As filed with the Securities and Exchange Commission on July 11, 2011
 
File No. 001-     
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10
 
     
GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
ITT WCO, Inc.
(Exact name of registrant as specified in its charter)
 
 
     
Indiana
  45-2080495
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
1133 Westchester Avenue, Suite 2000
White Plains, New York
(Address of Principal Executive Offices)
  10604
(Zip Code)
 
 
Registrant’s telephone number, including area code:
(914) 304-1700
 
Securities to be registered pursuant to Section 12(b) of the Act:
 
     
    Name of Each Exchange on Which
Title of Each Class to be so Registered
 
Each Class is to be Registered
Common stock, par value $0.01 per share
  New York Stock Exchange
 
 
Securities to be registered pursuant to Section 12(g) of the Act:
None.
 
 
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 Securities Exchange Act of 1934, as amended. (Check one):
 
Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o
(Do not check if a smaller reporting company)
 


 

INFORMATION REQUIRED IN REGISTRATION STATEMENT
 
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10
 
Item 1.   Business
 
The information required by this item is contained under the sections “Summary,” “Risk Factors,” “Special Note About Forward-Looking Statements,” “Unaudited Pro Forma Condensed Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” “Management,” “Executive Compensation” and “Certain Relationships and Related Party Transactions” of the Information Statement filed as Exhibit 99.1 to this Registration Statement on Form 10 (the “Information Statement”). Those sections are incorporated herein by reference.
 
Item 1A.   Risk Factors
 
The information required by this item is contained under the section “Risk Factors” of the Information Statement. That section is incorporated herein by reference.
 
Item 2.   Financial Information
 
The information required by this item is contained under the sections “Summary — Summary Historical and Unaudited Pro Forma Condensed Combined Financial Data,” “Capitalization,” “Selected Historical Condensed Combined Financial and Other Data,” “Unaudited Pro Forma Condensed Combined Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Information Statement. Those sections are incorporated herein by reference.
 
Item 3.   Properties
 
The information required by this item is contained under the section “Business — Properties” of the Information Statement. That section is incorporated herein by reference.
 
Item 4.   Security Ownership of Certain Beneficial Owners and Management
 
The information required by this item is contained under the section “Security Ownership of Certain Beneficial Owners and Management” of the Information Statement. That section is incorporated herein by reference.
 
Item 5.   Directors and Executive Officers
 
The information required by this item is contained under the section “Management” of the Information Statement. That section is incorporated herein by reference.
 
Item 6.   Executive Compensation
 
The information required by this item is contained under the sections “Management” and “Executive Compensation” of the Information Statement. Those sections are incorporated herein by reference.
 
Item 7.   Certain Relationships and Related Transactions, and Director Independence
 
The information required by this item is contained under the sections “Management,” “Executive Compensation” and “Certain Relationships and Related Party Transactions” of the Information Statement. Those sections are incorporated herein by reference.
 
Item 8.   Legal Proceedings
 
The information required by this item is contained under the section “Business — Legal Proceedings” of the Information Statement. That section is incorporated herein by reference.


 

Item 9.   Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters
 
The information required by this item is contained under the sections “Risk Factors,” “The Spin-Off,” “Dividend Policy,” “Executive Compensation” and “Description of Capital Stock” of the Information Statement. Those sections are incorporated herein by reference.
 
Item 10.   Recent Sales of Unregistered Securities
 
Not applicable.
 
Item 11.   Description of Registrant’s Securities to be Registered
 
The information required by this item is contained under the sections “Risk Factors — Risks Relating to Our Common Stock,” “Dividend Policy” and “Description of Capital Stock” of the Information Statement. Those sections are incorporated herein by reference.
 
Item 12.   Indemnification of Directors and Officers
 
The information required by this item is contained under the sections “Certain Relationships and Related Party Transactions — Agreements with ITT and DCO Related to the Spin-Off — Distribution Agreement — Indemnification” and “Description of Capital Stock — Provisions of Our Amended and Restated Articles of Incorporation and Amended and Restated By-Laws That Could Delay or Prevent a Change in Control — Directors’ Duties and Liability” of the Information Statement. Those sections are incorporated herein by reference.
 
Item 13.   Financial Statements and Supplementary Data
 
The information required by this item is contained under the sections “Description of Capital Stock,” “Selected Historical Condensed Combined Financial and Other Data,” “Unaudited Pro Forma Condensed Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Index to Financial Statements” and the statements referenced therein of the Information Statement. Those sections are incorporated herein by reference.
 
Item 14.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
None.
 
Item 15.   Financial Statements and Exhibits
 
(a)   Financial Statements
 
The information required by this item is contained under the section “Index to Financial Statements” beginning on page F-1 of the Information Statement. That section is incorporated herein by reference.


 

(b)   Exhibits
 
The following documents are filed as exhibits hereto:
 
         
Exhibit No.
 
Description
 
  2 .1   Form of Distribution Agreement among ITT Corporation, ITT DCO, Inc. and ITT WCO, Inc.*
  3 .1   Form of Amended and Restated Articles of Incorporation of ITT WCO, Inc.*
  3 .2   Form of Amended and Restated By-Laws of ITT WCO, Inc.*
  10 .1   Form of Employee Matters Agreement among ITT Corporation, ITT DCO, Inc. and ITT WCO, Inc.*
  10 .2   Form of Tax Matters Agreement among ITT Corporation, ITT DCO, Inc. and ITT WCO, Inc.*
  10 .3   Form of Transition Services Agreement among ITT Corporation, ITT DCO, Inc. and ITT WCO, Inc.*
  10 .4   Form of Master Real Estate Lease between ITT Corporation and ITT WCO, Inc.*
  10 .5   Form of ITT Transitional Trademark License Agreement between ITT Corporation and ITT WCO, Inc.*
  10 .6   Form of Technology License Agreement among ITT Corporation, ITT DCO, Inc. and ITT WCO, Inc.*
  10 .7   Form of GOULDS Trademark License Agreement between ITT Corporation and ITT WCO, Inc.*
  21 .1   Subsidiaries of ITT WCO, Inc.*
  99 .1   Information Statement, dated July 11, 2011.
 
 
* To be filed by amendment.


 

SIGNATURES
 
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
 
ITT WCO, Inc.
 
  By: 
/s/  Gretchen W. McClain
Chief Executive Officer
 
Date: July 11, 2011

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Exhibit 99.1
(ITT LOGO)
 
 
          , 2011
 
Dear ITT Corporation Shareholder:
 
I am pleased to inform you that on January 11, 2011, the Board of Directors of ITT Corporation (“ITT”) approved a plan to separate ITT into three independent, publicly traded companies. Under the plan, ITT would execute tax-free spin-offs of its water-related businesses, ITT WCO, Inc. (“WCO”), and its Defense and Information Solutions business, ITT DCO, Inc. (“DCO”). Following completion of the transaction, ITT will continue to trade on the New York Stock Exchange as a highly engineered industrial products company that supplies solutions in the aerospace, transportation and energy markets. Immediately following the completion of the spin-offs, ITT shareholders will own all of the outstanding shares of common stock of WCO and DCO. We believe that this separation is in the best interest of our company and its constituents, as these three businesses are well-positioned to create significant value for shareholders as standalone companies.
 
ITT has a long history of knowing when the time is right to take transformational steps to create more value for our shareholders. We did this in 1995, and we are doing it again. We are taking the actions necessary to turn one powerful multi-industrial into three strong standalone businesses — each with a mandate to grow and each with the ability and the resources to make that happen. I am confident that each of these businesses will leave the gate with all it needs to succeed — first and foremost, talented leadership teams who know what it takes to excel; second, an employee base that always puts our customers first, and that takes a proud tradition of engineering excellence and innovation very seriously; and third, a will to win in the marketplace that is second to none. I am confident in the CEOs we have chosen to take us forward. They are all seasoned ITT executives. They are all ready, willing and able. They are all motivated by our history and have a keen focus on the future. They are ready to launch these companies, and they are ready to take them to the next level.
 
The spin-offs will be completed by way of a pro rata distribution of WCO and DCO common stock to our shareholders of record as of 5:00 p.m., New York time, on          , 2011, the spin-off record date. Each ITT shareholder will receive           shares of WCO common stock, and           shares of DCO common stock, for each share of ITT common stock held by such shareholder on the record date. The distribution of these shares will be made in book-entry form, which means that no physical share certificates will be issued. Following the spin-offs, shareholders may request that their shares of WCO and DCO common stock be transferred to a brokerage or other account at any time.
 
The spin-off is subject to certain customary conditions. Shareholder approval of the distribution is not required, nor are you required to take any action to receive your shares of WCO and DCO common stock.
 
Immediately following the spin-offs, you will own common stock in ITT, WCO and DCO. ITT’s common stock will continue to trade on the New York Stock Exchange under the symbol “ITT.” Both WCO and DCO intend to have their common stock listed on the New York Stock Exchange under the symbols “          ” and “          ”, respectively.
 
We expect the spin-offs to be tax-free to the shareholders of ITT. The spin-offs are conditioned on, among other things, the receipt of a ruling from the Internal Revenue Service and an opinion of counsel confirming that the spin-offs will not result in the recognition, for U.S. Federal income tax purposes, of income, gain or loss to ITT or its shareholders.
 
The enclosed Information Statements, which are being mailed to all ITT shareholders, describe the spin-offs in great detail and contain important information about WCO and DCO, including historical combined financial statements. We urge you to read the Information Statements carefully.


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I want to thank you for your continued support of ITT. We look forward to your support of all three companies in the future. We aim to continue earning your trust by delivering excellent results that will propel our companies — and your investment — into a very bright future.
 
Yours sincerely,
 
Steven R. Loranger
Chairman, President and Chief Executive Officer
ITT Corporation


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[WCO Logo]
 
ITT WCO, Inc.
 
          , 2011
 
Dear ITT WCO, Inc. Shareholder:
 
It is our pleasure to welcome you as a shareholder of our company, ITT WCO, Inc., a world leader in the design, manufacturing, and application of highly engineered technologies for the water industry.
 
As an independent, publicly traded company, we will have the flexibility and focus to pursue growth opportunities within our industry, and thus bring more value to you as a shareholder, than we could as an important business within ITT Corporation.
 
We expect to have WCO common stock listed on the New York Stock Exchange under the symbol “     ” in connection with the distribution of WCO common stock by ITT.
 
Our teams across the globe are excited about the launch of our new business. We never forget the importance of what we do. Water is our business. And water is essential to life. We are meeting the most critical water challenges by engineering the broadest portfolio of products and applications to create efficient systems and sustainable solutions. We are energized by the breadth of our product line and about our singular ability to transport, treat and test water. We care about our customers, our constituencies and our communities. And we want to make a difference.
 
We invite you to learn more about WCO by reviewing the enclosed Information Statement. We look forward to our future as an independent, publicly traded company and to your support as a holder of WCO common stock.
 
Very truly yours,
 
Gretchen W. McClain
Chief Executive Officer
ITT WCO, Inc.


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Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.
 
SUBJECT TO COMPLETION, DATED JULY 11, 2011
 
INFORMATION STATEMENT
 
ITT WCO, INC.
 
1133 Westchester Avenue
White Plains, New York 10604
 
Common Stock
(par value $0.01 per share)
 
This Information Statement is being sent to you in connection with the separation of ITT WCO, Inc. (“WCO”) from ITT Corporation (“ITT”), following which WCO will be an independent, publicly traded company. As part of the separation, ITT will undergo an internal reorganization, after which it will complete the separation by distributing all of the shares of WCO common stock on a pro rata basis to the holders of ITT common stock. We refer to this pro rata distribution as the “distribution” and we refer to the separation, including the internal reorganization and distribution, as the “spin-off.” We expect that the spin-off will be tax-free to ITT shareholders for U.S. Federal income tax purposes. Each share of ITT common stock outstanding as of 5:00 p.m., New York time, on          , 2011, the record date for the distribution, will entitle the holder thereof to receive           shares of WCO common stock. The distribution of shares will be made in book-entry form. The distribution will be effective as of 8:00 a.m., New York time, on          , 2011. Immediately after the distribution becomes effective, we will be an independent, publicly traded company.
 
No vote or other action of ITT shareholders is required in connection with the spin-off. We are not asking you for a proxy and you should not send us a proxy. ITT shareholders will not be required to pay any consideration for the shares of WCO common stock they receive in the spin-off, and they will not be required to surrender or exchange shares of their ITT common stock or take any other action in connection with the spin-off. Concurrently with the WCO spin-off, ITT will spin-off its Defense and Information Solutions business into a separate independent, publicly traded company to be called ITT DCO, Inc. (“DCO”). You are invited to also read the detailed information about DCO in the accompanying Information Statement for DCO.
 
All of the outstanding shares of WCO common stock are currently owned by ITT. Accordingly, there is no current trading market for WCO common stock. We expect, however, that a limited trading market for WCO common stock, commonly known as a “when-issued” trading market, will develop at least two trading days prior to the record date for the distribution, and we expect “regular-way” trading of WCO common stock will begin the first trading day after the distribution date. We intend to list WCO common stock on the New York Stock Exchange under the ticker symbol “     ”.
 
In reviewing this Information Statement, you should carefully consider the matters described in “Risk Factors” beginning on page 17 of this Information Statement.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this Information Statement is truthful or complete. Any representation to the contrary is a criminal offense.
 
This Information Statement is not an offer to sell, or a solicitation of an offer to buy, any securities.
 
This Information Statement was first mailed to ITT shareholders on or about          , 2011.
 
The date of this Information Statement is          , 2011.


 

 
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SUMMARY
 
This summary highlights information contained in this Information Statement and provides an overview of our company, our separation from ITT and the distribution of WCO common stock by ITT to its shareholders. For a more complete understanding of our business and the spin-off, you should read the entire Information Statement carefully, particularly the discussion set forth under “Risk Factors” and our audited historical combined financial statements, our unaudited interim historical condensed combined financial statements, our unaudited pro forma condensed combined financial statements and the respective notes to those statements appearing in this Information Statement.
 
Except as otherwise indicated or unless the context otherwise requires, “WCO,” “we,” “us” and “our” refer to ITT WCO, Inc. and its subsidiaries after giving effect to the internal reorganization preceding the distribution described in this Information Statement. Except as otherwise indicated or unless the context otherwise requires, the information included in this Information Statement assumes the completion of the internal reorganization preceding the distribution.
 
Unless otherwise indicated, references in this Information Statement to fiscal years are to WCO’s fiscal years ended December 31. WCO’s quarterly financial periods end on the Saturday closest to the last day of the calendar quarter, except for the last quarterly period of the fiscal year, which ends on December 31st. For ease of presentation, the quarterly financial statements included herein are described as ending on the last day of the calendar quarter.
 
Our Company
 
Our Company is a world leader in the design, manufacturing, and application of highly engineered technologies for the water industry. We are a leading equipment and service provider for water and wastewater applications with a broad portfolio of products and services addressing the full cycle of water, from collection, distribution and use to the return of water to the environment. Our Company’s brands, such as Bell & Gossett and Flygt, are well known throughout the industry and have served the water market for many years. Over the years, we have leveraged our heritage strength in wastewater pumping technologies to expand into wastewater treatment, and later into clean water treatment and water quality analysis. We believe we are strongly positioned to use our deep applications expertise and offer our customers a full spectrum of service offerings in the transportation, treatment and testing of water. Net sales and operating income for the twelve months ended December 31, 2010 were $3.2 billion and $388 million, respectively, and for the three months ended March 31, 2011 were $890 million and $100 million, respectively.
 
We operate in two segments, Water Infrastructure and Applied Water. The Water Infrastructure segment focuses on the transportation, treatment and testing of water, offering a range of products including water and wastewater pumps, treatment and testing equipment, and controls and systems. Key brands include Flygt, Wedeco, Godwin Pumps, WTW, Sanitaire, AADI and Leopold. The Applied Water segment encompasses all the uses of water and focuses on the residential, commercial, industrial and agricultural markets. The segment’s major products include pumps, valves, heat exchangers, controls and dispensing equipment. Key brands in this segment include Goulds, Bell & Gossett, AC Fire, Standard, Flojet, Lowara, Jabsco and Flowtronex. In both our segments, we benefit from a large and growing installed base of products driving growth in aftermarket sales for replacement parts and services.
 
Our global manufacturing footprint enables us to optimize sourcing, lower production costs and localize products. We serve a global customer base across diverse end markets while offering localized expertise. We sell our products in more than 140 countries through a balanced distribution network consisting of our direct sales force and independent channel partners. In 2010, approximately 65% of our revenues were generated outside the United States.
 
We believe our company’s operational structure and strategy will drive sustained, profitable growth in the markets we serve. We have a seasoned management team that has demonstrated its ability to strategically grow a global engineering and manufacturing enterprise while expanding positions throughout the global water


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industry. We believe our businesses are well positioned to continue to grow by enhancing our product and application offerings and expanding our customer base in each of our strategic markets.
 
Our Competitive Strengths
 
Our leading positions in the markets we serve result from the following competitive strengths:
 
Leading Brands in a Diversified Product Portfolio
 
We are among the world’s largest water equipment and services companies and have global leading product positions in core applications across the water cycle, from the manufacturing of submersible pumps under our Flygt brand to the key products used in plumbing and water-based heating and air conditioning markets manufactured through our Bell & Gossett brand. Although other equipment and services companies are diversified, in that they serve markets outside of water as well, we are one of the largest water companies in the industry that is exclusively focused on water equipment and services. In addition, we have capabilities in transport, treatment and testing of water and have consistently demonstrated the ability to develop new offerings that anticipate the manufacturing, installation and servicing needs of our customers, such as the innovative water collection and distribution systems that used Goulds pumps and a Bell & Gossett pumping package to conserve clean water at the 2010 Vancouver Olympics, and the Lowara water booster sets used to even water supply pressure in the world’s tallest building, “Burj Dubai,” in the United Arab Emirates. Our brands, such as Flygt, Bell & Gossett, Wedeco, Sanitaire, Lowara, Godwin Pumps, Goulds, WTW and Jabsco, among others, have been in existence in some cases for as many as 150 years and are globally recognized as leading brands for quality in the markets they serve.
 
Culture of Innovation and Strong Application Expertise
 
Our business invented the first submersible sewage pump, and we remain the world’s largest manufacturer of submersible wastewater pumps. We have built upon this deep legacy and expertise by developing new, more efficient designs and more advanced application solutions. In 1999, we led the industry in wastewater pumps with the launch of the Flygt N-pump, guaranteeing at least a 25% improvement in energy consumption compared to any installed, non-Flygt system. In recent years, we designed a standardized range of lift stations, called The Optimal Pumping (TOP) Station, to quickly and simply install full lift stations, rather than design, order, and assemble all the components needed at various pipeline locations. The TOP Station is now a staple of our product line. In 2009, we launched the next generation N-pump, called the Adaptive N-pump, which eliminates virtually all forms of clogging, and therefore improves maintenance and efficiency costs, even under the most difficult conditions. Similarly, we also launched the next generation vertical multi-stage pump in 2011, called eSV, which brings benefits in energy efficiency and maintenance costs to water boosting in multiple end uses. This innovation around new technology and application solutions is an expertise we deploy across all product lines and brands, and we continuously seek to improve our products and invest in the development of new, differentiated technologies to best fit our customers’ needs.
 
Large Installed Base Driving Strong Aftermarket Revenues
 
By virtue of our global scale and tenure, we have one of the largest installed bases in the water equipment market. This provides us with a highly profitable and recurring revenue stream from the sale of parts, repair services, and end of lifecycle product replacements. During their lifecycle, installed products require maintenance, repair services and parts due to the harsh environments in which they operate. In 2010, 16% of our total revenue was derived from sales of repair parts and services. In addition, depending on the type of product, median lifecycles range from 5 years to over 50 years, at which time the products must be replaced. Many of our products are precisely selected and applied within a larger network of equipment, driving a strong preference by customers and installers to replace them with the same exact brand and model when they reach the end of their lifecycle. This dynamic establishes a large recurring revenue stream for our business.


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Diverse Customer Base and Established International Distribution Channels
 
Our customer base spans numerous industries and regions, with no single customer representing more than 2% of our revenue and approximately 65% of our 2010 revenues derived from operations outside of the United States, including 18% from emerging market countries. We sell our products through a balanced distribution network, with more than 1,800 direct sales employees and more than 2,700 independent distributors in more than 140 countries. Our global reach within the highly fragmented global water industry allows us to align our sales strategy to meet the needs of our customers in specific end markets, as we are better able to optimize sourcing, lower our production costs, and enable product localization and application expertise. In our Water Infrastructure segment, we maintain close customer relationships through our direct sales force, allowing us to quickly respond to a dynamic and highly regulated environment in which some of our customers operate, including public utility and industrial clients. In our Applied Water segment, we use distributors from our global independent distribution network, several of whom are exclusive distributors, to sell our products.
 
Proven Operating Performance
 
Our strong profit margins, combined with our disciplined approach to investing and managing our capital and our focus on higher-margin business opportunities, enable us to generate strong and recurring cash flow. Following our 2008 restructuring, implemented prior to the recent economic downturn, we positioned the cost structure of our company to realize strong margin improvements driven by robust sales growth. For instance, in 2010, our operating margin increased 240 basis points to 12.1% as compared to the prior year. We focus on productivity and efficiency within our manufacturing facilities by driving operational efficiencies through the application of Lean Six Sigma and other continuous improvement programs.
 
Experienced Management Team
 
Our senior management team is highly regarded in the water equipment and services industry and has significant experience in leadership roles. Collectively, the top nine senior executives have an average of 20 years of experience in managing large global industrial businesses. They have a successful track record of enabling our company to recognize and capitalize upon attractive opportunities in the key markets we serve, and our executive management teams have a strong record of winning new business, reducing costs, improving working capital and executing operating efficiencies.
 
Our Growth Strategy
 
Our strategy is focused on enhancing shareholder value by providing solutions for our customers, and by growing revenues, both organically and through strategic acquisitions. Key elements of our strategy are summarized below:
 
Grow Our Product Offerings and Solutions through Portfolio Differentiation
 
We will continue to extend leading market positions where we have a strong competitive position, cost leadership and proven technology. In addition, we will invest in the differentiation of our core product lines to build on our strong product and application expertise. We also plan to expand into adjacent and complementary technologies as demonstrated by the recent acquisitions of analytical instrumentation and dewatering solutions businesses.
 
Focus on Organic Growth Initiatives
 
We have launched a global commercial excellence initiative, deploying people, processes and tools to make our sales and marketing teams more effective and efficient. We have trained over 500 front-line sales agents under this initiative and have 30 dedicated commercial excellence leaders to service our most profitable accounts. In addition, we have launched digital selling tools, which improve our value propositions, and have built a strategic accounts program to focus on our most important customers. These efforts have already


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improved the revenues generated per sales agent across our businesses. We will continue to make investments in customer relationship management, mobile technologies, customer applications and other technologies that improve our knowledge of customers and the critical activities that drive growth.
 
Investing in New Technology and Innovation
 
We will continue to make targeted investments in research and development activities to develop breakthrough products and solutions. We will pursue and execute a robust pipeline of opportunities in core and emerging markets. We have established a wastewater Center of Excellence, in Stockholm, Sweden, with over 100 research, development and engineering employees. We have launched engineering Centers of Excellence in India and China, where we are accelerating the customization of our application expertise to local needs. Our engineers will continue to work closely with our customers in an effort to identify new applications for our products and develop new technologies and solutions to expand our current portfolio further.
 
Build on Our Presence in Fast-Growing Emerging Markets
 
Urbanization trends and growth in the middle class in developing countries are generating significant demand for water applications. We intend to continue to capture this growth by further expanding into emerging markets, such as China, India and Brazil, increasing our existing presence of over 40 facilities. We plan to leverage our strong global reach, manufacturing footprint and extensive distribution network to capitalize on growth opportunities in these regions. We will continue to establish and reinforce local capabilities by growing our local presence in these markets with investments in sales, marketing and manufacturing capabilities globally.
 
Growth through Disciplined Acquisitions
 
Acquisitions are an important part of our growth strategy. Certain segments of the global water industry we serve are highly fragmented, providing numerous acquisition opportunities. We have successfully completed and integrated 20 acquisitions over the past five years, including Godwin Pumps, Nova Analytics, and OI Corporation, and we will selectively pursue highly targeted acquisitions that will broaden our core product portfolio, expand our geographic footprint and enhance our position in strategic markets.
 
Recent Developments
 
On July 5, 2011, we entered into a definitive agreement to acquire YSI Incorporated (“YSI”) for an aggregate purchase price of $310 million. YSI is a leading developer and manufacturer of sensors, instruments, software, and data collection platforms for environmental water monitoring. YSI reported 2010 global revenues of $101 million and employs 390 people at several facilities in the United States, Europe and Asia. We expect to raise $310 million of indebtedness in connection with the acquisition. The transaction is expected to close in the third quarter of 2011, pending customary closing conditions and approval of YSI’s shareholders.
 
Other Information
 
ITT WCO, Inc. was incorporated in Indiana on May 4, 2011. Our principal executive offices are located at 1133 Westchester Avenue, White Plains, New York 10604. Our telephone number is (914) 304-1700.
 
The Spin-Off
 
Overview
 
On January 11, 2011, the Board of Directors of ITT Corporation (“ITT”) approved a plan to spin-off WCO and DCO from ITT, following which WCO and DCO will be independent, publicly traded companies.
 
Before our spin-off from ITT, we will enter into a Distribution Agreement and several other agreements with ITT and DCO related to the spin-off. These agreements will govern the relationship between and among


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us, ITT and DCO after completion of the spin-off and provide for the allocation between us and ITT and DCO of various assets, liabilities, rights and obligations (including employee benefits, intellectual property, information technology, insurance and tax-related assets and liabilities). These agreements will also govern WCO’s relationship with ITT and DCO following the spin-off and will provide arrangements for employee matters, tax matters, intellectual property matters, insurance matters and other specified liabilities, rights and obligations attributable to periods before and, in some cases, after the spin-off. These agreements will also include arrangements with respect to transitional services to be provided by any of ITT, WCO or DCO to any other of them. See “Certain Relationships and Related Party Transactions — Agreements with ITT and DCO Related to the Spin-Off.” Additionally, at or before the spin-off, we will raise indebtedness in an amount estimated at $1,200 million, which includes indebtedness to be raised in connection with the YSI acquisition.
 
The distribution of WCO common stock as described in this Information Statement is subject to the satisfaction or waiver of certain conditions. In addition, ITT has the right not to complete the spin-off if, at any time prior to the distribution, the Board of Directors of ITT determines, in its sole discretion, that the spin-off is not in the best interests of ITT or its shareholders or other constituents, that a sale or other alternative is in the best interests of ITT or its shareholders or other constituents, or that it is not advisable at that time for WCO to separate from ITT. See “The Spin-Off — Conditions to the Spin-Off.”
 
Questions and Answers About the Spin-Off
 
The following provides only a summary of the terms of the spin-off. For a more detailed description of the matters described below, see “The Spin-Off.”
 
Q: What is the spin-off?
 
A: The spin-off is the series of transactions by which WCO will separate from ITT. To complete the spin-off, ITT will distribute to its shareholders all of the shares of WCO common stock. We refer to this as the distribution. Following the spin-off, WCO will be a separate company from ITT, and ITT will not retain any ownership interest in WCO.
 
Q: What will I receive in the spin-off?
 
A: As a holder of ITT stock, you will retain your ITT shares and will receive           shares of WCO common stock for each share of ITT common stock you own as of the record date. You will also receive           shares of common stock of ITT DCO, Inc. in connection with the concurrent spin-off of that company. Your proportionate interest in ITT will not change as a result of the spin-off. See “The Spin-Off.”
 
Q: What is WCO?
 
A: WCO is a world leader in the design, manufacturing, and application of highly engineered technologies for the water industry. WCO is currently a wholly owned subsidiary of ITT whose shares will be distributed to ITT shareholders if the spin-off is completed. After the spin-off is completed, WCO will be a public company.
 
Q: Why is the separation of WCO structured as a spin-off?
 
A: On January 11, 2011, the Board of Directors of ITT approved a plan to spin off its water-related businesses, which we refer to as ITT’s Water business, and its Defense and Information Solutions segment, which we refer to as ITT’s Defense business. ITT currently believes a spin-off is the most efficient way to accomplish a separation of the Water business for various reasons, including: (i) a spin-off would be a tax-free distribution of WCO common stock to shareholders; (ii) a spin-off offers a higher degree of certainty of completion in a timely manner, lessening disruption to current Water business operations; and (iii) a spin-off provides greater assurance that decisions regarding WCO’s capital structure support future financial stability. After consideration of strategic alternatives, including a sale, ITT believes that a tax-free spin-off will enhance the long-term value of both ITT and WCO. See “The Spin-Off — Reasons for the Spin-Off.”


