with entitlement to a vested benefit hereunder but prior to his Annuity Starting Date, the Participant’s spouse (or Registered Domestic Partner) shall receive a monthly payment for life equal to the monthly income which would have been payable to such spouse (or Registered Domestic Partner) under Section 4.08(a) of the Retirement Plan based on the hypothetical benefit attributable to his Supplemental Benefit as calculated under Section 2.02 hereof assuming payments commence as of the first day of the month following the Participant’s date of death, or attainment of age 55, if later. The portion of such benefit attributable to the Participant’s 409A Supplemental Benefit shall commence as of the first day of the month following the later of the Participant’s date of death, or the Participant’s attainment of age 55 (or in the event clause (iii) is applicable, the date specified in clause (iii).) Notwithstanding the foregoing, the portion of any benefit payable under this clause (i) attributable to the PEP formula portion (as defined in Section 4.01(c) of the Retirement Plan) of the benefit which would have been payable to the spouse (or Registered Domestic Partner) based on the hypothetical 409A Supplemental Benefit as calculated under Section 2.02 shall be determined assuming that portion of the benefit commences as of the first day of the month following the Participant’s date of death (or the date specified in clause (iii), if later) and such benefit shall be payable in the form of a single lump sum payment as of the first day of the month following the Participant’s date of death. This lump sum payment shall be calculated on the same basis as provided in Section 4.08(a)(iii) of the Retirement Plan using the IRS Mortality Table and IRS Interest Rate (as defined in the Retirement Plan). Notwithstanding any Plan provision to the |
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| contrary, the portion of any survivor benefit payable under this clause (i) attributable to the Participant’s Grandfathered Pre-2005 Benefit shall be payable in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A, and without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. | |||
| (ii) | Except as otherwise provided below, in the event a Participant who has satisfied the eligibility requirements for the Automatic Pre-Retirement Survivor’s Benefit under Section 4.08(b) of the Retirement Plan, dies (1) while in active service with the Company or any Associated Company or (2) after his Termination of Employment or the date he becomes Disabled, if earlier, but prior to his Annuity Starting Date, the Participant’s Beneficiary, if any, shall receive a monthly payment for the life of the Beneficiary equal to the monthly income which would have been payable to such Beneficiary under Section 4.08(b) of the Retirement Plan based on the hypothetical retirement benefit attributable to his Supplemental Benefit as calculated under Section 2.02 hereof assuming payments commence on the first day of the month following the Participant’s death (or the date specified in clause (iii), if later). Notwithstanding the foregoing, the portion of any benefit payable under this clause (ii) attributable to the PEP formula portion (as defined in Section 4.01(c) of the Retirement Plan) of the benefit which would have been payable to the Beneficiary based on the hypothetical 409A Supplemental Benefit as calculated under Section 2.02 hereof shall be payable in the form of a single lump sum payment. This lump sum payment shall be calculated on the same basis as provided in Section 4.08(b)(iii) of the Retirement Plan using the IRS Mortality Table and IRS Interest Rate (as defined in the Retirement Plan). The portion of any benefit payable under this clause (ii) attributable to a Participant’s 409A Supplemental Benefit as calculated under Section 2.02 hereof shall commence on the first day of the month following the Participant’s death. |
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| The portion of such survivor benefit payable under this clause (ii) of paragraph (c) attributable to the Participant’s Grandfathered Pre-2005 Benefit shall be paid in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A, and without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. | |||
| (iii) | Notwithstanding the foregoing, in the event the survivor benefit payable under this Section 2.04(c) to the spouse or Beneficiary of a Participant who died prior to January 1, 2009 has not commenced as of January 1, 2009, such survivor benefit shall commence as of April 1, 2009 or, if later, the date specified in clauses (i) or (ii) above, whichever is applicable. |
| (d) | Disability prior to Termination of Employment |
| (i) | Notwithstanding any Plan provision to the contrary, in the event a Participant becomes Disabled prior to his Termination of Employment, the Participant shall be entitled to a Disability Supplemental Benefit equal to the amount determined under the provisions of Section 2.02(a) based on his years of Benefit Service, as such term is defined in the Retirement Plan, accrued to the date he became Disabled plus the years of Benefit Service, as such term is defined in the Retirement Plan, such Participant accrues under the terms of the Retirement Plan after the date he becomes Disabled and prior to his attainment of age 65. | ||
| (ii) | The portion of the Disability Supplemental Benefit determined under the provisions of clause (i) in excess of the Participant’s Grandfathered Pre-2005 Benefit shall be paid in accordance with the provisions of paragraph (b) above and payments shall commence on the first day of the month following the month in which the Participant attains age 65. |
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| (iii) | Notwithstanding the foregoing, the portion of the Disability Supplemental Benefit attributable to the Participant’s Grandfathered Pre-2005 Benefit shall be paid in accordance with the provisions of the Plan as in effect on October 3, 2004, modified as set forth in Appendix A, and without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. |
| 2.05 | Payment Upon the Occurrence of a Change in Control | |
| Upon the occurrence of a Change in Control, (i) all retired Participants then receiving or then entitled to receive a 409A Supplemental Benefit under the Plan, (ii) all former Participants then receiving or then entitled to receive a 409A Supplemental Benefit hereunder, and (iii) all Participants who are then still in active service shall automatically receive, in a single lump sum payment, the 409A Supplemental Benefit remaining due as of the Change in Control to any such retired or former Participant or the benefit, if any, accrued by such active Participant up to the Change in Control event and as determined under Section 2.02 hereof. The amount of such lump sum payment attributable to the PEP formula portion (as defined in Section 4.01(c) of the Retirement Plan) of the Participant’s 409A Supplemental Benefit payable under this Plan not in payment status as of the occurrence of a Change in Control event shall be calculated on the same basis as provided in Section 4.07(b)(v) of the Retirement Plan using the IRS Mortality Table and IRS Interest Rate (as defined in the Retirement Plan) determined as if the date the Change in Control event occurs is the Participant’s Annuity Starting Date. The amount of the lump sum payment attributable to the TPP formula portion of the Participant’s 409A Supplemental Benefit payable under this Plan shall be calculated on an actuarial equivalent basis using (i) the interest rate assumption used by the PBGC for valuing benefits for single employer plans as published by the PBGC for the month in which such Change in Control event occurs and (ii) the mortality table utilized as of the day immediately preceding the date the Change in Control event occurs under the provisions of the Retirement Plan to calculate the amount of a small lump sum cashout. The interest rate for immediate annuities will be used, if the Participant has met the eligibility requirements to retire under the Retirement Plan with an early, normal or postponed |
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| retirement allowance as of the Change in Control or is then in receipt of monthly payments under this Plan, otherwise the Plan shall use the interest rate assumption for deferred annuities to the earliest date the Participant could have commenced payment of such benefit or, if it results in a larger lump sum, his Normal Retirement Date (as defined under the Retirement Plan). If the Participant is not in receipt of his monthly 409A Supplemental Benefit payments under this Plan as of the Change in Control, the calculation of a lump sum payment hereunder of the portion of the Participant’s accrued benefit payable under this Plan attributable to the TPP formula portion (as defined under Section 4.01(b) of the Retirement Plan) shall be based on the Participant’s 409A Supplemental Benefit payable under Section 2.02 attributable to such TPP formula as if it were paid in the form of a single life annuity to the Participant commencing on the Participant’s Annuity Starting Date; provided, however, if the Participant has not met the eligibility requirements to retire under the Retirement Plan with an early, normal or postponed retirement allowance, the calculation of such lump sum payment shall be based on the Participant’s accrued 409A Supplemental Benefit payable under Section 2.02 attributable to such TPP formula as if it were paid in the form of a single life annuity to the Participant commencing on the earliest date he could have commenced payment of such benefit. In no event, however, shall the lump sum payment determined under the preceding sentence be less than the lump sum payment based on the Participant’s accrued 409 Supplemental Benefit payable under Section 2.02 attributable to such TPP formula as if it were paid in the form of a single life annuity to the Participant commencing on his Normal Retirement Date. The calculation of a lump sum payment hereunder shall be made on the basis of the Participant’s age (and Beneficiary’s age, if applicable) at the Change in Control and without regard to the possibility of any future changes after the Change in Control in the amount of benefits payable hereunder because of future changes in the limitations referred to in Section 2.02. The lump sum payment shall be made as within 90 days following the date the Change in Control event occurs. In the event the Participant dies after such Change in Control event occurs but before receiving such payment, the lump sum payment shall be made to his Beneficiary. This lump sum payment represents a complete settlement of all benefits on the Participant’s behalf under the Plan. |
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| For avoidance of doubt, upon the occurrence of an Acceleration Event, (either prior, after or simultaneously with the occurrence of a Change of Control) the provisions of Section 2.05 of the Plan as in effect on October 3, 2004 without regard to any Plan amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes shall be applicable to a Participant’s Grandfathered Pre-2005 Benefit. | ||
| 2.06 | Reemployment of Former Participant or Retired Participant | |
| If a Participant who retired or otherwise terminated employment with the Company and all Associated Companies is reemployed as an employee by the Company or an Associated Company, such reemployment shall have no impact on the payment or timing of payment of any 409A Supplement Benefits earned prior to reemployment. |
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ARTICLE III. GENERAL PROVISIONS
| 3.01 | Funding |
| (a) | All amounts payable in accordance with this Plan shall constitute a general unsecured obligation of the Corporation. Such amounts, as well as any administrative costs relating to the Plan, shall be paid out of the general assets of the Corporation, to the extent not paid from the assets of any trust established pursuant to paragraph (b) below. | ||
| (b) | The Corporation may, for administrative reasons, establish a grantor trust for the benefit of Participants in the Plan. The assets placed in said trust shall be held separate and apart from other Corporation funds and shall be used exclusively for the purposes set forth in the Plan and the applicable trust agreement, subject to the following conditions: |
| (i) | the creation of said trust shall not cause the Plan to be other than “unfunded” for purposes of Title I of ERISA; | ||
| (ii) | the Corporation shall be treated as “grantor” of said trust for purposes of Section 677 of the Code; and | ||
| (iii) | the agreement of said trust shall provide that its assets may be used upon the insolvency or bankruptcy of the Corporation to satisfy claims of the Company’s general creditors and that the rights of such general creditors are enforceable by them under federal and state law. |
| (c) | To the extent that any person acquires a right to receive payments under the Plan, such right shall be no greater than the right of any unsecured creditor of the Corporation. |
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| 3.02 | Duration of Benefits | |
| Benefits shall accrue under the Plan on behalf of a Participant only for so long as the provisions of Section 415 or 401(a)(17) of the Code limit the benefits that are payable under the Retirement Plan. | ||
| 3.03 | Discontinuance and Amendment | |
| The Board of Directors reserves the right to modify, amend, or discontinue in whole or in part, benefit accruals under the Plan at any time. However, no modification, amendment, or discontinuance shall adversely affect the right of any Participant to receive the benefits accrued as of the date of such modification, amendment or discontinuance and after the occurrence of an Acceleration Event, no modification or amendment shall be made to Sections 2.03 or 2.05. Notwithstanding the foregoing, following any amendment and except as provided in Article II with respect to lump sum payments hereunder, benefits may be adjusted as required to take into account the amount of benefits payable under the Retirement Plan after the application of the limitations referred to in Section 2.02. | ||
| 3.04 | Termination of Plan | |
| The Board of Directors reserves the right to terminate the Plan at any time, provided, however, that no termination shall be effective retroactively. As of the effective date of termination of the Plan, |
| (a) | the benefits of any Participant or Beneficiary whose benefit payments have commenced shall continue to be paid, but only to the extent such benefits are not otherwise payable under the Retirement Plan because of the limitations referred to in Section 2.02, and | ||
| (b) | no further benefits shall accrue on behalf of any Participant whose benefits have not commenced, and such Participant and his Beneficiary shall retain the right to benefits hereunder; provided that, on or after the effective date of termination, |
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| (i) | the Participant is vested under the Retirement Plan; and | ||
| (ii) | such benefits are not at any time otherwise payable under the Retirement Plan because of the limitations imposed by IRC Section 415 or Section 401(a)(17). |
| All other provisions of this Plan shall remain in effect. | ||
| 3.05 | Plan Not a Contract of Employment | |
| This Plan is not a contract of employment, and the terms of employment of any Participant shall not be affected in any way by this Plan or related instruments, except as specifically provided therein. The establishment of this Plan shall not be construed as conferring any legal rights upon any person for a continuation of employment, nor shall it interfere with the rights of the Corporation to discharge any person and to treat him without regard to the effect which such treatment might have upon him under this Plan. Each Participant and all persons who may have or claim any right by reason of his participation shall be bound by the terms of this Plan and all agreements entered into pursuant thereto. | ||
| 3.06 | Facility of Payment | |
| In the event that the Committee shall find that a Participant is unable to care for his affairs because of illness or accident or is a minor or has died, the Committee may, unless claim shall have been made therefore by a duly appointed legal representative, direct that any benefit payment due him, to the extent not payable from a grantor trust, be paid on his behalf to his spouse, a child, a parent or other blood relative, or to a person with whom he resides, and any such payment so made shall be a complete discharge of the liabilities of the Corporation and the Plan therefore. | ||
| 3.07 | Withholding Taxes | |
| The Company and an Associated Company shall have the right to deduct from each payment to be made under the Plan any required withholding taxes. |
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| 3.08 | Nonalienation | |
| Subject to any applicable law, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void, nor shall any such benefit be in any manner liable for or subject to garnishment, attachment, execution or levy, or liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefits. | ||
| 3.09 | Forfeiture for Cause | |
| In the event that a Participant shall at any time be convicted of a crime involving dishonesty or fraud on the part of such Participant in his relationship with the Company or an Associated Company, all benefits that would otherwise be payable to him or to a Beneficiary under the Plan shall be forfeited. | ||
| 3.10 | Transfers |
| (a) | Notwithstanding any Plan provision to the contrary, in the event the Corporation (i) sells, causes the sale of, or sold the stock or assets of any employing company in the controlled group of the Corporation to a third party or (ii) distributes or distributed to the holders of shares of the Corporation’s common stock all of the outstanding shares of common stock of a subsidiary or subsidiaries of the Corporation, and, as a result of such sale or distribution, such company (or subsidiary) or its employees are no longer eligible to participate hereunder, the liabilities with respect to the benefits accrued under this Plan for a Participant who, as a result of such sale or distribution, is no longer eligible to participate in this Plan, shall, at the discretion and direction of the Corporation (and approval by the new employer), be transferred to a similar plan of such new employer and become a liability thereunder. Upon such transfer (and acceptance thereof by such new employer) the liabilities for such transferred benefits shall become the obligation of the new employer and the liability under this Plan for such benefits shall then cease. |
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| (b) | Notwithstanding any Plan provision to the contrary, at the discretion and direction of the Corporation, liabilities with respect to benefits accrued by a Participant under a plan maintained by such Participant’s former employer may be transferred to this Plan and upon such transfer shall become the obligation of the Corporation. |
| 3.11 | Acceleration of or Delay in Payments | |
| The Committee, in its sole and absolute discretion, may elect to accelerate the time or form of payment of a benefit owed to the Participant hereunder, provided such acceleration is permitted under Treasury Regs. Section 1.409A-3(j)(4). The Committee may also, in its sole and absolute discretion, delay the time for payment of a benefit owed to the Participant hereunder, to the extent permitted under Treasury Regs. Section 1.409A-2(b)(7). | ||
| 3.12 | Indemnification. | |
| The Company, the members of the Committee, and the officers, employees and agents of the Company shall, unless prohibited by any applicable law, be indemnified against any and all liabilities arising by reason of any act or failure to act in relation to the Plan including, without limitation, expenses reasonably incurred in the defense of any claim relating to the Plan, amounts paid in any compromise or settlement relating to the Plan and any civil penalty or excise tax imposed by any applicable statute, if |
| (a) | the act or failure to act shall have occurred |
| (i) | in the course of the person’s service as an officer, employee or agent of the Company or as a member of the Committee, or as the plan administrator; or | ||
| (ii) | in connection with a service provided with or without charge to the Plan or to the Participants or Beneficiaries of the Plan, if such service was requested by the Committee or the plan administrator; and |
| (b) | the act or failure to act is in good faith and in, or not opposed to, the best interests of the Corporation. |
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| This determination shall be made by the Corporation and, if such determination is made in good faith and not arbitrarily or capriciously, shall be conclusive. | ||
| The foregoing indemnification shall be from the assets of the Corporation. However, the Corporation’s obligation hereunder shall be offset to the extent of any otherwise applicable insurance coverage under a policy maintained by the Corporation or any other person, or other source of indemnification. | ||
| 3.13 | Claims Procedure |
| (a) | Submission of Claims | ||
| Claims for benefits under the Plan shall be submitted in writing to the Committee or to an individual designated by the Committee for this purpose. | |||
| (b) | Denial of Claim | ||
| If any claim for benefits is wholly or partially denied, the claimant shall be given written notice within 90 days following the date on which the claim is filed, which notice shall set forth |
| (i) | the specific reason or reasons for the denial; | ||
| (ii) | specific reference to pertinent Plan provisions on which the denial is based; | ||
| (iii) | a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and | ||
| (iv) | an explanation of the Plan’s claim review procedure, including information as to the steps to be taken if the claimant wishes to submit the claim for review and the time limits for requesting a review. |
| If special circumstances require an extension of time for processing the claim, written notice of an extension shall be furnished to the claimant prior to the end of the initial period of 90 days following the date on which the claim is filed. Such an extension may not exceed a period of 90 days beyond the end of said initial period. |
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| If the claim has not been granted and written notice of the denial of the claim is not furnished within 90 days following the date on which the claim is filed, the claim shall be deemed denied for the purpose of proceeding to the claim review procedure. | |||
| (c) | Claim Review Procedure | ||
| The claimant or his authorized representative shall have 60 days after receipt of
written notification of denial of a claim to request a review of the denial by making
written request to the Committee, and may review pertinent documents and submit issues
and comments in writing within such 60-day
period. Not later than 60 days after receipt of the request for review, the persons designated by the Company to hear such appeals (the “Appeals Committee”) shall render and furnish to the claimant a written decision, which shall include specific reasons for the decision and shall make specific references to pertinent Plan provisions on which it is based. If special circumstances require an extension of time for processing, the decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review, provided that written notice and explanation of the delay are given to the claimant prior to commencement of the extension. Such decision by an Appeals Committee shall not be subject to further review. If a decision on review is not furnished to a claimant within the specified time period, the claim shall be deemed to have been denied on review. |
|||
| (d) | Exhaustion of Remedy | ||
| No claimant shall institute any action or proceeding in any state or federal court of law or equity or before any administrative tribunal or arbitrator for a claim for benefits under the Plan until the claimant has first exhausted the procedures set forth in this section. |
| 3.14 | Construction |
| (a) | The Plan is intended to constitute both an excess benefit arrangement and an unfunded deferred compensation arrangement maintained for a select group of |
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| management or highly compensated employees within the meaning of Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA, and all rights under this Plan shall be governed by ERISA. Subject to the preceding sentence, the Plan shall be construed, regulated and administered under the laws of the State of New York, to the extent such laws are not superseded by applicable federal law. | |||
| (b) | The masculine pronoun shall mean the feminine wherever appropriate. | ||
| (c) | The illegality of any particular provision of this document shall not affect the other provisions and the document shall be construed in all respects as if such invalid provision were omitted. | ||
| (d) | The headings and subheadings in the Plan have been inserted for convenience of reference only, and are to be ignored in any construction of the provisions thereof. | ||
| (e) | The Plan shall be construed, regulated and administered in accordance with the laws of the State of New York, subject to the provisions of applicable federal laws |
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ARTICLE IV. PLAN ADMINISTRATION
| 4.01 | Responsibility for Benefit Determination | |
| The benefit of a Participant or Beneficiary under this Plan shall be determined either by the Committee, as provided in Section 4.02 below, or such other party as is authorized under the terms of any grantor trust. | ||
| 4.02 | Duties of Committee | |
| The Committee shall calculate, in accordance with Article II, the benefit of each Participant or Beneficiary under the Plan. To the extent a Participant’s, spouse’s or Beneficiary’s benefit are payable from the Plan, the Committee shall have full discretionary authority to resolve any question which shall arise under the Plan as to any person’s eligibility for benefits, the calculation of benefits, the form, commencement date, frequency, duration of payment, or the identity of the Beneficiary. Such question shall be resolved by the Committee under rules uniformly applicable to all person(s) or employee(s) similarly situated. It is the intent of the Corporation that the provisions of Plan comply with the provisions of Section 409A of the Code, any regulations and other guidance promulgated with respect thereto and the provisions of the Plan shall be interpreted to be consistent therewith. | ||
| 4.03 | Procedure for Payment of Benefits Under the Plan | |
| With respect to any benefit to which a Participant or Beneficiary is entitled under this Plan, the Committee (i) shall direct the commencement of benefit payments hereunder in accordance with the applicable procedures established by the Corporation, the Company and/or the Committee regarding the disbursement of amounts from the general funds of the Corporation and (ii) shall arrange, in conjunction with any other applicable excess benefit plan, for the payment of benefits under this Plan and/or any other applicable excess benefit plan. |
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| 4.04 | Compliance | |
| With respect to benefits hereunder subject to Code Section 409A, the Plan is intended to comply with the requirements of Code Section 409A and the provisions hereof shall be interpreted in a manner that satisfies the requirements of Code Section 409A and the regulations thereunder, and the Plan shall be operated accordingly. If any provision of the Plan would otherwise frustrate or conflict with this intent, the provision will be interpreted and deemed amended so as to avoid this conflict. The Plan has been administered in good faith compliance with Section 409A and the guidance issued thereunder from January 1, 2005 through December 31, 2008. |
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APPENDIX A
Provisions Applicable to a Participant’s Grandfathered Pre-2005 Supplemental Benefit
This Appendix A constitutes an integral part of the Plan and is applicable with respect to the
Grandfathered Pre-2005 Benefit of those individuals who were Participants in the Plan on December
31, 2004. The portion of a Participant’s Benefit, if any, determined under the provisions of
Section 2.02 and Section 2.04(d) of the foregoing provisions of the Plan equal to his Grandfathered
Pre-2005 Benefit is subject to the provisions of the Plan as in effect on October 3, 2004, modified
as set forth in this Appendix A and without regard to any Plan amendments after October 3, 2004
which would constitute a material modification for Code Section 409A purposes. Section references
in this Appendix A correspond to appropriate Sections of the said Plan as in effect on October 3,
2004 as set forth in Appendix C.
Article II — Participation Amount and Payment of Benefits
For purposes of Article II, the terms/phrases “termination of employment,” “terminates employment,”
“retirement”, “employment is terminated” or other similar language shall mean, with respect to a
Participant, the complete cessation of providing services to the Company and all Associated
Companies as an employee.
Section 2.04 Payment of Benefits
| (a) | Retirement or Termination of Employment Effective on and After December 31, 1995 |
| (i) | Following a Participant’s retirement or termination of employment with the Company and all Associated Companies other than by reason of death, a Participant shall receive his Grandfathered Pre-2005 Benefit in the same form and at the same time as the Participant receives his corresponding retirement allowance or vested benefit under the Retirement Plan, except as otherwise provided below. |
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| If a Participant becomes Disabled (as defined in Article I of the foregoing provisions of the Plan) prior to his Termination of Employment, the portion of his Disability Supplemental Benefit equal to his Grandfathered Pre-2005 Benefit shall be paid at the same time and in the same form as the Retirement Plan benefit is paid. | |||
| (ii) | Notwithstanding the foregoing provisions of clause (i) above, the portion of his Grandfathered Pre-2005 Benefit attributable to the PEP formula (as defined in Section 4.01(c) of the Retirement Plan shall be payable in the form of a lump sum payment and effective as of January 1, 2008 the Participant’s right to convert such PEP formula portion of his Grandfathered Pre-2005 Benefit into a form of life annuity is eliminated. |
| (b) | Death Prior to a Participant’s Annuity Starting Date |
| (i) | The portion of the death benefit determined under Section 2.04(b)(i) of the foregoing provisions of this Plan attributable to a Participant’s Grandfathered Pre-2005 Benefit payable to a Participant’s spouse (or Registered Domestic Partner) shall be paid in the same form and at the same time said spouse (or Registered Domestic Partner) receives payment under the Automatic Vested Spouse Benefit of the Retirement Plan. Notwithstanding the foregoing, effective on and after January 1, 2008, the portion of any benefit payable under this clause (i) attributable to the PEP formula (as defined in Section 4.01(c) of the Retirement Plan) based on his Grandfathered Pre-2005 Benefit shall be payable in a single lump sum payment and effective as of January 1, 2008, the spouse’s (or Registered Domestic Partner’s) right to convert such PEP formula portion of his Grandfathered Pre-2005 Benefit into a form of life annuity is eliminated. | ||
| (ii) | The portion of the death benefit determined under Section 2.04(b)(ii) of the foregoing provisions of the Plan attributable to a Participant’s Grandfathered Pre-2005 Benefit shall be payable to the Participant’s Beneficiary at the |
Page 32
| same time said Beneficiary would have received a Pre-Retirement Survivor’s Benefit under Section 4.08(b) of the Retirement Plan, provided, however, the portion of such survivor benefit attributable to the PEP formula (as defined under Section 4.01(c) of the Retirement Plan) shall be paid in a single lump sum payment and effective as of January 1, 2008, the Beneficiary’s right to convert such PEP formula portion of his Grandfathered Pre-2005 Benefit into a form of life annuity is eliminated. |
Section 2.05 Payment Upon the Occurrence of an Acceleration Event
| In the event an Acceleration Event occurs, regardless of whether or not such event satisfies the definition of a Change in Control event as defined in the foregoing provisions of this Plan, the provisions of this Section 2.05 shall apply to the Participant’s Grandfathered Pre-2005 Benefit. |
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APPENDIX B
| Name | ||||
James Crumley, Jr. |
||||
James Faughnan |
||||
John Krochmal |
||||
Ralph Meoni |
||||
Louis Dollive |
||||
Sean Osborne |
||||
Calvin Gorrel |
||||
Randolph Lopez |
||||
Melvin Hershey |
||||
Frank Koester |
||||
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APPENDIX C
Provisions of the Plan as in effect on October 3, 2004
This Appendix C constitutes a part of this Plan and contains the Plan provisions as in effect on
October 3, 2004.
Exhibit 10.17
ITT EXCESS SAVINGS PLAN
As Amended and Restated as of December 31, 2008
INTRODUCTION
The ITT Excess Savings Plan (the “Plan”) was effective as of January 1, 1987. The purpose of the
Plan was to provide a means of restoring the contributions lost under the ITT Investment and
Savings Plan for Salaried Employees due to the application of the limitations imposed on qualified
plans by Section 415 of the Internal Revenue Code.
As of January 1, 1989, the Plan was amended to provide (i) a means for restoring, for an employee
participating in the ITT Investment and Savings Plan for Salaried Employees (the “Savings Plan”),
the matching and other employer contributions lost under said Plan due to the application of the
limitations imposed on qualified plans by Section 401(a)(17) and Section 402(g)(1) of the Internal
Revenue Code (the “Code”) and (ii) a means of providing such employees with an opportunity to defer
a portion of their salary in accordance with the terms of said Plan as hereinafter set forth.
As of January 1, 1995, the Plan was further amended to provide a means of restoring, for an
employee participating in the ITT Investment and Savings Plan for Salaried Employees, matching and
other employer contributions lost due to the deferral of base compensation under another
nonqualified deferred compensation program. As of December 19, 1995, the Plan was renamed and
continued as the ITT Industries Excess Savings Plan.
As of January 1, 1996, the Plan was further amended to solely provide to individuals who are
designated as Eligible Employees under the Plan on and after January 1, 1996, a means to restore
the contributions lost under the Savings Plan due to the application of the limitations imposed by
Sections 415 and 401(a)(17) of the Code and providing such employees with an opportunity to defer a
portion of their base salary and to transfer any liabilities not attributable to such benefits to
the ITT Industries Deferred Compensation Plan. The Plan was further amended, effective as of (i)
January 1, 1997, to provide additional optional forms of distributions and to revise the
participation requirements, (ii) July 1, 1997, to revise the eligibility requirements to permit an
Eligible Employee to participate in his first year of employment, and (iii) September 1, 1997, to
further expand the distribution options available under the Plan.
In July, 2004, the Plan was amended and restated to make certain changes regarding the effect of an
Acceleration Event and to unify the definition of Acceleration Event with other employee benefit
plans of ITT Industries, and to make certain other technical amendments.
Page 2
Effective as of July 1, 2006, the Plan name was revised to the ITT Excess Savings Plan. Effective
as of January 1, 2008, the Plan was amended to make certain administrative changes.
Effective as of December 31, 2008, the Plan was amended and restated to comply with the provisions
of Section 409A of the Code and the regulations promulgated thereunder.
All benefits payable under this Plan, which is intended to constitute both an unfunded excess
benefit plan under Section 3(36) of Title I of the Employee Retirement Income Security Act of 1974,
as amended (“ERISA”), and a nonqualified, unfunded deferred compensation plan for a select group of
management employees under Title I of ERISA, shall be paid out of the general assets of the
Corporation. The Corporation may establish and fund a trust in order to aid it in providing
benefits due under the Plan.
ITT
EXCESS SAVINGS PLAN
TABLE OF CONTENTS
| Page | ||||
ARTICLE I — DEFINITIONS |
1 | |||
ARTICLE II — PARTICIPATION |
5 | |||
2.01 Eligibility |
5 | |||
2.02 Participation and Filing Requirements |
6 | |||
2.03 Termination of Participation |
8 | |||
ARTICLE III — EXCESS SAVINGS PLAN CONTRIBUTIONS |
9 | |||
3.01 Amount of Contributions |
9 | |||
3.02 Investment of Accounts |
10 | |||
3.03 Vesting of Accounts |
11 | |||
3.04 Individual Accounts |
11 | |||
3.05 Valuation of Accounts |
12 | |||
ARTICLE IV — PAYMENT OF CONTRIBUTIONS |
13 | |||
4.01 Commencement of Payment |
13 | |||
4.02 Method of Payment |
13 | |||
4.03 Payment upon the Occurrence of a Change in Control |
13 | |||
ARTICLE V — GENERAL PROVISIONS |
14 | |||
5.01 Funding |
14 | |||
5.02 No Contract of Employment |
14 | |||
5.03 Unsecured Interest |
14 | |||
5.04 Facility of Payment |
14 | |||
5.05 Withholding Taxes |
15 | |||
5.06 Nonalienation |
15 | |||
5.07 Transfers |
15 | |||
5.08 Claims Procedure |
16 | |||
5.09 Compliance |
17 | |||
5.10 Acceleration of or Delay in Payments |
18 | |||
5.11 Construction |
18 | |||
ARTICLE VI — AMENDMENT OR TERMINATION |
19 | |||
6.01 Right to Terminate |
19 | |||
6.02 Right to Amend |
19 | |||
ARTICLE VII — ADMINISTRATION |
20 | |||
ITT EXCESS SAVINGS PLAN
ARTICLE I — DEFINITIONS
| 1.01 | “Acceleration Event” shall mean “Acceleration Event” as that term is defined under the provisions of the Plan as in effect on October 3, 2004. | |
| 1.02 | “Accounts” shall mean the Deferral Account, the Floor Contribution Account and the Matching Contribution Account. | |
| 1.03 | “Associated Company” shall mean any division, unit, subsidiary, or affiliate of the Corporation not participating in the Savings Plan. | |
| 1.04 | “Beneficiary” shall mean the person or persons designated pursuant to the provisions of the Savings Plan to receive benefits under said Savings Plan after a Member’s death. | |
| 1.05 | “Change of Control” shall mean “Change of Control” as such term is defined in ITT Excess Pension Plan IIA, as amended from time to time. | |
| 1.06 | “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time. | |
| 1.07 | “Committee” shall mean the Plan Committee under the Savings Plan. | |
| 1.08 | “Company” shall mean the Corporation with respect to its employees or any Participating Corporation or Participating Division (as such terms are defined in the Savings Plan) authorized to participate in the Plan by the Corporation, with respect to each of its employees. | |
| 1.09 | “Corporation” shall mean ITT Corporation, an Indiana corporation, (formerly known as ITT Industries, Inc.) or any successor by merger, purchase or otherwise. | |
| 1.10 | “Deferral Account” shall mean the bookkeeping account (or subaccount(s)) maintained for each Member to record the amounts credited on his behalf under Section 3.01(a) and earnings on those amounts pursuant to Section 3.02. |
Page 2
| 1.11 | “Effective Date” shall mean January 1, 1987. | |
| 1.12 | “Eligible Employee” shall mean an Employee of the Company who is eligible to participate in the Plan as provided in Section 2.01. | |
| 1.13 | “Employee” shall have the meaning set forth in the Savings Plan. | |
| 1.14 | “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. | |
| 1.15 | “Excess Matching Contributions” shall mean the amount of contributions credited on a Member’s behalf under Section 3.01(b). | |
| 1.16 | “Excess Floor Contributions” shall mean the amount of contributions credited on a Member’s behalf under Section 3.01(c). | |
| 1.17 | “Floor Contribution Account” shall mean the bookkeeping account (or subaccount(s)) maintained for each Member to record all amounts credited on his behalf under Section 3.01(c) and earnings on those amounts pursuant to Section 3.02. | |
| 1.18 | “Matching Company Contribution” shall have the meaning set forth in the Savings Plan. | |
| 1.19 | “Matching Contribution Account” shall mean the bookkeeping account (or subaccount(s)) maintained for each Member to record all amounts credited on his behalf under Section 3.01(b) and earnings on those amounts pursuant to Section 3.02. | |
| 1.20 | “Member” shall mean each Eligible Employee who participates in the Plan pursuant to Article II. | |
| 1.21 | “Plan” shall mean this ITT Excess Savings Plan (formerly known as the ITT Industries Excess Savings Plan). | |
| 1.22 | “Plan Year” shall mean the calendar year. |
Page 3
| 1.23 | “Reporting Date” shall mean each business day on which the New York Stock Exchange is open for business, or such other day as the Committee may determine. | |
| 1.24 | “Retirement” shall mean the Termination of Employment by a Member after the date the Member is eligible for an early, normal or postponed retirement allowance under the ITT Salaried Retirement Plan (formerly known as the ITT Industries Salaried Retirement Plan), or would have been eligible had he been a participant in such Plan. | |
| 1.25 | “Salary” shall mean an Eligible Employee’s “Salary” as such term is defined in the Savings Plan disregarding any reduction required due to the application of the Statutory Compensation Limitation. Salary shall be determined before any reduction pursuant to an Eligible Employee’s election to make Salary Deferrals under this Plan, but after reduction for deferrals under any other nonqualified deferred compensation program maintained by the Company. | |
| 1.26 | “Salary Deferrals” shall mean the amount of Salary a Member has elected to defer for a Plan Year pursuant to a Salary Reduction Agreement in accordance with the provisions of Section 3.01(a). | |
| 1.27 | “Salary Reduction Agreement” shall mean the completed agreement including any amendments, attachments and appendices thereto, in such form as approved by the Committee, entered into by the Member pursuant to Section 2.02 under which he elects (i) to defer a portion of his Salary under this Plan in accordance with the provisions of Section 3.01(a). | |
| 1.28 | “Savings” shall have the meaning set forth in the Savings Plan. | |
| 1.29 | “Savings Plan” shall mean the ITT Salaried Investment and Savings Plan (formerly known as the ITT Industries Investment and Savings Plan for Salaried Employees), as amended from time to time. | |
| 1.30 | “Statutory Compensation Limitation” shall mean the limitations set forth in Section 401(a)(17) of the Code as in effect each calendar year for the Savings Plan. |
Page 4
| 1.31 | “Termination of Employment” shall mean “Termination of Employment” as such term is defined in the ITT Excess Pension Plan IIA, as amended from time to time. |
Page 5
ARTICLE II — PARTICIPATION
| 2.01 | Eligibility |
| (a) | (i) | An Employee shall be an Eligible Employee for any particular Plan Year if (A) the Employee is eligible to participate in the Savings Plan during that particular Plan Year and (B) the Employee’s Salary as of the last day of the immediately preceding calendar year exceeds the Statutory Compensation Limitation in effect for that particular Plan Year. |
| Notwithstanding the foregoing, an Employee whose Salary as of the last day of the calendar year preceding a particular Plan Year does not exceed the Statutory Compensation Limitation in effect for that particular Plan Year shall be an Eligible Employee with respect to that particular Plan Year, provided the Employee (A) was an Eligible Employee in the prior Plan Year and had salary reduction contributions credited to his or her Deferral Account in that prior Plan Year, (B) is eligible to participate in the Savings Plan during the particular Plan Year, and (C) his Salary for that particular Plan Year exceeds the Statutory Compensation Limitation in effect for that particular Plan Year. | |||
| (ii) | In the case of an Employee who is employed or reemployed by the Company after the first day of a Plan Year and whose Salary in effect on his employment (or reemployment) date exceeds the Statutory Compensation Limitation in effect for that year, subject to the provisions of clause (iii) below, such Employee shall be an Eligible Employee with respect to that Plan Year, provided (i) such Plan Year is his initial year of eligibility in the Plan or any other similar Plan maintained by the Corporation or an Associated Company which is required to be aggregated with this Plan pursuant to the provisions of Treasury Regs. Section 1.409A-1(c)(2), (ii) such Eligible Employee is eligible to participate in the Savings Plan and (iii) such Eligible Employee’s Salary for the portion of that Plan Year during which he is eligible to participate in the Savings Plan will exceed the Statutory Compensation Limitation. |
Page 6
| (iii) | Notwithstanding the foregoing, an Eligible Employee shall be eligible to have Salary Deferrals credited on his behalf pursuant to Section 3.01(a) with respect to a particular Plan Year if, and only if, the Eligible Employee’s Savings under the Savings Plan for that Plan Year have been suspended due to the Statutory Compensation Limitations. An Eligible Employee shall be notified of his eligibility for participation in the Plan prior to the date the Eligible Employee may first commence participation in the Plan. |
| (b) | Upon reemployment by the Company, an Employee shall become an Eligible Employee again only upon completing the eligibility requirement described in Section 2.01(a) in a calendar year ending after his reemployment date. |
| 2.02 | Participation and Filing Requirements |
| (a) | (i) | Subject to the following provisions of this Section, any Eligible Employee who has met the eligibility requirements of Section 2.01(a)(i) in a Plan Year and who wishes to have Salary Deferrals credited to his Deferral Account in that Plan Year must, prior to the beginning of that Plan Year and before the close of the annual enrollment period established by the Committee, execute a Salary Reduction Agreement with respect to such Plan Year authorizing Salary Deferrals under this Plan in accordance with the provisions of Section 3.01(a). Such Eligible Employee’s Salary Reduction Agreement for a Plan Year shall become irrevocable on the date established by the Committee, but not later than the last day of the calendar year preceding the Plan Year in which such Salary is earned. Such Salary Reduction Agreement shall become effective as of the first day of the Plan Year in which the Salary is earned. An Eligible Employee may revoke or change the election on his Salary Reduction Agreement with respect to a particular Plan Year at any time prior to the date the Salary Reduction Agreement applicable to that Plan Year becomes irrevocable. |
| (ii) | Notwithstanding the foregoing, any Employee who becomes an Eligible Employee with respect to his first year of employment (or reemployment) pursuant to the provisions of Section 2.01(a)(ii), and who wishes to have Salary Deferrals credited to his Deferral Account in that Plan Year must, prior to the close of the 30-day period following (i) the date of his employment or reemployment, whichever is applicable, |
Page 7
| or (ii) , if later, the date he first becomes eligible to participate in the Savings Plan (or such earlier date as determined by the Committee), execute a Salary Reduction Agreement with respect to such Plan Year authorizing Salary Deferrals under this Plan in accordance with the provisions of Section 3.01(a). Such Eligible Executive’s Salary Reduction Agreement shall become irrevocable as of the close of said 30-day period. The determination of whether an Eligible Employee may file the Salary Reduction Agreement under this clause (ii) with respect to the Plan Year in which he is employed (or reemployed) shall be determined in accordance with the rules of Code Section 409A, including the provisions of Treasury Regs. Section 1.409A-2(a)(7). The Salary Reduction Agreement applicable to that Plan Year shall be effective only with respect to Salary earned and payable after the date of the Committee’s receipt of said Salary Reduction Agreement. |
| (b) | The election made by an Eligible Employee pursuant to his Salary Reduction Agreement shall remain in effect for subsequent Plan Years, provided the Member is an Eligible Employee during such subsequent Plan Year and, with respect to Salary Deferrals made pursuant to Section 3.01(a), the Eligible Employee’s Savings under the Savings Plan for such Plan Year have been suspended due to the Statutory Compensation Limitations. A Salary Reduction Agreement may be modified or revoked prospectively by an Eligible Employee in accordance with the provisions of Section 2.01(a)(i) prior to the date established by the Committee, but not later than the last day of the calendar year preceding the Plan Year for which such modification or revocation is to be effective. Notwithstanding the foregoing, if a Member’s Salary Deferral Agreement is cancelled in accordance with Section 2.02(c), the Member will be required to file a new Salary Deferral Agreement under this Section 2.02 in order to commence making Salary Deferrals for any subsequent Plan Year. | ||
| (c) | Notwithstanding the foregoing, if a Member receives a hardship withdrawal of elective deferrals from the Savings Plan or any other plan which is maintained by the Company or an Associated Company and which meets the requirements of Section 401(k) of the Code (or any successor thereof), the Member’s Salary Reduction Agreement in effect at that time shall be cancelled. Any Salary payment which would have been deferred pursuant to that |
Page 8
| Salary Reduction Agreement, but for the application of this Section 2.02(c), shall be paid to the Member as if he had not entered into the Salary Reduction Agreement. | |||
| (d) | An Eligible Employee shall become a Member when contributions are credited on his behalf pursuant to Article 3. |
| 2.03 | Termination of Participation |
| (a) | A Member’s participation in the Plan shall terminate when the vested values of the Member’s Accounts under the Plan are totally distributed to, or on behalf of, the Member. | ||
| (b) | Subject to the provisions of Section 3.01(e), a Member shall only be eligible to have Salary Deferrals credited on his behalf in accordance with Section 3.01(a) for as long as he remains an Eligible Employee. | ||
| (c) | Upon reemployment by the Company, a former Member shall become a Member again only upon completing, subsequent to his reemployment, the eligibility and participation requirements of Section 2.01 and 2.02, respectively. |
Page 9
ARTICLE III — EXCESS SAVINGS PLAN CONTRIBUTIONS
| 3.01 | Amount of Contributions | |
| For any Plan Year, the amount of contributions credited under the Plan on behalf of a Member pursuant to this Article 3 shall be equal to the sum of the Salary Deferrals, Excess Matching Contributions and Excess Floor Contributions determined under (a), (b) and (c) below: |
| (a) | Salary Deferrals | ||
| The amount of Salary Deferrals for each Plan Year shall be equal to the designated percentage of Salary elected by the Member in his Salary Reduction Agreement, provided that the allocation under the Plan and the reduction in the Eligible Employee’s Salary corresponding to such election shall be made only with respect to Salary that is otherwise earned and payable to such Member during the Plan Year in excess of the Statutory Compensation Limitation. | |||
| Unless otherwise permitted by the Committee, the designated percentage elected by the Member in his Salary Reduction Agreement for a Plan Year must be a uniform percentage, equal to either zero (0%) percent or six (6%) percent, of his Salary. The total Salary Deferral amount elected for a Plan Year shall reduce the Member’s Salary earned and otherwise payable in that Plan Year, and shall not be applied against any amount deferred under any other nonqualified plan maintained by the Company. | |||
| (b) | Excess Matching Contributions | ||
| The amount of Excess Matching Contributions for each Plan Year shall be equal to fifty (50%) percent of the Salary Deferrals by the Member for such Plan Year, and shall be credited to the Member’s Matching Contribution Account at the same time as the Salary Deferrals to which they relate. | |||
| (c) | Excess Floor Contributions | ||
| With respect to each Plan Year in which Salary Deferrals are made on a Member’s behalf pursuant to paragraph (a) above, Excess Floor Contributions shall be credited on behalf of the Member equal to the result of (i) minus (ii) as follows: |
Page 10
| (i) | an amount equal to one half of one percent of the Member’s Salary for the Plan Year, minus | ||
| (ii) | the amount of Floor Company Contribution (as that term is defined under the Savings Plan) made by the Company on behalf of the Member under the Savings Plan for such Plan Year and allocated to the Member’s account under the Savings Plan in such Plan Year. |
| (d) | The contributions credited on a Member’s behalf pursuant to paragraphs (a), (b) and (c) above shall be credited to a Member’s Accounts at the same time as they would have been credited to his accounts under the Savings Plan if not for the application of the Statutory Compensation Limitations. | ||
| (e) | Notwithstanding any provisions of the Plan to the contrary, if a Member ceases to be an Eligible Employee after the date a Salary Deferral Agreement for a Plan Year becomes effective but continues to be employed by the Company or an Associated Company, he shall continue to be a Member and his Salary Reduction Agreement for such Plan Year shall remain in effect for the remainder of such Plan Year, and if he is eligible to participate in the Savings Plan for the remainder of such Plan Year, Excess Floor and Excess Matching Contributions, if applicable, shall be made for that Plan Year. However, such Member shall not be eligible to defer any Salary earned in a subsequent year until such time as he once again becomes an Eligible Employee. |
| 3.02 | Investment of Accounts | |
| A Member shall have no choice or election with respect to the investments of his Accounts. As of each Reporting Date, there shall be credited or debited an amount of earnings or losses on the balance of the Member’s Accounts as of such Reporting Date which would have been credited had the Member’s Accounts been invested in the Stable Value Fund maintained under the Savings Plan. |
Page 11
| 3.03 | Vesting of Accounts |
| (a) | The Member shall be fully vested in the Salary Deferrals and Excess Floor Contributions (and earnings thereon) made on his behalf under Section 3.01(a) and (c) respectively. The Member shall vest in the Excess Matching Contributions made on his behalf under Section 3.01(b) (and earnings thereon) at the same rate and under the same conditions at which such contributions would have vested under the Savings Plan had they been contributed thereunder. | ||
| In the event the Member incurs Termination of Employment prior to vesting in all or any part of the Excess Matching Contributions credited on his behalf, such contributions and earnings thereon shall be forfeited and shall not be restored in the event the Member is subsequently reemployed by the Company or an Associated Company. | |||
| (b) | Notwithstanding any provision of this Plan to the contrary, in the event of an Acceleration Event, each Member who is employed by the Company or an Associated Company as of the consummation of the Acceleration Event shall become fully vested in the Excess Matching Contributions made on his behalf under Section 3.01(b) (and earnings thereon). |
| 3.04 | Individual Accounts |
| (a) | The Committee shall maintain, or cause to be maintained, on the book of the Corporation records showing the individual balances of each Member’s Accounts (or subaccounts). At least once a year, each Member shall be furnished with a statement setting forth the value of his Accounts. | ||
| (b) | Accounts established under this Plan shall be hypothetical in nature and shall be maintained for bookkeeping purposes only so that hypothetical earnings or losses on the amounts credited on a Member’s behalf under this Plan can be credited or debited, as the case may be. |
Page 12
| 3.05 | Valuation of Accounts |
| (a) | The Committee shall value or cause to be valued each Member’s Accounts at least quarterly. On each Reporting Date there shall be allocated to the Accounts of each Member the appropriate amount determined in accordance with Section 3.02. | ||
| (b) | Whenever an event requires a determination of the value of a Member’s Accounts, the value shall be computed as of the Reporting Date immediately preceding the date of the event, except as otherwise specified in this Plan. |
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ARTICLE IV — PAYMENT OF CONTRIBUTIONS
| 4.01 | Commencement of Payment |