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Q: Can ITT decide to cancel the distribution of the WCO common shares even if all the conditions have been met?
 
A: Yes. The distribution of WCO common stock is subject to the satisfaction or waiver of certain conditions. See “The Spin-Off — Conditions to the Spin-Off.” ITT has the right not to complete the spin-off if, at any time prior to the distribution, the Board of Directors of ITT determines, in its sole discretion, that the spin-off is not in the best interests of ITT or its shareholders or other constituents, that a sale or other alternative is in the best interests of ITT or its shareholders or other constituents, or that it is not advisable at that time for WCO to separate from ITT.
 
Q: What is being distributed in the spin-off?
 
A: Approximately           shares of WCO common stock will be distributed in the spin-off, based on the number of shares of ITT common stock expected to be outstanding as of          , 2011, the record date. The exact number of shares of WCO common stock to be distributed will be calculated on the record date, and assuming a distribution ratio of          . The shares of WCO common stock to be distributed by ITT will constitute all of the issued and outstanding shares of WCO common stock immediately prior to the distribution. For more information on the shares being distributed in the spin-off, see “Description of Capital Stock — Common Stock.”
 
Q: How will options and stock held by WCO employees be affected as a result of the spin-off?
 
A: At the time of the distribution, the exercise price of and number of shares subject to any outstanding option to purchase ITT stock, as well as the number of shares subject to any restricted stock right or other ITT equity award held by WCO’s current and former employees on the distribution date, will be adjusted to reflect the value of the distribution such that the intrinsic value of such awards at the time of separation is held constant. In addition, existing performance criteria applicable to such awards will be modified appropriately to reflect the spin-off.
 
Additionally, WCO’s current and former employees who hold accounts in the ITT 401(k) Plan on     , 2011 will have their accounts transferred to the WCO 401(k) Plan, as of          , 2011, including any shares of ITT common stock held in the ITT Stock Fund under the ITT 401(k) Plan. On the distribution date, shares of WCO common stock (as well as shares of DCO common stock), based on the distribution ratio for each share of ITT common stock held in such employee’s ITT stock fund account, will be included in a new WCO stock fund account under the WCO 401(k) Plan. However, in conformity with the fiduciary responsibility requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”), remaining shares of ITT common stock held in WCO’s employees’ ITT stock fund accounts following the distribution will be disposed of and allocated to another investment alternative available under the WCO 401(k) Plan if and when directed by participants, and any such shares remaining as of          , 2012 will be automatically disposed of and the proceeds invested in another such investment alternative (but this will not prohibit diversified, collectively managed investment alternatives available under the WCO 401(k) Plan from holding ITT common stock or prohibit employees who use self-directed accounts in the WCO 401(k) Plan from investing their accounts in ITT common stock).
 
In addition, current and former ITT employees who hold shares of ITT common stock in their ITT 401(k) Plan account as of the record date will receive shares of our common stock (as well as shares of DCO common stock) in the distribution. Our shares (as well as shares of DCO common stock) will be included in new, temporary stock funds under the ITT 401(k) Plan. In conformity with the fiduciary responsibility requirements of ERISA, remaining shares of our common stock (as well as shares of DCO common stock) held in these temporary stock funds following the distribution will be disposed of and allocated to another investment alternative available under the ITT 401(k) Plan when directed by participants, and any such shares remaining as of          , 2012 will be automatically disposed of and the proceeds invested in another such investment alternative (but this will not prohibit diversified, collectively managed investment alternatives available under the ITT 401(k) Plan from holding our common stock or prohibit employees who use self-directed accounts in the ITT 401(k) Plan from investing their accounts in our common stock).


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Q: When is the record date for the distribution?
 
A: The record date will be 5:00 p.m., New York time, on          , 2011.
 
Q: When will the distribution occur?
 
A: The distribution date of the spin-off is          , 2011. WCO expects that it will take the distribution agent, acting on behalf of ITT, up to two weeks after the distribution date to fully distribute the shares of WCO common stock to ITT shareholders. The ability to trade WCO shares will not be affected during that time.
 
Q: What do I have to do to participate in the spin-off?
 
A: Nothing. You are not required to take any action, although you are urged to read this entire document carefully. No shareholder approval of the distribution is required or sought. You are not being asked for a proxy. No action is required on your part to receive your shares of WCO common stock. You will neither be required to pay anything for the new shares nor be required to surrender any shares of ITT common stock to participate in the spin-off.
 
Q: What are ITT’s reasons for the spin-off?
 
A: ITT’s Board of Directors has determined that the spin-off is in the best interests of ITT and its shareholders and other constituents because the spin-off will provide the following key benefits:
 
• Greater Strategic Focus of Financial Resources and Management’s Efforts.  ITT’s Water business represents a discrete portion of ITT’s overall businesses. It has historically exhibited different financial and operating characteristics than ITT’s other businesses. The spin-off will allow us to better align management’s attention, compensation and resources to pursue opportunities in the water technology market and to manage our cost structure more actively.
 
• Enhanced Customer Focus.  Both ITT and we believe that, as a unified, commonly managed, stand-alone water technology business, our management will be able to focus solely on the needs of our own customers, without dilution arising from a connection to a larger parent with diverse goals and incentives.
 
• Direct and Differentiated Access to Capital Resources.  After the spin-off, we will no longer need to compete with ITT’s other businesses for capital resources. As a long-cycle global industrial business with strong global cash flow generation, our business has different financial and operating characteristics from ITT’s other businesses.
 
• Enhanced Investor Choices by Offering Investment Opportunities in Separate Entities.  After the spin-off, investors should be better able to evaluate our financial performance, as well as our strategy within the context of our markets, thereby enhancing the likelihood that we will achieve an appropriate market valuation.
 
• Improved Management Incentive Tools.  It is expected that we will use our equity to compensate current and future employees. In multi-business companies such as ITT, it is difficult to structure incentives that reward managers in a manner directly related to the performance of their respective business units. By granting equity linked to a specific business, equity compensation will be more in line with the financial results of the managers’ direct work product. In addition, reducing the conglomerate discount that currently impacts ITT stock may provide our business with a more attractive currency for equity-based compensation.
 
• Utilization of Stock as an Acquisition Currency.  Although we are not currently evaluating any acquisitions involving the use of our stock, the spin-off will enable us to use our stock as currency to pursue certain financial and strategic objectives, including tax-free merger transactions. In addition, future strategic transactions with similar businesses will be more easily facilitated through the use of our stand-alone stock as consideration.
 
Q: What are the U.S. Federal income tax consequences of the spin-off?
 
A: The spin-off is conditioned on the receipt by ITT of a ruling (“IRS Ruling”) from the Internal Revenue Service (“IRS”) and an opinion from its tax counsel that, for U.S. Federal income tax purposes, the distribution will be tax-free to ITT and ITT’s shareholders under Section 355 of the Internal Revenue Code of


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1986 (the “Code”). The tax consequences of the distribution are described in more detail under “The Spin-Off — U.S. Federal Income Tax Consequences of the Spin-Off.”
 
Q: Will the WCO common stock be listed on a stock exchange?
 
A: Yes. Although there is not currently a public market for WCO common stock, before completion of the spin-off, WCO will apply to list its common stock on the New York Stock Exchange (“NYSE”) under the symbol “          ”. It is anticipated that trading of WCO common stock will commence on a “when-issued” basis at least two trading days prior to the record date. When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. When-issued trades generally settle within four trading days after the distribution date. On the first trading day following the distribution date, any when-issued trading with respect to WCO common stock will end and “regular-way” trading will begin. “Regular-way” trading refers to trading after a security has been issued and typically involves a transaction that settles on the third full trading day following the date of the transaction. See “Trading Market.”
 
Q: Will my shares of ITT common stock continue to trade?
 
A: Yes. ITT common stock will continue to be listed and trade on the NYSE under the symbol “ITT.”
 
Q: If I sell, on or before the distribution date, shares of ITT common stock that I held on the record date, am I still entitled to receive shares of WCO common stock distributable with respect to the shares of ITT common stock I sold?
 
A: Beginning on or shortly before the record date and continuing through the distribution date for the spin-off, ITT’s common stock will begin to trade in two markets on the NYSE: a “regular-way” market and an “ex-distribution” market. If you hold shares of ITT common stock as of the record date for the distribution and choose to sell those shares in the regular-way market after the record date for the distribution and on or before the distribution date, you also will be selling the right to receive the shares of WCO common stock in connection with the spin-off. However, if you hold shares of ITT common stock as of the record date for the distribution and choose to sell those shares in the ex-distribution market after the record date for the distribution and on or before the distribution date, you will still receive the shares of WCO common stock in the spin-off.
 
Q: Will the spin-off affect the trading price of my ITT stock?
 
A: Yes, the trading price of shares of ITT common stock immediately following the distribution is expected to be lower than immediately prior to the distribution because its trading price will no longer reflect the value of the Water and Defense businesses. However, we cannot provide you with any guarantees as to the price at which the ITT shares will trade following the spin-off.
 
Q: What indebtedness will WCO have following the spin-off?
 
A: It is anticipated that, prior to the completion of the spin-off, WCO will raise indebtedness in an amount estimated at $1,200 million, which includes indebtedness to be raised in connection with the YSI acquisition.
 
Q: What is the Contribution?
 
A: As part of the internal reorganization, we will transfer $833 million to ITT (the “Contribution”). The Contribution is primarily intended to assist in the creation of appropriate capital structures for both ITT and us.
 
Q: What will be the relationship between ITT and WCO after the spin-off?
 
A: Following the spin-off, WCO will be an independent, publicly traded company and ITT will have no continuing stock ownership interest in WCO. WCO will have entered into a Distribution Agreement with ITT and DCO and will enter into several other agreements for the purpose of allocating between WCO, DCO and ITT various assets, liabilities, rights and obligations (including employee benefits, intellectual property, insurance and tax-related assets and liabilities). These agreements will also govern WCO’s relationship with ITT and DCO following the spin-off and will provide arrangements for employee matters, tax matters, intellectual property matters, insurance matters and other specified liabilities, rights and obligations attributable to periods before and, in some cases, after the spin-off. These agreements will also include


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arrangements with respect to transitional services to be provided by one or more of ITT, WCO or DCO to any other of them. The Distribution Agreement will provide, in general, that WCO will indemnify ITT and DCO, as the case may be, against any and all liabilities arising out of WCO’s business as constituted in connection with the spin-offs and any other liabilities and obligations assumed by WCO, and that ITT and DCO will indemnify WCO against any and all liabilities arising out of the businesses of ITT or DCO, as the case may be, as constituted in connection with the spin-offs and any other liabilities and obligations assumed by ITT or DCO, respectively.
 
Q: What will WCO’s dividend policy be after the spin-off?
 
A: Following the distribution, we expect that initially WCO will pay a dividend, although the timing, declaration, amount and payment of future dividends to our shareholders fall within the discretion of our Board of Directors and will depend on many factors, including our financial condition, results of operations and capital requirements, industry practice and other business considerations that WCO’s Board of Directors considers relevant from time to time. In addition, the terms of the agreements governing our new debt or debt that we may incur in the future may limit or prohibit the payments of dividends. See “Dividend Policy.”
 
Q: What are the anti-takeover effects of the spin-off?
 
A: Some provisions of the amended and restated articles of incorporation of WCO and the amended and restated by-laws of WCO, Indiana law and possibly the agreements governing WCO’s new debt, as each will be in effect immediately following the spin-off, may have the effect of making more difficult an acquisition of control of WCO in a transaction not approved by WCO’s Board of Directors. See “Description of Capital Stock — Provisions of Our Amended and Restated Articles of Incorporation and Amended and Restated By-Laws That Could Delay or Prevent a Change in Control.” In addition, under the Tax Matters Agreement, WCO will agree not to enter into any transaction for a period of two years following the distribution involving an acquisition (including issuance) of WCO common stock or any other transaction (or, to the extent WCO has the right to prohibit it, to permit any such transaction) that could cause the distribution to be taxable to ITT. WCO will also agree to indemnify ITT for any tax resulting from any such transaction. Generally, ITT will recognize a taxable gain on the distribution if there are one or more acquisitions (including issuances) of WCO capital stock representing 50% or more of WCO’s then-outstanding stock, measured by vote or value, and the acquisitions are deemed to be part of a plan or series of related transactions that include the distribution. Any such acquisition of WCO common stock within two years before or after the distribution (with exceptions, including public trading by less-than-5% shareholders and certain compensatory stock issuances) generally will be presumed to be part of such a plan unless that presumption is rebutted. As a result, WCO’s obligations may discourage, delay or prevent a change of control of WCO.
 
Q: What are the risks associated with the spin-off?
 
A: There are a number of risks associated with the spin-off and ownership of WCO common stock. These risks are discussed under “Risk Factors.”
 
Q: How will the spin-off affect WCO’s relationship with its customers?
 
A: We believe we have well-established relationships with our principal customers. We believe the spin-off will enable us to better focus on those customers and to align our resources with their priorities. As we seek to enter into new contracts with our customers, we expect to continue to provide information to enable them to have ongoing confidence in our management, our workforce and our ability to perform, including our financial stability.
 
Q: Where can I get more information?
 
A: If you have any questions relating to the mechanics of the distribution, you should contact the distribution agent, The Bank of New York Mellon, at:
 
ITT Corporation
c/o BNY Mellon Shareowner Services
P.O. Box 358015


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Pittsburgh, PA 15252-8015
Phone: 800 254 2823
 
Before the spin-off, if you have any questions relating to the spin-off, you should contact ITT at:
 
ITT Corporation
Investor Relations
Phone: +1 914 641 2030
Email: thomas.scalera@itt.com
www.itt.com
 
After the spin-off, if you have any questions relating to WCO, you should contact WCO at:
 
ITT WCO, Inc.
Investor Relations
Phone: +1 914 641 2093
Email: phil.desousa@itt.com


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Summary of the Spin-Off
 
Distributing Company ITT Corporation, an Indiana corporation. After the distribution, ITT will not own any shares of WCO common stock.
 
Distributed Company ITT WCO, Inc., an Indiana corporation and a wholly owned subsidiary of ITT. After the spin-off, WCO will be an independent, publicly traded company.
 
Distributed Securities All of the shares of WCO common stock owned by ITT, which will be 100% of WCO common stock issued and outstanding immediately prior to the distribution.
 
Record Date The record date for the distribution is 5:00 p.m., New York time, on          , 2011.
 
Distribution Date The distribution date is          , 2011.
 
Internal Reorganization As part of the spin-off, ITT will undergo an internal reorganization, which we refer to as the “internal reorganization,” that will, among other things and subject to limited exceptions:
 
• allocate and transfer to each of WCO and DCO and their respective subsidiaries, as applicable, those assets, and to allocate and assign responsibility for those liabilities, in respect of the activities of the applicable businesses of such entities; and
 
• allocate, transfer and assign, as applicable, those assets and liabilities in respect of other current and former businesses and activities of ITT and its current and former subsidiaries.
 
After completion of the spin-off:
 
• WCO will own and operate ITT’s water infrastructure and applied water businesses;
 
• DCO will own and operate ITT’s command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR) electronics and systems, and informational and technical services businesses; and
 
• ITT will own and operate its industrial process, motion technologies, interconnect solutions and control technologies businesses.
 
See “The Spin-Off — Manner of Effecting the Spin-Off — Internal Reorganization.”
 
Incurrence of Debt It is anticipated that, at or prior to completion of the spin-off, WCO will raise indebtedness in an amount estimated at $1,200 million, which includes indebtedness to be raised in connection with the YSI acquisition.
 
Distribution Ratio Each holder of ITT common stock will receive           shares of WCO common stock for each share of ITT common stock held on          , 2011.
 
The Distribution On the distribution date, ITT will release the shares of WCO common stock to the distribution agent to distribute to ITT shareholders. The distribution of shares will be made in book-entry form, which means that no physical share certificates will be issued. It is expected that it will take the distribution agent up to two weeks to


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issue shares of WCO common stock to you or to your bank or brokerage firm electronically on your behalf by way of direct registration in book-entry form. Trading of our shares will not be affected during that time. Following the spin-off, shareholders whose shares are held in book-entry form may request that their shares of WCO common stock be transferred to a brokerage or other account at any time. You will not be required to make any payment, surrender or exchange your shares of ITT common stock, or take any other action to receive your shares of WCO common stock.
 
Conditions to the Spin-Off Completion of the spin-off is subject to the satisfaction or waiver by ITT of the following conditions:
 
• our Registration Statement on Form 10, of which this Information Statement forms a part, shall have been declared effective by the Securities and Exchange Commission (the “SEC”), no stop order suspending the effectiveness thereof shall be in effect, no proceedings for such purpose shall be pending before or threatened by the SEC, and this Information Statement shall have been mailed to the ITT shareholders;
 
• WCO common stock shall have been approved for listing on the NYSE, subject to official notice of distribution;
 
• ITT shall have obtained an opinion from its tax counsel, in form and substance satisfactory to ITT, substantially to the effect that, among other things, the distribution, together with certain related transactions, will qualify as a reorganization under Sections 355 and 368(a)(1)(D) of the Code;
 
• ITT shall have obtained a private letter ruling from the Internal Revenue Service, in form and substance satisfactory to ITT, and such ruling shall remain in effect as of the distribution date, to the effect, among other things, that the distribution, together with certain related transactions, will qualify as a reorganization under Sections 355 and 368(a)(1)(D) of the Code;
 
• the Board of Directors of ITT shall have obtained opinions from a nationally recognized valuation firm, in form and substance satisfactory to ITT, with respect to the capital adequacy and solvency of each of ITT, DCO and WCO;
 
• ITT shall have obtained all government approvals and other consents necessary to consummate the distribution;
 
• no order, injunction or decree issued by any governmental entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of all or any portion of the distribution shall be pending, threatened, issued or in effect, and no other event outside the control of ITT shall have occurred or failed to occur that prevents the consummation of all or any portion of the distribution;
 
• no other events or developments shall have occurred or failed to occur that, in the judgment of the Board of Directors of ITT, would result in the distribution having a material adverse effect on ITT or its shareholders;


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• the financing transactions described in this Information Statement as having occurred prior to the distribution shall have been consummated on or prior to the distribution;
 
• the internal reorganization shall have been completed, except for such steps as ITT in its sole discretion shall have determined may be completed after the distribution date;
 
• ITT shall have taken all necessary action, in the judgment of the Board of Directors of ITT, to cause the Board of Directors of WCO to consist of the individuals identified in this Information Statement as directors of WCO;
 
• ITT shall have taken all necessary action, in the judgment of the Board of Directors of ITT, to cause the officers of WCO to be the individuals identified as such in this Information Statement;
 
• ITT shall have caused all its employees and any employees of its subsidiaries (excluding any employees of any of WCO and its subsidiaries after the internal reorganization (the “WCO Group”)) to resign, effective as of the distribution date, from all positions as officers or directors of any member of the WCO Group in which they serve, and WCO shall have caused all its employees and any employees of its subsidiaries to resign, effective as of the distribution date, from all positions as officers or directors of any of ITT, DCO or any of their respective subsidiaries after the internal reorganization, in which they serve;
 
• all necessary actions shall have been taken to adopt the form of amended and restated articles of incorporation and amended and restated by-laws filed by WCO with the SEC as exhibits to the Registration Statement on Form 10, of which this Information Statement forms a part;
 
• the Board of Directors of ITT shall have approved the distribution, which approval may be given or withheld at its absolute and sole discretion; and
 
• each of the Distribution Agreement, the Tax Matters Agreement, the Employee Matters Agreement, the Intellectual Property License Agreements, the Transition Services Agreements and the other ancillary agreements shall have been executed by each party.
 
Completion of the spin-off of DCO will be subject to similar conditions as those listed above. The fulfillment of the foregoing conditions will not create any obligation on ITT’s part to effect the spin-off. We are not aware of any material federal, foreign or state regulatory requirements that must be complied with or any material approvals that must be obtained, other than compliance with SEC rules and regulations, the receipt of a private letter ruling from the Internal Revenue Service, approval for listing on the NYSE and the declaration of effectiveness of the Registration Statement on Form 10 by the SEC, in connection with the distribution. ITT has the right not to complete the spin-off if, at any time prior to the distribution, the Board of Directors of ITT determines, in its sole discretion, that the spin-off is not then in the best interests of ITT or its shareholders or other constituents, that a sale or other


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alternative is in the best interests of ITT or its shareholders or other constituents, or that it is not advisable for WCO to separate from ITT at that time. For more information, see “The Spin-Off — Conditions to the Spin-Off.”
 
Trading Market and Symbol We intend to file an application to list WCO common stock on the NYSE under the ticker symbol “     ”. We anticipate that, at least two trading days prior to the record date, trading of shares of WCO common stock will begin on a “when-issued” basis and will continue up to and including the distribution date, and we expect “regular-way” trading of WCO common stock will begin the first trading day after the distribution date. We also anticipate that, at least two trading days prior to the record date, there will be two markets in ITT common stock: a regular-way market on which shares of ITT common stock will trade with an entitlement for the purchaser of ITT common stock to shares of WCO common stock to be distributed pursuant to the distribution, and an “ex-distribution” market on which shares of ITT common stock will trade without an entitlement for the purchaser of ITT common stock to shares of WCO common stock. For more information, see “Trading Market.”
 
Tax Consequences As a condition to the spin-off, ITT will receive an IRS Ruling and an opinion of counsel stating that ITT and ITT’s shareholders will not recognize any taxable income, gain or loss for U.S. Federal income tax purposes as a result of the spin-off. See “The Spin-Off — U.S. Federal Income Tax Consequences of the Spin-Off.”
 
Each shareholder is urged to consult his, her or its tax advisor as to the specific tax consequences of the spin-off to such shareholder, including the effect of any state, local or non-U.S. tax laws and of changes in applicable tax laws.
 
Relationship with ITT after the Spin-Off We will enter into a Distribution Agreement and other agreements with ITT and DCO related to the spin-off. These agreements will govern the relationship between us, DCO and ITT after completion of the spin-off and provide for the allocation between us, DCO and ITT of various assets, liabilities, rights and obligations (including employee benefits, intellectual property, insurance and tax-related assets and liabilities). The Distribution Agreement will provide for the allocation of assets and liabilities among ITT, DCO and WCO and will establish the rights and obligations between and among the parties following the distribution. We intend to enter into one or more Transition Services Agreements with ITT and DCO pursuant to which certain services will be provided on an interim basis following the distribution. We also intend to enter into an Employee Matters Agreement that will set forth the agreements between us, DCO and ITT concerning certain employee compensation and benefit matters. Further, we intend to enter into a Tax Matters Agreement with DCO and ITT regarding the sharing of taxes incurred before and after completion of the spin-off, certain indemnification rights with respect to tax matters and certain restrictions to preserve the tax-free status of the spin-off. In addition, to facilitate the ongoing use of various intellectual property,


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we intend to enter into a Technology License Agreement that will provide for certain reciprocal licensing arrangements with ITT and DCO and certain trademark license agreements with ITT. We describe these arrangements in greater detail under “Certain Relationships and Related Party Transactions — Agreements with ITT and DCO Related to the Spin-Off,” and describe some of the risks of these arrangements under “Risk Factors — Risks Relating to the Spin-Off.”
 
Dividend Policy Following the distribution, we expect that initially WCO will pay a dividend, although, the timing, declaration, amount and payment of future dividends to our shareholders fall within the discretion of our Board of Directors and will depend on many factors, including our financial condition, results of operations and capital requirements, as well as applicable law, regulatory constraints, industry practice and other business considerations that WCO’s Board of Directors considers relevant. In addition, the terms of the agreements governing our new debt or debt that we may incur in the future may limit or prohibit the payments of dividends. See “Dividend Policy.”
 
Transfer Agent The Bank of New York Mellon
 
Risk Factors We face both general and specific risks and uncertainties relating to our business, our relationship with ITT and DCO and our being an independent, publicly traded company. We also are subject to risks relating to the spin-off. You should carefully read the risk factors set forth in the section entitled “Risk Factors” in this Information Statement.


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Summary Historical and Unaudited Pro Forma Condensed Combined Financial Data
 
The following table presents the summary historical condensed combined financial data for WCO. The condensed combined statement of operations data for each of the years in the three-year period ended December 31, 2010 and the condensed combined balance sheet data as of December 31, 2010 and 2009 set forth below are derived from WCO’s audited combined financial statements included in this Information Statement. The condensed combined financial data for the three months ended March 31, 2011 and 2010 are derived from WCO’s unaudited condensed combined financial statements included in this Information Statement. The condensed combined balance sheet data as of December 31, 2008 is derived from WCO’s unaudited combined financial statements that are not included in this Information Statement. The unaudited combined financial statements have been prepared on the same basis as the audited combined financial statements and, in the opinion of our management, include all adjustments necessary for a fair presentation of the information set forth herein.
 
The summary unaudited pro forma condensed combined financial data for the three months ended March 31, 2011 and the year ended December 31, 2010 have been prepared to reflect the acquisition of Godwin Pumps on August 3, 2010 and the spin-off, including: (i) the distribution of WCO common stock by ITT to its shareholders; (ii) the incurrence of indebtedness in an amount estimated at $890 million, the net proceeds of which are expected to fund a cash transfer of approximately $833 million to ITT, with the balance to be used for general corporate purposes; and (iii) the impact of the transactions contemplated by the Tax Matters Agreement. The unaudited pro forma condensed combined income statement data presented for the three months ended March 31, 2011 and the year ended December 31, 2010 assumes the spin-off occurred on January 1, 2010. The unaudited pro forma condensed combined balance sheet data assumes the spin-off occurred on March 31, 2011. The summary unaudited pro forma condensed combined financial data do not give effect to the YSI acquisition or $310 million of indebtedness to be raised in connection with the YSI acquisition, because such acquisition is not considered significant. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information and we believe such assumptions are reasonable under the circumstances.
 
The unaudited pro forma condensed combined financial statements are not necessarily indicative of our results of operations or financial condition had the distribution and our anticipated post-spin-off capital structure been completed on the dates assumed. Also, they may not reflect the results of operations or financial condition that would have resulted had we been operating as an independent, publicly traded company during such periods. In addition, they are not necessarily indicative of our future results of operations or financial condition.
 
You should read this summary financial data together with “Unaudited Pro Forma Condensed Combined Financial Statements,” “Capitalization,” “Selected Historical Condensed Combined Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the condensed combined financial statements and accompanying notes included in this Information Statement.
 
                                                         
    As of and for
    As of and for
 
    Three Months Ended March 31     Year Ended December 31  
    Pro Forma
                Pro Forma
                   
    2011     2011     2010     2010     2010     2009     2008  
                (In millions)                    
 
Net sales
  $ 890     $ 890     $ 686     $ 3,347     $ 3,202     $ 2,849     $ 3,291  
Operating income
    103       100       69       407       388       276       315  
Net income
    74       78       56       317       329       263       224  
Total assets
    3,962       3,849       2,911       N/A*       3,735       2,535       2,530  
Long-term debt (including capital lease obligations)
    894       4       4       N/A*       4       4       2  
 
 
*N/A = Not applicable


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RISK FACTORS
 
You should carefully consider each of the following risks, which we believe are the principal risks that we face and of which we are currently aware, and all of the other information in this Information Statement. Some of the risks described below relate to our business, while others relate to the spin-off. Other risks relate principally to the securities markets and ownership of our common stock.
 
Should any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially and adversely affected, the trading price of our common stock could decline, and you could lose all or part of your investment.
 
Risks Relating to Our Business
 
We face the following risks in connection with the general conditions and trends of the industry in which we operate:
 
Demand for our products and services is significantly affected by U.S. and European economic conditions.
 
We compete around the world in various geographic and product markets. In 2010, 35% and 39% of our total sales were to customers located in the United States and Europe, respectively. We expect sales into these markets to be significant for the foreseeable future. Important factors impacting our businesses include the overall strength of these economies and our customers’ confidence in both local and global macro economic conditions; industrial and federal, state, local and municipal governmental spending; the strength of the residential and commercial real estate markets; interest rates; availability of commercial financing for our customers and end-users; and unemployment rates. A slowdown or downturn in these financial or macro economic conditions could have a significant adverse effect on our business, financial condition, results of operations and cash flow.
 
We have experienced and expect to continue to experience fluctuations in revenues and operating results due to economic and business cycles, particularly within the portion of our business that provides products and services used in residential and commercial buildings. We believe our level of business activity is influenced by residential and commercial building starts, and renovations, which are heavily influenced by interest rates, consumer debt levels, changes in disposable income, employment growth and consumer confidence. Credit market conditions greatly affect the ability of residential and commercial builders to obtain the necessary capital to complete and begin new projects. We closely monitor the credit worthiness of our customers, and evaluate their financial ability to pay for those products and services we provide to them. As it relates to our customers’ ability to pay for products and services, we have not experienced any significant negative impact as a result of the recent economic downturn. If market conditions worsen, it may result in the delay or cancellation of orders from our customers or potential customers and adversely affect our revenues and our ability to manage inventory levels, collect customer receivables and maintain current levels of profitability.
 
Economic and other risks associated with international sales and operations could adversely affect our business.
 
In 2010, 65% of our total sales was to customers outside the United States. We expect our international operations and export sales to continue to be a significant portion of our revenue. Both our sales from international operations and export sales are subject in varying degrees to risks inherent to doing business outside the United States. These risks include the following:
 
  •  Possibility of unfavorable circumstances arising from host country laws or regulations;
 
  •  Currency exchange rate fluctuations and restrictions on currency repatriation;
 
  •  Potential negative consequences from changes to taxation policies;
 
  •  The disruption of operations from labor and political disturbances;


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  •  Changes in tariff and trade barriers and import and export licensing requirements; and
 
  •  Insurrection or war.
 
Following the spin-off, we expect that a majority of our cash will continue to be generated by our foreign subsidiaries and repatriation of that cash to the United States may be inefficient from a tax perspective. Any payment of distributions, loans or advances to us by our foreign subsidiaries could be subject to restrictions on, or taxation of, dividends on repatriation of earnings under applicable local law, monetary transfer restrictions and foreign currency exchange regulations in the jurisdictions in which our subsidiaries operate. In addition to the general risks that we face outside the United States, we now conduct more of our operations in emerging markets than we have in the past, which could involve additional uncertainties for us, including risks that governments may impose limitations on our ability to repatriate funds; governments may impose withholding or other taxes on remittances and other payments to us, or the amount of any such taxes may increase; an outbreak or escalation of any insurrection or armed conflict may occur; governments may seek to nationalize our assets; or governments may impose or increase investment barriers or other restrictions affecting our business. In addition, emerging markets pose other uncertainties, including the protection of our intellectual property, pressure on the pricing of our products, and risks of political instability. We cannot predict the impact such future, largely unforeseeable events might have on our business, financial condition, results of operations and cash flow.
 
Failure to compete successfully in our markets could adversely affect our business.
 
We provide products and services into competitive markets. We believe the principal points of competition in our markets are product performance, reliability and innovation, application expertise, brand reputation, energy efficiency, product life cycle cost, timeliness of delivery, proximity of service centers, effectiveness of our distribution channels and price. Maintaining and improving our competitive position will require continued investment by us in manufacturing, research and development, engineering, marketing, customer service and support, and our distribution networks. We may not be successful in maintaining our competitive position. Our competitors may develop products that are superior to our products, or may develop more efficient or effective methods of providing products and services or may adapt more quickly than we do to new technologies or evolving customer requirements. Pricing pressures also could cause us to adjust the prices of certain products to stay competitive. We may not be able to compete successfully with our existing or new competitors. Failure to continue competing successfully could adversely affect our business, financial condition, results of operations and cash flow.
 
Our strategy includes acquisitions, and we may not be able to make acquisitions of suitable candidates or integrate acquisitions successfully.
 
Our historical growth has included acquisitions. 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. We cannot assure you, however, that we will be able to identify suitable candidates successfully, negotiate appropriate acquisition terms, obtain financing that may be needed to consummate those acquisitions, complete proposed acquisitions, successfully integrate acquired businesses into our existing operations or expand into new markets. In addition, we cannot assure you that any acquisition, once successfully integrated, will perform as planned, be accretive to earnings, or prove to be beneficial to our operations or cash flow.
 
Acquisitions involve a number of risks and present financial, managerial and operational challenges, including: diversion of management attention from existing businesses and operations; integration of technology, operations personnel, and financial and other systems; potentially insufficient internal controls over financial activities or financial reporting at an acquired entity that could impact us on a combined basis; the failure to realize expected synergies; the possibility that we have acquired substantial undisclosed liabilities; and the loss of key employees of the acquired businesses.


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Our business could be adversely affected by the inability of suppliers to meet delivery requirements.
 
Our business relies on third-party suppliers, contract manufacturing and commodity markets to secure raw materials, parts and components used in our products. Parts and raw materials commonly used in our products include motors, fabricated parts, castings, bearings, seals, nickel, copper, aluminum, and plastics. We are exposed to the availability of these materials, which may be subject to curtailment or change due to, among other things, interruptions in production by suppliers, labor disputes, the impaired financial condition of a particular supplier, suppliers’ allocations to other purchasers, changes in exchange rates and prevailing price levels, 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, financial condition, results of operations and cash flow.
 
Our business could be adversely affected by inflation and other manufacturing and operating cost increases.
 
Our operating costs are subject to fluctuations, particularly due to changes in commodity prices, raw materials, energy and related utilities, freight, and cost of labor. In order to remain competitive, we may not be able to recuperate all or a portion of these higher costs from our customers through product price increases. Further, our ability to realize financial benefits from Six Sigma and Lean projects may not be able to mitigate fully or in part these manufacturing and operating cost increases and, as a result, could negatively impact our profitability.
 
Our business could be adversely affected by significant movements in foreign currency exchange rates.
 
With 65% of our total sales to customers outside the United States for the year ended December 31, 2010, we are exposed to fluctuations in foreign currency exchange rates, particularly with respect to the Euro, Swedish Krona, British Pound, Australian Dollar, Canadian Dollar, Polish Zloty, and Hungarian Forint. Any significant change in the value of currencies of the countries in which we do business relative to the value of the U.S. Dollar could affect our ability to sell products competitively and control our cost structure, which could have a material adverse effect on our business, financial condition, results of operations and cash flow.
 
Long-lived assets, including goodwill and other intangible assets, represent a significant portion of our assets and any impairment of these assets could negatively impact our results of operations.
 
At December 31, 2010, our long-lived assets, including goodwill and other intangible assets, were approximately $2.3 billion, net of accumulated amortization, which represented approximately 64% of our total assets. Goodwill and indefinite-lived intangible assets are tested for impairment on an annual basis, or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We also review the carrying value of finite-lived tangible and intangible assets for impairment when impairment indicators arise. We estimate the fair value of reporting units used in the goodwill impairment test and indefinite-lived intangible assets using an income approach, and as a result the fair value measurements depend on revenue growth rates, future operating margin assumptions, risk-adjusted discount rates, assumed royalty rates, future economic and market conditions, and identification of appropriate market comparable data. Because of the significance of our long-lived assets, including goodwill and other intangible assets, any future impairment of these assets could have a material adverse effect on our results of operations and financial condition.
 
Failure to comply with the U.S. Foreign Corrupt Practices Act or other applicable anti-corruption legislation could result in fines, criminal penalties and an adverse effect on our business.
 
We operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws. We are subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take action determined to be in violation of such anti-corruption laws, including


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the U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act of 2010 and others. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.
 
We may be negatively impacted by litigation and regulatory proceedings.
 
We are subject to laws, regulations and potential liability relating to claims, complaints and proceedings, 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, any violations of which could potentially create a substantial liability for us, and also could cause harm to our reputation. Changes in laws, ordinances, regulations or other government policies, the nature, timing, and effect of which are uncertain, 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 seek remedies relating to environmental matters, product liability, personal injury claims, employment and pension matters, government contract issues and commercial or contractual disputes, sometimes related to acquisitions or divestitures. 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. Additionally, we may receive fines or penalties or be required to change or cease operations at one or more facilities if a regulatory agency determines that we have failed to comply with laws, regulations or orders applicable to our business.
 
Changes in our effective tax rates may adversely affect our financial results.
 
We sell our products in more than 140 countries and approximately 65% of our revenues were generated outside the United States in 2010. Given the global nature of our business, a number of factors may increase our future effective tax rates, including:
 
  •  our decision to repatriate non-U.S. earnings for which we have not previously provided for U.S. taxes;
 
  •  the jurisdictions in which profits are determined to be earned and taxed;
 
  •  sustainability of historical income tax rates in the jurisdictions in which we conduct business;
 
  •  the resolution of issues arising from tax audits with various tax authorities; and
 
  •  changes in the valuation of our deferred tax assets and liabilities, and changes in deferred tax valuation allowances.
 
Any significant increase in our future effective tax rates could reduce net income for future periods.
 
Our business could be adversely affected by interruptions in information technology, communications networks and operations.
 
Our business operations rely on information technology and communications networks, and operations that are vulnerable to damage or disturbance from a variety of sources. Regardless of protection measures, essentially all systems are susceptible to disruption due to failure, vandalism, computer viruses, security breaches, natural disasters, power outages and other events. We also have a concentration of operations on certain sites, e.g. production, and shared services centers, where business interruptions could cause material damage and costs. Transport of goods from suppliers, and to customers, could also be hampered for the reasons stated above. Although we have assessed these risks, implemented controls, and performed business continuity planning, we cannot be sure that interruptions with material adverse effects will not occur.


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Weather conditions may adversely affect our financial results.
 
Demand for residential and agricultural water systems is impacted by weather patterns, particularly by heavy flooding and droughts. During 2010, Residential and Irrigation application revenues were $292 and $95, respectively. Dewatering service demand can also fluctuate as a result of the same weather patterns. We cannot assure you that seasonality and weather conditions will not have a material adverse effect on our results of operations.
 
Risks Relating to the Spin-Off
 
We face the following risks in connection with the spin-off:
 
We may incur greater costs as an independent company than we did when we were part of ITT.
 
As a current part of ITT, we take advantage of ITT’s size and purchasing power in procuring certain goods and services such as insurance and health care benefits, and technology such as computer software licenses. We also rely on ITT to provide various corporate functions. After the spin-off, as a separate, independent entity, we may be unable to obtain these goods, services and technologies at prices or on terms as favorable to us as those we obtained prior to the distribution. We may also incur costs for functions previously performed by ITT that are higher than the amounts reflected in our historical financial statements, which could cause our profitability to decrease.
 
We expect to incur new indebtedness at or prior to consummation of the spin-off, and the degree to which we will be leveraged following completion of the spin-off may have a material adverse effect on our business, financial condition or results of operations.
 
We have historically relied upon ITT for working capital requirements on a short-term basis and for other financial support functions. After the spin-off, we will not be able to rely on the earnings, assets or cash flow of ITT, and we will be responsible for servicing our own debt, and obtaining and maintaining sufficient working capital. At or prior to the completion of the spin-off, we expect to raise $1,200 million of indebtedness, which includes indebtedness to be raised in connection with the YSI acquisition. At or prior to the spin-off, we also expect to enter into the Credit Facility with revolving credit availability of $     . It is anticipated that this credit facility will be undrawn at the time of the spin-off. Given the smaller relative size of the company as compared to ITT, after the spin-off we may incur higher debt servicing costs on the new indebtedness than we would have incurred otherwise as a subsidiary of ITT or not have access to other less expensive sources of capital from short-term debt markets.
 
Our ability to make payments on and to refinance our indebtedness, including the debt incurred pursuant to the spin-off as well as any future debt that we may incur, will depend on our ability to generate cash in the future from operations, financings or asset sales. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If we are not able to repay or refinance our debt as it becomes due, we may be forced to sell assets or take other disadvantageous actions, including (i) reducing financing in the future for working capital, capital expenditures and general corporate purposes or (ii) dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on our indebtedness. In addition, our ability to withstand competitive pressures and to react to changes in the water technology industry could be impaired. The lenders who hold such debt could also accelerate amounts due, which could potentially trigger a default or acceleration of any of our other debt.
 
We may be unable to achieve some or all of the benefits that we expect to achieve from the spin-off.
 
As an independent, publicly traded company, we believe that our business will benefit from, among other things, (i) greater strategic focus of financial resources and management’s efforts, (ii) enhanced customer focus, (iii) direct and differentiated access to capital resources, (iv) enhanced investor choices by offering investment opportunities in a separate entity from ITT, (v) improved management incentive tools, and (vi) utilization of stock as an acquisition currency. However, by separating from ITT, we may be more susceptible to market fluctuations and other adverse events than we would have been were we still a part of


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ITT. In addition, we may not be able to achieve some or all of the benefits that we expect to achieve as an independent company in the time we expect, if at all.
 
We may increase our debt or raise additional capital in the future, which could affect our financial health, and may decrease our profitability.
 
We may increase our debt or raise additional capital in the future, subject to restrictions in our debt agreements. If our cash flow from operations is less than we anticipate, or if our cash requirements are more than we expect, we may require more financing. However, debt or equity financing may not be available to us on terms acceptable to us, if at all. If we incur additional debt or raise equity through the issuance of our preferred stock, the terms of the debt or our preferred stock issued may give the holders rights, preferences and privileges senior to those of holders of our common stock, particularly in the event of liquidation. The terms of the debt may also impose additional and more stringent restrictions on our operations than we currently have. If we raise funds through the issuance of additional equity, your percentage ownership in us would decline. If we are unable to raise additional capital when needed, it could affect our financial health, which could negatively affect your investment in us. Also, regardless of the terms of our debt or equity financing, the amount of our stock that we can issue may be limited because the issuance of our stock may cause the distribution to be a taxable event for ITT under Section 355(e) of the Code, and under the Tax Matters Agreement, we could be required to indemnify ITT for that tax. See “— We may be responsible for U.S. Federal income tax liabilities that relate to the distribution.”
 
We may be responsible for U.S. Federal income tax liabilities that relate to the distribution.
 
We expect to receive an IRS Ruling and an opinion of counsel stating that ITT and its shareholders will not recognize any taxable income, gain or loss for U.S. Federal income tax purposes as a result of the spin-off. Receipt of the IRS Ruling and opinion of counsel will satisfy a condition to completion of the spin-off. See “The Spin-Off — U.S. Federal Income Tax Consequences of the Spin-Off.” The IRS Ruling, while generally binding upon the IRS, will be based on certain factual statements and representations. If any such factual statements or representations were incomplete or untrue in any material respect, or if the facts on which the IRS Ruling will be based are materially different from the facts at the time of the spin-off, the IRS could modify or revoke the IRS Ruling retroactively.
 
Certain requirements for tax-free treatment that are not covered in the IRS Ruling will be addressed in the opinion of counsel. An opinion of counsel is not binding on the IRS. Accordingly, the IRS may reach conclusions with respect to the spin-off that are different from the conclusions reached in the opinion. Like the IRS Ruling, the opinion will be based on certain factual statements and representations, which, if incomplete or untrue in any material respect, could alter counsel’s conclusions.
 
ITT is not aware of any facts or circumstances that would cause any such factual statements or representations in the IRS Ruling or the legal opinion to be incomplete or untrue or cause the facts on which the IRS Ruling is based, or the legal opinion will be based, to be materially different from the facts at the time of the spin-off.
 
If all or a portion of the spin-off does not qualify as a tax-free transaction because any of the factual statements or representations in the IRS Ruling or the legal opinion are incomplete or untrue, or because the facts upon which the IRS Ruling is based are materially different from the facts at the time of the spin-off, ITT would recognize a substantial gain for U.S. Federal income tax purposes. In such case, under U.S. Treasury regulations each member of the ITT consolidated group at the time of the spin-off (including us and our subsidiaries) would be severally liable for the resulting U.S. Federal income tax liability.
 
Even if the spin-off otherwise qualifies as a tax-free transaction for U.S. Federal income tax purposes, the distribution will be taxable to ITT (but not to ITT shareholders) pursuant to Section 355(e) of the Code if there are one or more acquisitions (including issuances) of the stock of either us or ITT, representing 50% or more, measured by vote or value, of the then-outstanding stock of either corporation and the acquisition or acquisitions are deemed to be part of a plan or series of related transactions that include the distribution. Any acquisition of our common stock within two years before or after the distribution (with exceptions, including


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public trading by less-than-5% shareholders and certain compensatory stock issuances) generally will be presumed to be part of such a plan unless that presumption is rebutted. The tax liability resulting from the application of Section 355(e) would be substantial. In addition, under U.S. Treasury regulations, each member of the ITT consolidated group at the time of the spin-off (including us and our subsidiaries) would be severally liable for the resulting U.S. Federal income tax liability.
 
We will agree not to enter into any transaction that could cause any portion of the spin-off to be taxable to ITT, including under Section 355(e). We will also agree to indemnify ITT for any tax liabilities resulting from such transactions. These obligations may discourage, delay or prevent a change of control of our company. For additional detail, see “Description of Capital Stock — Provisions of Our Amended and Restated Articles of Incorporation and Amended and Restated By-Laws That Could Delay or Prevent a Change in Control” and “Certain Relationships and Related Party Transactions — Agreements with ITT and DCO Related to the Spin-Off — Tax Matters Agreement.”
 
Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject following the distribution.
 
Our financial results previously were included within the consolidated results of ITT, and we believe that our financial reporting and internal controls were appropriate for those of subsidiaries of a public company. However, we were not directly subject to the reporting and other requirements of the Exchange Act. As a result of the distribution, we will be directly subject to reporting and other obligations under the Exchange Act. Beginning with our Annual Report on Form 10-K for the year ending December 31, 2012, we will be required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) which will require annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm addressing these assessments. These reporting and other obligations may place significant demands on our management, administrative and operational resources, including accounting systems and resources.
 
The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. Under the Sarbanes-Oxley Act, we are required to maintain effective disclosure controls and procedures and internal controls over financial reporting. To comply with these requirements, we may need to upgrade our systems; implement additional financial and management controls, reporting systems and procedures; and hire additional accounting and finance staff. We expect to incur additional annual expenses for the purpose of addressing these requirements, and those expenses may be significant. If we are unable to upgrade our financial and management controls, reporting systems, information technology systems and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired. Any failure to achieve and maintain effective internal controls could have a material adverse effect on our financial condition, results of operations or cash flows.
 
We do not have a recent operating history as an independent company and our historical financial information may not be a reliable indicator of our future results.
 
The historical financial information we have included in this Information Statement has been derived from ITT’s consolidated financial statements and does not necessarily reflect what our financial position, results of operations and cash flows would have been as a separate, stand-alone entity during the periods presented. ITT did not account for us, and we were not operated, as a single stand-alone entity or segment for the periods presented. In addition, the historical information is not necessarily indicative of what our results of operations, financial position and cash flows will be in the future. For example, following the spin-off, changes will occur in our cost structure, funding and operations, including changes in our tax structure, increased costs associated with reduced economies of scale and increased costs associated with becoming a public, stand-alone company. While we have been profitable as part of ITT, we cannot assure you that as a stand-alone company our profits will continue at a similar level.


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Our customers, prospective customers and suppliers will need assurances that our financial stability on a stand-alone basis is sufficient to satisfy their requirements for doing or continuing to do business with them.
 
Some of our customers, prospective customers, and suppliers will need assurances that our financial stability on a stand-alone basis is sufficient to satisfy their requirements for doing or continuing to do business with them. If our customers, prospective customers or suppliers are not satisfied with our financial stability, it could have a material adverse effect on our ability to bid for and obtain or retain projects, our business, financial condition or results of operations.
 
The spin-off may expose us to potential liabilities arising out of state and federal fraudulent conveyance laws and legal distribution requirements.
 
The spin-off could be challenged under various state and federal fraudulent conveyance laws. An unpaid creditor or an entity vested with the power of such creditor (such as a trustee or debtor-in-possession in a bankruptcy) could claim that the spin-off left ITT insolvent or with unreasonably small capital or that ITT intended or believed it would incur debts beyond its ability to pay such debts as they mature and that ITT did not receive fair consideration or reasonably equivalent value in the spin-off. If a court were to agree with such a plaintiff, then such court could void the spin-off as a fraudulent transfer and could impose a number of different remedies, including without limitation, returning our assets or your shares in our company to ITT, voiding our liens and claims against ITT, or providing ITT with a claim for money damages against us in an amount equal to the difference between the consideration received by ITT and the fair market value of our company at the time of the spin-off.
 
The measure of insolvency for purposes of the fraudulent conveyance laws will vary depending on which jurisdiction’s law is applied. Generally, however, an entity would be considered insolvent if either the fair saleable value of its assets is less than the amount of its liabilities (including the probable amount of contingent liabilities), or it is unlikely to be able to pay its liabilities as they become due. No assurance can be given as to what standard a court would apply to determine insolvency or that a court would determine that ITT was solvent at the time of or after giving effect to the spin-off, including the distribution of our common stock.
 
The distribution by ITT of the WCO common stock in the spin-off could also be challenged under state corporate distribution statutes. Under the Indiana Business Corporation Law (the “Indiana Corporation Law”), a corporation may not make distributions to its shareholders if, after giving effect to the distribution, (i) the corporation would not be able to pay its debts as they become due in the usual course of business; or (ii) the corporation’s total assets would be less than the sum of its total liabilities. No assurance can be given that a court will not later determine that the distribution by ITT of WCO common stock in the spin-off was unlawful.
 
Under the Distribution Agreement, from and after the spin-off, we will be responsible for the debts, liabilities and other obligations related to the business or businesses which we own and operate following the consummation of the spin-off. Although we do not expect to be liable for any of these or other obligations not expressly assumed by us pursuant to the Distribution Agreement, it is possible that we could be required to assume responsibility for certain obligations retained by ITT or DCO should ITT or DCO fail to pay or perform its retained obligations (for example, tax, asbestos and/or environmental liabilities). See “Certain Relationships and Related Party Transactions — Agreements with ITT and DCO Related to the Spin-Off — Distribution Agreement.”
 
We may have been able to receive better terms from unaffiliated third parties than the terms we receive in our agreements related to the spin-off.
 
We expect that the agreements related to the spin-off, including the Distribution Agreement, Employee Matters Agreement, Technology License Agreement, Tax Matters Agreement, Transition Services Agreements and any other agreements, will be negotiated in the context of our separation from ITT while we are still part of ITT. Accordingly, these agreements may not reflect terms that would have resulted from arm’s-length


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negotiations among unaffiliated third parties. The terms of the agreements being negotiated in the context of our separation are related to, among other things, allocations of assets, liabilities, rights, indemnifications and other obligations among ITT, DCO and us. We may have received better terms under the agreements related to the spin-off from third parties because third parties may have competed with each other to win our business. See “Certain Relationships and Related Party Transactions — Agreements with ITT and DCO Related to the Spin-Off.”
 
Risks Relating to Our Common Stock
 
You face the following risks in connection with ownership of our common stock:
 
There is no existing market for our common stock and we cannot be certain that an active trading market will develop or be sustained after the spin-off, and following the spin-off, our stock price may fluctuate significantly.
 
There currently is no public market for our common stock. We intend to list our common stock on the NYSE. See “Trading Market.” It is anticipated that before the distribution date for the spin-off, trading of shares of our common stock will begin on a “when-issued” basis and such trading will continue up to and including the distribution date. However, there can be no assurance that an active trading market for our common stock will develop as a result of the spin-off or be sustained in the future. The lack of an active market may make it more difficult for you to sell our common stock and could lead to the price of our common stock being depressed or more volatile. We cannot predict the prices at which our common stock may trade after the spin-off. The market price of our common stock may fluctuate widely, depending on many factors, some of which may be beyond our control, including:
 
  •  the sale of our shares by some ITT shareholders after the distribution because our business profile and market capitalization may not fit their investment objectives;
 
  •  actual or anticipated fluctuations in our operating results due to factors related to our business;
 
  •  success or failure of our business strategy;
 
  •  our quarterly or annual earnings, or those of other companies in our industry;
 
  •  our ability to obtain financing as needed;
 
  •  announcements by us or our competitors of significant new business awards;
 
  •  announcements by us or our competitors of significant acquisitions or dispositions;
 
  •  changes in accounting standards, policies, guidance, interpretations or principles;
 
  •  the failure of securities analysts to cover our common stock after the spin-off;
 
  •  changes in earnings estimates by securities analysts or our ability to meet those estimates;
 
  •  the operating and stock price performance of other comparable companies;
 
  •  investor perception of our company and the water technology industry;
 
  •  natural or environmental disasters that investors believe may affect us;
 
  •  overall market fluctuations;
 
  •  fluctuations in the budget of federal, state and local governmental entities around the world;
 
  •  results from any material litigation or government investigation;
 
  •  changes in laws and regulations affecting our business; and
 
  •  general economic conditions and other external factors.


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Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations could adversely affect the trading price of our common stock.
 
Substantial sales of our common stock may occur in connection with the spin-off, which could cause the price of our common stock to decline.
 
The shares of our common stock that ITT distributes to its shareholders generally may be sold immediately in the public market. It is possible that some ITT shareholders, which could include some of our larger shareholders, will sell our common stock received in the distribution if, for reasons such as our business profile or market capitalization as an independent company, we do not fit their investment objectives, or — in the case of index funds — we are not a participant in the index in which they are investing. The sales of significant amounts of our common stock or the perception in the market that this will occur may reduce the market price of our common stock.
 
We cannot assure you that we will pay dividends on our common stock, and our indebtedness could limit our ability to pay dividends on our common stock.
 
Following the distribution, we expect that initially WCO will pay a dividend, although the timing, declaration, amount and payment of future dividends to our shareholders fall within the discretion of our Board of Directors and will depend on many factors, including our financial condition, results of operations and capital requirements, as well as applicable law, regulatory constraints, industry practice and other business considerations that WCO’s Board of Directors considers relevant. In addition, the terms of the agreements governing our new debt or debt that we may incur in the future may limit or prohibit the payments of dividends. See “Dividend Policy.” There can be no assurance that we will pay a dividend in the future or continue to pay any dividend if we do commence the payment of dividends. There can also be no assurance that the combined annual dividends on ITT common stock, DCO common stock and our common stock after the spin-off, if any, will be equal to the annual dividends on ITT common stock prior to the spin-off.
 
Additionally, indebtedness that we expect to incur in connection with the spin-off could have important consequences for holders of our common stock. If we cannot generate sufficient cash flow from operations to meet our debt-payment obligations, then our ability to pay dividends, if so determined by the Board of Directors, will be impaired and we may be required to attempt to restructure or refinance our debt, raise additional capital or take other actions such as selling assets, reducing or delaying capital expenditures or reducing our dividend. There can be no assurance, however, that any such actions could be effected on satisfactory terms, if at all, or would be permitted by the terms of our new debt or our other credit and contractual arrangements.
 
Anti-takeover provisions in our organizational documents and Indiana law could delay or prevent a change in control.
 
Prior to completion of the spin-off, we will adopt the amended and restated articles of incorporation and the amended restated by-laws. Certain provisions of the amended and restated articles of incorporation and the amended and restated by-laws may delay or prevent a merger or acquisition that a shareholder may consider favorable. For example, the amended and restated articles of incorporation and the amended and restated by-laws, among other things, provide for a classified board and require advance notice for shareholder proposals and nominations, do not permit shareholders to convene special meetings and do not permit action by written consent of the shareholders. In addition, the amended and restated articles of incorporation authorizes our Board of Directors to issue one or more series of preferred stock. These provisions may also discourage acquisition proposals or delay or prevent a change in control, which could harm our stock price. Indiana law also imposes some restrictions on mergers and other business combinations between any holder of 10% or more of our outstanding common stock and us as well as certain restrictions on the voting rights of “control shares” of an “issuing public corporation.” See “Description of Capital Stock.”


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Under the Tax Matters Agreement, we will agree not to enter into any transaction involving an acquisition (including issuance) of WCO common stock or any other transaction (or, to the extent we have the right to prohibit it, to permit any such transaction) that could cause the distribution to be taxable to ITT. We will also agree to indemnify ITT for any tax resulting from any such transactions. Generally, ITT will recognize taxable gain on the distribution if there are one or more acquisitions (including issuances) of our capital stock, directly or indirectly, representing 50% or more, measured by vote or value, of our then-outstanding capital stock, and the acquisitions or issuances are deemed to be part of a plan or series of related transactions that include the distribution. Any such shares of our common stock acquired, directly or indirectly, within two years before or after the distribution (with exceptions, including public trading by less-than-5% shareholders and certain compensatory stock issuances) will generally be presumed to be part of such a plan unless that presumption is rebutted. As a result, our obligations may discourage, delay or prevent a change of control of our company.


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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
 
We have made forward-looking statements in this Information Statement, including in the sections entitled “Summary,” “Risk Factors,” “Questions and Answers About the Spin-Off,” “The Spin-Off,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance improvements, benefits resulting from our separation from ITT, the effects of competition and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” “might,” “should,” “could” or the negative of these terms or similar expressions.
 
Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. You should not put undue reliance on any forward-looking statements in this Information Statement. We do not have any intention or obligation to update forward-looking statements after we distribute this Information Statement.
 
The risk factors discussed in “Risk Factors” could cause our results to differ materially from those expressed in forward-looking statements. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business. Any such risks could cause our results to differ materially from those expressed in forward-looking statements.


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THE SPIN-OFF
 
Background
 
On January 11, 2011, the Board of Directors of ITT approved a plan to spin-off WCO and DCO from ITT, following which WCO and DCO will be independent, publicly traded companies. Immediately prior to the spin-off, ITT will effect an internal reorganization in order to properly align the appropriate businesses within each of the WCO and DCO parent companies.
 
To complete the spin-off, ITT will, following the internal reorganization, distribute to its shareholders all of the shares of our common stock and the common stock of DCO. The distribution will occur on the distribution date, which is expected to be          , 2011. Each holder of ITT common stock will receive           shares of our common stock, and           shares of DCO common stock, for each share of ITT common stock held on          , 2011, the record date. After completion of the spin-off:
 
  •  we will be an independent, publicly traded company (NYSE:     ), and will own and operate ITT’s water infrastructure and applied water businesses;
 
  •  DCO will be an independent, publicly traded company (NYSE:     ) and will own and operate ITT’s C4ISR electronics and systems, and informational and technical services businesses; and
 
  •  ITT will continue to be an independent, publicly traded company (NYSE: ITT) and will continue to own and operate its industrial process, motion technologies, interconnect solutions and control technologies businesses.
 
Each holder of ITT common stock will continue to hold his, her or its shares in ITT. No vote of ITT’s shareholders is required or is being sought in connection with the spin-off, and ITT’s shareholders will not have any appraisal rights in connection with the spin-off, including the internal reorganization.
 
The distribution of our common stock as described in this Information Statement is subject to the satisfaction or waiver of certain conditions. In addition, ITT has the right not to complete the spin-off if, at any time prior to the distribution, the Board of Directors of ITT determines, in its sole discretion, that the spin-off is not then in the best interests of ITT or its shareholders or other constituents, that a sale or other alternative is in the best interests of ITT or its shareholders or other constituents, or that it is not advisable for us to separate from ITT at that time. See “— Conditions to the Spin-Off.”
 
Reasons for the Spin-Off
 
ITT’s Board of Directors has determined that the spin-off is in the best interests of ITT and its shareholders because the spin-off will provide the following key benefits: (i) greater strategic focus of financial resources and management’s efforts, (ii) enhanced customer focus, (iii) direct and differentiated access to capital resources, (iv) enhanced investor choices by offering investment opportunities in separate entities, (v) improved management incentive tools, and (vi) utilization of stock as an acquisition currency.
 
Greater Strategic Focus of Financial Resources and Management’s Efforts.  ITT’s Water business represents a discrete portion of ITT’s overall business. It has historically exhibited different financial and operating characteristics than ITT’s other businesses. In particular, the Defense business is generally characterized by cycles that are comparatively lengthy relative to those of the Water business and ITT’s Industrial Process, Motion Technologies, Interconnect Solutions and Control Technologies businesses, which necessitates different capital expenditure and acquisition strategies than would be otherwise employed. ITT’s and our management believe that ITT’s management resources would be more efficiently utilized if ITT’s management concentrated solely on its Industrial Process, Motion Technologies, Interconnect Solutions and Control Technologies businesses, that DCO’s management resources would be more efficiently utilized if its management concentrated solely on the Defense business, and that our management resources would be more efficiently utilized if our management concentrated solely on the Water business. Consequently, ITT has determined that its current structure may not be the most effective to design and implement the distinct strategies necessary to operate in a manner that maximizes the long-term value of each company.


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Both ITT and we expect to have better use of management and financial resources as a result of having board and management teams solely focused on their respective businesses. The spin-off will allow us to better align management’s attention, compensation and resources to pursue opportunities in the water technology market and to manage our cost structure more actively. ITT and DCO will similarly benefit from their respective management’s ability to focus on the management and operation of their respective businesses.
 
Enhanced Customer Focus.  Both ITT and we believe that, as a unified, commonly managed, stand-alone water technology business, our management will be able to focus solely on the needs of our own customers, without dilution arising from a connection to a larger parent with tangential goals and incentives.
 
Direct and Differentiated Access to Capital Resources.  After the spin-off, we will no longer need to compete with ITT’s other businesses for capital resources. As a long-cycle global industrial business with strong global cash flow generation, our business has different financial and operating characteristics from ITT’s other businesses. Both ITT and we believe that direct and differentiated access to capital resources will allow each of us to better optimize the amounts and terms of the capital needed for each of the respective businesses, aligning financial and operational characteristics with investor and market expectations. ITT’s management also believes that, as a separate entity, we will have ready access to capital because we will attract investors who are interested in the characteristics of the Water business.
 
Enhanced Investor Choices by Offering Investment Opportunities in Separate Entities.  After the spin-off, investors should be better able to evaluate our financial performance, as well as our strategy within the context of our markets, thereby enhancing the likelihood that we will achieve an appropriate market valuation. ITT’s management and financial advisors believe that the investment characteristics of the Water business may appeal to different types of investors. As a result of the spin-off, our management should be able to implement goals and evaluate strategic opportunities in light of investor expectations within our specialties without undue attention to investor expectations in other specialties. In addition, we should be able to focus our public relations efforts on cultivating our own separate identity.
 
Improved Management Incentive Tools.  It is expected that we will use our equity to compensate current and future employees. In multi-business companies such as ITT, it is difficult to structure incentives that reward managers in a manner directly related to the performance of their respective business units. By granting stock linked to a specific business, equity compensation will be more in line with the financial results of the managers’ direct work product. As a result, the incentives offered by the compensation plan will be less diluted. In addition, reducing the conglomerate discount that currently impacts ITT stock may provide each business with a more attractive currency for equity-based compensation.
 
Utilization of Stock as an Acquisition Currency.  Although we are not currently evaluating any acquisitions involving the use of our stock, the spin-off will enable us to use our stock as currency to pursue certain financial and strategic objectives, including tax-free merger transactions. In addition, future strategic transactions with similar businesses will be more easily facilitated through the use of our stand-alone stock as consideration.
 
Manner of Effecting the Spin-Off
 
The general terms and conditions relating to the spin-off will be set forth in a Distribution Agreement among us, ITT and DCO.
 
Internal Reorganization
 
As part of the spin-off, ITT will undergo an internal reorganization that will, among other things and subject to limited exceptions: (i) allocate and transfer to each of WCO and DCO and their respective subsidiaries, as applicable, those assets, and to allocate and assign responsibility for those liabilities, in respect of the activities of the applicable businesses of such entities and (ii) allocate, transfer and assign, as applicable, those assets and liabilities in respect of other current and former businesses and activities of ITT and its current and former subsidiaries.


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Distribution of Shares of Our Common Stock
 
Under the Distribution Agreement, the distribution will be effective as of 8:00 a.m., New York time, on          , 2011, the distribution date. As a result of the spin-off, on the distribution date, each holder of ITT common stock will receive           shares of our common stock for each share of ITT common stock that he, she or it owns. In order to receive shares of our common stock in the spin-off, an ITT shareholder must be a shareholder at 5:00 p.m., New York time, on          , 2011, the record date.
 
Following completion of the spin-off, ITT Corporation’s global platform will include ITT’s Industrial Process business, as well as its Motion Technologies, Interconnect Solutions and Control Technologies businesses; WCO will be formed through the combination of three of ITT’s businesses: Residential & Commercial Water, Flow Control and Water & Wastewater (including biological, filtration and disinfection treatment and analytics); and DCO will comprise ITT’s existing Defense and Information Solutions segment. The diagram below shows the structure, simplified for illustrative purposes only, of ITT, WCO and DCO after completion of the spin-off:
 
(STOCKHOLDERS LOGO)
 
On the distribution date, ITT will release the shares of our common stock (as well as the DCO common stock) to our distribution agent to distribute to ITT shareholders. For most of these ITT shareholders, our distribution agent will credit their shares of our common stock to book-entry accounts established to hold their shares of our common stock. Our distribution agent will send these shareholders, including any ITT shareholder that holds physical share certificates of ITT common stock and is the registered holder of such shares of ITT common stock represented by those certificates on the record date, a statement reflecting their ownership of our common stock and DCO common stock. Book-entry refers to a method of recording stock ownership in our records in which no physical certificates are used. For shareholders who own ITT common stock through a broker or other nominee, their shares of our common stock will be credited to these shareholders’ accounts by the broker or other nominee. It is expected that it will take the distribution agent up to two weeks to issue shares of our common stock to ITT shareholders or their bank or brokerage firm electronically by way of direct registration in book-entry form. Trading of our stock will not be affected by this delay in issuance by the distribution agent. Following the spin-off, shareholders whose shares are held in book-entry form may request that their shares of our common stock be transferred to a brokerage or other account at any time.


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ITT shareholders will not be required to make any payment or surrender or exchange their shares of ITT common stock or take any other action to receive their shares of our common stock. No vote of ITT shareholders is required or sought in connection with the spin-off, including the internal reorganization, and ITT shareholders have no appraisal rights in connection with the spin-off.
 
U.S. Federal Income Tax Consequences of the Spin-Off
 
As a condition to the spin-off, ITT will receive the IRS Ruling and a legal opinion substantially to the effect that, among other things, the distribution will qualify under Section 355 of the Code as a tax-free spin-off to the holders of ITT common stock and will be tax-free to ITT. Assuming the distribution qualifies under Section 355 of the Code as tax-free:
 
  •  no gain or loss will be recognized by, and no amount will be included in the income of, holders of ITT common stock upon their receipt of shares of our common stock (as well as DCO common stock) in the distribution;
 
  •  the basis of ITT common stock immediately before the distribution will be allocated between the ITT common stock, the DCO common stock and our common stock received in the distribution, in proportion with relative fair market values at the time of the distribution;
 
  •  the holding period of the DCO common stock and our common stock received by each ITT shareholder will include the period during which the shareholder held the ITT common stock on which the distribution is made, provided that the ITT common stock is held as a capital asset on the distribution date; and
 
  •  no gain or loss will be recognized by ITT upon the distribution of our common stock.
 
U.S. Treasury regulations require certain shareholders that receive stock in a spin-off to attach to their respective U.S. Federal income tax returns, for the year in which the spin-off occurs, a detailed statement setting forth certain information relating to the spin-off. Shortly after the distribution, ITT will provide shareholders who receive our common stock in the distribution with the information necessary to comply with that requirement, as well as information to help shareholders allocate their stock basis between their ITT common stock, the DCO common stock and the WCO common stock.
 
The IRS Ruling and the opinion of counsel will be conditioned on the truthfulness and completeness of certain factual statements and representations provided by ITT and us. If those factual statements and representations are incomplete or untrue in any material respect, the IRS Ruling could become inoperative and counsel’s conclusions may be altered. ITT and we have reviewed the statements of fact and representations on which the IRS Ruling is, and the opinion of counsel will be, based, and neither ITT nor we are aware of any facts or circumstances that would cause any of the statements of fact or representations to be incomplete or untrue. Each of ITT, DCO and us have agreed to some restrictions on our future actions to provide further assurance that the distribution will qualify as a tax-free distribution under Section 355 of the Code.
 
Certain requirements for tax-free treatment that are not covered in the IRS Ruling will be addressed in the opinion of counsel. An opinion of counsel is not binding on the IRS. Accordingly, the IRS may reach conclusions with respect to the spin-off that are different from the conclusions reached in the opinion.
 
If the distribution does not qualify under Section 355 of the Code, each holder of ITT common stock receiving our common stock in the distribution would be treated as receiving a taxable distribution in an amount equal to the fair market value of our common stock received, which would result in:
 
  •  a taxable dividend to the extent of the shareholder’s pro rata share of ITT’s current and accumulated earnings and profits;
 
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  •  taxable gain from the exchange of ITT common stock to the extent the amount received exceeds both the shareholder’s share of earnings and profits and the shareholder’s basis in ITT common stock; and
 
  •  basis in our stock equal to its fair market value on the date of the distribution.
 
Under certain circumstances, ITT would recognize taxable gain on the distribution. These circumstances would include the following:
 
  •  the distribution does not qualify as tax-free under Section 355 of the Code; and
 
  •  there are one or more acquisitions (including issuances) of either our stock, the stock of DCO, or the stock of ITT, representing 50% or more, measured by vote or value, of the then-outstanding stock of that corporation, and the acquisition or acquisitions are deemed to be part of a plan or series of related transactions that include the distribution. Any such acquisition of our stock, the stock of DCO, or the stock of ITT within two years before or after the distribution (with exceptions, including public trading by less-than-5% shareholders and certain compensatory stock issuances) generally will be presumed to be part of such a plan unless that presumption is rebutted.
 
The amount of such gain would result in a significant federal income tax liability to ITT.
 
We will agree to indemnify ITT for any tax liabilities of ITT resulting from the distribution under certain circumstances. Our obligation to indemnify ITT may discourage, delay or prevent a change of control of our company. In addition, under U.S. Treasury regulations, each member of the ITT consolidated tax return group at the time of the spin-off (including us and our subsidiaries) would be severally liable to the IRS for such tax liability. The resulting tax liability may have a material adverse effect on both our and ITT’s business, financial condition, results of operations or cash flows.
 
The preceding summary of certain anticipated U.S. Federal income tax consequences of the spin-off is for general informational purposes only. ITT shareholders should consult their own tax advisors as to the specific tax consequences of the spin-off to them, including the application and effect of state, local or non-U.S. tax laws and of changes in applicable tax laws.
 
Results of the Spin-Off
 
After the spin-off, we will be an independent, publicly traded company. Immediately following the spin-off, we expect to have approximately           holders of shares of our common stock and approximately           shares of our common stock outstanding, based on the number of shareholders and outstanding shares of ITT common stock on          , 2011. The figures assume no exercise of outstanding options and exclude shares of ITT common stock held directly or indirectly by ITT, if any. The actual number of shares to be distributed will be determined on the record date and will reflect any exercise of ITT options between the date the ITT Board of Directors declares the dividend for the distribution and the record date for the distribution.
 
For information regarding options to purchase shares of our common stock that will be outstanding after the distribution, see “Capitalization,” “Certain Relationships and Related Party Transactions — Agreements with ITT and DCO Related to the Spin-Off — Employee Matters Agreement” and “Management.”
 
Before the spin-off, we will enter into several agreements with ITT to effect the spin-off and provide a framework for our relationship with ITT and DCO after the spin-off. These agreements will govern the relationship between us, DCO and ITT after completion of the spin-off and provide for the allocation between us, DCO and ITT of ITT’s assets, liabilities, rights and obligations. See “Certain Relationships and Related Party Transactions — Agreements with ITT and DCO Related to the Spin-Off.”
 
Trading Prior to the Distribution Date
 
It is anticipated that, at least two trading days prior to the record date and continuing up to and including the distribution date, there will be a “when-issued” market in our common stock. When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The


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when-issued trading market will be a market for shares of our common stock that will be distributed to ITT shareholders on the distribution date. Any ITT shareholder who owns shares of ITT common stock at the close of business on the record date will be entitled to shares of our common stock distributed in the spin-off. ITT shareholders may trade this entitlement to shares of our common stock, without the shares of ITT common stock they own, on the when-issued market. On the first trading day following the distribution date, we expect when-issued trading with respect to our common stock will end and “regular-way” trading will begin. See “Trading Market.”
 
Following the distribution date, we expect shares of our common stock to be listed on the NYSE under the ticker symbol “     ”. We will announce the when-issued ticker symbol when and if it becomes available.
 
It is also anticipated that, at least two trading days prior to the record date and continuing up to and including the distribution date, there will be two markets in ITT common stock: a “regular-way” market and an “ex-distribution” market. Shares of ITT common stock that trade on the regular-way market will trade with an entitlement to shares of our common stock (as well as shares of DCO common stock) distributed pursuant to the distribution. Shares that trade on the ex-distribution market will trade without an entitlement to shares of our common stock (as well as shares of DCO common stock) distributed pursuant to the distribution. Therefore, if shares of ITT common stock are sold in the regular-way market up to and including the distribution date, the selling shareholder’s right to receive shares of our common stock (as well as shares of DCO common stock) in the distribution will be sold as well. However, if ITT shareholders own shares of ITT common stock at the close of business on the record date and sell those shares on the ex-distribution market up to and including the distribution date, the selling shareholders will still receive the shares of our common stock (as well as shares of DCO common stock) that they would otherwise receive pursuant to the distribution. See “Trading Market.”
 
Treatment of 401(k) Shares for Current and Former Employees
 
Our Employees Invested in the ITT Stock Fund of the ITT 401(k) Plan.
 
Our current and former employees who hold accounts in the ITT 401(k) Plan on          , 2011 will have their accounts transferred to the WCO 401(k) Plan, as of          , 2011, including any shares of ITT common stock held in the ITT Stock Fund under the ITT 401(k) Plan. On the distribution date, shares of our common stock (as well as shares of DCO common stock), based on the distribution ratio for each share of ITT common stock held in such employee’s ITT stock fund account, will be included in a new WCO stock fund account under the WCO 401(k) Plan. However, in conformity with the fiduciary responsibility requirements of ERISA, remaining shares of ITT common stock held in our employees’ ITT stock fund accounts following the distribution will be disposed of and allocated to another investment alternative available under the WCO 401(k) Plan if and when directed by participants, and any such shares remaining as of          , 2012 will be automatically disposed of and the proceeds invested in another such investment alternative (but this will not prohibit diversified, collectively managed investment alternatives available under the WCO 401(k) Plan from holding ITT common stock or prohibit employees who use self-directed accounts in the WCO 401(k) Plan from investing their accounts in ITT common stock).
 
ITT Employees Invested in the ITT Stock Fund of the ITT 401(k) Plan.
 
Current and former ITT employees who hold shares of ITT common stock in their ITT 401(k) Plan account as of the record date will receive shares of our common stock (as well as shares of DCO common stock) in the distribution. Our shares (as well as shares of DCO common stock) will be included in new, temporary stock funds under the ITT 401(k) Plan. In conformity with the fiduciary responsibility requirements of ERISA, remaining shares of our common stock (as well as shares of DCO common stock) held in these temporary stock funds following the distribution will be disposed of and allocated to another investment alternative available under the ITT 401(k) Plan when directed by participants, and any such shares remaining as of          , 2012 will be automatically disposed of and the proceeds invested in another such investment alternative (but this will not prohibit diversified, collectively managed investment alternatives available under


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the ITT 401(k) Plan from holding our common stock or prohibit employees who use self-directed accounts in the ITT 401(k) Plan from investing their accounts in our common stock).
 
Incurrence of Debt
 
It is anticipated that, at or prior to the completion of the spin-off, WCO will raise indebtedness in an amount estimated at $1,200 million, which includes indebtedness to be raised in connection with the YSI acquisition. See “Description of Material Indebtedness.”
 
Conditions to the Spin-Off
 
We expect that the spin-off will be effective as of 8:00 a.m., New York time, on          , 2011, the distribution date, provided that the following conditions shall have been satisfied or waived by ITT:
 
  •  our Registration Statement on Form 10, of which this Information Statement forms a part, shall have been declared effective by the Securities and Exchange Commission (the “SEC”), no stop order suspending the effectiveness thereof shall be in effect, no proceedings for such purpose shall be pending before or threatened by the SEC, and this Information Statement shall have been mailed to the ITT shareholders;
 
  •  WCO common stock shall have been approved for listing on the NYSE, subject to official notice of distribution;
 
  •  ITT shall have obtained an opinion from its tax counsel, in form and substance satisfactory to ITT, substantially to the effect that, among other things, the distribution, together with certain related transactions, will qualify as a reorganization under Sections 355 and 368(a)(1)(D) of the Code;
 
  •  ITT shall have obtained a private letter ruling from the Internal Revenue Service, in form and substance satisfactory to ITT, and such ruling shall remain in effect as of the distribution date, to the effect, among other things, that the distribution, together with certain related transactions, will qualify as a reorganization under Sections 355 and 368(a)(1)(D) of the Code;
 
  •  the Board of Directors of ITT shall have obtained opinions from a nationally recognized valuation firm, in form and substance satisfactory to ITT, with respect to the capital adequacy and solvency of each of ITT, DCO and WCO;
 
  •  ITT shall have obtained all government approvals and other consents necessary to consummate the distribution;
 
  •  no order, injunction or decree issued by any governmental entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of all or any portion of the distribution shall be pending, threatened, issued or in effect, and no other event outside the control of ITT shall have occurred or failed to occur that prevents the consummation of all or any portion of the distribution;
 
  •  no other events or developments shall have occurred or failed to occur that, in the judgment of the Board of Directors of ITT, would result in the distribution having a material adverse effect on ITT or its shareholders;
 
  •  the financing transactions described in this Information Statement as having occurred prior to the distribution shall have been consummated on or prior to the distribution;
 
  •  the internal reorganization shall have been completed, except for such steps as ITT in its sole discretion shall have determined may be completed after the distribution date;
 
  •  ITT shall have taken all necessary action, in the judgment of the Board of Directors of ITT, to cause the Board of Directors of WCO to consist of the individuals identified in this Information Statement as directors of WCO;
 
  •  ITT shall have taken all necessary action, in the judgment of the Board of Directors of ITT, to cause the officers of WCO to be the individuals identified as such in this Information Statement;


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  •  ITT shall have caused all its employees and any employees of its subsidiaries (excluding any employees of any of WCO and its subsidiaries after the internal reorganization (the “WCO Group”)) to resign, effective as of the distribution date, from all positions as officers or directors of any member of the WCO Group in which they serve, and WCO shall have caused all its employees and any employees of its subsidiaries to resign, effective as of the distribution date, from all positions as officers or directors of any of ITT, DCO or any of their respective subsidiaries after the internal reorganization, in which they serve;
 
  •  all necessary actions shall have been taken to adopt the form of amended and restated articles of incorporation and amended and restated by-laws filed by WCO with the SEC as exhibits to the Registration Statement on Form 10, of which this Information Statement forms a part;
 
  •  the Board of Directors of ITT shall have approved the distribution, which approval may be given or withheld at its absolute and sole discretion; and
 
  •  each of the Distribution Agreement, the Tax Matters Agreement, the Employee Matters Agreement, the Intellectual Property License Agreements, the Transition Services Agreements and the other ancillary agreements shall have been executed by each party.
 
Completion of the spin-off of DCO will be subject to similar conditions as those listed above. The fulfillment of the foregoing conditions will not create any obligation on ITT’s part to effect the spin-off. We are not aware of any material federal, foreign or state regulatory requirements that must be complied with or any material approvals that must be obtained, other than compliance with SEC rules and regulations, the receipt of a private letter ruling from the Internal Revenue Service, approval for listing on the NYSE and the declaration of effectiveness of the Registration Statement on Form 10 by the SEC, in connection with the distribution. ITT has the right not to complete the spin-off if, at any time prior to the distribution, the Board of Directors of ITT determines, in its sole discretion, that the spin-off is not then in the best interests of ITT or its shareholders or other constituents, that a sale or other alternative is in the best interests of ITT or its shareholders or other constituents or that it is not advisable for WCO to separate from ITT at that time.
 
Reason for Furnishing this Information Statement
 
This Information Statement is being furnished solely to provide information to ITT’s shareholders that are entitled to receive shares of our common stock in the spin-off. This Information Statement is not, and is not to be construed as, an inducement or encouragement to buy, hold or sell any of our securities. We believe that the information in this Information Statement is accurate as of the date set forth on the cover. Changes may occur after that date and neither ITT nor we undertake any obligation to update the information except in the normal course of our respective public disclosure obligations.


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TRADING MARKET
 
Market for Our Common Stock
 
There has been no public market for our common stock. An active trading market may not develop or may not be sustained. We anticipate that trading of our common stock will commence on a “when-issued” basis at least two trading days prior to the record date and continue through the distribution date. When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. When-issued trades generally settle within four trading days after the distribution date. If you own shares of ITT common stock at the close of business on the record date, you will be entitled to shares of our common stock (as well as shares of DCO common stock) distributed pursuant to the spin-off. You may trade this entitlement to shares of our common stock, without the shares of ITT common stock you own, on the when-issued market. On the first trading day following the distribution date, any when-issued trading with respect to our common stock will end and “regular-way” trading will begin. We intend to list our common stock on the NYSE under the ticker symbol “     ”. We will announce our when-issued trading symbol when and if it becomes available.
 
It is also anticipated that, at least two trading days prior to the record date and continuing up to and including the distribution date, there will be two markets in ITT common stock: a “regular-way” market and an “ex-distribution” market. Shares of ITT common stock that trade on the regular-way market will trade with an entitlement to shares of our common stock (as well as shares of DCO common stock) distributed pursuant to the distribution. Shares that trade on the ex-distribution market will trade without an entitlement to shares of our common stock (as well as shares of DCO common stock) distributed pursuant to the distribution. Therefore, if you sell shares of ITT common stock in the regular-way market up to and including the distribution date, you will be selling your right to receive shares of our common stock (as well as shares of DCO common stock) in the distribution. However, if you own shares of ITT common stock at the close of business on the record date and sell those shares on the ex-distribution market up to and including the distribution date, you will still receive the shares of our common stock (as well as shares of DCO common stock) that you would otherwise receive pursuant to the distribution.
 
We cannot predict the prices at which our common stock may trade before the spin-off on a “when-issued” basis or after the spin-off. Those prices will be determined by the marketplace. Prices at which trading in our common stock occurs may fluctuate significantly. Those prices may be influenced by many factors, including anticipated or actual fluctuations in our operating results or those of other companies in our industry, investor perception of our company and the water technology industry, market fluctuations and general economic conditions. In addition, the stock market in general has experienced extreme price and volume fluctuations that have affected the performance of many stocks and that have often been unrelated or disproportionate to the operating performance of these companies. These are just some factors that may adversely affect the market price of our common stock. See “Risk Factors — Risks Relating to Our Common Stock.”
 
Transferability of Shares of Our Common Stock
 
On          , 2011, ITT had           shares of its common stock issued and outstanding. Based on this number, we expect that upon completion of the spin-off, we will have           shares of common stock issued and outstanding. The shares of our common stock that you will receive in the distribution will be freely transferable, unless you are considered an “affiliate” of ours under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”). Persons who can be considered our affiliates after the spin-off generally include individuals or entities that directly, or indirectly through one or more intermediaries, control, are controlled by, or are under common control with, us and may include certain of our officers and directors. As of the distribution date, we estimate that our directors and officers will beneficially own           shares of our common stock. In addition, individuals who are affiliates of ITT on the distribution date may be deemed to be affiliates of ours. Our affiliates may sell shares of our common stock received in the distribution only:
 
  •  under a registration statement that the SEC has declared effective under the Securities Act; or


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  •  under an exemption from registration under the Securities Act, such as the exemption afforded by Rule 144.
 
In general, under Rule 144 as currently in effect, an affiliate will be entitled to sell, within any three-month period commencing 90 days after the date that the registration statement of which this Information Statement is a part is declared effective, a number of shares of our common stock that does not exceed the greater of:
 
  •  1.0% of our common stock then outstanding; or
 
  •  the average weekly trading volume of our common stock on the NYSE during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
 
Sales under Rule 144 are also subject to restrictions relating to manner of sale and the availability of current public information about us.
 
In the future, we may adopt new stock option and other equity-based compensation plans and issue options to purchase shares of our common stock and other stock-based awards. We currently expect to file a registration statement under the Securities Act to register shares to be issued under these stock plans. Shares issued pursuant to awards after the effective date of the registration statement, other than shares issued to affiliates, generally will be freely tradable without further registration under the Securities Act.
 
Except for our common stock distributed in the distribution, none of our equity securities will be outstanding immediately after the spin-off and there are no registration rights agreements existing with respect to our common stock.


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DIVIDEND POLICY
 
Following the distribution, we expect that initially WCO will pay a dividend, although the timing, declaration, amount and payment of future dividends to our shareholders fall within the discretion of our Board of Directors and will depend on many factors, including our financial condition, results of operations and capital requirements, as well as applicable law, regulatory constraints, industry practice and other business considerations that WCO’s Board of Directors considers relevant. In addition, the terms of the agreements governing our new debt or debt that we may incur in the future may limit or prohibit the payments of dividends. There can be no assurance that we will pay a dividend in the future or continue to pay any dividend if we do commence the payment of dividends. There can also be no assurance that the combined annual dividends on ITT common stock, DCO common stock and our common stock after the spin-off, if any, will be equal to the annual dividends on ITT common stock prior to the spin-off.