| (a) | Except as otherwise provided below, a Member shall be entitled to receive payment of his Deferral Account and his Floor Contribution Account and the vested portion of his Matching Contribution Account as determined under Section 3.03 upon his Termination of Employment with the Company and all Associated Companies for any reason, other than death. The distribution of such Accounts shall be made in the seventh month following the date the Member’s Termination of Employment occurs. | ||
| (b) | In the event of the death of a Member prior to the full payment of his Accounts, the unpaid portion of his Accounts shall be paid to his Beneficiary in the month following the month in which the Member’s date of death occurs. |
| 4.02 | Method of Payment | |
| With respect to a Member who incurs a Termination of Employment on or after January 1, 2008, payment of such Member’s Deferral Account and his Floor Contribution Account and the vested portion of his Matching Contribution Account shall be made in a single lump sum payment. | ||
| 4.03 | Payment upon the Occurrence of a Change in Control | |
| Upon the occurrence of a Change in Control, all Members shall automatically receive the balance of their Deferral Account and Floor Contribution Account and the vested portion of their Matching Contribution Account in a single lump sum payment. Such lump sum payment shall be made within 90 days of the date the Change in Control occurs. If the Member dies after such Change in Control, but before receiving such payment, it shall be made to his Beneficiary. |
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ARTICLE V — GENERAL PROVISIONS
| 5.01 | Funding | |
| All amounts payable in accordance with this Plan shall constitute a general unsecured obligation of the Corporation. Such amounts, as well as any administrative costs relating to the Plan, shall be paid out of the general assets of the Corporation. | ||
| 5.02 | No Contract of Employment | |
| The Plan is not a contract of employment and the terms of employment of any Member shall not be affected in any way by this Plan or related instruments, except as specifically provided therein. The establishment of the Plan shall not be construed as conferring any legal rights upon any person for a continuation of employment, nor shall it interfere with the rights of the Company or an Associated Company to discharge any person and to treat him without regard to the effect which such treatment might have upon him under this Plan. Each Member and all persons who may have or claim any right by reason of his participation shall be bound by the terms of this Plan and all agreements entered into pursuant thereto. | ||
| 5.03 | Unsecured Interest | |
| Neither the Corporation nor the Board of Directors nor the Committee in any way guarantees the performance of the investment fund designated under Section 3.02. No special or separate fund shall be established, and no segregation of assets shall be made, to assure the payments thereunder. No Member hereunder shall have any right, title, or interest whatsoever in any specific assets of the Corporation. Nothing contained in this Plan and no action taken pursuant to its provisions shall create or be construed to create a trust of any kind or a fiduciary relationship between the Corporation and a Member or any other person. To the extent that any person acquires a right to receive payments under this Plan, such right shall be no greater than the right of any unsecured creditor of the Corporation. | ||
| 5.04 | Facility of Payment | |
| In the event that the Committee shall find that a Member is unable to care for his affairs because of illness or accident or is a minor or has died, the Committee may direct that any benefit payment due him, unless claim shall have been made therefore by a duly appointed legal representative, be paid on his behalf to his spouse, a child, a parent or other blood relative, or to a |
Page 15
| person with whom he resides, and any such payment so made shall thereby be a complete discharge of the liabilities of the Corporation and the Plan for that payment. | ||
| 5.05 | Withholding Taxes | |
| The Company or an Associated Company shall have the right to deduct from each payment to be made under the Plan any required withholding taxes. | ||
| 5.06 | Nonalienation | |
| Subject to any applicable law, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void, nor shall any such benefit be in any manner liable for or subject to garnishment, attachment, execution or levy, or liable for or subject to the debts, contracts, liabilities, engagements or torts of a person entitled to such benefits. | ||
| 5.07 | Transfers |
| (a) | In the event the Corporation (i) sells, causes the sale of, or sold the stock or assets of any employing company in the controlled group of the Corporation to a third party or (ii) distributes or distributed to the holders of shares of the Corporation’s common stock all of the outstanding shares of common stock of a subsidiary or subsidiaries of the Corporation, and, as a result of such sale or distribution, such company or its employees are no longer eligible to participate hereunder, the liabilities with respect to the benefits accrued under this Plan for a Member who, as a result of such sale or distribution, is no longer eligible to participate in this Plan, shall, at the discretion and direction of the Corporation (and approval by the new employer), be transferred to a similar plan of such new employer and become a liability thereunder. Upon such transfer (and acceptance thereof) the liabilities for such transferred benefits shall become the obligation of the new employer and the liability under this Plan for such benefits shall cease. | ||
| (b) | Notwithstanding any Plan provision to the contrary, at the discretion and direction of the Corporation, liabilities with respect to benefits accrued by a Member under a plan maintained by such Member’s former employer may be transferred to this Plan and upon such transfer become the obligation of the Corporation. |
Page 16
| 5.08 | Claims Procedure |
| (a) | Submission of Claims | ||
| Claims for benefits under the Plan shall be submitted in writing to the Committee or to an individual designated by the Committee for this purpose. | |||
| (b) | Denial of Claim | ||
| If any claim for benefits is wholly or partially denied, the claimant shall be given written notice within 90 days following the date on which the claim is filed, which notice shall set forth |
| (i) | the specific reason or reasons for the denial; | ||
| (ii) | specific reference to pertinent Plan provisions on which the denial is based; | ||
| (iii) | a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and | ||
| (iv) | an explanation of the Plan’s claim review procedure, including. information as to the steps to be taken if the claimant wishes to submit the claim for review and the time limits for requesting a review. |
| If special circumstances require an extension of time for processing the claim, written notice of an extension shall be furnished to the claimant prior to the end of the initial period of 90 days following the date on which the claim is filed. Such an extension may not exceed a period of 90 days beyond the end of said initial period. | |||
| If the claim has not been granted and written notice of the denial of the claim is not furnished within 90 days following the date on which the claim is filed, the claim shall be deemed denied for the purpose of proceeding to the claim review procedure. |
Page 17
| (c) | Claim Review Procedure | ||
| The claimant or his authorized representative shall have 60 days after receipt of written notification of denial of a claim to request a review of the denial by making written request to the Committee, and may review pertinent documents and submit issues and comments in writing within such 60-day period. | |||
| Not later than 60 days after receipt of the request for review, the Committee (or the committee designated by the Company to hear such appeals, the “Appeals Committee) shall render and furnish to the claimant a written decision, which shall include specific reasons for the decision and shall make specific references to pertinent Plan provisions on which it is based. If special circumstances require an extension of time for processing, the decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review, provided that written notice and explanation of the delay are given to the claimant prior to commencement of the extension. Such decision by the Appeals Committee shall not be subject to further review. If a decision on review is not furnished to a claimant within the specified time period, the claim shall be deemed to have been denied on review. | |||
| (d) | Exhaustion of Remedy | ||
| No claimant shall institute any action or proceeding in any state or federal court of law or equity or before any administrative tribunal or arbitrator for a claim for benefits under the Plan until the claimant has first exhausted the procedures set forth in this section. |
| 5.09 | Compliance |
| The Plan is intended to comply with the requirements of Code Section 409A and the provisions hereof shall be interpreted in a manner that satisfies the requirements of Code Section 409A and the regulations thereunder, and the Plan shall be operated accordingly. If any provision of the Plan would otherwise frustrate or conflict with this intent, the provision will be interpreted and deemed amended so as to avoid this conflict. The Plan has been administered in good faith compliance with Section 409A and the guidance issued thereunder from January 1, 2005 through December 31, 2008. |
Page 18
| 5.10 | Acceleration of or Delay in Payments | |
| The Committee, in its sole and absolute discretion, may elect to accelerate the time or form of payment of a benefit owed to the Member hereunder, provided such acceleration is permitted under Treas. Regs. Section 1.409A-3(j)(4). The Committee may also, in its sole and absolute discretion, delay the time for payment of a benefit owed to the Member hereunder, to the extent permitted under Treas. Regs. Section 1.409A-2(b)(7). | ||
| 5.11 | Construction |
| (a) | The Plan is intended to constitute an unfunded deferred compensation arrangement maintained for a select group of management or highly compensated employees within the meaning of Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA, and all rights under this Plan shall be governed by ERISA. Subject to the preceding sentence, the Plan shall be construed, regulated and administered in accordance with the laws of the State of New York, to the extent such laws are not superseded by applicable federal laws. | ||
| (b) | The masculine pronoun shall mean the feminine wherever appropriate. | ||
| (c) | The illegality of any particular provision of this document shall not affect the other provisions and the document shall be construed in all respects as if such invalid provision were omitted. | ||
| (d) | The headings and subheadings in the Plan have been inserted for convenience of reference only and are to be ignored in any construction of the provisions thereof. |
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ARTICLE VI — AMENDMENT OR TERMINATION
| 6.01 | Right to Terminate | |
| Notwithstanding any Plan provision to the contrary, the Corporation may, by action of the Board of Directors, terminate this Plan and the related Deferral Agreements at any time. To the extent consistent with the rules relating to Plan terminations and liquidation in Treasury Regulations Section 1.409A-3(j)(4)(ix) or otherwise consistent with Code Section 409A, the Corporation may provide that each Member or Beneficiary shall receive a single sum payment in cash equal to the balance of the Member’s Accounts. The single sum payment shall be made within 90 days following the date the Plan is terminated and shall be in lieu of any other benefit which may be payable to the Member or Beneficiary under this Plan. Unless so distributed, in the event of a Plan termination, the Corporation shall continue to maintain the Deferral Account, the Floor Contribution Account and the Matching Contribution Account until distributed pursuant to the terms of the Plan. | ||
| 6.02 | Right to Amend | |
| The Board of Directors or its delegate may amend or modify this Plan and the related Deferral Agreements in any way either retroactively or prospectively. However, except that without the consent of the Member or Beneficiary, if applicable, no amendment or modification shall reduce or diminish such person’s right to receive any benefit accrued hereunder prior to the date of such amendment or modification, and after the occurrence of an Acceleration Event, no modification or amendment shall be made to Sections 3.03(b) and 4.03. |
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ARTICLE VII — ADMINISTRATION
| 7.01 | Administration |
| (a) | The Committee shall have the exclusive responsibility and complete discretionary authority to control the operation, management and administration of the Plan, with all powers necessary to enable it properly to carry out such responsibilities, including, but not limited to, the power to interpret the Plan and any related documents, to establish procedures for making any elections called for under the Plan, to make factual determinations regarding any and all matters arising hereunder, including, but not limited to, the right to determine eligibility for benefits, the right to construe the terms of the Plan, the right to remedy possible ambiguities, inequities, inconsistencies or omissions, and the right to resolve all interpretive, equitable or other questions arising under the Plan. The decisions of the Committee on all matters shall be final, binding and conclusive on all persons to the extent permitted by law. | ||
| (b) | To the extent permitted by law, all agents and representatives of the Committee shall be indemnified by the Corporation and held harmless against any claims and the expenses of defending against such claims, resulting from any action or conduct relating to the administration of the Plan, except claims arising from gross negligence, willful neglect or willful misconduct. |
Exhibit 10.31
Personal and Confidential
Date:
|
February 20, 2009 | |
To:
|
Vincent A. Maffeo, Senior Vice President & General Counsel, ITT Corporation | |
From:
|
Scott A. Crum, Senior Vice President and Director Human Resources, ITT Corporation | |
Subject:
|
Transition Memorandum |
The purpose of this Transition Memorandum (the “Memorandum”) is to confirm our understanding
regarding your severance and retirement arrangements, and your separation from active employment
from ITT Corporation and its affiliates (ITT) as set forth in this Memorandum and under the terms
of the ITT Senior Executive Severance Pay Plan (the “Senior Plan”). The terms of this Memorandum
have been reviewed and approved by the Compensation and Personnel Committee of the ITT Board of
Directors and the Company has been authorized to execute and perform in accordance with the
aforesaid terms. We further agree that the terms of this Memorandum will govern your retirement
arrangements and separation, notwithstanding the terms of any other benefit plan in which you
participate, except that your rights under the Company’s qualified pension plans [including the ITT
Salaried Investment & Savings Plan and the ITT Salaried Retirement Plan (the “Qualified Plans”)]
will be governed by the terms of the applicable plan, except as otherwise specifically noted
herein. A copy of the Senior Plan is attached. Upon the execution of the attached Release and
expiration of the review and revocation period set forth in the Separation Agreement and General
Release of Claims (“Release”) to which this Memorandum is attached and incorporated by reference
therein, ITT agrees to make the payments and provide the benefits to you as set forth herein.
Expiration of Service and Severance Arrangements
Expiration of Service — You will continue to be employed as an active, full time employee through
July 31, 2009 (the “Active Service Termination Date”), at which time your active service shall
terminate. You will be paid your current annual base salary of $476,000 through the Active Service
Termination Date, in accordance with the Company’s standard payroll practices, procedures and
dates. In addition, subject to the terms and conditions of this Memorandum, you and your
dependants will continue to participate in all applicable ITT benefit plans through the Active
Service Termination Date and as described herein. You will resign as an officer of ITT and as a
director or officer of any subsidiary or affiliate of ITT, effective July 31, 2009.
Severance Pay – You are eligible for 24 months of severance payments under the terms of the Senior
Plan. Following your Active Service Termination Date of July 31, 2009, you will receive 24 months
of severance payments through July 31, 2011 ( the “Severance End Date”). ITT will make these
payments in the form of severance pay on the regular payroll schedule (currently bi-weekly) through
the period set forth above. You will continue to be paid your current annual base salary of
$476,000 throughout the severance period,
provided you have not become eligible for disability payments on or prior to your Active Service
Termination Date. In the event you become disabled on or prior to your Termination Date, your
entitlement to any short-term disability and/or long-term disability benefits shall be determined
in accordance with the applicable short-term or long-term disability plans and the treatment of any
such benefits in coordination with the above payments will be in accordance with the terms of such
disability plans and the Senior Plan. ITT agrees that it will not exercise any rights that it has
under the Senior Plan to pay any remainder of severance pay as a discounted lump sum. You will not
be entitled to receive any other pay or any other compensation from ITT except as described in this
Memorandum. In the event ITT determines that you are an individual described in Section 416(i) ITT
will not make any of the required severance payments for the first six months, and will make seven
payments on the first day of the 7th month in accordance with Treas. Reg. section
1.409A-3(i)(2)(ii).
Except as specifically set forth in this letter, for purposes of the various benefit, equity and
incentive plans discussed in this Memorandum (other than the Qualified Plans and the ITT Deferred
Compensation Plan), your separation date will be deemed to be the earlier of (i) the Severance End
Date or (ii) the date of your engaging in any disqualifying conduct as defined in the Senior Plan
(referred to hereinafter as the “Severance End Date”), except that it is agreed that ITT shall not
unreasonably deny any specific request that work for a competitor not be deemed a disqualifying
event.
For purposes of paragraph 9 of the Senior Plan, the decision as to whether you have engaged in
disqualifying conduct shall be as reasonably determined by the ITT Senior Vice President, Director
Human Resources and, in the event that such a determination is made, you will be given reasonable
notice and opportunity to cure any such alleged disqualifying conduct, prior to any decision by ITT
to terminate your severance pay. Notwithstanding anything to the contrary, any dispute in
connection with disqualifying conduct is subject to final and binding resolution pursuant to
Paragraph 11 of the Separation Agreement And General Release of Claims.
Responsibilities – Until the Active Service Termination Date, you will work with the Chief
Executive Officer and the SVP and Director Human Resources to transition responsibilities and you
will provide such assistance with other matters as they may reasonably request consistent with past
responsibilities. If a new General Counsel begins employment at the Company prior to the Active
Service Termination Date, you will continue as Senior Vice President, ITT and Director of
Legal/Regulatory Affairs, reporting directly to the Chairman, President, and CEO of ITT. In that
capacity, you will continue to support the transition, and may work from remote and off-site
locations on mutually agreeable special assignments. The new General Counsel will not report to you
in your new role.
Annual Incentive (Bonus)
You will receive a full annual incentive award under the ITT Annual Incentive Plan for performance
year 2008 based on twelve months of active service in 2008, subject to Company performance and
approval by the Compensation and Personnel Committee of the ITT Board of Directors (the
“Committee”). Your bonus will be no less than the calculated target as per the program parameters
(i.e. $476,000 multiplied by 70%, then multiplied by the approved performance payout factor for ITT
Headquarters, subject to review and approval by the Committee.) You will also receive a full bonus
for performance year 2009, prorated by the number of months of active service during 2009 through
the Active Service Termination Date (i.e. 7) in accordance with the formula set out above, subject
to review by the Committee.
Stock Option Awards
Until your Severance End Date, you may exercise your stock options to the extent they are currently
exercisable or become exercisable prior to the Severance End Date (provided that no stock option
shall be exercisable beyond its original full term). For purposes of calculating the vesting of
your options and the
2
exercise periods therefore, your employment period shall be deemed to continue until the Severance
End Date.
Grants Prior to 2006 under the 2003 Equity Incentive Plan:
| Ø | Options granted to you prior to March 8, 2005 are fully exercisable and will remain exercisable through the expiration date of the applicable option. | ||
| Ø | Options granted on March 8, 2005 are fully vested and exercisable through March 8, 2012, the option expiration date. |
2006 Stock Option Grants :
| Ø | Options granted to you on March 6, 2006 are subject to cliff vesting on March 6, 2009. These options will be fully exercisable until the expiration date of the option (March 6, 2013). |
2007 and 2008 Stock Option Grants :
| Ø | Options granted to you on March 7, 2007 and March 10, 2008 are subject to cliff vesting on March 7, 2010 and March 10, 2011 respectively. These dates are prior to the Severance End Date. The vested portion of each option will be exercisable until the earlier of their expiration dates or the date five years after termination of your employment (the Severance End Date.) |
If the option is not vested on the Severance End Date, then a prorated portion will immediately
vest upon the Severance End Date. The remaining portion will be forfeited.
The exercise of your options will be in accordance with the terms of the ITT 1994 Incentive Stock
Plan and the 2003 Equity Incentive Plan, as applicable, and any applicable Administrative Rules and
Regulations in effect at the time of exercise.
Six months after the Active Service Termination Date, you will no longer be subject to the
requirement for prior approval before the purchase or sale of ITT stock. You may continue to clear
any transaction with respect to such stock with the Company’s legal department. You are also
subject to the securities laws and ITT’s “insider trading” policies in respect of any transaction
you effect while in possession of material non-public information regarding ITT stock.
Restricted Stock Awards
| Ø | Your 2006 restricted stock award of 3793 shares awarded on March 6, 2006 is subject to cliff vesting on March 6, 2009. | ||
| Ø | Your 2007 and 2008 restricted stock awards of 3671 shares and 3869 shares respectively, are subject to cliff vesting on March 7, 2010 and March 10, 2011 respectively. These dates are prior to the Severance End Date and these awards will fully vest according to their terms. |
You will receive unrestricted shares as of the vesting dates. The receipt of shares under these
awards are subject to your payment to the company of any taxes due with respect to those shares.
Long-Term Incentive Plan (TSR Awards)
You will be eligible to receive payment for your outstanding 2007 and 2008 TSR awards, following
the completion of the applicable performance periods. Such payment, if any, will be based on the
number of full months of employment and full months after the Active Service Termination Date but
before the Severance End Date, and any payment for these awards will be prorated on that basis over
the 36-month
3
performance period. Accordingly, any payment for your outstanding target TSR awards will be
calculated as follows:
| Ø | 2007 Target Award of $450,000. Your final payment value, if any, will be prorated, calculated on the basis of the number of months of active employment plus full months after the Active Service Termination Date but before the Severance End Date, during the 36-month performance period ending December 31, 2009. (Based on the dates incorporated in this Memorandum, you should receive a full payout for this award.) | ||
| Ø | 2008 Target Award of $450,000. Your final payment value, if any, will be prorated, calculated on the basis of the number of months of active employment plus full months after the Active Service Termination Date but before the Severance End Date, during the 36-month performance period ending December 31, 2010. (Based on the dates incorporated in this Memorandum, you should receive a full payout for this award.) |
Notwithstanding the foregoing, the 2007 and 2008 TSR Awards will be paid no earlier than six
months after the Active Service Termination Date.
The ultimate value, if any, of your outstanding TSR awards will be determined based on ITT’s TSR
performance at the end of the performance periods as measured against the S&P Industrials and
approved by the Compensation and Personnel Committee of the Board of Directors. Further, the
terms of the ITT 1997 Long-Term Incentive Plan shall prevail, including any acceleration of
payments made under applicable provisions of any relevant plan.
Vacation
You will receive a lump-sum payment for any unused vacation for 2009. Payment, if any, will be
made following your Active Service Termination Date. Please note that payment for unused vacation
will not count for any purpose under any employee benefit plan. You will not be eligible for any
vacation for the year 2010 or after.
Automobile Allowance
You will continue to receive your current automobile allowance until your Severance End Date.
Public Announcement
We will mutually agree on the terms of any public announcement relating to your transition or
departure, including any announcement of the hiring or appointing of a new General Counsel.
Miscellaneous
You will be entitled to full secretarial support for the entire year 2009, and reasonable
secretarial assistance from time to time thereafter until the Severance End Date. You may remain
on the Company e-mail system through July 31, 2010.
ITT hereby conveys to you as of the Active Service Termination Date, and you may retain as your
personal property, your Company provided computer and Blackberry. Prior to the Active Service
Termination Date, you will arrange for an ITT representative in White Plains to delete all ITT data
not necessary for continued e-mail access, and leave on the laptop only those programs and data
that ITT is permitted to transfer to you at no cost and in compliance with applicable law.
4
In lieu of outplacement, and to cover normal and customary costs associated with your transition,
the Company will pay you an additional $50,000 to defray those costs. This payment will be made in
a lump sum following your Active Service Termination Date and is subject to normal withholding.
Benefit Plans
Benefit Plan Eligibility — During the active service period and until the Severance End Date, your
eligibility for certain employee benefit plans shall be as outlined in subsequent paragraphs of
this Memorandum, subject to the actual terms of the specific plans as contained in the various plan
documents. You will not be entitled to any benefits or perquisites not specifically covered in
this Memorandum. In the event of revisions to any or all of the subject plans, your benefits will
not be diminished except in accordance with the changes that are generally applicable to all
similarly-situated plan participants.