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CAPITALIZATION
 
The following table presents WCO’s historical capitalization at March 31, 2011 and our pro forma capitalization at that date reflecting the spin-off and the related transactions and events described in the notes to our unaudited pro forma condensed combined balance sheet as if the spin-off and the related transactions and events, including our financing transaction, had occurred on March 31, 2011. The capitalization table below should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and WCO’s historical combined financial statements, our unaudited pro forma condensed combined financial statements and the notes to those financial statements included in this Information Statement.
 
We are providing the capitalization table below for informational purposes only. It should not be construed to be indicative of our capitalization or financial condition had the spin-off and the related transactions and events been completed on the date assumed. The capitalization table below may not reflect the capitalization or financial condition that would have resulted had we been operated as a separate, independent entity at that date and is not necessarily indicative of our future capitalization or financial condition.
 
On July 5, 2011, we signed an agreement to acquire YSI and we expect to issue $310 million of indebtedness to fund the acquisition. The pro forma long term debt amount in the table below does not include the $310 million of indebtedness to be raised in connection with the YSI acquisition. See “Summary — Recent Developments.”
 
                 
    As of March 31, 2011  
    Historical     Pro Forma  
    (In millions)
 
    (Unaudited)  
 
Cash and Cash Equivalents(1)
  $ 154     $ 200  
                 
Capitalization:
               
Liabilities
               
Long-term debt (including capital lease obligations)
    4       894  
Equity
               
Common stock ($0.01 par value)
                 
Additional paid in capital
          1,719  
Parent company investment(1)
    2,390        
Accumulated other comprehensive income
    441       228  
                 
Total capitalization
  $ 2,835     $ 2,841  
                 
 
 
(1) Historically, cash received by us has been transferred to ITT, and ITT has funded our disbursement accounts on an as-needed basis. The net effect of transfers of cash to and from the ITT cash management accounts is reflected in parent company investment in the combined balance sheets.


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SELECTED HISTORICAL CONDENSED COMBINED FINANCIAL AND OTHER DATA
 
The following table presents the selected historical condensed combined financial data for WCO. The condensed combined statement of operations data for each of the years in the three-year period ended December 31, 2010 and the condensed combined balance sheet data as of December 31, 2010 and 2009 set forth below are derived from WCO’s audited combined financial statements included in this Information Statement. The condensed combined financial data for the three months ended March 31, 2011 and 2010 are derived from WCO’s unaudited condensed combined financial statements included in this Information Statement. The condensed combined statement of operations data for the years ended December 31, 2007 and 2006 and the condensed combined balance sheet data as of December 31, 2008, 2007 and 2006 are derived from WCO’s unaudited combined financial statements that are not included in this Information Statement. The unaudited combined financial statements have been prepared on the same basis as the audited combined financial statements and, in the opinion of our management, include all adjustments necessary for a fair presentation of the information set forth herein.
 
The selected historical condensed combined financial and other data presented below should be read in conjunction with WCO’s combined financial statements and accompanying notes and “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Information Statement. WCO’s condensed combined financial data may not be indicative of our future performance and do not necessarily reflect what our financial position and results of operations would have been had we been operating as an independent, publicly traded company during the periods presented, including changes that will occur in our operations and capitalization as a result of the spin-off from ITT. See “Unaudited Pro Forma Condensed Combined Financial Statements” for a further description of the anticipated changes.
 
                                                         
    As of and for
       
    Three Months Ended
       
    March 31     As of and for Year Ended December 31  
    2011(1)     2010     2010(1)     2009     2008     2007     2006  
    (In millions)  
 
Net sales
  $ 890     $ 686     $ 3,202     $ 2,849     $ 3,291     $ 3,068     $ 2,710  
Operating income
    100       69       388       276       315       288       293  
Net income
    78       56       329       263       224       219       212  
Total assets
    3,849       2,911       3,735       2,535       2,530       2,832       2,575  
 
 
(1) The increase in total assets as of March 31, 2011 as compared to March 31, 2010 is primarily attributable to the August 3, 2010 acquisition of Godwin Pumps. The increase in total assets as of December 31, 2010 as compared to December 31, 2009 is primarily attributable to the Godwin Pumps acquisition and the March 23, 2010 acquisition of Nova Analytics. The Godwin Pumps and Nova Analytics acquisitions also benefited net sales, operating income, and net income in the first quarter of 2011 and for the year ended 2010. See Note 3, “Acquisitions,” in the Notes to the Combined Financial Statements.


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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
 
The unaudited pro forma condensed combined financial statements of WCO consist of unaudited pro forma condensed combined statements of operations for the quarter ended March 31, 2011 and for the fiscal year ended December 31, 2010, and an unaudited pro forma condensed combined balance sheet as of March 31, 2011. The unaudited pro forma condensed combined financial statements should be read in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical combined financial statements included in this Information Statement.
 
The unaudited pro forma condensed combined financial statements have been derived from our historical combined financial statements included in this Information Statement and are not intended to be a complete presentation of our financial position or results of operations had the transactions contemplated by the Distribution Agreement and related agreements occurred as of and for the periods indicated. In addition, they are provided for illustrative and informational purposes only and are not necessarily indicative of our future results of operations or financial condition as an independent, publicly traded company. The pro forma adjustments are based upon available information and assumptions that management believes are reasonable, that reflect the expected impacts of events directly attributable to the distribution and related transaction agreements, and that are factually supportable and for purposes of the statements of operations, are expected to have a continuing impact on us. However, such adjustments are subject to change based on the finalization of the terms of the Distribution Agreement and related agreements.
 
The unaudited pro forma condensed combined statements of operations for the quarter ended March 31, 2011 and fiscal year ended December 31, 2010 reflect our results as if the separation and related transactions described below had occurred as of January 1, 2010. The unaudited pro forma condensed combined balance sheet as of March 31, 2011 reflects our results as if the separation and related transactions described below had occurred as of such date.
 
The unaudited pro forma condensed combined financial statements give effect to the following:
 
  •  the contribution by ITT to us, pursuant to the Distribution Agreement, of all the assets and liabilities that comprise our business;
 
  •  the expected transfer to us, upon the spin-off, of certain assets and liabilities that were not reflected in our historical combined financial statements;
 
  •  the results of operations for the period prior to our acquisition of Godwin Pumps on August 3, 2010;
 
  •  our anticipated post-separation capital structure, including (i) the issuance of up to approximately           million shares of our common stock to holders of ITT common shares (this number of shares is based upon the number of ITT common shares outstanding on March 31, 2011 and an assumed distribution ratio of           shares of WCO common stock for each ITT common share) and (ii) the incurrence of $890 million of indebtedness and the making of the $833 million Contribution.
 
  •  the impact of, and transactions contemplated by, a Tax Matters Agreement between us and ITT and the provisions contained therein; and
 
  •  settlement of intercompany account balances between us and ITT.
 
The unaudited pro forma condensed combined financial statements do not give effect to the probable acquisition of YSI, or $310 million of indebtedness to be raised in connection with the acquisition, because such acquisition is not considered significant. See “Summary — Recent Developments.”
 
The operating expenses reported in our carve-out historical combined statements of operations include allocations of certain ITT costs. These costs include allocation of all ITT corporate costs, shared services, and other SG&A and non-SG&A related costs that benefit us.
 
As a stand-alone public company, we expect to incur additional recurring costs. Our preliminary estimates of the additional recurring costs expected to be incurred annually are approximately $25 million to $35 million higher than the expenses historically allocated to us from ITT.


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The significant assumptions involved in determining our estimates of recurring costs of being a stand-alone public company include:
 
  •  costs to perform financial reporting, tax, regulatory compliance, corporate governance, treasury, legal, internal audit and investor relations activities;
 
  •  compensation, including equity-based awards, and benefits with respect to new and existing positions;
 
  •  insurance premiums;
 
  •  depreciation and amortization related to information technology infrastructure investments; and
 
  •  the type and level of other costs expected to be incurred.
 
No pro forma adjustments have been made to our financial statements to reflect the additional costs and expenses described above because they are projected amounts based on judgmental estimates.
 
We currently estimate expenses that we will incur during our transition to being a stand-alone public company to range from approximately $20 million to $30 million. We have not adjusted the accompanying unaudited pro forma condensed combined statements of operations for these estimated expenses as they are not expected to have an ongoing impact on our operating results. We anticipate that substantially all of these expenses will be incurred within 18 months of the distribution. These expenses primarily relate to the following:
 
  •  accounting, tax and other professional costs pertaining to our separation and establishment as a stand-alone public company;
 
  •  compensation, such as modifications to certain bonus awards, upon completion of the separation;
 
  •  relocation costs;
 
  •  recruiting and relocation costs associated with hiring key senior management personnel new to our company;
 
  •  costs related to establishing our new brand in the marketplace; and
 
  •  costs to separate information systems.
 
Due to the scope and complexity of these activities, the amount of these costs could increase or decrease materially and the timing of incurrence could change.


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PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
QUARTER ENDED MARCH 31, 2011
 
                                 
                      Pro Forma for the
 
    Historical
    Financing
    Separation and
    Financing and the
 
    (a)     Adjustments     Other Adjustments     Separation  
    (In millions, except per share amounts)  
 
Net sales
  $ 890     $       $       $ 890  
Costs of sales
    553                       553  
                                 
Gross profit
    337                       337  
Selling, general and administrative expenses
    213               (3 )(c)     210  
Research and development expenses
    24                       24  
                                 
                             
Operating income
    100               3       103  
Interest expense
          (9 )(d)             (9 )
Other income (expense), net
         1                       1  
                                 
Income (loss) before income tax expense
    101       (9 )     3       95  
Income tax (benefit) expense
    23       (3 )(e)     1 (e)     21  
                                 
Net income (loss)
  $ 78     $ (6 )   $ 2     $ 74  
                                 
Basic earnings per share:
                          $       (k)
Diluted earnings per share:
                          $       (l)
Weighted average number of shares outstanding:
                               
Basic
                                  (k)
Diluted
                                  (l)


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PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 2010
 
                                 
          Godwin Pumps as
          Pro Forma for
 
    Historical
    Adjusted
    Financing
    Godwin Pumps and the
 
    (a)     (b)     Adjustments     Financing  
    (In millions, except per share amounts)  
 
Net sales
  $ 3,202     $ 145     $       $ 3,347  
Costs of sales
    1,988       74               2,062  
                                 
Gross profit
    1,214       71               1,285  
Selling, general and administrative expenses
    737       52               789  
Research and development expenses
    74                     74  
Restructuring charges, net
    15                   15  
                                 
Operating income
    388       19               407  
Interest expense
                (35 )(d)     (35 )
                                 
Income (loss) before income tax expense
    388       19       (35 )     372  
Income tax (benefit) expense
    59       7       (11 )(e)     55  
                                 
Net income (loss)
  $ 329     $ 12     $ (24 )   $ 317  
                                 
Basic earnings per share:
                          $       (k)
Diluted earnings per share:
                          $       (l)
Weighted average number of shares outstanding:
                               
Basic
                                  (k)
Diluted
                                  (l)


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PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2011
 
                                 
                      Pro Forma for the
 
    Historical
    Financing
    Separation and
    Financing and the
 
    (a)     Adjustments     Other Adjustments     Separation  
    (In millions)  
 
ASSETS
Current assets:
                               
Cash and cash equivalents
  $ 154     $ 879 (f)   $ (833 )(h)   $ 200  
Receivables, net
    713                       713  
Inventories, net
    417                       417  
Prepaid expenses
    67               (1 )(g)     66  
Other current assets
    48               36 (g)     84  
                                 
Total current assets
    1,399       879       (798 )     1,480  
Plant, property and equipment, net
    459               11 (g)     470  
Goodwill
    1,472                       1,472  
Other intangible assets, net
    419                       419  
Other non-current assets
    100       11 (f)     67 (g)     121  
                      (57 )(i)        
                                 
Total non-current assets
    2,450       11       21       2,482  
                                 
Total assets
  $ 3,849     $ 890     $ (777 )   $ 3,962  
                                 
 
LIABILITIES AND EQUITY
Current liabilities:
                               
Accounts payable
  $ 287     $       $       $ 287  
Accrued and other current liabilities
    351               19 (g)     370  
                                 
Total current liabilities
    638               19       657  
                                 
Postretirement benefits
    171               93 (g)     264  
Deferred income tax liability
    101               17 (g)     118  
Long-term obligations, less current portion
    4       890 (f)             894  
Other non-current liabilities
    104               20 (g)     82  
                      (42 )(i)        
                                 
Total non-current liabilities
    380       890       88       1,358  
                                 
Total liabilities
    1,018       890       107       2,015  
                                 
Equity:
                               
Common stock
                             
Additional paid in capital
                  1,719 (j)     1,719  
Parent company investment
    2,390               177 (g)      
                      (833 )(h)        
                      (15 )(i)        
                      (1,719 )(j)        
Accumulated other comprehensive income
    441               (213 )(g)     228  
                                 
Total equity
    2,831               (884 )     1,947  
                                 
Total liabilities and equity
  $ 3,849     $ 890     $ (777 )   $ 3,962  
                                 


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NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
 
(a) Our historical combined financial statements reflect the historical financial position and results of operations of the water equipment and services businesses of ITT, and do not reflect the impact of certain assets and liabilities that will be contributed to us by ITT in the spin-off and that are discussed separately in footnote (g).
 
(b) Reflects the historical pre-acquisition results of Godwin Pumps during the period from January 1, 2010 to August 2, 2010, as adjusted by $10 million for depreciation and amortization related to the increase of property, plant and equipment and finite-lived identifiable intangible assets to their estimated fair value upon purchase. The estimated useful lives of the property, plant and equipment range from 3 to 10 years and the finite-lived intangible assets range from 10 to 20 years. The as-adjusted amounts also include the reversal of transaction costs incurred by us of $3 million directly related to the acquisition of Godwin Pumps and $6 million for the income tax impact of these pro forma adjustments and for the effect of the change in tax status of Godwin Pumps of America, Inc (“GPA”). Prior to the acquisition, GPA was taxed as a subchapter S-corporation under the Internal Revenue Code and following the acquisition became a C-corporation.
 
(c) Reflects the removal of separation costs directly related to the spin-off transaction that were incurred during the historical period. These costs were primarily for tax, accounting, and other professional fees.
 
(d) The adjustment of $9 million and $35 million in the quarter ended March 31, 2011 and the fiscal year ended December 31, 2010, respectively, represents interest expense and amortization of debt issuance costs in connection with debt securities we are planning to issue as described in note (f) below. The pro forma impact was based on the incurrence of $890 million of indebtedness issued with an assumed weighted average interest rate of 3.75%, and an assumed weighted average life of approximately 7 years. We expect to capitalize debt issuance costs of approximately $11 million in connection with these debt arrangements. Not reflected in the adjustments is the debt we expect to incur of $310 million in connection with the YSI acquisition. See “Summary — Recent Developments.”
 
A 1/8% variance in the assumed interest rate on the new debt securities would change annual interest expense by $1 million.
 
(e) The provision for income taxes reflected in our historical financial statements was determined as if WCO filed a separate, stand-alone consolidated income tax return. The pro forma adjustments were determined using the statutory tax rate in effect in the respective tax jurisdictions during the periods presented. Our effective tax rate reflects the historical assumption that we do not intend to repatriate non-U.S. earnings. The Company is in the process of evaluating its future expected tax rate, including tax implications resulting from its spin-off and any potential changes to our intention in repatriating non-U.S. earnings.
 
(f) Reflects the incurrence of $890 million of indebtedness, net of debt issuance costs of $11 million. The $890 million of indebtedness consists of $          % senior notes due in      and     . The target debt balance at the time of separation was determined by senior management based on a review of a number of factors including credit ratings consideration, forecast liquidity and capital requirements, expected operating results, and general economic conditions. Cash on hand following the spin-off transaction is expected to be used for general corporate purposes. Not reflected in the adjustments is the debt we expect to incur of $310 million in connection with the YSI acquisition.
 
(g) Reflects the impact of assets and liabilities that are expected to be contributed to us by ITT, primarily related to international postretirement benefit plans and associated deferred tax positions. Effective as of the distribution date, ITT expects to transfer to WCO certain defined benefit pension and other postretirement benefit plans and WCO expects to assume all liabilities and assets associated with such plans and become the plans’ sponsor. The net liabilities associated with such plans to be assumed by WCO are approximately $82 million, excluding net deferred tax assets of $25 million.
 
(h) Reflects the net Contribution to ITT of $833 million based upon the anticipated post-separation capital structure.
 
(i) Reflects adjustments to deferred income taxes and other liabilities including an adjustment of ($42 million) comprising contingent tax liabilities related to unresolved tax matters that will be retained by ITT in connection with the separation as set forth in the Tax Matters Agreement that will be entered into with ITT and an


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adjustment of ($57 million) related to tax attributes reflected in our historical financial statements that will not be retained after the distribution. Additionally, there will be certain indemnifications extended between ITT and us in accordance with the terms of the Tax Matters Agreement. At the time of separation, we will record a liability necessary to recognize the fair value of such indemnifications. The pro forma adjustment does not include such liability. We are currently in the process of determining the impact, if any, on the amount of any liability that may be recognized at the time of the separation.
 
(j) Represents the reclassification of ITT’s net investment in us, which was recorded in parent company equity, into additional paid-in-capital and the balancing entry to reflect the par value of approximately           million outstanding shares of common stock at a par value of $0.01 outstanding common stock. We have assumed the number of outstanding shares of common stock based on the number of ITT common shares outstanding at March 31, 2011, which would result in approximately           million shares being distributed to holders of ITT common shares, at an assumed distribution ratio of           shares of WCO common stock for each ITT common share.
 
(k) Pro forma basic earnings per share and pro forma weighted-average basic shares outstanding are based on the number of ITT common shares outstanding on March 31, 2011, adjusted for an assumed distribution ratio of           shares of WCO common stock for each ITT common share.
 
(l) Pro forma diluted earnings per share and pro forma weighted-average diluted shares outstanding reflect potential common shares from ITT equity plans in which our employees participate based on the distribution ratio. While the actual impact on a go-forward basis will depend on various factors, including employees who may change employment from one company to another, we believe the estimate yields a reasonable approximation of the future dilutive impact of WCO equity plans.


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read the following discussion of our results of operations and financial condition together with the audited and unaudited historical combined financial statements and the notes thereto included in this Information Statement as well as the discussion in the section of this Information Statement entitled “Business.” This discussion contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in the sections of this Information Statement entitled “Risk Factors” and “Special Note About Forward-Looking Statements.” The financial information discussed below and included in this Information Statement may not necessarily reflect what our financial condition, results of operations or cash flow would have been had we been a stand-alone company during the periods presented or what our financial condition, results of operations and cash flows may be in the future.
 
Except as otherwise indicated or unless the context otherwise requires, the information included in this discussion and analysis assumes the completion of all the transactions referred to in this Information Statement in connection with the separation and distribution. Unless the context otherwise requires, references in this Information Statement to “WCO,” “we,” “us,” “our” and “our company” refer to ITT WCO, Inc. and its combined subsidiaries. References in this Information Statement to “ITT” or “parent” refer to ITT Corporation, an Indiana corporation, and its consolidated subsidiaries, unless the context otherwise requires. Amounts in millions unless otherwise stated.
 
Separation from ITT Corporation
 
On January 12, 2011, ITT announced a plan to separate its water equipment and services business (WCO) from the remainder of its businesses through a pro rata distribution of common stock of an entity holding the assets and liabilities associated with the water equipment and services business. We were incorporated in Indiana on May 4, 2011 to be the entity to hold such businesses subject to approval by the board of directors of ITT and other conditions described below.
 
The combined financial statements presented in this Information Statement and discussed below have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of the water equipment and services business of ITT. The water-related business includes the following divisions of ITT: Water & Wastewater, Residential & Commercial Water, and Flow Control. The combined financial statements reflect our financial position, results of operations and cash flows as we were historically managed, in conformity with accounting principles generally accepted in the United States of America, or GAAP.
 
Subsequent to the distribution, we expect to incur expenditures consisting primarily of employee-related costs, costs to start up certain stand-alone functions and information technology systems, and other transaction-related costs. Additionally, we will incur increased costs as a result of becoming an independent publicly-traded company, primarily from higher charges than in the past from ITT for transition services and from establishing or expanding the corporate support for our businesses, including information technology, human resources, treasury, tax, risk management, accounting and financial reporting, investor relations, governance, legal, procurement and other services. We believe our cash flow from operations will be sufficient to fund these additional corporate expenses.
 
Executive Summary
 
Our Company is a world leader in the design, manufacturing, and application of highly engineered technologies for the water industry. We are a leading equipment and service provider for water and wastewater applications with a broad portfolio of products and services addressing the full cycle of water, from collection, distribution and use to the return of water to the environment. Our Company’s brands, such as Bell & Gossett and Flygt, are well known throughout the industry and have served the water market for many years. Over the


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years, we have leveraged our heritage strength in wastewater pumping technologies to expand into wastewater treatment, and later into clean water treatment and water quality analysis. We believe we are strongly positioned to use our deep applications expertise and offer our customers a full spectrum of service offerings in the transportation, treatment and testing of water. Net sales and operating income for the twelve months ended December 31, 2010 were $3.2 billion and $388, respectively, and for the three months ended March 31, 2011 were $890 and $100, respectively.
 
We operate in two segments, Water Infrastructure and Applied Water. The Water Infrastructure segment focuses on the transportation, treatment and testing of water, offering a range of products including water and wastewater pumps, treatment and testing equipment, and controls and systems. Key brands include Flygt, Wedeco, Godwin Pumps, WTW, Sanitaire, AADI and Leopold. The Applied Water segment encompasses all the uses of water and focuses on the residential, commercial, industrial and agricultural markets. The segment’s major products include pumps, valves, heat exchangers, controls and dispensing equipment. Key brands in this segment include Goulds, Bell & Gossett, AC Fire, Standard, Flojet, Lowara, Jabsco and Flowtronex. In both our segments, we benefit from a large and growing installed base of products driving growth in aftermarket sales for replacement parts and services.
 
Financial highlights for the three months ended March 31, 2011 include the following:
 
  •  Order growth of 27.2% over the prior year; organic orders were up 10.3%
 
  •  Revenue increase of 29.7% from 2010; organic revenue was up 11.7%
 
  •  Operating margin expansion of 110 bps to 11.2% as compared with 2010
 
  •  Adjusted net income of $80, an increase of $24 from 2010
 
  •  Free cash flow generation of $52, up $20 from 2010
 
Financial highlights for 2010 include the following:
 
  •  Order growth of 13.7% over the prior year; organic orders were up 4.7%
 
  •  Revenue increase of 12.4% from 2010; organic revenue was up 3.4%
 
  •  Operating margin expansion of 240 bps to 12.1% as compared with 2009
 
  •  Adjusted net income of $329, an increase of $124 from 2009
 
  •  Free cash flow generation of $301, up $6 from 2009
 
  •  Deployment of more than $1 billion of capital into a number of strategic acquisitions in growth markets, most notably the acquisitions of Nova Analytics (“Nova”) and Godwin Pumps of America and Godwin Holdings Limited (collectively referred to as “Godwin”)
 
Further details related to these results are described below. See “— Key Performance Indicators and Non-GAAP Measures” below for a reconciliation of the non-GAAP measures.
 
Key Performance Indicators and Non-GAAP Measures
 
Management reviews key performance indicators including revenue, segment operating income and margins, orders growth, and backlog, among others. In addition, we consider certain measures to be useful to management and investors evaluating our operating performance for the periods presented, and provide a tool for evaluating our ongoing operations, liquidity and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenue, operating income, net income, or net cash from continuing operations as determined in accordance with GAAP. We consider the


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following non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators:
 
  •  “organic revenue” and “organic orders” defined as revenue and orders, respectively, excluding the impact of foreign currency fluctuations and contributions from acquisitions and divestitures. Divestitures include sales of portions of our business that did not meet the criteria for classification as a discontinued operation or insignificant portions of our business that we did not classify as a discontinued operation. The period-over-period change resulting from foreign currency fluctuations assumes no change in exchange rates from the prior period.
 
  •  “adjusted net income” defined as net income, adjusted to exclude items that may include, but are not limited to, significant charges or credits that impact current results but are not related to our ongoing operations, unusual and infrequent non-operating items and non-operating tax settlements or adjustments. A reconciliation of adjusted net income is provided below.
 
                                         
    Three Months Ended     Years Ended  
    March 2011     March 2010     2010     2009     2008  
 
Net income
  $ 78     $ 56     $ 329     $ 263     $ 224  
Tax-related special item(a)
                      (58 )      
Separation costs, net of tax
    2                          
                                         
Adjusted net income
  $ 80     $ 56     $ 329     $ 205     $ 224  
                                         
 
 
(a) The 2009 tax-related special item is primarily attributable to the completion of a restructuring of certain international legal entities.
 
  •  “free cash flow” defined as net cash provided by operating activities, as reported in the Statement of Cash Flows, less capital expenditures and other significant items that impact current results which management believes are not related to our ongoing operations and performance. Our definition of free cash flow does not consider certain non-discretionary cash payments, such as debt. A reconciliation of free cash flow is provided below.
 
                                         
    Three Months Ended     Years Ended  
    March 2011     March 2010     2010     2009     2008  
 
Net cash from operating activities
  $ 71     $ 42     $ 395     $ 357     $ 421  
Capital expenditures
    (19 )     (10 )     (94 )     (62 )     (67 )
                                         
Free cash flow
  $ 52     $ 32     $ 301     $ 295     $ 354  
                                         
 
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:
 
  •  The global economic environment remains in a relative state of uncertainty. Although financial markets have recovered from their lows in 2009, we consider the overall global economic recovery to be a gradual, long-term process. In the United States, gradual improvements in credit availability, solid consumer spending, moderate job creation and less uncertainty about new regulations should work to reinforce the economic recovery. However, downside factors such as the challenges facing local, state and federal government finance and possible spillover of Europe’s sovereign debt crisis could limit or delay U.S. growth. Within Europe, the sovereign debt crisis has weakened the recovery process and created the potential for significant volatility during 2011. The potential for unforeseen adverse macroeconomic events remains a concern and the occurrence of such events could have a significant unfavorable effect on our business.
 
  •  A portion of our Water Infrastructure segment’s revenue is derived from municipal projects and services. European austerity measures and budget pressures within the United States have forced


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  governments to plan for reductions in spending, reevaluate their priorities and postpone wastewater infrastructure projects. These actions have led to a reduction in demand, increased competition and pricing pressures. Our ability or inability to secure project orders in this challenging environment could significantly affect our Water Infrastructure segment results.
 
  •  A portion of the Applied Water segment’s revenue is derived from U.S. commercial construction spending and residential real estate activity. Commercial construction build rates are expected to remain low during the majority of 2011 as the build versus buy indicator for real estate investors continues to favor investing in existing buildings due to depressed asset prices. Similarly, consensus expectations for residential homebuilding are mixed, reflecting uncertainty around the likelihood and magnitude of a recovery. The continued uncertainty and volatility within these markets could significantly affect the results of our Applied Water segment.
 
  •  A portion of our business provides pumps for the general industrial market. Emerging markets have led a recovery in the global industrial market, most significantly within the mining industry as high metal prices have promoted robust demand for mining equipment. However, as long as global economic uncertainty remains it will be difficult to predict how the trends in industrial orders may be impacted.
 
  •  We anticipate significant expenditures associated with the planned spin-off transaction primarily consisting of employee-related costs, costs to start up certain stand-alone functions and information technology systems, and other transaction-related costs.
 
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 and our disclosure on forward-looking statements identified in this Information Statement.
 
Three months ended March 31, 2011 compared to three months ended March 31, 2010, and year ended December 31, 2010 compared to year ended December 31, 2009
 
Revenue
 
Our quarter ended March 31, 2011 and annual 2010 revenue was marked by growth from strategic acquisitions as well as a level of economic recovery within the majority of our served markets. Although revenue has not yet reached the levels achieved during 2008, we believe that our competitive position and portfolio of highly engineered products will continue to be strengthened by a gradual economic improvement and contributions from acquisitions. The following table illustrates the revenue of our business segments for the quarter ended March 31, 2011 and the annual 2010 and 2009 periods. See below for further discussion of variances over these periods at the segment level.
 