Salaried Retirement Plan and Excess Pension Plan — You are eligible to participate in these plans
during the active service period but not thereafter. ITT agrees that for purposes of the Salaried
Retirement Plan you may opt to take early retirement benefits at any time after the Active Service
Termination Date, and those benefits will be calculated in accordance with the normal early
retirement provisions of the Plan. For purposes of the Excess Pension Plan, you must commence your
non-grandfathered benefits as soon as you are retirement eligible in accordance with Treas. Reg.
section 1.409A-3(i) (2)(ii). You may commence your benefit payment for the qualified portion of
your benefit as of your Active Service Termination Date or thereafter. Such distribution
commencement date may, but need not, coincide with the payment date of your benefits under the
non-qualified Excess Pension Plan. You have elected a lump sum distribution for the Excess portion
of your benefit, which the Company agrees will be calculated using whichever allowable interest
rate for discounting purposes and other factors (i.e. life expectancy etc.) are the most favorable
to the employee. Such lump sum payment may be subject to a six -month delay in order to comply with
certain IRS regulations.
Investment and Savings Plan and Excess Savings Plan — You are eligible to participate in the
Investment and Savings Plan and in the Excess Savings Plan during the active service period but not
thereafter. Six months after your Active Service Termination Date, the restrictions on certain
Plan transactions will no longer apply and you will be able to make transactions through the ITT
Benefits Center (telephone: 866-488-4889 or at www.benefitsweb.com/itt.html) without the
requirement for prior approval before changing investment funds. The distributions from the Excess
Savings Plan may be subject to a six month delay in order to comply with certain IRS Regulations.
Insurance Plans
Medical and Dental Insurance and Vision Care Plan — You are eligible to continue coverage under the
same terms as an active employee until the Severance End Date. You and your eligible dependants
shall be eligible for continued coverage under ITT’s retiree health plan under the same terms as
other retirees anytime after your Severance End Date.
Group Life Insurance – Your life insurance under the ITT Salaried Life Insurance Plan will continue
through the last day of the month in which you remain an active employee. At the end of such
period, you will be eligible to convert the remainder without a medical examination, providing you
do so within 31 days of the end of coverage. Accidental Death and Dismemberment Insurance under
the ITT Salaried Life Insurance Plan ceases on July 31, 2009.
ITT Group Accident Insurance Program for Officers and Directors — You will be covered under this
Program through the Active Service Termination Date. You will continue during this period to be
eligible for the non-contributory portion of this coverage and for any additional optional coverage
you may have purchased.
5
Life Plus — You are eligible to continue your coverage under Life Plus during the active service
period but not thereafter. At the end of such period, you may maintain all or part of your Life
Plus coverage by requesting direct billing of premiums from Marsh@WorkSolutions, the Program
Administrator, at 1-800-552-9665.
Short-Term Disability and Long-Term Disability Insurance — Coverage under these plans ceases on the
Active Service Termination Date.
Deferred Compensation Plan — You are a participant in this plan. Distributions shall be governed
by the terms of the plan and the elections you have made.
Long Term Care Plan — If you or your spouse are currently enrolled in the ITT Long Term Care Plan,
this coverage will continue during the Severance Pay period for as long as your normal active
premium contributions continue to be deducted from your Severance Pay. At the end of your
Severance Pay period, this coverage can be ported to an outside billing arrangement if you so
choose. Please call John Hancock directly at 1–888–216–5054 to set up the transfer from a payroll
deduction to an individual billing process prior to your Severance End Date.
Flexible Spending Account Plan — If you are currently enrolled in this program, you can continue
to participate in the Flexible Spending Account Plan during the calendar year in which your
Severance Pay period began. Therefore, you are eligible to continue participation in this plan
until December 31, 2009. You will not be eligible to enroll for 2010.
Special Senior Executive Severance Pay Plan
During the active service period you will continue to be covered under the ITT Special Senior
Executive Severance Pay Plan (“Special Severance Plan”) in accordance with and subject to the terms
of said Plan. Accordingly, notwithstanding anything to the contrary herein, or in the Special
Severance Plan, if an Acceleration Event (as defined in the Special Severance Plan) shall occur on
or before the Active Service Termination Date, you will be deemed to be a full-time, regular
salaried employee of ITT in Band A whose employment is terminated by the company other than for
Cause, or who has terminated employment for Good Reason (as “Cause” and “Good Reason” are defined
in the Special Severance Plan). Hence, if an Acceleration Event occurs on or before the Active
Service Termination Date, you will be entitled to all of the benefits provided in the Special
Severance Plan for special severance executives in Band A, subject to offset as provided below.
Any severance payments and any other severance benefits to which you may be entitled pursuant to
the Special Severance Plan shall be subject to offset by the severance payments and other severance
benefits provided pursuant to this Memorandum, such offset to be in accordance with and subject to
the terms of “Offset” Paragraph 10 of the Special Severance Plan.
Tax Preparation and Financial Planning
You will be eligible for Financial Planning Assistance, which includes the Executive Tax Program,
through tax year 2011; reimbursement for 2009, 2010, and 2011 tax preparation work to be available
in 2010, 2011, and 2012 in accordance with the terms of the Program to be paid by the company in
accordance with its usual practice. The company will not take any action which is intended to deny
you continuing access to the Financial Planning Assistance for future years beyond 2011 at your own
cost. Any reimbursement made pursuant to this paragraph for fees under the Executive Tax Program
and/or fees for Financial
6
Planning Assistance through tax year 2011 will be fully grossed-up for federal, state and local tax
purposes, including income tax purposes.
Payroll Deductions
To the extent applicable, payroll deductions and benefit plan elections currently authorized by
you, as well as appropriate tax withholding, will continue during the active service period. If
you wish to change the deductions or an election at any time during the active service period,
please contact the Human Resources or Payroll departments.
Annual Physical and Health
You will be eligible for company-paid annual physical examinations at a facility of your own
choosing, through 2011. You may avail yourself of a Company reimbursed health club membership in
accordance with the Company’s executive plan, if the plan is continued, through 2011.
Death
In the event of your death prior to the completion and/or termination of all payments and benefits
hereunder, such payments and benefits will be continued
in accordance with this Memorandum, and any payments and benefits payable upon your death under the terms of any applicable benefit plan shall be promptly made to your estate, except for any benefit for which you have filed with ITT a designation of a named beneficiary other than your estate.
in accordance with this Memorandum, and any payments and benefits payable upon your death under the terms of any applicable benefit plan shall be promptly made to your estate, except for any benefit for which you have filed with ITT a designation of a named beneficiary other than your estate.
(You are encouraged to review this Memorandum and the attached Release with an attorney of your own
choosing, with the fee to be reimbursed by ITT. with an appropriate tax “gross-up” if necessary to
account for federal, state and local taxes, including income taxes. ITT acknowledges that you
personally have not acted as Counsel or Legal Advisor to the Company in connection with any of the
matters set forth herein, and that the Company has not relied on your advice in agreeing to the
terms of this Memorandum and Release. )
The parties hereby indicate their agreement with the terms and conditions of this Memorandum and
the attached Release by signing and dating this Memorandum in the space provided below.
EMPLOYEE: Vincent A. Maffeo
/s/ Vincent A. Maffeo
|
STATE OF NEW YORK
)
COUNTY OF WESTCHESTER ss:
Subscribed
and sworn before me this 23rd day
of February, 2009.
of February, 2009.
| /s/ Peter A. Timpano Jr | ||||
| PETER A. TIMPANO JR | ||||
| Notary Public, State of New York No. 01TI6090883 Qualified in Westchester County Commission Expires April 21, 2011 |
||||
7
EMPLOYER: ITT Corporation
/s/ Scott A. Crum
Scott A. Crum, Senior Vice President and Director, Human Resources
Scott A. Crum, Senior Vice President and Director, Human Resources
STATE OF NEW YORK )
)
COUNTY OF WESTCHESTER ss:
Subscribed
and sworn before me this 23rd day
of February, 2009.
of February, 2009.
| /s/ Peter A. Timpano Jr | ||||
| PETER A. TIMPANO JR | ||||
| Notary Public, State of New York No. 01TI6090883 Qualified in Westchester County Commission Expires April 21, 2011 |
||||
8
Separation Agreement and General Release of Claims
The Separation Agreement and General Release (“Release”) is made and entered into by and between
ITT Corporation (“ITT” or the “Company”) and Vincent A. Maffeo (referred to herein in the first
person). In consideration of the mutual promises contained herein, it is mutually agreed as
follows:
| 1. | I will be employed with ITT for the active service period set forth in the Transition Memorandum entered into between ITT and myself (the “Memorandum”), to which this Release is attached and incorporated by reference. After my active service period ends, I will receive severance payments for 24 months based on my annual base salary of $476,000 and the other benefits and commitments described in the Memorandum, subject to the terms and conditions set forth in the Memorandum. | |
| 2. | I agree to the following: |
| (a) | I am not eligible and will not receive any compensation, fringe benefits or employee benefits or any pay in lieu of notice or any severance or termination pay except as provided in the Memorandum. I agree and acknowledge that the pay set forth in the Memorandum is good and sufficient consideration for all of my promises, obligations, and covenants set forth in the Memorandum and in this Release. | ||
| (b) | On behalf of myself and my heirs, executors, administrators, personal and legal representatives, successors and assigns (“Releasors”), I waive, release and forever discharge ITT, its current and former subsidiaries, affiliates, divisions and related entities and their predecessors, successors and assigns, and all of their past and present officers, directors, shareholders, agents, representatives, administrators, employees, and benefit plans (collectively “Releasees”) from any and all claims, demands, debts, liabilities, obligations, expenses (including attorney’s fees and costs), promises, covenants, controversies, grievances, claims, suits, actions or causes of action, in law or in equity, known or unknown to me, foreseen or unforeseen, contingent or not contingent, liquidated or not liquidated, which I may have had in the past, may have now, or may in the future claim to have against Releasees arising with respect to any incident, event, act or omission related to my employment by the Company occurring at any time prior to my signing of this Release. This Release shall not operate as a release or waiver of claims or rights that may arise after the date of its execution, for vested benefits, for indemnification pursuant to Company policy or applicable law, for coverage under any directors’ and officers’ personal liability or any fiduciary liability, insurance policy in accordance with the terms of such policy, or any rights I may have as a shareholder in a public company (collectively, the “Reserved Rights”) and this Release shall not affect my right to seek specific enforcement and/or damages for any alleged breach of the terms and conditions of the Memorandum and this Release. | ||
| (c) | There are various state and federal laws that prohibit employment discrimination including discrimination on the basis of age, sex, race, color, national origin, religion, disability and veteran status and these laws are enforced through the United States Equal Employment Opportunity Commission, the United States Department of Labor, various federal and state agencies, and the federal and state courts. This Release specifically includes, but is not limited to, any and all claims and causes of action arising under tort or contract law or specific statutes prohibiting discrimination based on sex, color, race, national origin, religion, disability, veteran status or age, including without limitation, the Americans With Disabilities Act, the Age Discrimination in Employment Act of 1967, |
| Title VII of the Civil Rights Act of 1964, the Civil Rights Acts of 1866 and 1871, the Equal Pay Act, or any other federal, state, city, or local laws. | |||
| (d) | In consideration of the benefits provided to me under the Memorandum and this Release, I agree to waive and will not assert any of the claims or causes of action that I have waived in this Release before any federal or state court, any federal or state agency, or in any public or private arbitration. This prohibition does not apply if it would be a violation of applicable law or regulation. If this prohibition does not apply, however, and a charge or lawsuit is filed by or on behalf of me, I agree not to seek or accept any personal relief, award, monetary damages or other benefits in connection with or based on such charge or lawsuit. This paragraph is not intended to limit my right to commence and maintain legal action for the sole purpose of enforcing the Memorandum and this Release or the Reserved Rights. | ||
| (e) | I also agree to waive, release and forever discharge Releasees from any and all claims, causes of action and lawsuits that may arise from any incident, event, act or omission related to my employment by the Company occurring during my active service period or severance pay period as those terms are defined in the Memorandum, except for the purpose of enforcing the Memorandum and this Release or the Reserved Rights. |
| 3. | Releasees hereby waive, release and forever discharge Releasors from all claims, demands, debts, liabilities, obligations, expenses (including attorney’s fees and costs), promises, covenants, controversies, grievances, claims, suits, actions or causes of action, in law or in equity, known or unknown, foreseen or unforeseen, contingent or not contingent, liquidated or not liquidated, direct or derivative, which Releasees may have had in the past, may have now, or may in the future claim to have against Releasors arising with respect to any incident, event, act or omission occurring at any time prior to my signing of this Release, provided however, that this Release shall not operate as a release or waiver of claims or rights that arise wholly after the date of its execution. Nor shall this Release in any way apply to or waive any of Releasees’ rights to enforce the terms and conditions of the Memorandum and this Release through legal action. | |
| 4. | After my service period ends, notwithstanding Section 7 of the ITT Senior Executive Severance Pay Plan, I will receive no future benefits, compensation or perquisites (including but not limited to severance pay and benefits) from ITT except as set forth in the Memorandum. | |
| 5. | Except as may be required under applicable law or the rules of a stock exchange or national securities quotation system, I agree to keep the Memorandum and this Release confidential and not to disclose their contents to anyone except my immediate family, my financial or legal consultants, and appropriate governmental agencies that require this information. | |
| 6. | I agree not to slander, defame or otherwise intentionally injure the reputation of ITT or its officers, directors, employees, agents, representatives, or products. The Company and all Releasees agree not to slander, defame or otherwise intentionally injure my reputation or professional standing. | |
| 7. | I acknowledge that: (i) I have been advised in writing to consult with an attorney of my own choice regarding this Release and the Memorandum; (ii) I have been advised in writing that I may have at least 21 days from my receipt of this Release and the Memorandum to review and consider them; (iii) I actively participated in the negotiation of the terms and conditions of this Release and the Memorandum; (iv) I fully understand those terms and conditions; (v) I am voluntarily and of my own free will executing this Release and the Memorandum on the date reflected below; and (vi) during a period of seven days following my execution of this Release and the Memorandum, I may revoke such executions and this Release and the Memorandum shall not be effective or enforceable until such seven day period has expired. Should I desire to revoke this Release and the Memorandum, my revocation must be in writing and addressed to Scott A. Crum, Senior Vice President and Director Human Resources, ITT, 1133 Westchester Avenue, White Plains, NY 10604 and delivered to Mr. Crum within the seven day revocation period. |
2
| 8. | ITT and any Releasee shall not be liable for any other monies or payment to me or on my behalf other than as described in this Release and the Memorandum. This Release and the Memorandum, which is incorporated herein, contain the entire agreement between me, ITT, and all Releasees relating to the subject matter thereof. This Release fully supersedes any and all prior agreements or understandings, whether oral or written. I represent and acknowledge that in signing this Release and the Memorandum, I have not relied upon any representation or statement, oral or written, not set forth herein. No amendment to this Release or the Memorandum shall be binding unless it is in writing, expressly designated as an amendment, dated, and signed by the parties. | |
| 9. | Nothing in this Release or the Memorandum constitutes an admission of liability by ITT or any Releasee or me, and this Release or the Memorandum will not be used by me, ITT or any other entity or person as evidence in any proceeding or trial, except to enforce the terms of this Release and Memorandum or the Reserved Rights. | |
| 10. | This Release and the Memorandum shall be construed in accordance with the laws of the State of New York. Should any provision of this Release or the Memorandum be determined invalid or unenforceable, the validity of the remaining provisions shall not be affected and shall remain in full force and effect to the maximum extent permitted by law. | |
| 11. | Any dispute, controversy or claim arising out of or relating to this Release or the Memorandum, or to an alleged breach thereof, shall be finally resolved by arbitration. The arbitration shall be conducted by one (1) arbitrator jointly agreed to by ITT and me or, if we cannot agree on an arbitrator, appointed by the American Arbitration Association. The arbitration shall be conducted in accordance with the Employment Dispute Resolution Rules then in effect of the American Arbitration Association, which shall administer the arbitration and act as appointing authority. The arbitration, including the rendering of the award, shall take place in White Plains, New York, and shall be the exclusive forum for resolving such dispute, controversy or claim. For the purpose of this arbitration, the provisions of this Release and Memorandum and all rights and obligations thereunder shall be governed and construed in accordance with the laws of New York, but the arbitrator shall not have the power to award punitive or exemplary damages. The arbitration proceedings, the subject matter thereof, and the award shall be maintained on a confidential basis by the parties, the mediator, the Arbitrator and the American Arbitration Association, all of whom shall be bound by this confidentiality provision, except to the extent such information is disclosed to a court in an action to enforce the arbitrator’s award. The decision of the arbitrator shall be binding upon the parties hereto, and each party shall be responsible for its own expenses and attorney’s fees in connection with the arbitration, except as expressly set forth herein. The decision of the arbitrator shall be executory, and judgment thereon may be entered by any court of competent jurisdiction. ITT will pay seventy-five percent of the American Arbitration Association’s arbitration administrative fees and the fees and expenses of the arbitrator, and I will pay twenty-five percent. | |
| 12. | The Memorandum and Release shall be binding upon, and assumed by, all successors and assigns of ITT. | |
| 13. | I have carefully read this Release and the Memorandum, fully understand their provisions, and my signature below indicates my understanding and agreement with their terms and conditions. |
3
The original executed Release and the Memorandum must be returned to Scott A. Crum, Senior Vice
President and Director Human Resources, ITT Corporation, 1133 Westchester Avenue, White Plains, NY
10604.
EMPLOYEE: Vincent A. Maffeo
/s/ Vincent A. Maffeo
|
STATE OF
COUNTY OF
Subscribed
and sworn before me this 23rd day
of February, 2009
of February, 2009
Notary Public
My Commission expires: April 11, 2011
My Commission expires: April 11, 2011
EMPLOYER: ITT Corporation.
/s/ Scott A. Crum, Senior Vice President and Director, Human Resources
Scott A. Crum, Senior Vice President and Director, Human Resources
Scott A. Crum, Senior Vice President and Director, Human Resources
STATE OF NEW YORK
COUNTY OF WESTCHESTER
Subscribed
and sworn before me this 23rd day
of February, 2009
of February, 2009
Notary Public
My Commission expires: April 21, 2011
My Commission expires: April 21, 2011
4
Exhibit 10.32
ITT Corporation
Senior Executive Severance Pay Plan
Senior Executive Severance Pay Plan
1. Purpose
The purpose of this ITT Corporation Senior Executive Severance Pay Plan (“Plan”) is to assist
in occupational transition by providing severance pay for employees covered by this Plan whose
employment is terminated under conditions set forth in this Plan.
2. Covered Employees
Covered employees under this Plan (“Executives”) are full-time, regular salaried employees of
ITT Corporation (“ITT”) and of any subsidiary company (“ITT Corporation Subsidiary”) (collectively
or individually as the context requires “Company”) who are United States citizens, or who are
employed in the United States, in Band A at any time within the two year period immediately
preceding the date the Company selects as the Executive’s last day of active employment (“Scheduled
Termination Date”).
3. Severance Pay Upon Termination of Employment
If the Company terminates an Executive’s employment, the Executive shall be provided severance
pay in accordance with the terms of this Plan except where the Executive:
| • | is terminated for cause, | ||
| • | accepts employment or refuses comparable employment with a purchaser as provided in Section 8, “Divestiture”, | ||
| • | is terminated with a Scheduled Termination Date on or after the Executive’s Normal Retirement Date as defined herein, or | ||
| • | voluntarily terminates employment with the Company prior to the Scheduled Termination Date. | ||
| No severance pay will be provided under this Plan where the Executive terminates employment by: | |||
| • | voluntarily resigning, | ||
| • | voluntarily retiring, or | ||
| • | failing to return from an approved leave of absence (including a medical leave of absence). |
No severance pay will be provided under this Plan upon any termination of employment as a
result of the Executive’s death or disability.
“Normal Retirement Date” shall mean the first of the month which coincides with or follows the
Executive’s 65th birthday.
- 2 -
4. Schedule of Severance Pay
Severance pay will be provided in accordance with the following Schedule of Severance Pay
which sets forth the months of Base Pay which is provided to an Executive based upon the
Executive’s Years of Service as of the Scheduled Termination Date.
| Years of Service | Months of Base Pay | |||||||
Less than 4 |
12 | |||||||
4 |
13 | |||||||
5 |
14 | |||||||
6 |
15 | |||||||
7 |
16 | |||||||
8 |
17 | |||||||
9 |
18 | |||||||
10 |
19 | |||||||
11 |
20 | |||||||
12 |
21 | |||||||
13 |
22 | |||||||
14 |
23 | |||||||
15 |
or more | 24 | ||||||
“Base Pay” shall mean the annual base salary rate payable to the Executive at the Scheduled
Termination Date divided by twelve (12) months. Such annual base salary rate shall in no event be
less than the highest annual base salary rate paid to the Executive at any time during the
twenty-four month (24) period immediately preceding the Scheduled Termination Date.
“Years of Service” shall mean the total number of completed years of employment since the
Executive’s ITT system service date to the Scheduled Termination Date, rounded to the nearest whole
year. The ITT system service date is the date from which employment in the ITT system is
recognized for purposes of determining eligibility for vesting under the applicable Company
retirement plan covering the Executive on the Scheduled Termination Date.
Notwithstanding the above Schedule of Severance Pay, (i) in no event shall months of Base Pay
provided to an Executive exceed the number of months remaining between the Scheduled Termination
Date and the Executive’s Normal Retirement Date or (ii) shall severance pay exceed the equivalent
of twice the Executive’s total annual compensation during the year immediately preceding the
Scheduled Termination Date.
5. Form of Payment of Severance Pay
Severance pay shall be paid in the form of periodic payments according to the regular payroll
schedule (“Severance Pay”).
Severance Pay will commence within 60 days following the Scheduled Termination Date.
In the event of an Executive’s death during the period the Executive is receiving Severance
Pay, the amount of severance pay remaining shall be paid in a discounted lump sum to the
Executive’s spouse or to such other beneficiary or beneficiaries designated by the Executive in
writing, or, if the Executive is not married and failings such designation, to the estate of the
Executive. Any discounted lump sum paid under this Plan shall be equal to the present value of the
remaining periodic payments of severance pay as
- 3 -
determined by ITT using an interest rate equal to the prime rate at Citibank in effect on the date
of the Executive’s death.
If an Executive is receiving Severance Pay, the Executive must continue to be available to
render to the Company reasonable assistance, consistent with the level of the Executive’s prior
position with the Company, at times and locations that are mutually acceptable. In requesting such
services, the Company will take into account any other commitments which the Executive may have.
After the Scheduled Termination Date and normal wind up of the Executive’s former duties, the
Executive will not be required to perform any regular services for the Company. In the event the
Executive secures other employment during the period the Executive is receiving Severance Pay, the
Executive must promptly notify the Company.
Severance Pay will cease if an Executive is rehired by the Company.
6. Benefits During Severance Pay
As long as an Executive is receiving Severance Pay, except as provided in this Section or in
Section 7, the Executive will continue to be eligible for participation in Company employee benefit
plans in accordance with the provisions of such plans as in effect on the Scheduled Termination
Date. An Executive will not be eligible to participate in any Company tax qualified retirement
plans, non-qualified excess or supplemental benefit plans, short-term or long-term disability
plans, the Company business travel accident plan or any new employee benefit plan or any
improvement to any existing employee benefit plan adopted by the Company after the Scheduled
Termination Date.