                                                 
    Three Months Ended March 31,     Annual  
    2011     2010     Change     2010     2009     Change  
 
Water Infrastructure
  $ 551     $ 377       46.2 %   $ 1,930     $ 1,651       16.9 %
Applied Water
    355       323       9.9 %     1,327       1,254       5.8 %
Eliminations
    (16 )     (14 )           (55 )     (56 )      
                                                 
Total
  $ 890     $ 686       29.7 %   $ 3,202     $ 2,849       12.4 %
                                                 


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The following table illustrates the impact from organic growth, recent acquisitions, and fluctuations in foreign currency, in relation to combined revenue during the quarter ended March 31, 2011.
 
                 
    $
    %
 
    Change     Change  
 
Revenue for the three months ended March 31, 2010
  $ 686          
Organic growth
    81       11.7 %
Acquisitions/(divestitures), net
    110       16.1 %
Foreign currency translation
    13       1.9 %
                 
Total change in revenue
    204       29.7 %
                 
Revenue for the three months ended March 31, 2011
  $ 890          
                 
 
The following table illustrates the impact from organic growth, recent acquisitions, and fluctuations in foreign currency, in relation to combined revenue during the annual 2010 period.
 
                 
    $
    %
 
    Change     Change  
 
2009 Revenue
  $ 2,849          
Organic growth
    96       3.4 %
Acquisitions/(divestitures), net
    263       9.2 %
Foreign currency translation
    (6 )     (0.2 )%
                 
Total change in revenue
    353       12.4 %
                 
2010 Revenue
  $ 3,202          
                 
 
Water Infrastructure
 
Revenue generated by our Water Infrastructure segment during the quarter ended March 31, 2011 and the annual 2010 period was $551 and $1,930, respectively, reflecting an increase of $174 and $279, respectively, as compared to the same prior year periods. These increases were primarily driven by acquisitions, including Godwin and Nova, which in the aggregate contributed $110 and $247, respectively, over the same respective periods. Since their acquisition, Godwin and Nova have both performed favorably versus our initial expectations. Foreign exchange translation was favorable by $12 and $8 for the quarter ended March 31, 2011 and the annual period ended December 31, 2010, as compared to the same prior year period, respectively.
 
Organic revenue growth for the quarter ended March 31, 2011 was $52 or 13.7% and was primarily driven by increased treatment and transport project activity in the public utilities markets.
 
Organic revenue increased 1.5% for the annual 2010 period reflecting mixed regional results, including favorable treatment performance in Northern Europe and in emerging markets such as Asia Pacific, Eastern Europe and Latin America. Unfavorable economic conditions and uncertainty within the region continued to negatively impact performance in our Southern European markets.
 
Applied Water
 
Revenue generated by our Applied Water segment during the quarter ended March 31, 2011 and the annual 2010 period was $355 and $1,327, respectively, reflecting an increase of $32 and $73, respectively, as compared to the same prior year periods. During 2010, contributions from the 2009 Laing acquisition of $19 were partially offset by a decline in revenues from businesses divested of $3. Foreign exchange translation was favorable by $1 and unfavorable by $16 for the quarter March 31, 2011 and the annual 2010 period ended, as compared to the same prior year period, respectively.
 
Organic revenue growth of $30 or 9.4% during the first quarter of 2011 compared with the prior year generally reflects improving market conditions including: (1) increased volume for light industrial applications driven by demand for general and specialty industrial pumps, marine products and valves; (2) increased


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volume within commercial building services within both developed and emerging markets; and (3) increased demand for agriculture/irrigation applications. We also benefited from price realization initiatives.
 
Despite relatively weak market conditions throughout 2010, we recorded organic revenue growth of $72 or 5.8% over the prior year. This growth was primarily attributable to European and emerging market share gains as well as the impact from new product launches, including energy efficient pumps and new beverage applications. We also benefited from price realization initiatives. Organic revenue growth was partially offset by unfavorable weather conditions in North America, which negatively impacted our sales of irrigation applications.
 
Gross Profit
 
Gross profit for the quarter ended March 31, 2011 and the annual 2010 period was $337 and $1,214, respectively, representing increases of $82, or 32.2%, and $177, or 17.1%, respectively, as compared to prior periods. These increases include respective gross profits from our 2010 acquisitions of $56 and $101 in quarter ended March 31, 2011 and the annual 2010 period, respectively, increased organic sales volume, and benefits from productivity and price realization initiatives. As result of these factors, gross profit margin expanded by approximately 70 bps and 150 bps over the same comparable respective periods.
 
Operating Expenses
 
Operating expenses increased approximately 27.4% and 8.5% during the quarter ended March 31, 2011 and the annual 2010 period to $237 and $826, respectively. The following table provides further information by expense type.
 
                                                 
    Three Months Ended March 31,     Annual  
    2011     2010     Change     2010     2009     Change  
 
Selling, general and administrative expenses
  $ 213     $ 164       29.9 %   $ 737     $ 667       10.5 %
Research and development expenses
    24       18       33.3 %     74       63       17.5 %
Restructuring charges, net
          4       NM*       15       31       (51.6 )%
                                                 
Total
  $ 237     $ 186       27.4 %   $ 826     $ 761       8.5 %
                                                 
 
 
*NM = Not meaningful
 
Selling, General & Administrative Expenses (SG&A)
 
SG&A expenses increased $49, or 29.9%, and $70, or 10.5%, during the quarter ended March 31, 2011 and the annual 2010 period, respectively. These increases primarily reflect additional costs of $26 and $55, respectively, related primarily to our newly acquired Godwin and Nova businesses, as well as costs attributable to an increase in sales volumes, as well as additional spending on various strategic investments. During the first quarter of 2011, we were allocated separation costs of $3 primarily attributable to tax, accounting, and other professional fees. It is expected that separation costs will increase as the separation nears.
 
SG&A as a percent of sales was 23.9% for both three-month periods ended March 31, 2011 and 2010. SG&A as a percent of sales was 23.0% and 23.4% for the years ended December 31, 2010 and 2009, respectively.
 
Research and Development Expenses (R&D)
 
R&D spending increased by $6, or 33.3%, and $11, or 17.5%, during the quarter ended March 31, 2011 and the annual 2010 period, respectively, primarily due to our newly acquired Nova business. R&D as a percent of sales was 2.7% and 2.6% for the three-month periods ended March 31, 2011 and 2010, respectively. R&D as a percent of sales was 2.3% and 2.2% for the years ended December 31, 2010 and 2009, respectively.


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Restructuring, Net
 
We had no restructuring charges during the quarter ended March 31, 2011. During the annual 2010 period, we recognized net restructuring charges of $15, representing a $16 or 51.6% decrease as compared to, the prior annual period. During 2009, we initiated several actions, primarily within our Applied Water segment in response to declining market conditions. The frequency and overall impact of such actions subsided and as a result we incurred less cost during 2010. We consider the majority of our restructuring initiatives to be complete as of December 31, 2010.
 
See Note 5, “Restructuring Charges Net,” in the Notes to the Combined Financial Statements for additional information.
 
Operating Income
 
We generated operating income of $100 and $388 during the quarter ended March 31, 2011 and the annual 2010 period, respectively. This reflected increases from the prior period of 44.9% and 40.6%, respectively. Operating margin increased to 11.2% for the quarter ended March 31, 2011 and 12.1% for the annual 2010 period, a period-over-period increase of 110 and 240 basis points, respectively. The following table illustrates operating income results of our business segments, including operating margin results for the quarter ended March 31, 2011 and annual 2010 and 2009 periods.
 
                                                 
    Three Months Ended March 31,     Annual  
    2011     2010     Change     2010     2009     Change  
 
Water Infrastructure
  $ 64     $ 45       42.2 %   $ 276     $ 227       21.6 %
Applied Water
    46       40       15.0 %     158       109       45.0 %
                                                 
Segment operating income
    110       85       29.4 %     434       336       29.2 %
Other
    (10 )     (16 )     37.5 %     (46 )     (60 )     23.3 %
                                                 
Total operating income
  $ 100     $ 69       44.9 %   $ 388     $ 276       40.6 %
                                                 
Operating margin:
                                               
Combined
    11.2 %     10.1 %     110 bps     12.1 %     9.7 %     240 bps
Water Infrastructure
    11.6 %     11.9 %     (30 ) bps     14.3 %     13.7 %     60 bps
Applied Water
    13.0 %     12.4 %     60 bps     11.9 %     8.7 %     320 bps
 
Water Infrastructure
 
Operating income for our Water Infrastructure segment increased $19 or 42.2% for the quarter ended March 31, 2011 compared with the comparable prior year period. This increase is primarily attributable to contributions from the Nova and Godwin acquisitions, which provided incremental operating income of approximately $20 over the same period. Operating margin declined 30 bps over the same period as the year-over-year benefits attributable to higher organic revenue, lower restructuring expense and benefits from productivity and material costs savings initiatives were offset by the unfavorable impact from foreign exchange costs, higher labor and overhead costs, material inflation, operating reserves, and unfavorable mix.
 
Operating income for our Water Infrastructure segment increased $49 or 21.6% for the year ended December 31, 2010 compared with the comparable prior year period. This increase is primarily attributable to contributions from the Nova and Godwin acquisitions, which provided combined incremental operating income of $28 during 2010. Operating productivity and lower restructuring expense more than offset incremental strategic investments, higher pension costs, and unfavorable foreign currency impacts. Operating margin expansion of 60 bps over the same period, a decline largely attributable to these same factors.
 
Applied Water
 
Operating income for our Applied Water segment increased $6 or 15.0% for the quarter ended March 31, 2011 compared with the prior year. Operating margin expanded 60 bps to 13.0% over the same period. These


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increases were primarily attributable to operating productivity driven by increased sales volume and price increases.
 
Operating income for our Applied Water segment increased $49 or 45.0% for the year ended December 31, 2010 compared with the prior year. Operating productivity, including increased volume, increased price, benefits from our cost savings initiatives, and lower restructuring charges of $12, more than offset incremental costs associated with strategic initiatives. Operating margin expansion of 320 bps over the same period was largely attributable to these same factors.
 
Other
 
Other expenses decreased $6 and $14 for the quarter ended March 31, 2011 and year ended December 31, 2010, respectively, as compared with each prior year period. Other primarily consists of general corporate expenses related to finance, legal, communications, employee benefits and incentives, and equity-based compensation, which are not allocated to our business segments. The majority of the general corporate expenses are allocations for certain functions provided by ITT.
 
Income Tax Expense
 
For the three-month period ended March 31, 2011, we recorded an income tax provision of $23 or 22.8% of income before income taxes compared to $11 or 16.4% during the prior period. For 2011, the effective tax rate is lower than the federal statutory rate of 35% due principally to a lower rate incurred on foreign earnings and the favorable impact of interest income not subject to income taxes. For 2010, the effective tax rate is lower than the federal statutory rate of 35% due principally to a lower rate incurred on foreign earnings and the favorable impact of the repatriation of foreign earnings net of foreign tax credits.
 
In 2010 and 2009, we recorded an income tax provision of $59 million and $14 million, respectively, which represents effective tax rates of 15.2% and 5.1%, respectively. For 2010, the effective tax rate is lower than the federal statutory rate of 35% due principally to a lower rate incurred on foreign earnings and the favorable impact of the repatriation of foreign earnings net of foreign tax credits. For 2009, the effective tax rate is lower than the federal statutory rate of 35% due principally to a lower rate incurred on foreign earnings and the favorable impact of the restructuring of certain legal entities.
 
Year ended December 31, 2009 compared to year ended December 31, 2008
 
Revenue
 
The deteriorating global economic conditions experienced during 2009 created recessionary challenges within our Water Infrastructure and Applied Water segments. As a result, we experienced a decline in order activity that translated into a 13.4% decrease in total revenue. The following table illustrates the 2009 and 2008 revenue results of our business segments.
 
                         
    2009     2008     Change  
 
Water Infrastructure
  $ 1,651     $ 1,824       (9.5 )%
Applied Water
    1,254       1,527       (17.9 )%
Eliminations
    (56 )     (60 )      
                         
Total
  $ 2,849     $ 3,291       (13.4 )%
                         


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The following table illustrates the impact from organic growth, acquisitions completed during 2008, and fluctuations in foreign currency, in relation to combined revenue during 2009.
 
                 
    $
    %
 
    Change     Change  
 
2008 Revenue
  $ 3,291          
Organic decline
    (291 )     (8.8 )%
Acquisitions/(divestitures), net
    7       0.2 %
Foreign currency translation
    (158 )     (4.8 )%
                 
Total change in revenue
    (442 )     (13.4 )%
                 
2009 Revenue
  $ 2,849          
                 
 
Water Infrastructure
 
The 2009 revenue generated by our Water Infrastructure segment was $1,651, representing a decline of $173 or 9.5% from 2008 revenue of $1,824. These results include an unfavorable impact from foreign currency fluctuations of $109. Challenging global economic conditions impacted most of our served markets resulting in organic revenue decline of $65 or 3.6%.
 
Applied Water
 
The 2009 revenue generated by our Applied Water segment was $1,254, representing a decline of $273 or 17.9% from 2008 revenue of $1,527. These results include an unfavorable impact from foreign currency fluctuations of $53. Organic revenue declined 14.9% primarily due to lower volumes caused by challenging global economic conditions affecting the majority of markets served. Light industrial market share gains, particularly with beverage and marine applications, partially offset overall volume declines over the second half of the year.
 
Gross Profit
 
Gross profit for 2009 was $1,037, representing a $104 or 9.1% decrease from 2008. This decrease was attributable to the decline in revenue and unfavorable foreign currency fluctuations, partially offset by benefits from productivity gains, including efforts to improve supply chain productivity and control material costs. Gross margin increased 170 bps to 36.4% during 2009. The improvement is primarily due to benefits from productivity improvements and various other cost-saving initiatives, which more than offset the impacts from reductions in sales volumes.
 
Operating Expenses
 
Operating expenses decreased 7.9% during 2009 to $761, primarily attributable to cost savings initiatives and lower restructuring expense. The following table provides further information by expense type.
 
                         
    2009     2008     Change  
 
Selling, general and administrative expenses
  $ 667     $ 721       (7.5 )%
Research and development expenses
    63       64       (1.6 )%
Restructuring and asset impairment charges, net
    31       41       (24.4 )%
                         
Total
  $ 761     $ 826       (7.9 )%
                         
 
Selling, General & Administrative Expenses
 
SG&A decreased 7.5% to $667 in 2009. This decrease was primarily attributable to cost-saving initiatives in response to declining global economic conditions, lower sales volumes, and lower stock compensation expense, partially offset by higher postretirement plan costs. SG&A as a percent of sales was approximately 23.4% and 21.9% for the years ended December 31, 2009 and 2008, respectively.


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Research and Development Expenses
 
R&D expenses decreased $1 from the prior year to $63 during 2009 as compared to the prior year. R&D expense of $63 equates to an investment of 2.2% of sales, an increase of 30 bps over the prior year rate, reflecting our commitment to the development of new technologies in our served markets.
 
Restructuring, Net
 
During 2009, we recognized net restructuring charges of $31, representing a $10 decrease as compared to 2008. The charges associated with 2009 and 2008 actions primarily represent severance costs for reductions in headcount within both of our business segments, in response to declining market conditions.
 
See Note 5, “Restructuring Charges Net,” in the Notes to the Combined Financial Statements for additional information.
 
Operating Income
 
We generated operating income of $276 during 2009, a 12.4% decrease from 2008, primarily reflecting volume declines. This decline was partially offset by benefits from the implementation of extensive cost-saving initiatives and productivity improvements. Operating margin increased to 9.7% for 2009, a year-over-year increase of 10 bps, despite reductions in sales volumes. This increase was attributable to benefits from productivity improvements and various cost-saving initiatives. The following table illustrates the 2009 and 2008 operating income results of our business segments, including operating margin results.
 
                         
    2009     2008     Change  
 
Water Infrastructure
  $ 227     $ 220       3.2 %
Applied Water
    109       162       (32.7 )%
                         
Segment operating income
    336       382       (12.0 )%
Other
    (60 )     (67 )     10.4 %
                         
Total operating income
  $ 276     $ 315       (12.4 )%
                         
Operating margin:
                       
Combined
    9.7 %     9.6 %     10 bps
Water Infrastructure
    13.7 %     12.1 %     160 bps
Applied Water
    8.7 %     10.6 %     (190 ) bps
 
Water Infrastructure
 
Operating income increased $7 or 3.2% for the year ended December 31, 2009 compared with the prior year. Operating margin increased 160 bps over the same period. Operating productivity driven by benefits from our cost savings initiatives, lower restructuring expense, and favorable foreign exchange transaction costs more than offset the impact of volume declines.
 
Applied Water
 
Operating income decreased $53 or 32.7% for the year ended December 31, 2009 compared with the prior year. Operating margin decreased 190 bps over the same period. These significant declines were attributable to weak global economic conditions resulting in significant unfavorable volume impacts across most markets and regions. During the period we also incurred higher restructuring and pension costs.
 
Other
 
Other expenses decreased $7 for the year ended December 31, 2009 as compared with the prior year. Other primarily consists of general corporate expenses related to finance, legal, communications, employee benefits and incentives, and equity-based compensation, which are not allocated to our business segments. The majority of the general corporate expenses are allocations for certain functions provided by ITT.


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Income Tax Expense
 
In 2009 and 2008, we recorded an income tax provision of $14 and $88, respectively, which represents effective tax rates of 5.0% and 28.2%, respectively. For 2009, the effective tax rate is lower than the federal statutory rate of 35% due principally to a lower rate incurred on foreign earnings and the favorable impact of the restructuring of certain legal entities. For 2008, the effective tax rate is lower than the federal statutory rate of 35% due principally to a lower rate incurred on foreign earnings.
 
Liquidity and Capital Resources
 
Funding and Liquidity Strategy
 
Current Liquidity
 
Historically, we have generated operating cash flow sufficient to fund our working capital, capital expenditure and financing requirements. Subsequent to the separation, while our ability to forecast future cash flows is more limited, we expect to fund our ongoing working capital, capital expenditure and financing requirements through cash flows from operations via access to cash on hand and capital markets.
 
If our cash flows from operations are less than we expect, we may need to incur debt or issue equity. From time to time we may need to access the long-term and short-term capital markets to obtain financing. Although we believe that the arrangements in place at the time of the separation will permit us to finance our operations on acceptable terms and conditions, our access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including: (i) our credit ratings or absence of a credit rating, (ii) the liquidity of the overall capital markets, and (iii) the current state of the economy. There can be no assurance that we will continue to have access to the capital markets on terms acceptable to us. We cannot assure that such financing will be available to us on acceptable terms or that such financing will be available at all.
 
The majority of our operations participate in U.S. and international cash management and funding arrangements managed by ITT where cash is swept from our balance sheet daily, and cash to meet our operating and investing needs is provided as needed from ITT. Transfers of cash both to and from these arrangements are reflected as a component of “Parent company investment” within “Parent company equity” in the combined balance sheets. The cash presented on our balance sheet consists primarily of U.S. and international cash from subsidiaries that do not participate in these arrangements.
 
Future Liquidity
 
Our primary future cash needs will be centered on operating activities, working capital, capital expenditures, and strategic investments. Our ability to fund these needs will depend, in part, on our ability to generate or raise cash in the future, which is subject to general economic, financial, competitive, regulatory and other factors that are beyond our control. The Company expects to generate sufficient cash from operations to meet its liquidity and capital needs, subject to the expected borrowing described below.
 
At or prior to the distribution, we expect to raise indebtedness in an amount of $1,200, including $     of senior notes, the net proceeds of which are expected to fund a cash transfer of approximately $833 to ITT, with the balance to be used in connection with the YSI acquisition and for general corporate purposes. The notes will be our senior unsecured obligations and will rank equally with all of our existing and future senior unsecured indebtedness. The notes initially will be guaranteed on a senior unsecured basis by ITT (the “ITT Guarantee”). The ITT Guarantee will terminate upon the completion of the spin-off. It is expected that the indenture governing the notes will include covenants that restrict our ability to, subject to exceptions, incur indebtedness secured by liens or engage in sale and leaseback transactions. The actual terms of the notes, including interest rate, principal amount, redemption provisions and maturity, will depend on market conditions at the time of pricing.
 
At or prior to the separation, we expect to enter into a new     -year unsecured senior revolving credit facility. The commitment under the new credit facility is expected to be $      The interest rate for borrowings under the new credit facility is expected to be generally based on the London Interbank Offered Rate


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(LIBOR), plus a spread, based upon our debt rating. The senior revolving credit facility will replace, in part, the existing credit facility of ITT, and be used for working capital, capital expenditures and other general corporate purposes. ITT initially will guarantee the new credit facility, and we will assume the obligations of ITT in connection with the distribution. The actual terms of the new credit facility, including interest rate, commitment, covenants and maturity, will depend on market conditions at the time we enter into the new credit facility.
 
Following our separation from ITT, our capital structure and sources of liquidity will change significantly from our historical capital structure. We will no longer participate in cash management and funding arrangements with ITT. Instead, our ability to fund our capital needs will depend on our ongoing ability to generate cash from operations, and access to the bank and capital markets. We believe that our future cash from operations, together with our access to funds on hand and capital markets, will provide adequate resources to fund our operating and financing needs.
 
Following the spin-off, we expect our cash will be predominately held by our foreign subsidiaries. We expect to 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. As such, we plan to look for opportunities to access cash balances in excess of local operating requirements to meet global liquidity needs in a cost-efficient manner. We may transfer cash from certain international subsidiaries to the U.S. and other international subsidiaries when it is cost effective to do so. If these funds are needed for our operations in the United States, we would be required to accrue and pay U.S. taxes to repatriate these funds. Our effective tax rate includes the historical assumption that we do not intend to repatriate non-U.S. earnings. We are in the process of evaluating our future expected tax rate including tax implications resulting from the spin-off and any potential changes to our intention in repatriating non-U.S. earnings.
 
Dividends
 
Following the distribution, we expect that initially WCO will pay a dividend, although the timing, declaration, amount and payment of future dividends to our shareholders fall within the discretion of our Board of Directors and will depend on many factors, including our financial condition, results of operations and capital requirements, as well as applicable law, regulatory constraints, industry practice and other business considerations that WCO’s Board of Directors considers relevant. In addition, the terms of the agreements governing our new debt or debt that we may incur in the future may limit or prohibit the payments of dividends. There can be no assurance that we will pay a dividend in the future or continue to pay any dividend if we do commence the payment of dividends. There can also be no assurance that the combined annual dividends on ITT common stock, DCO common stock and our common stock after the spin-off, if any, will be equal to the annual dividends on ITT common stock prior to the spin-off.
 
Sources and Uses of Liquidity
 
Our principal source of liquidity is our cash flow generated from operating activities, which provides us with the ability to meet the majority of our short-term funding requirements. The following table provides net cash provided by operating activities and used in investing and financing activities for each of the previous three years.
 
                                         
    Three Months Ended     Annual  
    2011     2010     2010     2009     2008  
 
Operating Activities
  $ 71     $ 42     $ 395     $ 357     $ 421  
Investing Activities
    (18 )     (401 )     (1,093 )     (84 )     (81 )
Financing Activities
    (33 )     367       745       (279 )     (397 )
Foreign Exchange
    3             3       6       34  
                                         
Net change in cash and cash equivalents
  $ 23     $ 8     $ 50     $     $ (23 )
                                         


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Net cash provided by operating activities increased by $29 for the three months ended March 31, 2011 as compared to the comparable 2010 period. This increase is primarily due to a $36 increase in net income excluding non-cash increases in depreciation and amortization. The increased cash use from working capital to support increasing order growth was offset by reduced cash needs from other assets and liabilities as well as taxes. Cash from operating activities includes a contribution of $29 attributable to the Godwin and Nova acquisitions.
 
Net cash provided by operating activities increased by $38 in 2010 as compared to 2009. This increase is primarily attributable to a $88 increase in net income excluding non-cash increases in depreciation and amortization, partially offset by a reduced source of cash from working capital. Cash from operating activities includes a contribution of $72 attributable to Godwin and Nova acquisitions.
 
Net cash provided by operating activities decreased by $64 in 2009 as compared to 2008. This decrease was primarily attributable to a $47 increase in net income excluding non-cash increases in depreciation and amortization, which was more than offset by a year-over-year reduction in cash from taxes as well as higher net cash payments for restructuring activities.
 
Net cash used in investing activities decreased $383 for the three months ended March 31, 2011 as compared to the comparable 2010 period. This decline is attributable to the acquisition of Nova during the first quarter of 2010, which had a purchase price of $385, net of cash acquired. Net cash used in investing activities increased $1,009 in 2010 as compared to 2009. This increase reflects the amounts paid for the Godwin and Nova acquisitions (approximately $965, net of cash acquired) as well as other acquisitions completed during 2010. Net cash used in investing activities increased $3 in 2009 as compared to 2008, primarily reflecting a net increase in amounts paid for acquisitions, capital expenditures and other.
 
Cash used for or provided by financing activities is due to transfers to and from our parent, ITT. The components of net transfers include: (i) cash transfers from the Company to parent, (ii) cash investments from our parent used to fund operations, capital expenditures and acquisitions, (iii) charges (benefits) for income taxes, and (iv) allocations of parent’s corporate expenses described in this Information Statement.
 
Funding of Postretirement Plans
 
At December 31, 2010, our defined benefit pension plans were underfunded by $155 million. A substantial portion of the underfunded position arose during the fourth quarter of 2008, when we recognized a significant decline in the fair market value of our defined benefit pension plan assets. Favorable market conditions during the latter half of 2009 and throughout 2010 resulted in an increase in the fair market value of our defined benefit pension plan assets.
 
With respect to defined benefit pension plans, we intend to contribute annually not less than the minimum required by applicable laws or regulations. In 2010, we contributed $9 to our defined benefit pension plans. Funding requirements under IRS rules are a major consideration in making contributions to our U.S. defined benefit pension plans. While the Company has significant discretion in making voluntary contributions, the Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006 and further amended by the Worker, Retiree, and Employer Recovery Act of 2008 and applicable Internal Revenue Code regulations, mandate minimum funding thresholds. Failure to satisfy the minimum funding thresholds could result in restrictions on our ability to amend the plans or make benefit payments. We anticipate making contributions to our defined benefit pension plans in the range of $15 to $20 during 2011.
 
The funded status at the end of 2011 and future required contributions will depend primarily on the actual return on assets during the year and the discount rate used to measure the benefit obligation at the end of the year. Depending on these factors, and the resulting funded status of our pension plans, the level of future statutory minimum contributions could be material.


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Contractual Obligations
 
Our commitment to make future payments under long-term contractual obligations was as follows, as of December 31, 2010:
 
                                         
    Payments Due By Period  
          Less Than
                More Than
 
    Total     1 Year     1-3 Years     3-5 Years     5 Years  
 
Contractual obligations
                                       
Operating leases(1)
  $ 176     $ 48     $ 67     $ 32     $ 29  
Purchase obligations(2)
    67       64       3              
Other long-term obligations reflected on balance sheet(3)
    42       3       9       5       25  
                                         
Total
  $ 285     $ 115     $ 79     $ 37     $ 54  
                                         
 
In addition to the amounts presented in the table above, we have recorded liabilities for uncertain tax positions of $43 as of December 31, 2010. These amounts have been excluded from the contractual obligations table due to an inability to reasonably estimate the timing of such payments in individual years.
 
(1) Refer to Note 15, “Operating Leases,” in the Notes to Combined Financial Statements, for further discussion of lease and rental agreements.
 
(2) Represents unconditional purchase agreements that are enforceable and legally binding and that specify all significant terms to purchase goods or services, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase agreements that are cancellable without penalty have been excluded.
 
(3) Other long-term obligations include capital lease obligations and estimated environmental payments. We estimate, based on historical experience, that we will spend between $2 and $4 per year on environmental investigation and remediation. At December 31, 2010, our best estimate for environmental liabilities is $8.
 
Critical Accounting Estimates
 
Our discussion and analysis of our results of operations and liquidity and capital resources are based on our combined financial statements, which have been prepared in accordance with GAAP. The preparation of these combined financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
 
Significant accounting policies used in the preparation of the Combined Financial Statements are discussed in Note 1, “Separation from ITT Corporation, Basis of Presentation and Summary of Significant Accounting Policies,” in the Notes to the Combined 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 are inherently uncertain, involve significant judgments, and include areas where different estimates reasonably could have been used and changes in the estimate that are reasonably possible could materially impact the financial statements. Management believes that the accounting estimates employed and the resulting balances are reasonable; however, actual results in these areas could differ from management’s estimates under different assumptions or conditions.
 
Revenue Recognition
 
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability of the sales price is reasonably assured. For product sales, delivery does not occur until the products have been shipped, risk of loss has been transferred to the customer and the contractual terms have been fulfilled. In instances where contractual terms include a provision for


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customer acceptance, revenue is recognized when either (i) we have previously demonstrated that the product meets the specified criteria based on either seller or customer-specified objective criteria or (ii) upon formal acceptance received from the customer where the product has not been previously demonstrated to meet customer-specified objective criteria. Revenue on service and repair contracts is recognized after services have been agreed to by the customer and rendered.
 
Although most of the sales agreements contain standard terms and conditions, certain agreements contain multiple elements or non-standard terms and conditions. As a result, judgment is sometimes required to determine the appropriate accounting, including whether the deliverables specified in these agreements should be treated as separate units of accounting for revenue recognition purposes, and, if so, how the transaction price should be allocated among the elements and when to recognize revenue for each element. For delivered elements, revenue is recognized only when the delivered elements have standalone value, fair values of undelivered elements are known, there are no uncertainties regarding customer acceptance and there are no customer-negotiated refund or return rights affecting the sales recognized for delivered elements.
 
We record a reduction in revenue at the time of sale for estimated product returns, rebates and other allowances, based on historical experience and known trends. Future market conditions and product transitions may require us to take actions to increase customer incentive offerings, possibly resulting in an incremental reduction of revenue at the time the incentive is offered.
 
Warranty Accrual
 
Additionally, accruals for estimated expenses related to warranties are made at the time products are sold or services are rendered and are recorded as a component of costs of revenue. These accruals are established using historical information on the nature, frequency and average cost of warranty claims and estimates of future costs. Our standard product warranty terms generally include post-sales support and repairs or replacement of a product at no additional charge for a specified period of time. While we engage in extensive product quality programs and processes, we base our estimated warranty obligation on product warranty terms offered to customers, ongoing product failure rates, material usage and service delivery costs incurred in correcting a product failure, as well as specific product class failures outside of our baseline experience. If actual product failure rates, repair rates or any other post-sales support costs differ from these estimates, revisions to the estimated warranty liability would be required.
 
Income Taxes
 
Our income taxes as presented are calculated on a separate tax return basis, and may not be reflective of the results that would have occurred on a stand alone basis. Our operations have historically been included in ITT’s U.S. federal and state tax returns or non-U.S. jurisdictions tax returns.
 
With the exception of certain dedicated foreign entities, we do not maintain taxes payable to/from our parent, and we are deemed to settle the annual current tax balances immediately with the legal tax-paying entities in the respective jurisdictions. These settlements are reflected as changes in parent company investment.
 
We determine the provision for income taxes using the asset and liability approach. Under this approach, 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 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 to our estimate of the amount we are more likely than not to realize 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


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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.
 
We have not provided U.S. taxes on the excess of financial reporting over the tax basis of investments because we plan to reinvest such earnings indefinitely outside the United States. We plan foreign earnings remittance amounts based on projected cash flow needs, as well as the working capital and long-term investment requirements of our foreign subsidiaries and our domestic operations. Based on these assumptions, we estimate the amount we will distribute to the United States and provide the U.S. federal taxes due on these amounts. Material changes in our estimates of cash, working capital and long-term investment requirements in the various jurisdictions in which we do business could impact our effective tax rate.
 
The calculation of our tax provision involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. We recognize tax liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on our estimate of whether, and to the extent to which, additional taxes will be due. Furthermore, we recognize the tax benefit from an uncertain tax 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 our liability for unrecognized tax benefits 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. If our estimate proves to be less than the ultimate assessment, an additional tax expense would result. If these amounts ultimately prove to be less than the recorded amounts, the reversal of the liabilities may result in a tax benefit in the period when the liabilities are no longer necessary.
 
Goodwill and Other Intangible Assets
 
We review goodwill and indefinite-lived intangible assets for impairment annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. We also review the carrying value of our finite-lived intangible assets for potential impairment when impairment indicators arise. We conduct our annual impairment test as of the first day of the fourth fiscal quarter. We perform a two-step impairment test for goodwill. In the first step, we compare the estimated fair value of each reporting unit to its carrying value. If the estimated fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired and we are not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds its fair value, then we must perform the second step of the impairment test in order to measure the impairment loss to be recorded. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then we record an impairment loss equal to the difference. In our annual impairment test for indefinite-lived intangible assets, we compare the fair value of those assets to their carrying value. We recognize an impairment loss when the estimated fair value of the indefinite-lived intangible asset is less than its carrying value. We estimate the fair value of our reporting units and intangible assets with indefinite lives using an income approach. Under the income approach, we calculate fair value based on the present value of estimated future cash flows.
 
Determining the fair value of a reporting unit or an indefinite-lived intangible asset is judgmental in nature and involves the use of significant estimates and assumptions, particularly related to future operating results and cash flows. These estimates and assumptions include, but are not limited to, revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, assumed royalty rates, future economic and market conditions, and identification of appropriate market comparable data. In addition, the identification of reporting units and the allocation of assets and liabilities to the reporting units when determining the carrying value of each reporting unit also requires judgment. Goodwill is tested for impairment at the reporting unit level, which based on the relevant accounting guidance, is at the operating segment level or one level below the operating segments identified in Note 19, “Segment Information,” in the Notes to the Combined Financial Statements. The fair value of our reporting units and indefinite-lived


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intangible assets are based on estimates and assumptions that are believed to be reasonable. Significant changes to these estimates and assumptions could adversely impact our conclusions. Actual future results may differ from those estimates.
 
Our 2010 annual goodwill impairment analysis indicated the estimated fair value of our reporting units significantly exceeded their carrying value, and accordingly, no impairment charges were recorded. In order to evaluate the sensitivity of the fair value estimates on the goodwill impairment test, we applied a hypothetical 100 basis point increase to the discount rates utilized, a ten percent reduction in expected future cash flows, and reduced the assumed future growth rates of each reporting unit to zero. These hypothetical changes did not result in any reporting unit failing step one of the impairment test. Further, our 2010 annual indefinite-lived intangible asset impairment test did not result in an impairment charge as the estimated fair value of the assets exceeded their carrying value.
 
Postretirement Plans
 
Company employees around the world participate in numerous defined benefit pension plans that are direct to or sponsored by WCO. The determination of projected benefit obligations and the recognition of expenses related to these pension plans are dependent on various assumptions. These major assumptions primarily relate to discount rates, long-term expected rates of return on plan assets, rate of future compensation increases, mortality and termination (some of which are disclosed in Note 13, “Postretirement Benefit Plans,” in the Notes to the Combined Financial Statements) and other factors. Actual results that differ from our assumptions are accumulated and are amortized generally over the estimated future working life of the plan participants.
 
Significant Assumptions
 
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 annually with third party consultants and adjusted as necessary. The table included below provides the weighted average assumptions used to estimate our defined benefit pension obligations and costs as of and for the years ended 2010 and 2009.
 
                                 
    2010     2009  
    U.S.     Int’l     U.S.     Int’l  
 
Obligation Assumptions:
                               
Discount rate
    5.83 %     5.18 %     6.0 %     5.55 %
Rate of future compensation increase
    4.00 %     3.40 %     4.00 %     3.48 %
Cost Assumptions:
                               
Discount rate
    6.00 %     5.55 %     6.25 %     5.79 %
Expected return on plan assets
    9.00 %     7.20 %     9.00 %     6.97 %
Rate of future compensation increase
    4.00 %     3.41 %     4.00 %     3.48 %
 
The majority of our plan assets relate to U.S. plans and are managed by ITT on a commingled basis in a master investment trust. With respect to plan assets in the master investment trust, ITT determines the expected return on plan assets by evaluating both historical returns and estimates of future returns. Specifically, ITT analyzes the plan’s actual historical annual return on assets over the past 15, 20 and 25 years; estimates future returns based on independent estimates of asset class returns; and evaluates historical broad market returns over long-term timeframes based on the strategic asset allocation, which is detailed in Note 13, “Postretirement Benefit Plans,” in the Notes to the Combined Financial Statements.
 
Based on the approach described above, the long-term annual rate of return on plan assets in the master investment trust is estimated at 9.0%. For reference, our actual geometric average annual return on plan assets in the master investment trust was 8.8%, 10.1% and 10.3%, for the past 15, 20, and 25 year periods, respectively.


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The chart below shows actual returns versus the expected long-term returns for our U.S. pension plans that were utilized in the calculation of the net periodic pension cost for each respective year.
 
                         
    2010     2009     2008  
 
Expected long-term rate of return on plan assets
    9.0 %     9.0 %     9.0 %
Actual rate of return on plan assets
    14.1 %     24.1 %     (31.2 )%
 
For the recognition of net periodic pension cost, the calculation of the expected return on plan assets is generally derived using a market-related value of plan assets based on average asset values at the measurement date over the last five years. The use of fair value, rather than a calculated value, could materially affect net periodic pension cost. Our weighted average expected return on plan assets for all pension plans, including foreign affiliate plans, at December 31, 2010 is 8.2%.
 
The discount rate reflects our expectation of the present value of expected future cash payments for benefits at the measurement date. A decrease in the discount rate increases the present value of benefit obligations and increases pension expense. We base the discount rate assumption on current investment yields of high-quality fixed income investments during the retirement benefits maturity period. The pension discount rate was determined by considering an interest rate yield curve comprising AAA/AA bonds, with maturities between zero and thirty years, developed by the plan’s actuaries. Annual benefit payments are then discounted to present value using this yield curve to develop a single-point discount rate matching the plan’s characteristics. Our weighted average discount rate for all pension plans, including foreign affiliates, at December 31, 2010 is 5.35%.
 
The rate of future compensation increase assumption reflects our long-term actual experience and future and near-term outlook. At December 31, 2010, our expected rate of future compensation of 4.0% for U.S. plan participants was unchanged from the prior year.
 
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. We estimate that every 25 basis point change in the discount rate impacts the funded status by approximately $8.
 
Fair Value of Plan Assets
 
The plan assets of our postretirement plans comprise a broad range of investments, including domestic and foreign equity securities, interests in private equity and hedge funds, fixed income investments, commodities, real estate, and cash and cash equivalents.
 
A substantial portion of our postretirement benefit plan assets portfolio in the master investment trust comprises investments in private equity and hedge funds. The private equity and hedge fund investments are generally measured at net asset value. However, in certain instances, the values reported by the asset managers were not current at the measurement date. Accordingly, ITT has estimated adjustments to the last reported value where necessary to measure the assets at fair value at the measurement date.
 
These adjustments consider information received from the asset managers, as well as general market information. The adjustment recorded for these assets represented approximately one percent of total plan assets. Asset values for other positions were generally measured using market observable prices.
 
New Accounting Pronouncements
 
See Note 2, “New Accounting Pronouncements,” in the Notes to the Combined 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.


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Quantitative and Qualitative Disclosures About Market Risk
 
As a result of our global operating and financing activities, we are exposed to market risks from changes in foreign currency exchange rates and commodity prices, which may adversely affect our operating results and financial position. The impact from changes in market conditions is generally minimized through our normal operating and financing activities. We do not use derivative instruments to manage these exposures.
 
Foreign Currency Exchange Rate Exposures
 
Our foreign currency exchange rate risk relates to receipts from customers, payments to suppliers and intercompany transactions denominated in foreign currencies. We may use derivative financial instruments to offset risk related to receipts from customers and payments to suppliers, when it is believed that the exposure will not be limited by our normal operating and financing activities. Our principal currency exposures relate to the Euro, Swedish Krona, British Pound, Australian Dollar, Canadian Dollar, Polish Zloty, and Hungarian Forint. We estimate that a hypothetical 10% adverse movement in foreign currency exchange rates would not be material to WCO’s financial position, results of operations or cash flows.
 
Commodity Price Exposures
 
Portions of our business are exposed to volatility in the prices of certain commodities, such as copper, nickel and aluminum, among others. Our primary exposure to this volatility resides with the use of these materials in purchased component parts. We generally maintain long-term fixed price contracts on raw materials and component parts; however, we are prone to exposure as these contracts expire. We estimate that a hypothetical 10% adverse movement in prices for raw metal commodities would not be material to the financial position, results of operations or cash flows.


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BUSINESS
 
Our Company
 
Our Company is a world leader in the design, manufacturing, and application of highly engineered technologies for the water industry. We are a leading equipment and service provider for water and wastewater applications with a broad portfolio of products and services addressing the full cycle of water, from collection, distribution and use to the return of water to the environment. Our Company’s brands, such as Bell & Gossett and Flygt, are well known throughout the industry and have served the water market for many years. Over the years, we have leveraged our heritage strength in wastewater pumping technologies to expand into wastewater treatment, and later into clean water treatment and water quality analysis. We believe we are strongly positioned to use our deep applications expertise and offer our customers a full spectrum of service offerings in the transportation, treatment and testing of water. Net sales and operating income for the twelve months ended December 31, 2010 were $3.2 billion and $388 million, respectively, and for the three months ended March 31, 2011 were $890 million and $100 million, respectively.
 
We operate in two segments, Water Infrastructure and Applied Water. The Water Infrastructure segment focuses on the transportation, treatment and testing of water, offering a range of products including water and wastewater pumps, treatment and testing equipment, and controls and systems. Key brands include Flygt, Wedeco, Godwin Pumps, WTW, Sanitaire, AADI and Leopold. The Applied Water segment encompasses all the uses of water and focuses on the residential, commercial, industrial and agricultural markets. The segment’s major products include pumps, valves, heat exchangers, controls and dispensing equipment. Key brands in this segment include Goulds, Bell & Gossett, AC Fire, Standard, Flojet, Lowara, Jabsco and Flowtronex. In both our segments, we benefit from a large and growing installed base of products driving growth in aftermarket sales for replacement parts and services.
 
Our global manufacturing footprint enables us to optimize sourcing, lower production costs and localize products. We serve a global customer base across diverse end markets while offering localized expertise. We sell our products in more than 140 countries through a balanced distribution network consisting of our direct sales force and independent channel partners. In 2010, approximately 65% of our revenues were generated outside the United States.
 
We believe our company’s operational structure and strategy will drive sustained, profitable growth in the markets we serve. We have a seasoned management team that has demonstrated its ability to strategically grow a global engineering and manufacturing enterprise while expanding positions throughout the global water industry. We believe our businesses are well positioned to continue to grow by enhancing our product and application offerings and expanding our customer base in each of our strategic markets.
 
Our Industry
 
Our planet faces a serious water challenge. Less than 1% of the total water available on earth is fresh water, which is declining due to factors such as the draining of aquifers, increased pollution and climate change. In addition to this declining supply, demand is rising rapidly due to population growth, industrial expansion, and increased agricultural development, with consumption estimated to double every 20 years. By 2025, over 30% of the world’s population is expected to live in areas without adequate water supply. Even in developed countries with sufficient supply, existing infrastructure for water supply is relatively underfunded and aging. In the United States, degrading pipe systems leak one out of every six gallons of water, on average, on its way from a treatment plant to the customer. These challenges are driving opportunities for growth in the global water industry, which we estimate to have a total market size of $500 billion.
 
The water industry supply chain comprises Equipment and Services companies, Design and Build service providers, and water utilities. Equipment and Service providers serve two distinct customer types. The first, utilities, supplies water through an infrastructure network. Companies that operate on this side of the supply chain provide single, or sometimes combined, functions from equipment manufacturing and services to facility design (engineering, procurement and construction, or EPC firms) to plant operations (utilities), as depicted below in Figure 1. The utility and EPC customers are looking for technology and application expertise from


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their Equipment and Services providers, due to trends such as rising pollution, stricter regulations, and the increased outsourcing of process knowledge by utilities. The second customer type, the end users of water, comprises a wide array of entities, ranging from farms to power plants to residential homes. These customers are predominately served through specialized distributors and original equipment manufacturers (“OEMs”).
 
(WATER SUPPLY CHAIN)
 
Figure 1:   Water Industry Supply Chain, based upon Global Water Intelligence’s “Global Water Market 2011” and Management Estimates
 
Our business focuses on the beginning of the supply chain, by providing technology-intensive equipment and services. We sell our equipment and services via direct and indirect channels that serve the needs of each customer type. On the utility side, we provide over 70% direct sales with strong application expertise, with the remaining amount going through distribution partners. To end users of water, we provide over 85% of our sales through long-standing relationships with the world’s leading distributors, with the remainder going direct to customers. The total market opportunity for this Equipment and Services portion of the water industry supply chain is estimated at $280 billion.
 
The Equipment and Services market addresses the key processes of the water industry, which is best illustrated through the cycle of water, as depicted in Figure 2, below. We believe this industry has two distinct sectors within the cycle of water: Supply Infrastructure and Usage Applications. The key processes of this cycle begin when raw water is extracted by pumps, which provide the necessary pressure and flow, to move, or Transport, this water from natural sources, such as lakes, oceans or aquifers through pipes to a treatment facility. Treatment facilities can provide many forms of treatment, such as filtration, disinfection and desalination, to remove solids, bacteria, and salt, respectively. A network of pipes and pumps again Transport this clean water to where it is needed, such as to crops for Irrigation, to power plants to provide cooling in Industrial Water, or to an apartment building as drinking water in Residential, Commercial and Building Services. After usage, the wastewater is collected by a separate network of pipes and pumps and transported to a wastewater treatment facility, where processes such as digestion deactivate and reduce the volume of solids, and disinfection purifies effluent water. Once treated, analytical instruments Test the treated water to ensure


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regulatory requirements are met so that it can be discharged back to the environment, thereby completing the cycle.
 
(CYCLE OF WATER)
 
Figure 2:  Cycle of Water
 
Our two operating segments are aligned with each of the sectors in the cycle of water: Water Infrastructure serves the Supply Infrastructure sector, and Applied Water serves Usage Applications. Within the Supply Infrastructure sector, our pump systems Transport water from aquifers, lakes, rivers and seas. From there, our filtration, UV and ozone systems provide Treatment, making the water fit for use. After consumption, our pump lift stations move the wastewater to treatment facilities where our mixers, biological treatment, monitoring, and control systems provide the primary functions in the treatment process. Throughout each of these stages, our analytical systems Test and ensure water quality, allowing the water to be consumed and returned to nature. Our served market size in this sector is approximately $16 billion.
 
In the Usage Applications sector, we participate in all major areas of water demand. Irrigation is approximately 70% of all water usage globally. Examples of what we provide include: boosting systems for farming irrigation, pumps for dairy operations, and rainwater reuse systems for small scale crop and turf irrigation. Industrial Water applications account for 20% of global consumption. Our pumps, heat exchangers, valves and controls provide cooling to power plants and manufacturing facilities, as well as circulation for food and beverage processing. The remaining 10% of global water use resides in human and building consumption, where we deliver water boosting systems for drinking, heating, ventilation and air conditioning (HVAC) and fire protection systems to Residential and Commercial Building Services. Our served market size in this sector is estimated at $14 billion.


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Customers in the water industry vary by end market. Two end markets exist within the Supply Infrastructure sector: public utility and industrial, representing 85% and 15% of the total equipment and services market, respectively. The public utility market comprises public, private and public-private institutions that handle water and wastewater for mostly residential and commercial purposes. The industrial market involves the supply of water and removal of wastewater for industrial facilities. Sales in our Water Infrastructure segment are approximately 63% in the public utility market, and 37% in the industrial market. We view the main macro drivers of this sector to be water quality, the desire for energy-efficient products, water scarcity and infrastructure needs, for both the repair of aging systems in developed countries and new installations in developing countries. These markets tend to be less cyclical and are estimated to grow annually in the mid-single digits through 2015, according to management estimates.
 
In the Usage Applications sector, end-use customers fall into four main markets: residential, commercial, industrial and agricultural. Homeowners represent the end users in the residential market. Owners and managers of properties such as apartment buildings, retail stores, hospitals, and hotels are examples of end users in the commercial market. The industrial market is wide ranging, involving developers and managers of facilities operated by electrical power generators, chemical manufacturers, machine shops, clothing manufacturers, beverage production and dispensing firms and car washes. The agricultural market end users are owners and operators of businesses such as crop and livestock farms, aquaculture, golf courses, and other turf applications. Sales in our Applied Water segment are approximately 38% industrial, 33% commercial, 22% residential and 7% agricultural. We believe population growth and urbanization are the two primary macro drivers of these markets, as these trends drive the need for housing, food, community services and retail goods within growing city centers. Water reuse and conservation are driving the need for new technologies. Annual total market growth in these industrial, commercial, residential, and agricultural markets is estimated to be in the low- to mid-single digits through 2015, according to internal management estimates.
 
Our Competitive Strengths
 
Our leading positions in the markets we serve result from the following competitive strengths:
 
Leading Brands in a Diversified Product Portfolio
 
We are among the world’s largest water equipment and services companies and have global leading product positions in core applications across the water cycle, from the manufacturing of submersible pumps under our Flygt brand to the key products used in plumbing and water-based heating and air conditioning markets manufactured through our Bell & Gossett brand. Although other equipment and services companies are diversified, in that they serve markets outside of water as well, we are one of the largest water companies in the industry that is exclusively focused on water equipment and services. In addition, we have capabilities in transport, treatment and testing of water and have consistently demonstrated the ability to develop new offerings that anticipate the manufacturing, installation and servicing needs of our customers, such as the innovative water collection and distribution systems that used Goulds pumps and a Bell & Gossett pumping package to conserve clean water at the 2010 Vancouver Olympics, and the Lowara water booster sets used to even water supply pressure in the world’s tallest building, “Burj Dubai,” in the United Arab Emirates. Our brands, such as Flygt, Bell & Gossett, Wedeco, Sanitaire, Lowara, Godwin Pumps, Goulds, WTW and Jabsco, among others, have been in existence for over 150 years and are globally recognized as leading brands for quality in the markets they serve.
 
Culture of Innovation and Strong Application Expertise
 
Our business invented the first submersible sewage pump, and we remain the world’s largest manufacturer of submersible wastewater pumps. We have built upon this deep legacy and expertise by developing new, more efficient designs and more advanced application solutions. In 1999, we led the industry in wastewater pumps with the launch of the Flygt N-pump, guaranteeing at least a 25% improvement in energy consumption compared to any installed, non-Flygt system. In recent years, we designed a standardized range of lift stations, called The Optimal Pumping (TOP) Station, to quickly and simply install full lift stations, rather than design, order, and assemble all the components needed at various pipeline locations. The TOP Station is now a staple


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of our product line. In 2009, we launched the next generation N-pump, called the Adaptive N-pump, which eliminates virtually all forms of clogging, and therefore improves maintenance and efficiency costs, even under the most difficult conditions. Similarly, we also launched the next generation vertical multi-stage pump in 2011, called eSV, which brings benefits in energy efficiency and maintenance costs to water boosting in multiple end uses. This innovation around new technology and application solutions is an expertise we deploy across all product lines and brands, and we continuously seek to improve our products and invest in the development of new, differentiated technologies to best fit our customers’ needs.
 
Large Installed Base Driving Strong Aftermarket Revenues
 
By virtue of our global scale and tenure, we have one of the largest installed bases in the water equipment market. This provides us with a highly profitable and recurring revenue stream from the sale of parts, repair services, and end of lifecycle product replacements. During their lifecycle, installed products require maintenance, repair services and parts due to the harsh environments in which they operate. In 2010, 16% of our total revenue was derived from sales of repair parts and services. In addition, depending on the type of product, median lifecycles range from 5 years to over 50 years, at which time the products must be replaced. Many of our products are precisely selected and applied within a larger network of equipment, driving a strong preference by customers and installers to replace them with the same exact brand and model when they reach the end of their lifecycle. This dynamic establishes a large recurring revenue stream for our business.
 
Diverse Customer Base and Established International Distribution Channels
 
Our customer base spans numerous industries and regions, with no single customer representing more than 2% of our revenue and approximately 65% of our 2010 revenues derived from operations outside of the United States, including 18% from emerging market countries. We sell our products through a balanced distribution network, with more than 1,800 direct sales employees and more than 2,700 independent distributors in more than 140 countries. Our global reach within the highly fragmented global water industry allows us to align our sales strategy to meet the needs of our customers in specific end markets, as we are better able to optimize sourcing, lower our production costs, and enable product localization and application expertise. In our Water Infrastructure segment, we maintain close customer relationships through our direct sales force, allowing us to quickly respond to a dynamic and highly regulated environment in which some of our customers operate, including public utility and industrial clients. In our Applied Water segment, we use distributors from our global independent distribution network, several of whom are exclusive distributors, to sell our products.
 
Proven Operating Performance
 
Our strong profit margins, combined with our disciplined approach to investing and managing our capital and our focus on higher-margin business opportunities, enable us to generate strong and recurring cash flow. Following our 2008 restructuring, implemented prior to the recent economic downturn, we positioned the cost structure of our company to realize strong margin improvements driven by robust sales growth. For instance, in 2010, our operating margin increased 240 basis points to 12.1% as compared to the prior year. We focus on productivity and efficiency within our manufacturing facilities by driving operational efficiencies through the application of Lean Six Sigma and other continuous improvement programs.
 
Experienced Management Team
 
Our senior management team is highly regarded in the water equipment and services industry and has significant experience in leadership roles. Collectively, the top nine senior executives have an average of 20 years of experience in managing large global industrial businesses. They have a successful track record of enabling our company to recognize and capitalize upon attractive opportunities in the key markets we serve, and our executive management teams have a strong record of winning new business, reducing costs, improving working capital and executing operating efficiencies.


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Our Growth Strategy
 
Our strategy is focused on enhancing shareholder value by providing solutions for our customers, and by growing revenues, both organically and through strategic acquisitions. Key elements of our strategy are summarized below:
 
Grow Our Product Offerings and Solutions through Portfolio Differentiation
 
We will continue to extend leading market positions where we have a strong competitive position, cost leadership and proven technology. In addition, we will invest in the differentiation of our core product lines to build on our strong product and application expertise. We also plan to expand into adjacent and complementary technologies as demonstrated by the recent acquisitions of analytical instrumentation and dewatering solutions businesses.
 
Focus on Organic Growth Initiatives
 
We have launched a global commercial excellence initiative, deploying people, processes and tools to make our sales and marketing teams more effective and efficient. We have trained over 500 front-line sales agents under this initiative and have 30 dedicated commercial excellence leaders to service our most profitable accounts. In addition, we have launched digital selling tools, which improve our value propositions, and have built a strategic accounts program to focus on our most important customers. These efforts have already improved the revenues generated per sales agent across our businesses. We will continue to make investments in customer relationship management, mobile technologies, customer applications and other technologies that improve our knowledge of customers and the critical activities that drive growth.
 
Investing in New Technology and Innovation
 
We will continue to make targeted investments in research and development activities to develop breakthrough products and solutions. We will pursue and execute a robust pipeline of opportunities in core and emerging markets. We have established a wastewater Center of Excellence, in Stockholm, Sweden, with over 100 research, development and engineering employees. We have launched engineering Centers of Excellence in India and China, where we are accelerating the customization of our application expertise to local needs. Our engineers will continue to work closely with our customers in an effort to identify new applications for our products and develop new technologies and solutions to expand our current portfolio further.
 
Build on Our Presence in Fast-Growing Emerging Markets
 
Urbanization trends and growth in the middle class in developing countries are generating significant demand for water applications. We intend to continue to capture this growth by further expanding into emerging markets, such as China, India and Brazil, increasing our existing presence of over 40 facilities. We plan to leverage our strong global reach, manufacturing footprint and extensive distribution network to capitalize on growth opportunities in these regions. We will continue to establish and reinforce local capabilities by growing our local presence in these markets with investments in sales, marketing and manufacturing capabilities globally.
 
Growth through Disciplined Acquisitions
 
Acquisitions are an important part of our growth strategy. Certain segments of the global water industry we serve are highly fragmented, providing numerous acquisition opportunities. We have successfully completed and integrated 20 acquisitions over the past five years, including Godwin Pumps, Nova Analytics, and OI Corporation, and we will selectively pursue highly targeted acquisitions that will broaden our core product portfolio, expand our geographic footprint and enhance our position in strategic markets.


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Our Business Segments
 
We operate in two business segments that are aligned with the cycle of water and the key strategic market applications they provide: Water Infrastructure (collection, distribution, return) and Applied Water (usage). The table and descriptions below provide an overview of our business segments.
 