7. Excluded Executive Compensation Plans, Programs, Arrangements, and Perquisites
During the period an Executive is receiving Severance Pay, the Executive will not be eligible
to accrue any vacation or participate in any (i) bonus program, (ii) special termination programs,
(iii) tax or financial advisory services, (iv) new awards under any stock option or stock related
plans for executives (provided that the Executive will be eligible to exercise any outstanding
stock options in accordance with the terms of any applicable stock option plan), (v) new or revised
executive compensation programs that may be introduced after the Scheduled Termination Date and
(vi) any other executive compensation program, plan, arrangement, practice, policy or perquisites
unless specifically authorized by ITT in writing. The period during which an Executive is
receiving Severance Pay does not count as service for the purpose of any ITT long term incentive
award program including, but not limited to, the ITT Restricted Stock Award Plan (1984) and any
similar plan, and the ITT Long-Term Performance Plan and any similar plan unless otherwise provided
in plan documents previously approved by the Board of Directors or Compensation and Personnel
Committee.
8. Divestiture
If an ITT Subsidiary or division of ITT or a portion thereof at which an Executive is employed
is sold or divested and if (i) the Executive accepts employment or continued employment with the
purchaser or (ii) refuses employment or continued employment with the purchaser on terms and
conditions substantially comparable to those in effect immediately preceding the sale or
divestiture, the Executive shall not be provided severance pay under this Plan. The provisions of
this Section 8 apply to divestitures accomplished through sales of assets or through sales of
corporate entities.
9. Disqualifying Conduct
If during the period an Executive is receiving Severance Pay, the Executive (i) engages in any
activity which is inimical to the best interests of the Company; (ii) disparages the Company; (iii)
fails to comply with any Company Covenant Against Disclosure and Assignment of Rights to
Intellectual
- 4 -
Property; (iv) without the Company’s prior consent, induces any employees of the Company to leave
their Company employment; (v) without the Company’s prior consent, engages in, becomes affiliated
with, or becomes employed by any business competitive with the Company; or (vi) fails to comply
with applicable provisions of the ITT Code of Conduct or applicable ITT Corporate Policies or any
applicable ITT Subsidiary Code or policies, then the Company will have no further obligation to
provide severance pay.
10. Release
The Company shall not be required to make or continue any severance payments under this Plan
unless the Executive executes and delivers to ITT within 45 days following the Scheduled
Termination Date a release, satisfactory to ITT, in which the Executive discharges and releases the
Company and the Company’s directors, officers, employees and employee benefit plans from all claims
(other than for benefits to which Executive is entitled under any Company employee benefit plan)
arising out of Executive’s employment or termination of employment.
11. Administration of Plan
This Plan shall be administered by ITT, who shall have the exclusive right to interpret this
Plan, adopt any rules and regulations for carrying out this Plan as may be appropriate and decide
any and all matters arising under this Plan, including but not limited to the right to determine
appeals. Subject to applicable Federal and state law, all interpretations and decisions by ITT
shall be final, conclusive and binding on all parties affected thereby.
12. Termination or Amendment
ITT may terminate or amend this Plan (“Plan Change”) at any time except that no such Plan
Change may reduce or adversely affect severance pay for any Executive whose employment terminates
within two years of the effective date of such Plan Change provided that the Executive was a
covered employee under this Plan on the date of such Plan Change.
13. Offset
Any severance pay provided to an Executive under this Plan shall be offset in a manner
consistent with Section 15 by reducing such severance pay by any severance pay, salary
continuation, termination pay or similar pay or allowance which Executive receives or is entitled
to receive (i) under any other Company plan, policy practice, program, arrangement; (ii) pursuant
to any employment agreement or other agreement with the Company; (iii) by virtue of any law, custom
or practice. Any severance pay provided to Executive under this Plan shall also be offset by
reducing such severance pay by any severance pay, salary continuation pay, termination pay or
similar pay or allowance received by the Executive as a result of any prior termination of
employment with the Company.
Coordination of severance pay with any pay or benefits provided by any applicable ITT
short-term or long-term disability plan shall be in accordance with the provisions of those plans.
14. Miscellaneous
Except as provided in this Plan, the Executive shall not be entitled to any notice of
termination or pay in lieu thereof.
In cases where severance pay is provided under this Plan, pay in lieu of any unused current
year vacation entitlement will be paid to the Executive in a lump sum.
- 5 -
Benefits under this Plan are paid for entirely by the Company from its general assets.
This Plan is not a contract of employment, does not guarantee the Executive employment for any
specified period and does not limit the right of the Company to terminate the employment of the
Executive at any time.
The section headings contained in this Plan are included solely for convenience of reference
and shall not in any way affect the meaning of any provision of this Plan
15. Section 409A
This Plan is intended to comply with Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”) and will be interpreted in a manner intended to comply with Section 409A of
the Code. Notwithstanding anything herein to the contrary, (i) if at the time of the Executive’s
termination of employment with the Company the Executive is a “specified employee” as defined in
Section 409A of the Code (and any related regulations or other pronouncements thereunder) and the
deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of
such termination of employment is necessary in order to prevent any accelerated or additional tax
under Section 409A of the Code, then the Company will defer the commencement of the payment of any
such payments or benefits hereunder (without any reduction in such payments or benefits ultimately
paid or provided to the Executive) until a date that is six months following the Executive’s
termination of employment with the Company (or the earliest date as is permitted under Section 409A
of the Code), at which point all payments deferred pursuant to this Section 15 shall be paid to the
Executive in a lump sum and (ii) if any other payments of money or other benefits due hereunder
could cause the application of an accelerated or additional tax under Section 409A of the Code,
such payments or other benefits shall be deferred if deferral will make such payment or other
benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits
shall be restructured, to the extent possible, in a manner, determined by the Company, that does
not cause such an accelerated or additional tax. To the extent any reimbursements or in-kind
benefits due under this Plan constitute “deferred compensation” under Section 409A of the Code, any
such reimbursements or in-kind benefits shall be paid in a manner consistent with Treas. Reg.
Section 1.409A-3(i)(1)(iv). Each payment made under this Plan shall be designated as a “separate
payment” within the meaning of Section 409A of the Code. The Company shall consult with Executives
in good faith regarding the implementation of the provisions of this section; provided that neither
the Company nor any of its employees or representatives shall have any liability to Executives with
respect thereto.
16. Adoption Date and Amendments
This Plan was initially adopted by ITT on December 12, 1989 (“Adoption Date”) and assumed by
ITT Indiana, Inc. (renamed ITT Industries, Inc.) on October 10, 1995 and does not apply to any
termination of employment which occurred or which was communicated to the Executive prior to the
Adoption Date. The Plan was most recently amended effective December 31, 2008.
Exhibit 10.53
ITT CORPORATION
NON-EMPLOYEE DIRECTOR DEFERRED RESTRICTED STOCK UNIT AWARD
NON-EMPLOYEE DIRECTOR DEFERRED RESTRICTED STOCK UNIT AWARD
SUBSEQUENT ELECTION FORM
If you desire to elect a later time of payment of Restricted Stock Units (“RSUs”) and related
dividend equivalents that you previously deferred, you should complete this form and return to:
Attention: Vivian Houchens, The Newport Group, 3957 Westerre Parkway, Suite 401, Richmond, VA
23233. Please retain a duplicate copy for your records.
| SECTION 1 — DIRECTOR INFORMATION | ||||||
Last Name
|
First Name | MI | Social Security Number | |||
Mailing Address
|
Daytime Telephone | |||||
This Subsequent Election Form is used to establish a later in-service distribution date for
previously deferred RSUs and related dividend equivalents. This Subsequent Election Form will
relate only to the deferred RSUs and related dividend equivalents you specify below. This
Subsequent Election Form may only be used with respect to deferred RSUs and related dividend
equivalents that you previously elected to receive upon a specified date or, if earlier, your
separation from service. It may not be used with respect to previously deferred RSUs and related
dividend equivalents that you previously elected to receive upon separation from service.
This Subsequent Election Form relates to: (select one and provide date and, if applicable, identify
RSU grants)
| o | ALL deferred RSUs and related dividend equivalents that I previously elected to receive upon the earlier of (i) the date I separate from service as a Director for any reason or (ii) , 20 (insert the date you previously selected).* | ||
| o | ONLY THE FOLLOWING deferred RSUs: (identify RSU grant or grants by year, e.g., 2009 RSU Grant) &n bsp; and related dividend equivalents, which I previously elected to receive upon the earlier of (i) the date I separate from service as a Director for any reason or (ii) , 20 (insert the date you previously selected).* |
| * | If you would like to change the in-service distribution date for additional previously deferred RSUs and related dividend equivalents, please complete an additional Subsequent Election Form. |
I hereby elect to have the previously deferred RSUs and related dividend equivalents that are
identified above settled/paid on the upon the earlier of (i) the date I separate from service as a
Director for any reason or (ii) , 20 ,** rather than the date specified in my
prior election forms.
| ** | The date you select must be at least 5 years later than the date you previously selected as the payment date, and this Subsequent Election Form must be delivered to The Newport Group at least twelve (12) months before the currently scheduled distribution date (the “Election Deadline”). |
Page 1 of 2
I understand and agree to the following:
| 1) | To be effective, this Subsequent Election Form must be delivered to The Newport Group at least 12 months before the date distribution is currently scheduled to be made — the “Election Deadline”. | ||
| 2) | I may revoke this Subsequent Election Form and/or file another Subsequent Election Form that will supersede this Subsequent Election Form at any time prior to the Election Deadline. | ||
| 3) | Once the Election Deadline occurs, any further changes I wish to make to the time of distribution of the amounts subject to this election will be subject to the conditions in Section 409A of the Code relating to subsequent elections. These conditions require that any such future subsequent elections (i) be made not less than 12 months before the distribution date then in effect and not take effect until at least 12 months after the date on which the subsequent election is made and (ii) provide for an additional deferral of not less than 5 years from the distribution date then in effect. | ||
| 4) | I understand that the RSUs subject to this Subsequent Election Form will be settled (and dividend equivalents will be paid) on the date or event specified above or as soon as practicable thereafter, but in all events will be settled and paid (i) if the settlement and payment date is separation from service, not later than 90 days after the date of separation from service or (ii) if the settlement and payment date is the specified date, not later than the last day of the calendar year in which the specified date occurs. I understand that in the event of my death prior to settlement of the RSUs or payment of any related dividend equivalents, the RSUs will be settled and any dividend equivalents will be paid to my designated beneficiary or, if no such designated beneficiary exists, to my estate. | ||
| 5) | I understand that, notwithstanding anything to contrary in this Subsequent Election Form, to the extent permitted by Section 409A of the Code and any treasury regulations or other applicable guidance promulgated with respect thereto, the issuance or delivery of any shares pursuant to this Subsequent Election Form may be delayed if the Company reasonably anticipates that the issuance or delivery of the Shares will violate Federal securities laws or other applicable law; provided that delivery or issuance of the shares shall be made at the earliest date at which the Company reasonably anticipates that such delivery or issuance will not cause a violation. |
I have read and understand this Subsequent Election Form and hereby authorize the Company to take
all actions indicated on this form.
Page 2 of 2
Exhibit 10.54
[Newport letterhead]
December 12, 2008
[Name]
[Address]
[Address]
Re: Required Modifications to Prior Annual Retainer Deferrals
This letter agreement will serve as an amendment to certain of your prior Deferral Election
Forms and is intended to bring those Deferral Election Forms into documentary compliance with
Section 409A of the Internal Revenue Code. Please read this letter carefully and if you agree to
the amendment of the applicable Deferral Election Forms, please sign where indicated and return to
me as soon as possible, but in no event later than December 31, 2008.
Dear [ ]:
Section 409A of the Internal Revenue Code imposes significant, adverse taxes on individuals
whose compensation is deferred (including accelerated income tax recognition and imposition of a
20% additional tax and interest) if the terms of the governing deferred compensation plan or
agreement do not comply with Section 409A and related regulations by the end of 2008.
As part of our review of compensation plans for compliance with Section 409A, we have
determined that the Deferral Election Forms relating to annual retainers deferred after 2004 (the
“Deferral Agreements”) should be amended to help ensure they comply with Section 409A.1
Your Deferral Agreements will be amended to comply with Section 409A by making them subject to
the terms and conditions of the ITT Corporation Deferred Compensation Plan for Non-Employee
Directors, which was adopted on October 7, 2008 (the “Plan”). Once subject to the terms and
conditions of the Plan, if there is a conflict between the terms and conditions of the Deferral
Agreements and the Plan, the terms and conditions of the Plan will govern.
Description of Section 409A Amendments
The terms of the Plan are more restrictive than the terms of your Deferral Agreements in a few
respects. Following is a description of two noteworthy changes that will be made to your
| 1 | Deferral Election Forms relating to annual retainers deferred before 2005 are not subject to Section 409A, and will therefore continue to be governed by the current terms and conditions of the applicable Deferral Election Forms and not the Plan. |
Mr./Ms. [ ]
[ ], 2008
Page 2
[ ], 2008
Page 2
Deferral
Agreements by making them subject to the terms of the Plan, together with an explanation of why the
amendments are necessary.2
| • | “Separation from Service.” Under Section 409A, deferred compensation generally must be paid on a specified date or dates or on a payment event permitted by Section 409A. A “separation from service,” as that term is used in Section 409A, is a permissible payment event. | ||
| Your Deferral Agreements may provide for payment when you leave the board, but they do not require that you have experienced a “separation from service,” as that term is used in Section 409A. For example, your Deferral Agreements may provide that payments will be made when you retire or when your service on the board ceases. It is possible to cease being a member of the board, but not have a “separation from service,” as that term is used in Section 409A. For example, if a director were to provide substantial services to the company as a consultant after ceasing to be a member of the board, it may not constitute a separation from service for purposes of Section 409A. Making a payment to the director in that case would violate Section 409A. | |||
| If your Deferral Agreements are subject to the terms of the Plan, you would not receive a distribution of the amounts deferred pursuant to those Deferral Agreements upon termination from the board unless you experienced a “separation from service,” as that term is used in Section 409A. | |||
| • | Changing Payment Dates. Some of your Deferral Agreements may have permitted you to change the time of distribution of your deferrals in ways that would not comply with Section 409A’s rules regarding changes to time of payment elections. If your Deferral Agreements are subject to the terms of the Plan, your ability to change the time of payment of the amounts deferred pursuant to those Deferral Agreements will be subject to the conditions set forth in Section 5.01(c) of the Plan and Section 409A of the Code relating to subsequent elections. These conditions require that any such future elections (i) be made not less than 12 months before the date distribution would have been made but for the new election and not take effect until at least 12 months after the date on which the new election is made and (ii) provide for an additional deferral of not less than 5 years from the date distribution would have been made but for the new election. |
| 2 | Please note that if your Deferral Agreements are subject to the terms of the Plan, they would be subject to all of the terms and conditions of the Plan, in addition to those described in this letter. You should read the Plan and the Q&A summary that was provided to you in November so that you understand the terms and conditions that will govern your Deferral Agreements. |
Mr./Ms. [ ]
[ ], 2008
Page 3
[ ], 2008
Page 3
Please sign below to confirm that you have read and understand the foregoing and that you
agree to have your Deferral Agreements become subject to the terms and conditions of the Plan. If
you have any questions, please contact me at .
| Very truly yours, |
||||
| [name] | ||||
| [title] | ||||
AGREED: |
||||||
Exhibit 10.55
ITT EXCESS PENSION PLAN IIB
Effective as of January 1, 2008
As Amended and Restated as of December 31, 2008
As Amended and Restated as of December 31, 2008
ITT EXCESS PENSION PLAN IIB
The ITT Excess Pension Plan IIB (the “Plan”) has been authorized and adopted by the Board of
Directors of ITT Corporation (the “Corporation”) to be effective as of January 1, 2008. The purpose
of the Plan is to provide certain supplemental benefits to certain select management or highly
compensated employees who qualify for benefits under the ITT Salaried Retirement Plan (the
“Retirement Plan”).
Effective as of January 1, 2008, the ITT Excess Pension Plan II was amended (i) to solely provide
to individuals who are eligible employees thereunder on and after January 1, 2008, the excess
benefits which would have been payable under the Retirement Plan but for the limitations imposed by
Sections 415 and 401(a)(17) of the Internal Revenue Code (the “Code”) and (ii) to transfer into the
ITT Excess Pension Plan IIB (as the successor plan) all liabilities not attributable to such excess
benefits. The Plan provisions effective as January 1, 2008 are substantially identical, except with
respect to Plan participation, to the provisions of the ITT Excess Pension II as in effect on
December 31, 2007 unless other indicated in Appendix A attached hereto.
Effective as of December 21, 2008, the Plan was amended and restated to comply with the provisions
of Section 409A of the Code and the regulations promulgated thereunder.
The benefits accrued and vested under the provisions of the Plan by a Participant who terminated
employment with ITT Corporation (the “Corporation”) and all its Associated Companies prior to
January 1, 2005 shall be subject to the provisions of the ITT Excess Pension Plan II as in effect
on October 3, 2004 (attached hereto as Appendix C and made part hereof). In addition, with respect
to a Participant (i) who terminated employment with the Corporation or one of its Associated
Companies on or prior to December 31, 2008 or (ii) who was employed by the Company or an Associated
Company on October 1, 2008 and signs and submits his acknowledge of termination to ITT HQ
Compensation Department on or before December 31, 2008 formalizing his date of Termination of
Employment in 2009, the portion of his benefit payable under the provisions of this Plan equal to
his Grandfathered Pre-2005 Benefit (as defined herein) shall be subject to the provisions of the
ITT Excess Pension Plan II as in effect on October 3,
Page 2
2004 without regard to any amendments after October 3, 2004 which would constitute a material
modification for Code Section 409A purposes, unless otherwise provided in Appendix A.
All benefits payable under this Plan, which is intended to constitute both an unfunded excess
benefit plan under Section 3(36) of Title I of the Employee Retirement Income Security Act of 1974,
as amended (“ERISA”), and a nonqualified, unfunded deferred compensation plan for a select group of
management employees under Title I of ERISA, shall be paid out of the general assets of the
Corporation. The Corporation may establish and fund a trust in order to aid it in providing
benefits due under the Plan.
ITT EXCESS PENSION PLAN IIB
TABLE OF CONTENTS
| Page | ||||
ARTICLE I. DEFINITIONS |
1 | |||
ARTICLE II. PARTICIPATION; AMOUNT AND PAYMENT OF BENEFITS |
5 | |||
2.01 Participation |
5 | |||
2.02 Amount of Supplemental Benefits |
6 | |||
2.03 Vesting |
7 | |||
2.04 Payment of Benefits |
7 | |||
2.05 Payment upon the Occurrence of a Change in Control |
14 | |||
2.06 Reemployment of Former Participant or Retired Participant |
16 | |||
ARTICLE III. GENERAL PROVISIONS |
17 | |||
3.01 Funding |
17 | |||
3.02 Duration of Benefits |
17 | |||
3.03 Discontinuance and Amendment |
18 | |||
3.04 Termination of Plan |
18 | |||
3.05 Plan Not a Contract of Employment |
19 | |||
3.06 Facility of Payment |
19 | |||
3.07 Withholding Taxes |
19 | |||
3.08 Nonalienation |
19 | |||
3.09 Forfeiture for Cause |
20 | |||
3.10 Transfers |
20 | |||
3.11 Acceleration of or Delay in Payments |
20 | |||
3.12 Indemnification |
21 | |||
3.13 Claims Procedure |
22 | |||
3.14 Construction |
23 | |||
ARTICLE IV. PLAN ADMINISTRATION |
25 | |||
4.01 Responsibility for Benefit Determination |
25 | |||
4.02 Duties of Committee |
25 | |||
4.03 Procedure for Payment of Benefits Under the Plan |
25 | |||
4.04 Compliance |
26 | |||
APPENDIX A |
27 | |||
APPENDIX B |
30 | |||
APPENDIX C |
31 | |||
ITT EXCESS PENSION PLAN IB
ARTICLE I. DEFINITIONS
The following terms when capitalized herein shall have the meanings assigned below.
| 1.01 | Acceleration Event shall mean “Acceleration Event” as that term is defined under the provisions of the ITT Excess Plan II as in effect on October 3, 2004. | |
| 1.02 | Annuity Starting Date shall mean, unless the Plan expressly provides otherwise, the first day of the first period for which an amount is due as an annuity or any other form. However, if a Change in Control occurs, the Annuity Starting Date of a Participant with regard to his 409A Supplemental Benefit shall be the date such Change in Control occurs. | |
| 1.03 | Associated Company shall mean any division, subsidiary or affiliated company of the Corporation not participating in the Plan which is an Associated Company, as defined in the Retirement Plan. | |
| 1.04 | Beneficiary shall mean the person designated pursuant to the provisions of the Retirement Plan to receive benefits under said Retirement Plan after a Participant’s death. In the absence of a beneficiary designation under the provisions of the Retirement Plan, the Participant’s Beneficiary shall be his spouse (or Registered Domestic Partner), if any, otherwise his estate. Notwithstanding the foregoing, with respect to any survivor benefit payable pursuant to the provision of Section 2.04(c)(ii) based on the Participant’s 409A Supplemental Benefit attributable to the Traditional Pension Plan (“TPP”) formula (as defined in Section 4.01(b) of the Retirement Plan), in the absence of a beneficiary designation under the provisions of the Retirement Plan, the Participant’s Beneficiary shall be his spouse (or Registered Domestic Partner), if any, otherwise the person or persons named as his beneficiary (or beneficiaries) under the ITT Salaried Investment and Savings Plan, if any, or if none, then the person or persons named as his beneficiary (or beneficiaries) under the Company’s life insurance program. For purposes of the Plan, |
Page 2
| a Registered Domestic Partner shall have the same meaning as set forth in the Retirement Plan. | ||
| 1.05 | Board of Directors shall mean the Board of Directors of ITT Corporation or any successor thereto. | |
| 1.06 | Change in Control shall mean “Change in Control” as such term is defined under the terms of ITT Excess Pension Plan IIA, as amended from time to time. | |
| 1.07 | Code shall mean the Internal Revenue Code of 1986, as amended from time to time. | |
| 1.08 | Committee shall mean the Benefits Administration Committee under the Retirement Plan. | |
| 1.09 | Company shall mean the Corporation with respect to its employees and any Participating Unit (as that term is defined in the Retirement Plan) authorized by the Corporation to participate in the Plan with respect to its employees. | |
| 1.10 | Company Pension Plan shall mean any tax qualified defined benefit plan other than the Retirement Plan maintained by the Company or an Associated Company. | |
| 1.11 | Corporation shall mean ITT Corporation, an Indiana corporation, (successor by merger to and formerly known as ITT Industries, Inc.), or any successor by merger, purchase or otherwise. | |
| 1.12 | Deferred Compensation Program shall mean any nonqualified deferred compensation plan maintained by the Company or an Associated Company. | |
| 1.13 | Disability or Disabled shall mean “Disability” as defined under Treasury Regs. Section 1.409A-3(i)(4)(i) and (ii) and any subsequent guidance thereto. |
Page 3
| 1.14 | Eligible Employee shall mean a member of the Retirement Plan who is not eligible to participate in the ITT Excess Pension Plan IA or IB. | |
| 1.15 | ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. | |
| 1.16 | Excess Benefit Portion shall mean the portion of the Plan which is intended to constitute an unfunded excess benefit plan under Sections 3(36) and 4(b)(5) of Title I of ERISA which provides benefits not otherwise payable under the Retirement Plan due to restrictions imposed by Section 415 of the Code. | |
| 1.17 | Excess Plan II shall mean the ITT Excess Plan II (formerly known as the ITT Industries Excess Pension Plan II). | |
| 1.18 | Grandfathered Pre-2005 Benefit shall mean, with respect to a Participant who (i) terminated employment on or prior to December 31, 2008 or (ii) was employed by the Company or an Associated Company on October 1, 2008 and signs and submits his acknowledgement of termination to the ITT HQ Compensation Department on or before December 31, 2008 formalizing his date of Termination of Employment in 2009 the portion of such Participant’s Supplemental Benefit, if any, that was accrued and vested before January 1, 2005, determined under the provisions of the Excess Plan II without regard to any amendments after October 3, 2004 which would cause a material modification for Code Section 409A purposes, the provisions of Section 409A, the regulations promulgated thereunder and other applicable guidance, adjusted for the passage of time based on actuarial equivalent assumptions and procedures established by the Committee in accordance with the provisions of Treasury Regs. 1.409A-6(a)(3)(iv). | |
| 1.19 | Participant shall mean an Eligible Employee who is participating in the Plan pursuant to Section 2.01 hereof. |
Page 4
| 1.20 | Plan shall mean the ITT Excess Pension Plan IIB, as set forth herein or as amended from time to time. | |
| 1.21 | Plan Year shall mean the calendar year. | |
| 1.22 | Retirement Plan shall mean the ITT Salaried Retirement Plan (formerly known as the ITT Industries Salaried Retirement Plan), as amended from time to time. | |
| 1.23 | Select Management Portion shall mean the portion of the Plan, other than the Excess Benefit Portion, which is intended to constitute an unfunded deferred compensation plan for a select group of management or highly compensated employees under Title I of ERISA. | |
| 1.24 | Specified Employee shall mean a “specified employee” as such term is defined in the ITT Excess Pension Plan IIA. | |
| 1.25 | Supplemental Benefit shall mean the monthly benefit payable to a Participant as determined under Section 2.02. | |
| 1.26 | 409A Supplemental Benefit shall mean the portion of a Participant’s Supplemental Benefit, if any, in excess of his Grandfathered Pre-2005 Benefit. | |
| 1.27 | Termination of Employment shall mean a “Separation from Service” as such term is defined in the ITT Excess Pension Plan IIA. |
Page 5
ARTICLE II. PARTICIPATION; AMOUNT AND PAYMENT OF BENEFITS
| 2.01 | Participation |
| (a) | Each individual who is (i) an Eligible Employee on January 1, 2008 (ii) a participant in the Excess Plan II on December 31, 2007 and (ii) whose annual retirement allowance or vested benefit under the Retirement Plan is reduced as a result of |
| (i) | deferrals of Compensation under a Deferred Compensation Program; or | ||
| (ii) | such other restrictions imposed by the Board of Directors with respect to the determination of a Participant’s retirement allowance or vested benefit under the Retirement Plan |
| shall, subject to the provisions of paragraph (d) below, become a Participant of this Plan on January 1, 2008. | |||
| (b) | Effective on and after January 1, 2008, each other Eligible Employee whose annual retirement allowance or vested benefit under the Retirement Plan is reduced as a result of |
| (i) | deferrals of Compensation under a Deferred Compensation Program; or | ||
| (ii) | such other restrictions imposed by the Board of Directors with respect to the determination of a Participant’s retirement allowance or vested benefit under the Retirement Plan, |
| shall be a Participant. |
| (c) | A former Eligible Employee who was a Participant in the ITT Select Management Portion of the Excess Plan II receiving or entitled to receive benefit payments thereunder as of December 31, 2007, including those persons receiving benefit payments made pursuant to the provisions of the Enhanced Retirement Program which were restricted from payment under the Retirement Plan, shall, subject to the provisions of paragraph (d) below, become a Participant on January 1, 2008. |
Page 6
| (d) | A Participant’s participation in the Plan shall terminate upon the Participant’s death or other Termination of Employment with the Company and all Associated Companies, unless a benefit is payable under the Plan with respect to the Participant or his Beneficiary under the provisions of this Article II. |
| 2.02 | Amount of Supplemental Benefits |
| (a) | A Participant’s Supplemental Benefit under this Article II shall be equal to the excess, if any, of (i) over (ii) as determined below: |
| (i) | the monthly retirement allowance or vested benefit determined as of such Participant’s Termination of Employment which would have been payable to the Participant under Section 4.02, 4.03, 4.04, 4.05 or 4.06 of the Retirement Plan, whichever is applicable, assuming such benefit commences on the date set forth in Section 2.04(a)(i), (ii) or (iv), whichever is applicable, and |
| (1) | prior to the application of any offset required pursuant to Section 4.10 or to an applicable Appendix of the Retirement Plan with regard to benefits payable under any other Company Pension Plan; | ||
| (2) | without regard to the provisions contained in Section 415 of the Code relating to the maximum limitation on benefits, as incorporated into the Retirement Plan; | ||
| (3) | without regard to the annual limitation on Compensation contained in Section 401(a)(17) of the Code, as incorporated into the Retirement Plan; and | ||
| (4) | without regard to deferrals of Compensation made pursuant to a Deferred Compensation program. |
over
| (ii) | the monthly retirement allowance or vested benefit which would have been payable for the Participant’s lifetime under Section 4.02, 4.03, 4.04, 4.05 or 4.06 of the Retirement Plan, whichever is applicable, assuming such benefit commences on the date set forth in Section 2.04(a)(i), (ii) or (iv), whichever is applicable, and determined |
Page 7
| (1) | prior to the application of any offset required pursuant to Section 4.10 or an applicable Appendix of the Retirement Plan with regard to benefits payable under any other Company Pension Plan; | ||
| (2) | without regard to the provisions contained in Section 415 of the Code relating to maximum limitation benefits, as incorporated into the Retirement Plan; and | ||
| (3) | without regard to the annual limitation on Compensation contained in Section 401(a)(17) of the Code, as incorporated into the Retirement Plan. |
| 2.03 | Vesting |
| (a) | A Participant shall be vested in, and have a nonforfeitable right to, the benefit payable under this Article II to the same extent as the Participant is vested in his Accrued Benefit (as that term is defined in the Retirement Plan) under the provisions of the Retirement Plan. | ||
| (b) | Notwithstanding any provision of this Plan to the contrary, in the event of an Acceleration Event, all Participants and their Beneficiaries shall become fully vested in the benefits provided under this Plan. |
| 2.04 | Payment of Benefits |
| (a) | Timing of Payment |
| (i) | Subject to the provisions of clause (iii) below, the portion of any Participant’s 409A Supplemental Benefit payable under Section 2.02 attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan), to the extent vested pursuant to Section 2.03, shall commence as of the first day of the month following (1) the Participant’s Termination of Employment or (2) if the Participant is not age 50 on such date of Termination of Employment and his age and service as of such date does not equal 80 or more, the Participant’s attainment of age 55, if later. |
Page 8
| (ii) | Notwithstanding the foregoing provisions of clause (i) above and subject to the provisions of clause (iii) below, the portion of any Participant’s 409A Supplemental Benefit payable under Section 2.02 attributable to the Pension Equity Plan (PEP) formula (as defined in Section 4.01(c) of the Retirement Plan), to the extent vested pursuant to Section 2.03, shall commence as of the first day of the month following the Participant’s Termination of Employment. | ||
| (iii) | Notwithstanding the foregoing, if a Participant is classified as a “Specified Employee” on his date of Termination of Employment, the actual payment of a 409A Supplemental Benefit payable under Section 2.02 on account of such Participant’s Termination of Employment for reasons other than death or Disability shall not commence prior to the first day of the seventh month following the Participant’s Termination of Employment. Any payment due the Participant which he would have otherwise received under Section 2.02 during the six month period immediately following such Participant’s Termination of Employment shall be accumulated, with interest, at the IRS Interest Rate (as defined in the Retirement Plan) in accordance with procedures established by the Committee. For the avoidance of doubt, the provisions of this clause (iii) shall not apply to a 409A Supplemental Benefit payable under (1) Section 2.04(c) due to the death of the Participant or (2) Section 2.04(d) due to the Participant’s Disability. | ||
| (iv) | Notwithstanding the foregoing, in the event a Participant who incurred a Termination of Employment prior to January 1, 2009 has not commence payment of his 409A Supplemental Benefit as of April 1, 2009 (January 1, 2009 with respect to Participants listed in Appendix B), such Participant’s 409A Supplemental Benefit shall commence as of January 1, 2009 or, if later, the date specified in clause (i), (ii) or (iii) above, whichever is applicable. |
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| (v) | A Participant’s Grandfathered Pre-2005 Benefit shall commence in accordance with the provisions of the Excess Plan II as in effect on October 3, 2004, modified as set forth in Appendix A and without regard to any amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. |
| (b) | Form of Benefit |
| (i) | Notwithstanding any provisions of the Plan to the contrary, the portion of the Participant’s 409A Supplemental Benefit determined under Section 2.02 attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) shall be paid in the same form as the Participant’s supplemental benefit determined under the provisions of the ITT Excess Pension Plan IIA attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan), if any, is paid. However, if the Participant is not entitled to a supplemental benefit under the provisions of the ITT Excess Pension IIA attributable to the TPP formula, then unless the Participant has a valid election under clause (ii) below in effect, the portion of the Participant’s 409A Supplemental Benefit determined under Section 2.02 attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) shall be paid in the form of a single life annuity for the life of the Participant, if the Participant is not married on his Annuity Starting Date, or in the form of 50% joint & survivor annuity, if the Participant is married (or has a Registered Domestic Partner) on his Annuity Starting Date. | ||
| (ii) | Subject to the provisions of clause (iii) below, a Participant who is not entitled to a supplement benefit under the provisions of the ITT Excess Pension Plan IIA attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) may elect to convert his 409A Supplemental Benefit payable under Section 2.02 attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) into an optional annuity of equivalent actuarial value available to that Participant under the provisions of Section |
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| 4.07(b) of the Retirement Plan as of his Annuity Starting Date, provided said optional annuity satisfies the definition of “life annuity” as provided in Treasury Regs. 1.409A-(2)(b)(2)(ii) and any further guidance thereto. Such equivalent actuarial value shall be based on the applicable factors set forth in Appendix A of the Retirement Plan. | |||
| (iii) | Notwithstanding the foregoing and subject to the provisions of Section 409A of the Code, a Participant’s election to receive his 409A Supplemental Benefit attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) in an optional annuity form of payment as described in clause (ii) above shall be effective as of the Participant’s Annuity Starting Date applicable to that portion of his 409A Supplemental Benefit, provided the Participant makes and submits to the Committee in the manner prescribed by the Committee, his election of such optional annuity form prior to such applicable Annuity Starting Date. A Participant who fails to elect an optional annuity form of benefit applicable to the TPP formula portion of his 409A Supplemental Benefit in a timely manner shall receive such benefit in accordance with the provisions of clause (i) above, | ||
| (iv) | Notwithstanding the foregoing provisions of this Section 2.04(b), the portion of a Participant’s 409A Supplemental Benefit payable under Section 2.02 attributable to the PEP formula (as defined in Section 4.01(c) of the Retirement Plan) shall be payable in the form of a single lump sum payment. Such lump sum payment shall be calculated on the same basis as provided in Section 4.07(b)(v) of the Retirement Plan using the IRS Mortality Table and IRS Interest Rate (as defined in the Retirement Plan). | ||
| (v) | The portion of the Participant’s Grandfathered Pre-2005 Benefit payable under Section 2.02 attributable to the TPP formula (as defined in Section 4.01(b) of the Retirement Plan) shall commence and the form of payment of such benefit shall be determined in accordance with the provisions of the |
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| Excess Plan II as in effect on October 3, 2004, modified as set forth in Appendix A and without regard to any amendments after that date which would constitute a material modification for Code Section 409A purposes. The portion of the Participant’s Grandfathered Pre-2005 Benefit payable under Section 2.02 attributable to the PEP formula (as defined in Section 4.01(c) of the Retirement Plan) shall be payable in accordance with the provisions of the Excess Plan II as in effect on October 3, 2004, modified as set forth in Appendix A and without regard to any amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. |
| (c) | Death Prior to a Participant’s Annuity Starting Date |
| (i) | If a Participant entitled to a vested benefit under the Retirement Plan dies (1) before meeting the eligibility requirements for an Automatic Pre-Retirement Survivor’s Benefit under Section 4.08(b) of the Retirement Plan and while in active service with the Company or any Associated Company or while Disabled but before his Annuity Starting Date, or (2) after Termination of Employment with entitlement to a vested benefit hereunder but prior to his Annuity Starting Date, the Participant’s spouse (or Registered Domestic Partner) shall receive a monthly payment for life equal to the monthly income which would have been payable to such spouse (or Registered Domestic Partner) under Section 4.08(a) of the Retirement Plan based on the hypothetical benefit attributable to his Supplemental Benefit as calculated under Section 2.02 hereof assuming payments commence as of the first day of the month following the Participant’s date of death, or attainment of age 55, if later. The portion of such survivor benefit attributable to the Participant’s 409A Supplemental Benefit shall commence as of the first day of the month following the later of the Participant’s date of death or the Participant’s attainment of age 55 (or in the event clause (iii) is applicable, the date specified in clause (iii)) Notwithstanding the foregoing, the portion of any benefit payable under this clause (i) attributable to the PEP formula portion |
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| (as defined in Section 4.01(c) of the Retirement Plan) of the benefit which would have been payable to the spouse (or Registered Domestic Partner) based on the hypothetical 409A Supplemental Benefit as calculated under Section 2.02 shall be determined assuming that portion of the survivor benefit commences as of the first day of the month following the Participant’s date of death (or the date specified in clause (iii), if later) and such benefit shall be payable in the form of a single lump sum payment as of the first day of the month following the Participant’s date of death. This lump sum payment shall be calculated on the same basis as provided in Section 4.08(a)(iii) of the Retirement Plan using the IRS Mortality Table and IRS Interest Rate (as defined in the Retirement Plan). Notwithstanding any Plan provision to the contrary, the portion of any survivor benefit payable under this clause (i) attributable to the Participant’s Grandfathered Pre-2005 Benefit shall be payable in accordance with the provisions of the Excess Plan II as in effect on October 3, 2004, modified as set forth in Appendix A, and without regard to any amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. | |||
| (ii) | In the event a Participant who has satisfied the eligibility requirements for the Automatic Pre-Retirement Survivor’s Benefit under Section 4.08(b) of the Retirement Plan, dies (1) while in active service with the Company or any Associated Company or (2) after his Termination of Employment or the date he becomes Disabled, if earlier, but prior to his Annuity Starting Date, the Participant’s Beneficiary, if any, shall receive a monthly payment for the life of the Beneficiary equal to the monthly income which would have been payable to such Beneficiary under Section 4.08(b) of the Retirement Plan based on the hypothetical retirement benefit attributable to his Supplemental Benefit as calculated under Section 2.02 hereof assuming payments commence on the first day of the month following the Participant’s death (or the date specified in clause (iii), if later). Notwithstanding the foregoing, the portion of any benefit payable under this clause (ii) attributable to the PEP |
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| formula portion (as defined in Section 4.01(c) of the Retirement Plan) of the benefit which would have been payable to the Beneficiary based on the hypothetical 409A Supplemental Benefit as calculated under Section 2.02 shall be payable in the form of a single lump sum payment. This lump sum payment shall be calculated on the same basis as provided in Section 4.08(b)(iii) of the Retirement Plan using the IRS Mortality Table and IRS Interest Rate (as defined in the Retirement Plan). The portion of any benefit payable under this clause (ii) attributable to a Participant’s 409A Supplemental Benefit as calculated under Section 2.02 hereof shall commence on the first day of the month following the Participant’s death. | |||
| The portion of such survivor benefit payable under this clause (ii) of paragraph (c) attributable to the Participant’s Grandfathered Pre-2005 Benefit shall be paid in accordance with the provisions of the Excess Plan II as in effect on October 3, 2004, modified as set forth in Appendix A, and without regard to any amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. | |||
| (iii) | Notwithstanding the foregoing, in the event the survivor benefit payable under this Section 2.04(c) to the spouse or Beneficiary of a Participant who died prior to January 1, 2009 has not commenced as of January 1, 2009, such survivor benefit shall commence as of January 1, 2009 or, if later, the date specified in clauses (i) or (ii) above, whichever is applicable. |
| (d) | Disability prior to Termination of Employment |
| (i) | Notwithstanding any Plan provision to the contrary, in the event a Participant becomes Disabled prior to his Termination of Employment, he shall be entitled to a Disability Supplemental Benefit equal to the amount determined under the provisions of Section 2.02(a) based on his years of Benefit Service (as such term is defined in the Retirement Plan) accrued to the date he came Disabled plus the years of Benefit Service (as such term is defined in the |
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| Retirement Plan) the Participant accrues under the terms of the Retirement Plan after the date he becomes Disabled and prior to his attainment of age 65. | |||
| (ii) | The portion of the Disability Supplemental Benefit determined under the provisions of clause (i) in excess of the Participant’s Grandfathered Pre-2005 Benefit shall be paid in accordance with the provisions of paragraph (b) above and payments shall commence on the first day of the month following the month in which the Participant attains age 65. | ||
| (iii) | Notwithstanding the foregoing, the portion of the Disability Supplemental Benefit attributable to the Participant’s Grandfathered Pre-2005 Benefit shall be paid in accordance with the provisions of the Excess Plan II as in effect on October 3, 2004, modified as set forth in Appendix A, and without regard to any amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes. |
| 2.05 | Payment upon the Occurrence of a Change in Control | |
| Upon the occurrence of a Change in Control, (i) all retired Participants then receiving or then entitled to receive a 409A Supplemental Benefit under the Plan, (ii) all former Participants then receiving or then entitled to receive a 409A Supplemental Benefit hereunder, and (iii) all Participants who are then still in active service shall automatically receive, in a single lump sum payment, the 409A Supplemental Benefit remaining due as of the Change in Control to any such retired or former Participant or the benefit, if any, accrued by such active Participant up to the Change in Control event and as determined under Section 2.02 hereof. The amount of such lump sum payment attributable to the PEP formula portion (as defined in Section 4.01(c) of the Retirement Plan) of the Participant’s 409A Supplemental Benefit payable under this Plan not in payment status as of the occurrence of a Change in Control event shall be calculated on the same basis as provided in Section 4.07(b)(v) of the Retirement Plan using the IRS Mortality Table and IRS Interest Rate (as defined in the Retirement Plan) determined as if the date the Change in Control event occurs is the Participant’s Annuity Starting Date. The amount of the |
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| lump sum payment attributable to the TPP formula portion of the Participant’s 409A Supplemental Benefit payable under this Plan shall be calculated on an actuarial equivalent basis using (i) the interest rate assumption used by the PBGC for valuing benefits for single employer plans as published by the PBGC for the month in which such Change in Control event occurs and (ii) the mortality table utilized as of the day immediately preceding the date the Change in Control event occurs under the provisions of the Retirement Plan to calculate the amount of a small lump sum cashout. The interest rate for immediate annuities will be used, if the Participant has met the eligibility requirements to retire under the Retirement Plan with an early, normal or postponed retirement allowance as of the Change in Control or is then in receipt of monthly payments under this Plan, otherwise the Plan shall use the interest rate assumption for deferred annuities to the earliest date the Participant could have commenced payment of such benefit or, if it results in a larger lump sum, his Normal Retirement Date (as defined under the Retirement Plan) If the Participant is not in receipt of his monthly 409A Supplemental Benefit payments under this Plan as of the Change in Control, the calculation of a lump sum payment hereunder of the portion of the Participant’s accrued benefit payable under this Plan attributable to the TPP formula portion (as defined under Section 4.01(b) of the Retirement Plan) shall be based on the Participant’s 409A Supplemental Benefit payable under Section 2.02 attributable to such TPP formula as if it were paid in the form of a single life annuity to the Participant commencing on the Participant’s Annuity Starting Date; provided, however, if the Participant has not met the eligibility requirements to retire under the Retirement Plan with an early, normal or postponed retirement allowance, the calculation of such lump sum payment shall be based on the Participant’s accrued 409A Supplemental Benefit payable under Section 2.02 attributable to such TPP formula as if it were paid in the form of a single life annuity to the Participant commencing on the earliest date he could have commenced payment of such benefit. In no event, however, shall the lump sum payment determined under the preceding sentence be less than the lump sum payment based on the Participant’s accrued 409 Supplemental Benefit payable under Section 2.02 attributable to such TPP formula as if it were paid in the form of a single life annuity to the Participant commencing on his Normal Retirement Date. The calculation of a lump sum payment hereunder shall be |
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| made on the basis of the Participant’s age (and Beneficiary’s age, if applicable) at the Change in Control and without regard to the possibility of any future changes after the Change in Control in the amount of benefits payable hereunder because of future changes in the limitations referred to in Section 2.02. The lump sum payment shall be made within ninety (90) days of the date the Change in Control event occurs. In the event the Participant dies after such Change in Control event occurs but before receiving such payment, the lump sum payment shall be made to his Beneficiary. This lump sum payment represents a complete settlement of all benefits on the Participant’s behalf under the Plan. | ||
| For avoidance of doubt, upon the occurrence of an Acceleration Event, (either prior, after or simultaneously with the occurrence of a Change of Control) the provisions of Section 2.05 of the Excess Plan II as in effect on October 3, 2004 without regard to any amendments after October 3, 2004 which would constitute a material modification for Code Section 409A purposes shall be applicable to a Participant’s Grandfathered Pre-2005 Benefit. |
| 2.06 | Reemployment of Former Participant or Retired Participant | |
| If a Participant who retired or otherwise terminated employment with the Company and all Associated Companies is reemployed as an employee by the Company or an Associated Company, such reemployment shall have no impact on the payment or timing of payment of any 409A Supplement Benefits earned prior to reemployment. |
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ARTICLE III. GENERAL PROVISIONS
| 3.01 | Funding |
| (a) | All amounts payable in accordance with this Plan shall constitute a general unsecured obligation of the Corporation. Such amounts, as well as any administrative costs relating to the Plan, shall be paid out of the general assets of the Corporation, to the extent not paid from the assets of any trust established pursuant to paragraph (b) below. | ||
| (b) | The Corporation may, for administrative reasons, establish a grantor trust for the benefit of Participants in the Plan. The assets placed in said trust shall be held separate and apart from other Corporation funds and shall be used exclusively for the purposes set forth in the Plan and the applicable trust agreement, subject to the following conditions: |
| (i) | the creation of said trust shall not cause the Plan to be other than “unfunded” for purposes of Title I of ERISA; | ||
| (ii) | the Corporation shall be treated as “grantor” of said trust for purposes of Section 677 of the Code; and | ||
| (iii) | the agreement of said trust shall provide that its assets may be used upon the insolvency or bankruptcy of the Corporation to satisfy claims of the Company’s general creditors and that the rights of such general creditors are enforceable by them under federal and state law. |
| (c) | To the extent that any person acquires a right to receive payments under the Plan, such right shall be no greater than the right of any unsecured creditor of the Corporation. |
| 3.02 | Duration of Benefits | |
| Benefits shall accrue under the Plan on behalf of a Participant only for so long as the deferrals of compensation under a Deferred Compensation Program or other restrictions referred to in Section 2.02 reduce such benefits. |
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| 3.03 | Discontinuance and Amendment | |
| The Board of Directors reserves the right to modify, amend, or discontinue in whole or in part, benefit accruals under the Plan at any time. However, no modification, amendment, or discontinuance shall adversely affect the right of any Participant to receive the benefits accrued as of the date of such modification, amendment or discontinuance and after the occurrence of an Acceleration Event, no modification or amendment shall be made to Sections 2.03 or 2.05. Notwithstanding the foregoing, following any amendment and except as provided in Article II with respect to lump sum payments hereunder, benefits may be adjusted as required to take into account the amount of benefits payable under the Retirement Plan after the application of the limitations referred to in Section 2.02. | ||
| 3.04 | Termination of Plan | |
| The Board of Directors reserves the right to terminate the Plan at any time, provided, however, that no termination shall be effective retroactively. As of the effective date of termination of the Plan, |
| (a) | the benefits of any Participant or Beneficiary whose benefit payments have commenced shall continue to be paid, but only to the extent such benefits are not otherwise payable under the Retirement Plan because of the limitations referred to in Section 2.02, and | ||
| (b) | no further benefits shall accrue on behalf of any Participant whose benefits have not commenced, and such Participant and his Beneficiary shall retain the right to benefits hereunder; provided that, on or after the effective date of termination, |
| (i) | the Participant is vested under the Retirement Plan and | ||
| (ii) | such benefits are not at any time otherwise payable under the Retirement Plan because of the limitations imposed by IRC Section 415 or Section 401(a)(17). |
| All other provisions of this Plan shall remain in effect. |
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| 3.05 | Plan Not a Contract of Employment | |
| This Plan is not a contract of employment, and the terms of employment of any Participant shall not be affected in any way by this Plan or related instruments, except as specifically provided therein. The establishment of this Plan shall not be construed as conferring any legal rights upon any person for a continuation of employment, nor shall it interfere with the rights of the Corporation to discharge any person and to treat him without regard to the effect which such treatment might have upon him under this Plan. Each Participant and all persons who may have or claim any right by reason of his participation shall be bound by the terms of this Plan and all agreements entered into pursuant thereto. | ||
| 3.06 | Facility of Payment | |
| In the event that the Committee shall find that a Participant is unable to care for his affairs because of illness or accident or is a minor or has died, the Committee may, unless claim shall have been made therefore by a duly appointed legal representative, direct that any benefit payment due him, to the extent not payable from a grantor trust, be paid on his behalf to his spouse, a child, a parent or other blood relative, or to a person with whom he resides, and any such payment so made shall be a complete discharge of the liabilities of the Corporation and the Plan therefore. | ||
| 3.07 | Withholding Taxes | |
| The Company and an Associated Company shall have the right to deduct from each payment to be made under the Plan any required withholding taxes. | ||
| 3.08 | Nonalienation | |
| Subject to any applicable law, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void, nor shall any such benefit be in any manner liable for or subject to garnishment, attachment, execution or levy, or liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefits. |
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| 3.09 | Forfeiture for Cause | |
| In the event that a Participant shall at any time be convicted of a crime involving dishonesty or fraud on the part of such Participant in his relationship with the Company or an Associated Company, all benefits that would otherwise be payable to him or to a Beneficiary under the Plan shall be forfeited. | ||
| 3.10 | Transfers |
| (a) | Notwithstanding any Plan provision to the contrary, in the event the Corporation (i) sells, causes the sale of, or sold the stock or assets of any employing company in the controlled group of the Corporation to a third party or (ii) distributes or distributed to the holders of shares of the Corporation’s common stock all of the outstanding shares of common stock of a subsidiary or subsidiaries of the Corporation, and, as a result of such sale or distribution, such company (or subsidiary) or its employees are no longer eligible to participate hereunder, the liabilities with respect to the benefits accrued under this Plan for a Participant who, as a result of such sale or distribution, is no longer eligible to participate in this Plan, shall, at the discretion and direction of the Corporation (and approval by the new employer), be transferred to a similar plan of such new employer and become a liability thereunder. Upon such transfer (and acceptance thereof by such new employer) the liabilities for such transferred benefits shall become the obligation of the new employer and the liability under this Plan for such benefits shall then cease. | ||
| (b) | Notwithstanding any Plan provision to the contrary, at the discretion and direction of the Corporation, liabilities with respect to benefits accrued by a Participant under a plan maintained by such Participant’s former employer may be transferred to this Plan and upon such transfer shall become the obligation of the Corporation. |
| 3.11 | Acceleration of or Delay in Payments | |
| The Committee, in its sole and absolute discretion, may elect to accelerate the time or form of payment of a benefit owed to the Participant hereunder, provided such acceleration is permitted under Treasury Regs. Section 1.409A-3(j)(4). The Committee |
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| may also, in its sole and absolute discretion, delay the time for payment of a benefit owed to the Participant hereunder, to the extent permitted under Treasury Regs. Section 1.409A-2(b)(7). |
| 3.12 | Indemnification. | |
| The Company, the members of the Committee, and the officers, employees and agents of the Company shall, unless prohibited by any applicable law, be indemnified against any and all liabilities arising by reason of any act or failure to act in relation to the Plan including, without limitation, expenses reasonably incurred in the defense of any claim relating to the Plan, amounts paid in any compromise or settlement relating to the Plan and any civil penalty or excise tax imposed by any applicable statue, if |
| (a) | the act or failure to act shall have occurred |
| (i) | in the course of the person’s service as an officer, employee or agent of the Company or as a member of the Committee, or as the Plan Administrator, or | ||
| (ii) | in connection with a service provided with or without charge to the Plan or; to the Participants or Beneficiaries of the Plan, if such service was requested by the Committee or the Plan Administrator; and |
| (b) | the act or failure to act is in good faith and in, or not opposed to, the best interests of the Corporation. |
This determination shall be made by the Corporation and, if such determination is made in
good faith and not arbitrarily or capriciously, shall be conclusive.
The foregoing indemnification shall be from the assets of the Corporation. However, the
Corporation’s obligation hereunder shall be offset to the extent of any otherwise applicable
insurance coverage under a policy maintained by the Corporation or any other person, or
other source of indemnification.
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| 3.13 | Claims Procedure |
| (a) | Submission of Claims | ||
| Claims for benefits under the Plan shall be submitted in writing to the Committee or to an individual designated by the Committee for this purpose. | |||
| (b) | Denial of Claim | ||
| If any claim for benefits is wholly or partially denied, the claimant shall be given
written notice within 90 days following the date on which the claim is filed, which
notice shall set forth |
| (i) | the specific reason or reasons for the denial; | ||
| (ii) | specific reference to pertinent Plan provisions on which the denial is based; | ||
| (iii) | a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and | ||
| (iv) | an explanation of the Plan’s claim review procedure, including information as to the steps to be taken if the claimant wishes to submit the claim for review and the time limits for requesting a review. |
| If special circumstances require an extension of time for processing the claim, written notice of an extension shall be furnished to the claimant prior to the end of the initial period of 90 days following the date on which the claim is filed. Such an extension may not exceed a period of 90 days beyond the end of said initial period. | |||
| If the claim has not been granted and written notice of the denial of the claim is not furnished within 90 days following the date on which the claim is filed, the claim shall be deemed denied for the purpose of proceeding to the claim review procedure. |
| (c) | Claim Review Procedure | ||
| The claimant or his authorized representative shall have 60 days after receipt of written notification of denial of a claim to request a review of the denial by making |
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| written request to the Committee, and may review pertinent documents and submit issues and comments in writing within such 60-day period. | ||
| Not later than 60 days after receipt of the request for review, the persons designated by the Company to hear such appeals (the “Appeals Committee”) shall render and furnish to the claimant a written decision, which shall include specific reasons for the decision and shall make specific references to pertinent Plan provisions on which it is based. If special circumstances require an extension of time for processing, the decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review, provided that written notice and explanation of the delay are given to the claimant prior to commencement of the extension. Such decision by an Appeals Committee shall not be subject to further review. If a decision on review is not furnished to a claimant within the specified time period, the claim shall be deemed to have been denied on review. | ||
| (d) Exhaustion of Remedy | ||
| No claimant shall institute any action or proceeding in any state or federal court of law or equity or before any administrative tribunal or arbitrator for a claim for benefits under the Plan until the claimant has first exhausted the procedures set forth in this section. |
| 3.14 | Construction |
| (a) | The Plan is intended to constitute both an excess benefit arrangement and an unfunded deferred compensation arrangement maintained for a select group of management or highly compensated employees within the meaning of Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA, and all rights under this Plan shall be governed by ERISA. Subject to the preceding sentence, the Plan shall be construed, regulated and administered under the laws of the State of New York, to the extent such laws are not superseded by applicable federal law. | ||
| (b) | The masculine pronoun shall mean the feminine wherever appropriate. |
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| (c) | The illegality of any particular provision of this document shall not affect the other provisions and the document shall be construed in all respects as if such invalid provision were omitted. | ||
| (d) | The headings and subheadings in the Plan have been inserted for convenience of reference only, and are to be ignored in any construction of the provisions thereof. | ||
| (e) | The Plan shall be construed, regulated and administered in accordance with the laws of the State of New York, subject to the provisions of applicable federal laws |
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ARTICLE IV. PLAN ADMINISTRATION
| 4.01 | Responsibility for Benefit Determination | |
| The benefit of a Participant or Beneficiary under this Plan shall be determined either by the Committee, as provided in Section 4.02 below, or such other party as is authorized under the terms of any grantor trust. | ||
| 4.02 | Duties of Committee | |
| The Committee shall calculate, in accordance with Article II, the benefit of each Participant or Beneficiary under the Plan. To the extent a Participant’s, spouse’s or Beneficiary’s benefit are payable from the Plan, the Committee shall have full discretionary authority to resolve any question which shall arise under the Plan as to any person’s eligibility for benefits, the calculation of benefits, the form, commencement date, frequency, duration of payment, or the identity of the Beneficiary. Such question shall be resolved by the Committee under rules uniformly applicable to all person(s) or employee(s) similarly situated. It is the intent of the Corporation that the provisions of the Plan comply with the provisions of Section 409A of the Code, any regulations and other guidance promulgated with respect thereto and the provisions of the Plan shall be interpreted to be consistent therewith. | ||
| 4.03 | Procedure for Payment of Benefits Under the Plan | |
| With respect to any benefit to which a Participant or Beneficiary is entitled under this Plan to pay benefits under the Plan, the Committee (i) shall direct the commencement of benefit payments hereunder in accordance with the applicable procedures established by the Corporation, the Company and/or the Committee regarding the disbursement of amounts from the general funds of the Corporation and (ii) shall arrange, in conjunction with any other applicable excess benefit plan, for the payment of benefits under this Plan and/or any other applicable excess benefit plan. |
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| 4.04 | Compliance | |
| With respect to benefits hereunder subject to Code Section 409A, the Plan is intended to comply with the requirements of Code Section 409A and the provisions hereof shall be interpreted in a manner that satisfies the requirements of Code Section 409A and the regulations thereunder, and the Plan shall be operated accordingly. If any provision of the Plan would otherwise frustrate or conflict with this intent, the provision will be interpreted and deemed amended so as to avoid this conflict. The Plan has been administered in good faith compliance with Section 409A and the guidance issued thereunder from January 1, 2005 through December 31, 2008. |
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APPENDIX A
Provisions Applicable to a Participant’s Grandfathered Pre-2005 Supplemental Benefit
This Appendix A constitutes an integral part of the Plan and is applicable with respect to the
Grandfathered Pre-2005 Benefit of those individuals who were participants in the Excess Plan II on
December 31, 2004. The portion of a Participant’s Benefit determined under the provisions of
Section 2.02 and Section 2.04(d) of the foregoing provisions of the Plan equal to his Grandfathered
Pre-2005 Benefit is subject to the provisions of the Excess Plan II as in effect on October 3,
2004, modified as set forth in this Appendix A and without regard to any Plan amendments after
October 3, 2004 which would constitute a material modification for Code Section 409A purposes.
Section references in this Appendix A correspond to appropriate Sections of the said Plan as in
effect on October 3, 2004 as set forth in Appendix C.
Article II — Participation Amount and Payment of Benefits
For purposes of Article II, the terms/phrases “termination of employment,” “terminates employment,”
“retirement”, “employment is terminated” or other similar language shall mean, with respect to a
Participant, the complete cessation of providing services to the Company and all Associated
Companies an employee.
Section 2.04 Payment of Benefits
| (b) | Retirement or Termination of Employment Effective on or After January 1, 1996 |
| (i) | Following a Participant’s retirement or termination of employment with the Company and all Associated Companies other than by reason of death, a Participant shall receive his Grandfathered Pre-2005 Benefit in the same form and at the same time as the Participant receives his corresponding retirement allowance or vested benefit under the Retirement Plan, except as otherwise provided below. |
Page 28
| If a Participant becomes Disabled (as defined in Article I of the foregoing provisions of the Plan) prior to his Termination of Employment, the portion of his Disability Supplemental Benefit equal to his Grandfathered Pre-2005 Benefit shall be paid at the same time and in the same form as the Retirement Plan benefit is paid. | |||
| (ii) | Notwithstanding the foregoing provisions of clause (i) above, the portion of his Grandfathered Pre-2005 Benefit attributable to the PEP formula (as defined in Section 4.01(c) of the Retirement Plan) shall be payable in the form of a lump sum payment and effective as of January 1, 2008, the Participant’s right to convert such PEP formula portion of his Grandfathered Pre-2005 Benefit into a form of life annuity is eliminated. |
| (c) | Death Prior to a Participant’s Annuity Starting Date |
| (i) | The portion of the death benefit determined under Section 2.04(c)(i) of the foregoing provisions of this Plan attributable to a Participant’s Grandfathered Pre-2005 Benefit payable to a Participant’s spouse (or Registered Domestic Partner) shall be paid in the same form and at the same time said spouse (or Registered Domestic Partner) receives payment under the Automatic Vested Spouse Benefit of the Retirement Plan. Notwithstanding the foregoing, effective on and after January 1, 2008, the portion of any benefit payable under this clause (i) attributable to the PEP formula (as defined in Section 4.01(c) of the Retirement Plan) based on his Grandfathered Pre-2005 Benefit shall be payable in a single lump sum payment and effective as of January 1, 2008, the spouse’s (or Registered Domestic Partner’s) right to convert such PEP formula portion of his Grandfathered Pre-2005 Benefit into a form of life annuity is eliminated. | ||
| (ii) | The portion of the death benefit determined under Section 2.04(c)(ii) of the foregoing provisions of the Plan attributable to a Participant’s Grandfathered Pre-2005 Benefit shall be payable to the Participant’s Beneficiary at the same |
Page 29
| time said Beneficiary would have received a Pre-Retirement Survivor’s Benefit under Section 4.08(b) of the Retirement Plan, provided, however, the portion of such survivor benefit attributable to the PEP formula (as defined under Section 4.01(c) of the Retirement Plan) shall be paid in a single lump sum payment and effective as of January 1, 2008, the Beneficiary’s right to convert such PEP formula portion of his Grandfathered Pre-2005 Benefit into a form of life annuity is eliminated. |
Section 2.05 Payment upon the Occurrence of an Acceleration Event
| In the event an Acceleration Event occurs, regardless of whether or not such event satisfies the definition of a Change in Control event as defined in the foregoing provisions of this Plan, the provisions of this Section 2.05 shall apply to the Participant’s Grandfathered Pre-2005 Benefit. |
Page 30
APPENDIX B
| Name | ||||
James Crumley, Jr. |
||||
James Faughnan |
||||
John Krochmal |
||||
Ralph Meoni |
||||
Louis Dollive |
||||
Sean Osborne |
||||
Calvin Gorrel |
||||
Randolph Lopez |
||||
Melvin Hershey |
||||
Frank Koester |
||||
Page 31
APPENDIX C
Provisions of the ITT Excess Pension Plan II as in effect on October 3, 2004
This Appendix C constitutes a part of this Plan and contains the provisions of the predecessor Plan
(Excess Plan II) as in effect on October 3, 2004.
EXHIBIT 12
CALCULATION OF
RATIO OF EARNINGS TO TOTAL FIXED CHARGES
AND CALCULATION
OF EARNINGS TO TOTAL FIXED CHARGES AND
PREFERRED
DIVIDEND REQUIREMENTS
|
(IN MILLIONS) |
|||||||||||||||||||||||
| YEAR ENDED DECEMBER 31 | 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||
|
Earnings:
|
|||||||||||||||||||||||
|
Income from continuing operations
|
$ | 775.2 | $ | 633.0 | $ | 499.7 | $ | 528.8 | $ | 408.2 | |||||||||||||
|
Add (deduct):
|
|||||||||||||||||||||||
|
Adjustment for distributions in excess of (less than)
undistributed equity earnings and
losses(a)
|
1.2 | 2.1 | 1.0 | 0.8 | (0.4 | ) | |||||||||||||||||
|
Income tax expense
|
312.3 | 265.5 | 227.6 | 144.7 | 154.8 | ||||||||||||||||||
| 1,088.7 | 900.6 | 728.3 | 674.3 | 562.6 | |||||||||||||||||||
|
Fixed Charges:
|
|||||||||||||||||||||||
|
Interest and other financial charges
|
140.8 | 114.9 | 86.2 | 75.0 | 50.4 | ||||||||||||||||||
|
Interest factor attributable to
rentals(b)
|
44.4 | 33.1 | 28.3 | 28.9 | 26.8 | ||||||||||||||||||
| 185.2 | 148.0 | 114.5 | 103.9 | 77.2 | |||||||||||||||||||
|
Earnings, as adjusted, from continuing operations
|
$ | 903.5 | $ | 752.6 | $ | 613.8 | $ | 570.4 | $ | 485.4 | |||||||||||||
|
Fixed Charges:
|
|||||||||||||||||||||||
|
Fixed charges above
|
$ | 185.2 | $ | 148.0 | $ | 114.5 | $ | 103.9 | $ | 77.2 | |||||||||||||
|
Interest capitalized
|
— | — | — | — | — | ||||||||||||||||||
|
Total fixed charges
|
185.2 | 148.0 | 114.5 | 103.9 | 77.2 | ||||||||||||||||||
|
Dividends on preferred stock (pre-income tax basis)
|
— | — | — | — | — | ||||||||||||||||||
|
Total fixed charges and preferred dividend requirements
|
$ | 185.2 | $ | 148.0 | $ | 114.5 | $ | 103.9 | $ | 77.2 | |||||||||||||
|
Ratios:
|
|||||||||||||||||||||||
|
Earnings, as adjusted, from continuing operations to total fixed
charges
|
4.88 | 5.09 | 5.36 | 5.49 | 6.29 | ||||||||||||||||||
|
Earnings, as adjusted, from continuing operations to total fixed
charges and preferred dividend requirements
|
4.88 | 5.09 | 5.36 | 5.49 | 6.29 | ||||||||||||||||||
Notes:
| (a) | The adjustment for distributions in excess of (less than) undistributed equity earnings and losses represents the adjustment to income for companies in which less than 50% equity is owned. |
| (b) | One-third of rental expense is deemed to be representative of the interest factor in rental expense. |
EXHIBIT 21
SUBSIDIARIES OF
THE REGISTRANT
Set forth below are
the names of subsidiaries, divisions and related organizations
of ITT Corporation, the respective jurisdiction in which each
was organized (in the case of subsidiaries), and the name under
which each does business (if other than the name of the entity
itself).
|
JURISDICTION IN |
NAME UNDER WHICH |
|||||
| NAME | WHICH ORGANIZED | DOING BUSINESS | ||||
|
Defense Electronics & Services
|
||||||
|
Advanced Engineering & Sciences Division
|
N/A | |||||
|
Felec Services, Inc.
|
Delaware | |||||
|
Astro-Optics Labs
|
California | |||||
|
CAS Inc.
|
Alabama | |||||
|
Darlington, Inc.
|
Delaware | |||||
|
EDO Artisan, Inc.
|
New Jersey | |||||
|
EDO Automotive Natural Gas, Inc.
|
Delaware | |||||
|
EDO Communications and Countermeasures Systems, Inc.
|
California | |||||
|
EDO Corporation
|
New York | |||||
|
EDO Energy Corp.
|
Delaware | |||||
|
EDO MBM Technology, LLC
|
United Kingdom | |||||
|
EDO MTech Inc.
|
Pennsylvania | |||||
|
EDO Professional Services, Inc.
|
Virginia | |||||
|
EDO Reconnaissance and Surveillance Systems, Inc.
|
Delaware | |||||
|
EDO Rugged Systems Limited
|
United Kingdom | |||||
|
EDO (UK) Limited
|
United Kingdom | |||||
|
EDO Western Corporation
|
Utah | |||||
|
EVI Technology, LLC
|
Delaware | |||||
|
Fiber Innovations, Inc.
|
Massachusetts | |||||
|
Gilcron Corporation
|
Delaware | |||||
|
Impact Science & Technology, Inc.
|
New Hampshire | |||||
|
ITT Advanced Engineering & Sciences International,
Inc.
|
Delaware | |||||
|
ITT Advanced Imaging Systems, Inc.
|
Delaware | |||||
|
ITT Antarctic Services, Inc.
|
Delaware | |||||
|
ITT Arctic Services, Inc.
|
Delaware | |||||
|
ITT Avionics Systems International, Inc.
|
Delaware | |||||
|
ITT Canadian Enterprises, Ltd.
|
Canada | |||||
|
ITT Commercial Services, Inc.
|
Delaware | |||||
|
ITT Communications Support, Inc.
|
Delaware | |||||
|
ITT Communications Systems Division
|
N/A | |||||
|
ITT DCD Saudia Arabia Inc.
|
Delaware | |||||
|
ITT Defence Ltd.
|
United Kingdom | |||||
|
ITT Defense Division
|
N/A | |||||
|
ITT Defense Espana, S.L.
|
Spain | |||||
|
ITT Defense International, Inc.
|
Delaware | |||||
|
ITT Electronic Systems − Electronic Warfare Division
|
N/A | |||||
|
ITT Employment and Training Systems, Inc.
|
Delaware | |||||
|
ITT Federal Services Arabia Ltd.
|
Saudi Arabia | |||||
|
ITT Federal Services Corporation
|
Delaware | |||||
|
ITT Federal Services GmbH
|
Germany |
|
JURISDICTION IN |
NAME UNDER WHICH |
|||||
| NAME | WHICH ORGANIZED | DOING BUSINESS | ||||
|
ITT Federal Services International Corporation
|
Delaware | |||||
|
ITT Federal Services International, Ltd.
|
Cayman Islands | |||||
|
ITT FSC Investment Corporation
|
Delaware | |||||
|
ITT FSC Management Corporation
|
Delaware | |||||
|
ITT Gilfillan Division
|
N/A | |||||
|
ITT GNSS Solutions, Inc.
|
California | |||||
|
ITT INSYTE, Inc.
|
Florida | |||||
|
ITT Job Training Services, Inc.
|
Delaware | |||||
|
ITT Maintenance Services, GmbH
|
Germany | |||||
|
ITT Night Vision Division
|
N/A | |||||
|
ITT Power Solutions, Inc.
|
Massachusetts | |||||
|
ITT PowerSystems Corporation
|
Delaware | |||||
|
ITT Space Systems, LLC
|
Delaware | |||||
|
ITT Systems Division
|
N/A | |||||
|
ITT Systems & Sciences Corporation
|
Delaware | |||||
|
MBM Flexible Circuits Ltd.
|
United Kingdom | |||||
|
NexGen Communications LLC
|
Virginia | |||||
|
Research Systems, Inc.
|
Colorado | Visual Information Solutions | ||||
|
Research Systems International France SARL
|
France | |||||
|
Research Systems International UK Limited
|
United Kingdom | |||||
|
Research Systems Italia S.r.l
|
Italy | |||||
|
ITT VIS KK
|
Japan | |||||
|
Specialty Plastics, Inc.
|
Louisiana | |||||
|
Fluid Technology
|
||||||
|
AC Custom Pumps Division
|
N/A | |||||
|
Anadolu Flygt Pompa Sanayi Ve Ticaret
|
Turkey | |||||
|
AGJ Holding AB
|
Sweden | |||||
|
A.G. Johansons Metallfabrik AB
|
Sweden | |||||
|
Arrow Rentals Limited
|
Ireland | |||||
|
Avis Werberg GmbH
|
Austria | |||||
|
BEC Acquisition Corporation, Inc.
|
Delaware | |||||
|
Bombas Flygt de Venezuela
|
Venezuela | |||||
|
Bombas Goulds de Mexico S. de R.L. de C.V.
|
Mexico | Goulds | ||||
|
Bombas Goulds de Venezuela, C.A
|
Venezuela | Goulds | ||||
|
Bombas Goulds S.A.
|
Argentina | Goulds | ||||
|
BS Pumps Limited
|
United Kingdom | |||||
|
Comer S.R.L
|
Italy | |||||
|
Distribuidora Arbos, C.A
|
Venezuela | |||||
|
Faradyne Motors LLC
|
Delaware | |||||
|
Flowtronex Acquisition, Inc.
|
Delaware | |||||
|
Flowtronex PSI, Inc.
|
Nevada | |||||
|
Fluid and Water Technology India, Inc.
|
Delaware | |||||
|
Flygt Argentina S.A.
|
Argentina | Flygt | ||||
|
Flygt Hellas S.A.
|
Greece | Flygt | ||||
|
Flygt Portugal Technologia Agua do Ambiente
|
Portugal | Flygt | ||||
|
Goulds Pumps Administration
|
New York |
|
JURISDICTION IN |
NAME UNDER WHICH |
|||||
| NAME | WHICH ORGANIZED | DOING BUSINESS | ||||
|
Goulds Pumps Canada, Inc.
|
Canada | Goulds | ||||
|
Goulds Pumps Co., Ltd.
|
Korea | Goulds | ||||
|
Goulds Pumps, Incorporated
|
Delaware | Goulds | ||||
|
Goulds Pumps (IPG), Inc.
|
Delaware | Goulds | ||||
|
Goulds Pumps (Ireland), Limited
|
Ireland | Goulds | ||||
|
Goulds Pumps (NY), Inc.
|
New York | Goulds | ||||
|
Goulds Pumps (PA), Inc.
|
Delaware | Goulds | ||||
|
Goulds Pumps (Philippines), Inc.
|
Philippines | Goulds | ||||
|
GP Holding Company, Inc.
|
Delaware | Goulds | ||||
|
Grindex AB
|
Sweden | |||||
|
Innotec Water Management BV
|
Netherlands | |||||
|
ITT Bell & Gossett Division
|
N/A | Bell & Gossett | ||||
|
ITT Columbia Ltda
|
Columbia | |||||
|
ITT Corporation India Pvt. Ltd.
|
India | |||||
|
ITT EP (Nanjing)
|
China | |||||
|
ITT Fluid Technology Asia Pte Ltd.
|
Singapore | |||||
|
ITT Fluid Technology Corporation
|
Delaware | |||||
|
ITT Fluid Technology Division
|
N/A | |||||
|
ITT Fluid Technology International, Inc.
|
Delaware | |||||
|
ITT Fluid Technology International Pty Ltd.
|
Australia | |||||
|
ITT Fluid Technology International (Thailand), Ltd.
|
Thailand | |||||
|
ITT Fluid Technology S.A.
|
Chile | |||||
|
ITT BV Water & Wastewater Nederland
|
The Netherlands | Flygt | ||||
|
ITT Water & Wastewater Deutschland GmbH
|
Germany | Flygt | ||||
|
ITT Flygt S.A.S
|
France | Flygt | ||||
|
ITT Flygt SDC S.A.S
|
France | Flygt | ||||
|
ITT Water & Wastewater Italia S.R.L.
|
Italy | Flygt | ||||
|
ITT Flygt (Shenyang) Pumps, Ltd.
|
China | Flygt | ||||
|
ITT Goulds Benelux BV
|
The Netherlands | Goulds | ||||
|
ITT Grindex Pumps Division
|
N/A | |||||
|
ITT Industries Holding AB
|
Sweden | |||||
|
ITT Kobay Sdn BHD
|
Malaysia | |||||
|
ITT McDonnell & Miller Division
|
N/A | McDonnell & Miller | ||||
|
ITT Monitoring and Control, Inc.
|
Delaware | |||||
|
ITT Pure-Flo (UK), Ltd.
|
United Kingdom | |||||
|
ITT PCI Membranes Limited
|
United Kingdom | |||||
|
ITT Sanitaire, Ltd.
|
United Kingdom | |||||
|
ITT Standard Division (Heat Transfer)
|
N/A | |||||
|
ITT Water & Wastewater AB (Sweden)
|
Sweden | |||||
|
ITT Water & Wastewater Australia Limited
|
Australia | |||||
|
ITT Water & Wastewater Belgium BVBA
|
||||||
|
ITT Water & Wastewater Chile S.A.
|
Chile | |||||
|
ITT Water & Wastewater Danmark ApS
|
Denmark | |||||
|
ITT Water & Wastewater do Brazil Limitada S.A
|
Brazil | |||||
|
ITT Water & Wastewater Finland OY
|
Finland | |||||
|
ITT Water & Wastewater Florida LLC
|
Delaware | |||||
|
ITT Water & Wastewater Hong Kong Limited
|
Hong Kong |
|
JURISDICTION IN |
NAME UNDER WHICH |
|||||
| NAME | WHICH ORGANIZED | DOING BUSINESS | ||||
|
ITT Water & Wastewater Hungry Kft.
|
Hungary | |||||
|
ITT Water & Wastewater Indiana LLC
|
Delaware | |||||
|
ITT Water & Wastewater Ireland Ltd.
|
Ireland | |||||
|
ITT Water & Wastewater Korea Col, Ltd.
|
Korea | |||||
|
ITT Water & Wastewater Leopold, Inc.
|
Delaware | |||||
|
ITT Water & Wastewater Lituanica
|
Lithuania | |||||
|
ITT Water & Wastewater Mexico S. de R.L. de C.V
|
Mexico | |||||
|
ITT Water & Wastewater New Zealand Limited
|
New Zealand | |||||
|
ITT Water & Wastewater Norway SA
|
Norway | |||||
|
ITT Water & Wastewater Osterreich GmbH
|
Austria | |||||
|
ITT Water & Wastewater Peru S.A
|
Peru | |||||
|
ITT Water & Wastewater Polska Sp. Zoo
|
Poland | |||||
|
ITT Water & Wastewater Projects Limited
|
United Kingdom | |||||
|
ITT Water & Wastewater South Africa (PTY) Ltd.
|
South Africa | |||||
|
ITT Water & Wastewater UK Ltd.
|
United Kingdom | |||||
|
ITT Water & Wastewater U.S.A., Inc
|
Delaware | |||||
|
ITT Water Technology Delaware, Inc.
|
Delaware | |||||
|
ITT Water Technology Holdings, Inc.
|
Delaware | |||||
|
ITT Water Technology, Inc.
|
Delaware | |||||
|
ITT Water Technology, Inc. (Canada)
|
Canada | |||||
|
ITT Water Technology International, Inc.
|
Delaware | |||||
|
ITT Water Technology Mexico S. de R.L. de C.V.
|
Mexico | |||||
|
ITT Water Technology Texas Holdings, Inc.
|
Delaware | |||||
|
ITT Water Technology (TX) LP
|
Delaware | |||||
|
ITT Wellpoint S.r.l
|
Italy | |||||
|
Leopold Holding Corp.
|
Delaware | |||||
|
Lowara Deutschland GmbH
|
Germany | Lowara | ||||
|
Lowara France S.A.S
|
France | Lowara | ||||
|
Lowara (Ireland) Limited
|
Ireland | Lowara | ||||
|
Lowara Nederland BV
|
The Netherlands | Lowara | ||||
|
Lowara Portugal
|
Portugal | Lowara | ||||
|
Lowara S.r.l
|
Italy | Lowara | ||||
|
Lowara UK Limited
|
United Kingdom | Lowara | ||||
|
Lowara Vogel Polska Co. Ltd.
|
Poland | |||||
|
Nanjing Goulds Pumps Ltd.
|
China | Goulds | ||||
|
PCI Membrane Inc.
|
Delaware | |||||
|
Portacel, Inc.
|
Delaware | |||||
|
PT Sam McCoy
|
Indonesia | |||||
|
Pumpenfabrik Ernst Vogel GmbH
|
Austria | Vogel | ||||
|
Pure-Flo Cotter Division
|
N/A | |||||
|
Pure-Flo LLC
|
Delaware | |||||
|
Pure-Flo Precision Division
|
N/A | |||||
|
Pure Water — C’Treat
|
N/A | |||||
|
Pure Water — Wet Division
|
N/A | |||||
|
Robot Pumps BV
|
The Netherlands | |||||
|
Sam McCoy Engineering Pte Ltd.
|
Singapore | |||||
|
Sam McCoy Engineering SDN BHD
|
Malaysia |
|
JURISDICTION IN |
NAME UNDER WHICH |
|||||
| NAME | WHICH ORGANIZED | DOING BUSINESS | ||||
|
Sam McCoy Manufacturing SDN BHD
|
Malaysia | |||||
|
Sanitaire Division
|
N/A | Sanitaire | ||||
|
Shanghai Goulds Pumps Co. Ltd.
|
China | |||||
|
SRP Acquisition Corp.
|
Delaware | |||||
|
Tecnicas de Filtracion Bombeo S.A.
|
Spain | |||||
|
Vogel Pumpen Drv
|
Hungary | |||||
|
WEDECO AG
|
Germany | |||||
|
WEDECO AVP Pty Ltd.
|
Australia | |||||
|
WEDECO B.V
|
The Netherlands | |||||
|
WEDECO GmbH
|
Germany | |||||
|
WEDECO GmbH
|
Switzerland | |||||
|
WEDECO Limited
|
United Kingdom | |||||
|
WEDECO Ltda.
|
Brazil | |||||
|
WEDECO Rex S.R.L
|
Spain | |||||
|
WEDECO Sp. z.o.o
|
Poland | |||||
|
WEDECO Sung Jin Ltd.
|
South Korea | |||||
|
WEDECO S.r.l
|
Italy | |||||
|
WEDECO Visa GmbH
|
Austria | |||||
|
1448170 Ontario Ltd.
|
Canada | |||||
|
Motion & Flow Control
|
||||||
|
Air-Dro Cylinders, Inc.
|
Alabama | |||||
|
Ameritool Manufacturing, Inc.
|
New York | |||||
|
BIW Division
|
N/A | |||||
|
BVE Control GmbH
|
Germany | |||||
|
CableCom Electronics (Shenzhen) Co., Ltd.
|
China | |||||
|
ITT Hong Kong Limited
|
Hong Kong | |||||
|
Cleveland Motion Controls, Inc.
|
Ohio | |||||
|
Cleveland Motion Controls Ltd.
|
United Kingdom | |||||
|
Cleveland Motion Controls GmbH
|
Germany | |||||
|
Compact Automation Products LLC
|
Delaware | |||||
|
Enidine Incorporated
|
Delaware | Dynact | ||||
|
Enidine GmbH
|
Germany | |||||
|
Enidine (Hangzhou) Co., Ltd.
|
China | |||||
|
Enidine Co., Ltd. Kabushiki Kaisha
|
Japan | |||||
|
Enidine United Kingdom Limited
|
United Kingdom | |||||
|
Enidine Trading Company GmbH
|
Germany | |||||
|
Evolutionary Concepts, Inc.
|
California | |||||
|
Flojet Division
|
N/A | |||||
|
Flojet (Europe) Limited
|
England | |||||
|
Great American Gumball Corporation
|
California | ITT Cannon Santa Clara | ||||
|
Hydro Air Industries Division
|
N/A | |||||
| Electro-Pneumatic Innovations | ||||||
|
Hydro-Line, Inc.
|
Delaware | Midland Pneumatic | ||||
|
IMC Controls Holding, Inc.
|
Delaware | |||||
|
International Motion Control Inc.
|
Delaware | |||||
|
International Motion Control (China), Ltd.
|
Delaware |
|
JURISDICTION IN |
NAME UNDER WHICH |
|||||
| NAME | WHICH ORGANIZED | DOING BUSINESS | ||||
|
ITT Aerospace Controls Division
|
N/A | |||||
|
ITT Aerospace Controls LLC
|
Delaware | |||||
|
ITT Automotive Europe GmbH & Co. KG
|
Germany | ITT Cannon/MobileCom, ITT Cannon RF Products, ITT Interconnect | ||||
|
ITT Cannon Division
|
N/A | Solutions | ||||
|
ITT Cannon Electronic (Shenzhen) Co., Ltd.
|
China | |||||
|
ITT Cannon GmbH
|
Germany | |||||
|
ITT Cannon International, Inc.
|
Delaware | ITT Cannon/Network Systems & Services | ||||
|
ITT Cannon, Ltd.
|
Japan | |||||
|
ITT Cannon Mexico, Inc.
|
Delaware | |||||
|
ITT Cannon de Mexico S.A. de C.V.
|
Mexico | |||||
|
ITT Cannon Veam Italia S.r.l.
|
Italy | |||||
|
ITT Cannon (Zhenjiang) Electronics, Ltd.
|
China | |||||
|
ITT Cannon (Hong Kong) Ltd.
|
Hong Kong | |||||
|
ITT Flow Control Limited
|
United Kingdom | |||||
|
ITT Industries Friction, Inc.
|
Delaware | |||||
|
ITT Italia S.r.l
|
Italy | |||||
|
ITT Industries Vermoegensverwaltungs GmbH
|
Germany | |||||
|
ITT Koni America LLC
|
Delaware | |||||
|
ITT Power Holding BV
|
The Netherlands | |||||
|
ITT VEAM LLC
|
Delaware | |||||
|
Jabsco GmbH
|
Germany | Jabsco | ||||
|
Jabsco Marine Italia S.r.l
|
Italy | |||||
|
Jarret, Inc.
|
Pennsylvania | |||||
|
Jinco Holdings, Inc.
|
Delaware | |||||
|
Jinco Products, Inc. (Korea)
|
Korea | |||||
|
Kaliburn, Inc.
|
South Carolina, USA | |||||
|
Koni B.V
|
The Netherlands | Koni | ||||
|
Bright Banner Limited
|
United Kingdom | |||||
|
Totton Holdings Limited
|
United Kingdom | |||||
|
Totton Pumps Limited
|
United Kingdom | |||||
|
Koni France
|
France | Koni | ||||
|
Midland Pneumatic Limited
|
United Kingdom | |||||
|
Nee Controls, Inc.
|
Delaware | |||||
|
NHK Jabsco
|
Japan | Jabsco | ||||
|
Rule Industries, Inc.
|
Massachusetts | Rule | ||||
|
TEC Electrical Components Ltd.
|
United Kingdom | |||||
|
Other
|
||||||
|
Admiral Corporation
|
Florida | Admiral | ||||
|
Bolton Insurance Company
|
New York | |||||
|
Carbon Fuel Company
|
West Virginia | Carbon | ||||
|
Carbon Industries, Inc.
|
West Virginia | |||||
|
Computer & Equipment Leasing Corporation
|
Wisconsin | |||||
|
Corporp A&F, Inc.
|
Delaware |
|
JURISDICTION IN |
NAME UNDER WHICH |
|||||
| NAME | WHICH ORGANIZED | DOING BUSINESS | ||||
|
Howard Corporation
|
North Carolina | |||||
|
International Standard Electric Corporation
|
Delaware | |||||
|
ITT AES Enterprises, Inc.
|
Delaware | |||||
|
ITT Automotive Enterprises, Inc.
|
Delaware | |||||
|
ITT Benefits Management, Inc.
|
Delaware | |||||
|
ITT Canada Company
|
Nova Scotia | |||||
|
ITT Canada Investment L.P.
|
Canada | |||||
|
ITT Community Development Corporation
|
Delaware | |||||
|
ITT Delaware Investments, Inc.
|
Delaware | |||||
|
ITT France SAS
|
France | |||||
|
ITT German Holding BV
|
Germany | |||||
|
ITT Gesellschaft für Beteiligungen mbH
|
Germany | |||||
|
ITT Industriebeteiligungsgesellschaft mbH
|
Germany | |||||
|
ITT Industries Asset Management, Inc.
|
Delaware | |||||
|
ITT Industries Canada LP
|
Canada | |||||
|
ITT Industries (China) Investment Company, Limited
|
China | |||||
|
ITT Industries German Asset Management GmbH
|
Germany | |||||
|
ITT Industries German Holding GmbH
|
Germany | |||||
|
ITT Industries GmbH
|
Germany | |||||
|
ITT Industries Holding SARL
|
Luxembourg | |||||
|
ITT Industries Limited
|
United Kingdom | |||||
|
ITT Industries Luxembourg SARL
|
Luxembourg | |||||
|
ITT Industries Management GmbH
|
Germany | |||||
|
ITT Industries SARL
|
Luxembourg | |||||
|
ITT Industries UK Holdings Ltd.
|
United Kingdom | |||||
|
ITT International SARL
|
Luxembourg | |||||
|
ITT Manufacturing Enterprises, Inc.
|
Delaware | |||||
|
ITT Netherlands Holdings B.V
|
The Netherlands | |||||
|
ITT Power Holdings B.V
|
The Netherlands | |||||
|
ITT Remediation Management, Inc.
|
Delaware | |||||
|
ITT Resource Development Corporation
|
Delaware | |||||
|
ITT Transportation Distribution Services Division
|
N/A | |||||
|
Kentucky Carbon Corporation
|
West Virginia | |||||
|
Palm Coast, Inc.
|
Florida | |||||
|
Palm Coast Construction Company
|
Florida | |||||
|
Palm Coast Home Realty, Inc.
|
Florida | |||||
|
ITT Land Corporation
|
Florida | |||||
|
Palm Coast Engineering and Design Services, Inc.
|
Florida | |||||
|
Paul N. Howard Company
|
North Carolina | |||||
|
Sunsport Recreation, Inc.
|
Florida | |||||
|
Winifrede Railroad Corporation
|
West Virginia | |||||
|
4202988 Canada Ltd.
|
Canada | |||||
| Note: | The names of certain subsidiaries have been omitted since, considered in the aggregate, they would not constitute a “significant subsidiary” as of the end of the year covered by this report. |
EXHIBIT 23.1
CONSENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the
incorporation by reference in Post-Effective Amendment
No. 1 to Registration Statement No. 033-45756 on
Form S-3, Post-Effective Amendment No. 7 to
Registration Statement
No. 033-06004
on Form S-8, Post-Effective Amendment No. 1 to
Registration Statement
No. 033-53771
on
Form S-8,
and Registration Statement
Nos. 333-01109,
333-04611,
333-64161,
333-84917,
333-41806,
333-41808,
333-87814,
333-105203,
and
333-150934
on
Form S-8
of our reports dated February 25, 2009 relating to the
consolidated financial statements of ITT Corporation and
subsidiaries (the “Company”) (which report
expresses an unqualified opinion and includes explanatory
paragraphs relating to the Company’s adoption of new
accounting standards) and the effectiveness of the
Company’s internal control over financial reporting,
appearing in this Annual Report on
Form 10-K
of ITT Corporation for the year ended December 31, 2008.
/s/ Deloitte
&
Touche
New York, New York
February 25, 2009
EXHIBIT 31.1
CERTIFICATION OF
STEVEN R. LORANGER PURSUANT TO SEC. 302
OF THE
SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Steven R.
Loranger, certify that:
1. I have
reviewed this annual report on
Form 10-K
for the year ended December 31, 2008 of ITT Corporation;
2. Based on my
knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my
knowledge, the financial statements, and other financial
information included in this report, fairly present in all
material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The
registrant’s other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act
rules 13a-15(f)
and
15d-15(f))
for the registrant and have:
a) Designed
such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed
such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated
the effectiveness of the registrant’s disclosure controls
and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
d) Disclosed in
this report any change in the registrant’s internal control
over financial reporting that occurred during the
registrant’s fourth fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial
reporting; and
5. The
registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All
significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial
information; and
b) Any fraud,
whether or not material, that involves management or other
employees who have a significant role in the registrant’s
internal control over financial reporting.
/s/ STEVEN
R.
LORANGER
Steven R. Loranger
Chairman, President
and Chief
Executive Officer
Date:
February 25, 2009
EXHIBIT 31.2
CERTIFICATION OF
DENISE L. RAMOS PURSUANT TO SEC. 302
OF THE
SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Denise L. Ramos,
certify that:
1. I have
reviewed this annual report on
Form 10-K
for the year ended December 31, 2008 of ITT Corporation;
2. Based on my
knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my
knowledge, the financial statements, and other financial
information included in this report, fairly present in all
material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The
registrant’s other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act
rules 13a-15(f)
and
15d-15(f))
for the registrant and have:
a) Designed
such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed
such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated
the effectiveness of the registrant’s disclosure controls
and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
d) Disclosed in
this report any change in the registrant’s internal control
over financial reporting that occurred during the
registrant’s fourth fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial
reporting; and
5. The
registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All
significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial
information; and
b) Any fraud,
whether or not material, that involves management or other
employees who have a significant role in the registrant’s
internal control over financial reporting.
/s/ DENISE
L.
RAMOS
Denise L. Ramos
Senior Vice
President and
Chief Financial
Officer
Date:
February 25, 2009
EXHIBIT 32.1
CERTIFICATION
PURSUANT TO
18 U.S.C.
SECTION 1350,
AS ADOPTED
PURSUANT TO
SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with
the Annual Report of ITT Corporation (the “Company”)
on
Form 10-K
for the period ended December 31, 2008 as filed with the
Securities and Exchange Commission on the date hereof (the
“Report”), I, Steven R. Loranger, Chairman,
President and Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report
fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
/s/ STEVEN
R.
LORANGER
Steven R. Loranger
Chairman, President
and
Chief Executive
Officer
February 25,
2009
A signed original of
this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff
upon request.
EXHIBIT 32.2
CERTIFICATION
PURSUANT TO
18 U.S.C.
SECTION 1350,
AS ADOPTED
PURSUANT TO
SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with
the Annual Report of ITT Corporation (the “Company”)
on
Form 10-K
for the period ended December 31, 2008 as filed with the
Securities and Exchange Commission on the date hereof (the
“Report”), I, Denise L. Ramos, Senior Vice
President and Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report
fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
/s/ DENISE
L.
RAMOS
Denise L. Ramos
Senior Vice
President and
Chief Financial
Officer
February 25,
2009
A signed original of
this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff
upon request.