                             
    Market
  2010
    %
         
Segment
  Applications   Revenue     Revenue     Major Products   Primary Brands
 
Water Infrastructure
  Transport
Treatment
Test
  $ 1,436
377
117
$1,930
      74 %
20%
6%
100%
 
•   Water and
wastewater pumps
•   Filtration,
disinfection and
biological treatment
equipment
•   Test equipment
•   Controls
 
•   Flygt
•   Wedeco
•   Godwin Pumps
•   WTW
•   Sanitaire
•   AADI
•   Leopold
                             
Applied Water
  Building Services
Industrial Water
Irrigation
  $ 723
509
95
$1,327
      55 %
38%
7%
100%
 
•   Pumps
•   Valves
•   Heat exchangers
•   Controls
•   Dispensing
equipment
systems
 
•   Goulds
•   Bell & Gossett
•   AC Fire
•   Standard
•   Lowara
•   Jabsco
•   Flojet
•   Flowtronex
 
Most of our product portfolio is involved in Transport and comprises water pumps, pumping systems and pump-related equipment and services across both our segments, which represented 83% of our revenue for each of the years ended December 31, 2010, 2009 and 2008. In recent years, we have built our capabilities in Treatment, the cleaning of water and wastewater, and Test, the measurement of water characteristics such as quality. Both of these application areas, Treatment and Test, reside within the Water Infrastructure segment.
 
Water Infrastructure
 
Water Infrastructure involves the process that collects water from a source and distributes it to users, and then returns the wastewater responsibly to the environment. Water Infrastructure serves three basic closely linked applications: Transport, Treatment and Test of water and wastewater for two types of customers: public utilities and industrial facilities. We believe our served market size for this segment is approximately $16 billion, comprising served markets of approximately $11 billion for Transport, $3 billion for Treatment and $2 billion for Test.
 
Transport
 
The Transport application includes all of the equipment and services involved in the safe and efficient movement of water from sources, such as oceans, lakes, rivers and ground water, to treatment facilities, and then to users. It also includes the movement of wastewater from the point of use to a treatment facility and then back into the environment. We serve the higher-value equipment markets, such as water and wastewater submersible pumps, monitoring controls, and application solutions; we do not serve the market for lower-value equipment such as pipes and fittings. We believe our business is the largest player in this served market based on management estimates. With operations on six continents, we also have the world’s largest dewatering rental fleet, serviced with our Flygt and Godwin brands.
 
Flygt - Flygt is the world’s premier manufacturer of submersible pumps, mixers, and aeration equipment for use in environments such as water and wastewater treatment, raw water supply, abrasive or contaminated industrial processes, mining and crop irrigation. The Flygt brand was founded in 1901 in Lindås, Sweden and developed the world’s first submersible close-coupled motor-driven pump. Flygt products have leading non-clogging capabilities and innovative N-technology, which provide customers with highly sustainable efficiencies and lowest total cost of ownership. Flygt products have applications in various markets, including wastewater lift stations, water and wastewater treatment facilities, pressurized sewage systems, oil and gas,


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steel, mining and leisure markets. Customers include public utility wastewater and clean water treatment facilities, oil and gas platforms, and steel manufacturing companies. As an example, Flygt recently served the village of Hartland, WI, population 8,350, located in Wisconsin’s Lake Country. The Hartland Department of Public Works (DPW) is, among other things, responsible for operation and maintenance of sanitary sewers, lift stations and manholes. The DPW had experienced a range of problems resulting from ongoing clogging of the pumps in their collection-system lift stations. Replacing the pumps with self-cleaning Flygt N-pumps eliminated the clogging as well as unscheduled and costly service calls.
 
Godwin Pumps - With more than 30 years as a leader in pump manufacturing, Godwin Pumps has established itself as a well-recognized and respected brand in the global portable pump market for removal of temporary, unwanted water. It manufactures, sells, rents and services products that are economical, reliable and customized to the specific needs of its clients. Founded in Quenington, England, Godwin Pumps is currently headquartered in Bridgeport, NJ. Godwin Pumps’ products include the fully automatic self-priming Dri-Prime pump, a range of Sub-Prime electric and Heidra hydraulic submersible pumps, Wet-Prime gasoline-powered contractor pumps and a broad line of generators and portable light towers. Godwin products are primarily used in construction, disaster recovery, flooding, heavy industry, marine use, mining, oil, gas and chemical extraction, refineries, temporary fire protection and water and wastewater transport. Customers include industrial plants, construction contractors, public utility wastewaters and clean water treatment and transportation facilities, oil, gas and chemical drilling outfits, and refineries. Godwin’s fleet of equipment is rented through 32 U.S. branches and a global network of distributors.
 
Treatment
 
The Treatment application includes equipment and services that treat water for consumption and wastewater to be returned responsibly to the environment. While there are several treatment solutions in the market today, we focus on three basic treatment types: (i) filtration, (ii) disinfection and (iii) biological treatment systems. Filtration uses gravity-based media filters and clarifiers to clean both water and wastewater. Leopold, with more than 80 years of experience, is our leading filtration brand. Disinfection systems, both ultraviolet (UV) and ozone oxidation, treat both public utility drinking water and wastewater, as well as industrial process water, and are provided through our WEDECO brand. Biological treatment systems are key to the treatment of solids in wastewater plants, which is provided through our Sanitaire brand. We believe our business is the largest player in this served market based on management estimates.
 
Sanitaire - Launched in 1967, the Sanitaire brand provides complete biological wastewater treatment solutions for public utility and industrial applications. Sanitaire’s comprehensive offering includes diffused aeration, sequencing batch reactors, drum filters and state-of-the-art controls. Sanitaire is regarded as a leading brand in diffused aeration, which is a process that introduces air into a liquid, providing an aerobic environment for degradation of organic matter. Fine pore diffusion of air is highly competitive due to its high oxygen transfer efficiency and lower energy costs. Sanitaire wide-band aeration systems are used in applications such as grit chambers and sludge that require non-clogging, maintenance-free systems. Principal Sanitaire customers are public utility and industrial wastewater treatment facilities.
 
WEDECO - WEDECO was founded in 1975 in Herford, Germany to develop chemical-free and environmentally friendly water treatment technologies, including ultraviolet light and ozone systems. There are over 250,000 installed WEDECO systems for UV disinfection and ozone oxidation globally in private, public utility and industrial locations. WEDECO introduced ozone technology in 1988 and has been expanding internationally ever since. UV disinfection systems have a number of applications including water treatment and aquaculture. Ozone disinfection systems have applications in drinking water, wastewater, process water, product polishing, bleaching, ozonolysis/synthesis and desodoration. Customers include public utility wastewater and clean water treatment facilities, power plants, pulp and paper mills, food products manufacturers and aquaculture facilities.
 
Leopold - Founded in 1924 in Pittsburgh, PA, Leopold is a leader in rapid gravity media filtration and clarification solutions for the water and wastewater industry. In Potable Drinking Water treatment plants, the Clari-DAF system is used to clarify raw water to remove contaminants such as turbidity, algae, color, iron/


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manganese, organics, and taste and odor compounds. In public utility wastewater treatment plants, the ClariVAC system is used in final clarifiers to remove the sludge solids. For those areas where nitrogen and phosphorus nutrient removal is required, we provide elimi-NITE systems which convert the filters to become biologically active so that the effluent meets the mandated nitrate and phosphorus levels. In desalination systems, Leopold Clari-DAF systems and Filterworx systems are provided to remove contaminants that will harm reverse osmosis membranes, so that salt can be removed from the seawater to make it potable. Primary customers are public utility water and wastewater systems, as well as desalination plant facilities.
 
Test
 
Analytical instrumentation is used across most industries to ensure regulatory requirements are met. Growth in this market is primarily driven by increasing regulation of water and wastewater in North America, Europe and Asia. Largely through our 2010 acquisition of Nova Analytics, our served market is predominately focused on water and the environment for quality levels throughout the water infrastructure loop. Analytical systems are applied in three primary ways: in the field, in a facility laboratory, or real time, online monitoring in a treatment facility process. We believe we have a leading position in this served market based on management estimates.
 
WTW - In wastewater treatment facilities, WTW branded systems monitor parameters such as dissolved oxygen, pH, and turbidity throughout the water process to ensure regulatory standards are met before water is discharged back into the environment. Founded in 1945 as a major brand in Europe, WTW has particularly strong market penetration in the environmental, water and wastewater segments. WTW holds leading market positions in both field and on-line instrumentation and manufactures premium positioned robust and reliable analysis products for the measurement of pH, dissolved oxygen, conductivity, total dissolved solids, turbidity, specific ions and biological oxygen demand. WTW’s product offering includes meters, sensors, data-loggers, photometers and software providing customers solutions to even the most challenging applications.
 
AADI - Aanderaa Data Instruments AS (AADI), founded in 1966 and headquartered in Bergen, Norway, offers sensors, instruments and systems for measuring and monitoring in the most demanding environments such as rivers, oceans and the polar regions through fully networked systems using wireless technology that monitors temperature, salinity, oxygen, turbidity, current and waves for ecosystem health. The main market areas are marine transportation, environmental and ocean research, oil and gas, aquaculture, road and traffic, and construction. AADI’s new technologies underlie the most advanced distributed instrumentation for underwater and atmospheric measurements. Hydro acoustic, electro-optical, electro-chemical, pressure, temperature and meteorological data are captured by observing networks and self-contained instrumentation using real-time communication. Key customers include many oceanographic institutes, universities, geophysical surveyors, navies, offshore oil and gas companies, drilling companies, port and harbor authorities, government agencies, water authorities and electric power utilities internationally.
 
Applied Water
 
Applied Water encompasses all the uses of water. Since water is used to some degree in almost every aspect of human, economic and environmental activity, this segment has innumerable applications. Our served market today consists of the main uses of global water: Building Services, Industrial Water and Irrigation. We believe our served market size for this segment is approximately $14 billion, comprising served markets of approximately $8 billion for Building Services, $4 billion for Industrial Water and $2 billion for Irrigation.
 
Building Services
 
This business is defined by four main uses of water in building services applications, such as in residential homes and commercial buildings, including offices, hotels, restaurants and malls. The first is the supply of potable water for consumption, such as for drinking and hygiene. The Goulds brand is a leader in pumps and boosting systems utilized within buildings, sourcing water from distribution networks or from wells. The second application is wastewater removal with sump and sewage pumps. The third application is in heating, ventilation and air conditioning (HVAC), where Bell & Gossett specializes in pumps and valves that


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are used in water-based heating and cooling systems. The fourth water-related building service area is fire protection, where our AC Fire brand supplies full pump systems for emergency fire suppression. In Europe, Lowara is a leading brand in the commercial and residential water market with applications in the four main uses of water. We believe our business is the second largest player in this served market based on management estimates.
 
Industrial Water
 
Water is used in most industrial facilities to provide processing steps such as cooling, cleaning and mixing. Our Goulds brand supplies vertical multistage pumps to boost pressure for purposes such as circulating water through a manufacturing facility to cool machine tools. Our Lowara brand focuses on water treatment, industrial washing equipment and machine tool cooling. The Standard brand delivers heat exchangers for combined heat and power (CHP) applications within power generation plants. We also provide niche applications such as flexible impeller pumps for wine processing facilities served by our Jabsco brand, and water-based detergent dispensing and water circulation within car washes served by Flojet and Goulds air-operated diaphragm and end suction pumps. Across all these various end applications, we believe our business is the second largest player in this served market based on management estimates.
 
Irrigation
 
The irrigation business consists of irrigation-related equipment and services associated with bringing water from a source to the plant or livestock need, including hoses, sprinklers, center pivot and drip irrigation. We focus on the pumps and boosting systems that supply this ancillary equipment with water. Our Goulds brand brings mixed flow pumps, and our Flowtronex group specializes in equipment solutions such as the Hydrovar boosting system, which incorporates monitoring and controls to optimize energy efficiency in irrigation delivery. Our Lowara brand also produces pumps for agriculture applications and irrigation of gardens and parks. We believe we have a leading position in this served market based on management estimates.
 
As described above, the following brands and products are used across the applications in our Applied Water segment:
 
Goulds - With origins dating back over 150 years, Goulds is a leading brand of centrifugal and turbine pumps, controllers, variable frequency drives and accessories for residential and commercial water supply and wastewater applications. Goulds is a leader in the water technologies market with its line of residential water well pumps. The Goulds product portfolio includes submersible and line shaft turbine, 4” submersible, jet, sump, effluent, sewage and centrifugal pumps for residential, agriculture and irrigation, sewage and drainage, commercial and light industrial use. Goulds submersible, deepwell or other pumps can be found in more than a quarter of the existing 15 million household wells and more than 380,000 public and community wells in the United States. Products for commercial wastewater include sewage, effluent and grinder pumps and packages. Agriculture products include pump and control products for irrigation, stockwater, wash systems, cooling systems and waste management, with turf irrigation products including submersible and surface pumps for landscape and turf irrigation systems. We serve the building trades market with filtration, chilling, pressure boost, wash system, water, supply, wastewater and boiler feed applications. We also have a range of standard cast iron and bronze end-suction and multistage pumps for various commercial applications.
 
Lowara - Founded in 1968, and headquartered in Vicenza, Italy, Lowara is a leader in stainless steel pump manufacturing technology for water technology applications. The Lowara range includes submersible, sump, effluent, sewage, centrifugal pumps and booster packages for water supply and water pumping needs in the residential, agriculture, industrial, public utility, building service and commercial markets worldwide, with particular strength in Europe. Residential applications include pumps for pressurization, conditioning, fire-fighting systems, lifting stations and dewatering. Agriculture applications include pumps for irrigation of gardens and parks. Industrial applications include drinking water, water treatment, industrial washing equipment and machine tool cooling. As an example of how Lowara has served the commercial building


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services market, seven Lowara water booster sets are used for even pressure water supply in the world’s tallest building, “Burj Dubai” in the United Arab Emirates.
 
Bell & Gossett - Founded in 1916 in Chicago, IL, Bell & Gossett has been headquartered in Morton Grove, IL since 1941. Bell & Gossett, or B&G, is a leader in plumbing and water-based heating and air conditioning markets. Products are used in residential applications where single- or multi-family homes are heated with hot water or steam. Key products include circulating pumps, valves, and specialty products used in these systems. B&G also sells wastewater pumps for residential applications. In commercial applications, B&G provides a broad range of products, including a wide variety of pumps, heat exchangers, valves and controls for heating and air-conditioning systems, sump pumps for wastewater systems, condensate pumping systems for steam heating systems and a comprehensive line of energy-saving variable speed controls. Training is provided for Building System Design Engineers at B&G’s industry renowned Little Red Schoolhouse in Morton Grove. Key commercial building types include hospitals, schools, and data centers. B&G products are sold globally by independent manufacturer representatives and distributed locally by heating, ventilating and air conditioning, or HVAC, wholesalers. B&G recently sold some of its largest pumps to the new Children’s Memorial Hospital building in Chicago, IL. These pumps will circulate chilled water throughout the building to provide air-conditioning for the occupants.
 
AC Fire - Allis-Chalmers Company was founded in the 1840s in Milwaukee, WI. It offers turnkey fire pump systems for commercial, residential and industrial applications. We design and custom-build a wide range of fire pump systems including prefabricated packages and house units that meet every fire protection need. AC Fire products include In-Line Pumps, Vertical Turbine, Package Systems, Split Case (various series) and 13D Home Defender for residential fire pump service. The 13D Home Defender is designed to boost water pressure for automatic residential sprinkler systems. In addition to residential applications, turnkey fire pumping systems from A-C Pump protect an increasing number of petrochemical facilities, commercial buildings and factories around the world.
 
Flowtronex - Flowtronex, founded in 1974 as Pumping Systems, Inc., began by producing some of the golf industry’s first prefabricated water pumping systems. ITT opened a new 125,000 square foot manufacturing facility in Dallas, TX to support the company’s growth in the public utility and turf/irrigation markets. The Silent Storm package and Pace Integrated Pump Controller are our two primary products sold into the golf market. In landscape, Flowtronex products, primarily the Floboy system, are sold to customers such as cities and nurseries. In golf, Flowtronex products are sold to golf course superintendents through our Toro Distribution partnership. Retrofit sales of golf pumping systems are sold through our FlowNet Service Network, a group of factory authorized service technicians that provide set up and start up and service and repair of Flowtronex pump stations.
 
Standard - For close to 90 years Standard has been the leader in the design and manufacture of shell and tube heat exchangers. Standard is the brand of our complete line of heat transfer products used in industrial and process applications such as heating or cooling liquids or gases, heat recovery in chemical processing, power and co-generation, paper and pulp, OEM and commercial marine markets. Products include basic shell-and-tube heat exchanger, air coolers, heat transfer coils, compact brazed, welded, gasketed plate units and packaged steam condensers.
 
Jabsco - The Jabsco brand is known for its marine, industrial, and hygienic/sanitary pumps and systems that are used in many industries, including marine, industrial, healthcare and food processing. It was founded in 1941 by the inventors of the flexible impeller pump. Jabsco is a leader in the leisure marine market, with a broad range of products including water system, engine cooling pumps, searchlights and marine waste systems. Jabsco also offers industrial pumps for hygienic applications, fluid transfer in chemical processing, laboratory, paint processing, plating, and construction. Jabsco rotary lobe pumps offer outstanding performance with unique capabilities. Jabsco Hy-line and Ultima rotary lobe pumps support food and dairy product production, healthcare, chemical, pharmaceutical and biotech applications, whether the product is thin, viscous or fragile. Jabsco also offers multi-purpose and specialized flexible impeller, diaphragm and sliding vane pumps for chemical and general transfer applications.


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Flojet - Established in 1975, the Flojet brand encompasses a broad range of small pumps, motors and dispensing pumps for the beverage, industrial, RV, marine and food processing markets. Flojet is a leader in the small pump market, offering a versatile range of products serving the beverage market, including both air- and motor-operated diaphragm pumps and centrifugal chilling pumps, as well as booster systems and accumulator tanks. Flojet’s beverage pumps can be found in applications such as beer dispensing, syrup mixing for carbonated drinks, re-circulation in vending machines and refrigerators, bottled water dispensers, icemakers and coffee machines. In addition to significant beverage applications, Flojet’s electric and air-operated diaphragm pumps are utilized in street sweepers, car washes, carpet cleaners, parts washers, agricultural spraying and road rollers. Flojet’s positive displacement diaphragm pumps can be driven by air, electric motor or solenoid. The positive displacement diaphragm design of Flojet pumps makes them ideal for use in conditions that require self-priming and dry running capability for short periods of time. Additionally, the compact size of these pumps makes them very useful in tight spaces where one cannot ensure a flooded suction. Flojet pumps are designed to be more efficient and are often the choice of customers for applications where low power consumption is critical.
 
Distribution, Training and End Use
 
Water Infrastructure provides more than 70% of its sales through direct channels with remaining sales through indirect channels and service capabilities. Both public utility and industrial facility customers increasingly require our teams’ global but locally proficient expertise to use our equipment in their specific applications. Several trends are increasing the need for this application expertise: (i) the increase in type and amount of contaminants in water supply, (ii) increasing environmental regulations, (iii) the need to increase system efficiencies due to rising energy costs, and (iv) the retirement of a largely aging water industry workforce not systematically replaced at utilities.
 
In the Applied Water segment, many end-use areas are widely different, so specialized distribution partners are often preferred. Our commercial teams have built long-standing relationships around our brands in many of these industries through which we can continue to leverage new product and service applications. Revenue opportunities are balanced between OEM and after-market customers. Our products in the Applied Water segment are sold through our global direct sales and world-class indirect channels with more than 85% of revenue going through indirect channels. We have long-standing relationships with the leading independent distributors in the markets we serve, and we provide incentives to distributors, such as specialized training programs, to exclusively sell our products.
 
In addition to distributors, we also provide the same training to engineers at the EPCs who influence purchasing decisions. For example, the Bell & Gossett Little Red Schoolhouse is a training center in Morton Grove, IL, which we believe to be the heating, ventilation and air conditioning (HVAC) industry’s leading educational facility. Since it was opened in 1954, the instructors at our Little Red Schoolhouse have trained more than 55,000 engineers, contractors and installers in the design, installation and maintenance of hydronic and steam systems, while another 135,000 professionals have received training through Bell & Gossett’s “Traveling Classroom Program.”
 
Our sales channels offer more than one brand type to a specific application. For example, the 2010 Winter Olympics held in Vancouver, British Columbia in February 2010, involved unprecedented planning and coordination among many organizations and suppliers, and we played a major role in supplying water handling products at many of the facilities. We also supplied pumps and controls for the heating and cooling systems in the Speed Skating Oval, which included Bell & Gossett brand pumps, heat exchangers and expansion tanks used in the heating and cooling systems, as well as Goulds brand pumps and Aquavar® variable speed drive controllers used in the facility’s grey water handling system. Finally, to conserve clean water at the Olympic Village, an innovative grey water collection and distribution system was constructed. ITT’s Goulds SSV Series vertical multi-stage pumps move collected rainwater from storage tanks to the plumbing systems used for flushing toilets and watering plants. A Bell & Gossett 70M-MS pumping package maintains adequate pressure in the grey water distribution system.


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Aftermarket Parts and Service
 
We have more than 120 service centers around the world which employ approximately 600 service employees to provide aftermarket parts and services to our customers. During their lifecycle, installed products require maintenance, repair services and parts due to the harsh environments in which they operate. In 2010, 16% of our total revenue was derived from sales of repair parts and services.
 
In addition, depending on the type of product, median lifecycles range from 5 years to over 50 years, at which time they must be replaced. Many of our products are precisely selected and applied within a larger network of equipment driving a strong preference by customers and installers to replace them with the same exact brand and model when they reach the end of their lifecycle. This dynamic establishes a large recurring revenue stream for our business.
 
Geographic Profile
 
In addition to the traditional markets of the United States and Western Europe, opportunities in emerging markets within Asia Pacific, Eastern Europe, Latin America and other countries are growing. Revenue derived from emerging markets totaled 18% for the year ended December 31, 2010. The following chart provides an overview of our geographic profile depicted as a percentage of revenue by customer location.
 
                         
Year Ended December 31
  2010     2009     2008  
 
Sales & Revenues
                       
United States
    35 %     34 %     34 %
Europe
    39 %     43 %     43 %
Asia Pacific
    11 %     9 %     9 %
Other
    15 %     14 %     14 %
                         
      100 %     100 %     100 %
                         
 
Properties
 
We have over 320 locations in over 40 countries. These properties total approximately 8.5 million square feet, of which over 280 locations, or approximately 4.9 million square feet, are leased. 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. The following table shows the significant locations by segment.
 
                 
        Square Footage
     
Location
  Segment   (in thousands)     Owned/Leased
 
Emmaboda, Sweden
  Water Infrastructure     1,156     Owned
Morton Grove, Illinois
  Applied Water     530     Owned
Montecchio, Italy
  Applied Water     379     Owned
Auburn, New York
  Applied Water     298     Leased
Lubbock, Texas
  Applied Water     229     Owned
Shenyang, China
  Water Infrastructure/ Applied Water     149     Owned
Cheektowaga, New York
  Applied Water     200     Leased
Corporate Headquarters
               
White Plains, New York
  Corporate Headquarters           Leased
 
Our corporate headquarters is currently located at 1133 Westchester Avenue, Suite 2000, White Plains, New York. We are currently located in the same building as our former parent, ITT, but intend to be in an independent space on separate floors in the near term, with each company having its own entrance, security and maintenance systems.


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Supply and Seasonality
 
We have a global manufacturing footprint, with production facilities in Europe, North America, Latin America, and Asia. In addition, we maintain a global network of service centers providing after-market customer care. Service centers offer an array of integrated service solutions for the industry including: preventive monitoring, contract maintenance, emergency field service, engineered upgrades, inventory management, and overhauls for pumps and other rotating equipment.
 
We offer a wide range of highly engineered products. We primarily employ configure-to-order capabilities to maximize manufacturing and logistics efficiencies by producing high volumes of basic product configurations. When we provide a configure-to-order solution, we configure a standard product to our customers’ specifications. To a lesser extent, we provide engineer-to-order products to meet the customization requirements of our customers. This process requires that we apply our technical expertise and production capabilities to provide a non-standard solution to the customer.
 
Our inventory management and distribution practices seek to minimize inventory holding periods by taking delivery of the inventory and manufacturing immediately prior to the sale or distribution of products to our customers. All of our businesses require various parts and raw materials, the availability and prices of which may fluctuate. Parts and raw materials commonly used in our products include motors, fabricated parts, castings, bearings, seals, nickel, copper, aluminum, and plastics. While we may recover some cost increases through operational improvements, we are still exposed to some pricing risk. We attempt to control costs through fixed-priced contracts with suppliers and various other programs, such as our global strategic sourcing initiative.
 
Our business relies on third-party suppliers, contract manufacturing and commodity markets to secure raw materials, parts and components used in our products. We typically acquire materials and components through a combination of blanket and scheduled purchase orders to support our materials requirements. For most of our products, we have existing alternate sources of supply, or such sources are readily available.
 
We may experience price volatility or supply constraints for materials that are not available from multiple sources. From time to time, we acquire certain inventory in anticipation of supply constraints or enter into longer-term pricing commitments with vendors to improve the priority, price and availability of supply. There have been no raw material shortages that have had a significant adverse impact on our business as a whole.
 
Customers
 
Our business is not dependent on any single customer or a few customers, the loss of which would have a material adverse effect on the respective market or on us as a whole. No individual customer accounted for more than 10% of our combined 2010 revenue.
 
Competition
 
Given the highly fragmented nature of the water industry, Water Infrastructure competes with a large number of businesses. The larger global peers include: Gorman Rupp Company, IDEX Corporation, and KSB Group (with respect to transport pumps, systems and control equipment); Pall Corporation, Nalco Company, and Parkson Corporation (with respect to treatment equipment); Danaher Corporation and Thermo Fisher Scientific (with respect to analytical instruments).
 
Competition in the water transport and treatment technologies markets focuses on product performance, application expertise, design, quality, delivery, and price. In the sale of products and services, we benefit from our large installed base of pumps and complementary products, which require maintenance, repair and replacement parts due to the nature of the products and the conditions under which they operate. Timeliness of delivery, quality and the proximity of service centers are important customer considerations when selecting a provider for after-market products and services. In geographic regions where we are locally positioned to provide a quick response, customers have historically relied on us, rather than our competitors, for after-market products relating to our highly engineered and customized solutions.


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Competition in the Applied Water segment focuses on brand names, application expertise, product delivery and performance, quality, and price. We compete by offering a wide variety of innovative and high-quality products, coupled with world-class application expertise. We believe our distribution through well-established channels and our reputation for quality significantly enhance our market position. Our ability to deliver innovative product offerings has allowed us to compete effectively, to cultivate and maintain customer relationships and to serve and to expand into many niche and new markets.
 
Research & Development
 
Research and development is a key element of our engineering culture and is generally focused on the design and development of products and application know-how that anticipate customer needs and emerging trends. Our engineers are involved in new product development and improvement of existing products. Our businesses invest substantial resources for research and development (R&D) activities. We anticipate we will continue to develop and invest in our R&D capabilities to promote a steady flow of innovative, high-quality and reliable products and applications to further strengthen our position in the markets we serve. We invested $74 million, $63 million and $64 million for the years ended December 31, 2010, 2009 and 2008, respectively, towards research and development.
 
We have over 600 engineering and research employees in more than 40 technology centers around the world. R&D activities are initially conducted in our technology centers, located in conjunction with some of our major manufacturing facilities to ensure an efficient development process. We have established a wastewater Center of Excellence, in Stockholm, Sweden, with over 100 research, development and engineering employees. We have launched Centers of Excellence in India and China, where we are accelerating the customization of our application expertise to local needs. In the scale-up process, our R&D activities are conducted at our piloting and testing facilities or at strategic customer sites. These piloting and testing facilities enable us to serve our strategic markets in each region of the world.
 
We generally seek patent protection for those inventions and improvements likely to be incorporated into our products or where proprietary rights will improve our competitive position. We believe that our patents and applications are important for maintaining the competitive differentiation of our products and improving our return on research and development investments. While we own and control a significant 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, as well as each of our core business segments, is not materially dependent on any one intellectual property right or related group of such rights.
 
Patents, patent applications, and license agreements expire or terminate over time by operation of law, in accordance with their terms or otherwise. As the portfolio of our patents, patent applications, and license agreements has evolved over time, we do not expect the expiration of any specific patent to have a material adverse effect on our financial position, results of operations or cash flows.
 
Backlog
 
Order backlog as of December 31, 2010, 2009 and 2008 was $620 million, $567 million, and $549 million, respectively. Delivery schedules vary from customer to customer based upon their requirements. Typically, large projects require longer lead production cycles and delays can occur from time to time. We expect the majority of our year-end 2010 backlog will be recognized as revenue within 2011.
 
Watermark
 
In 2008, we launched our signature corporate citizenship program, Watermark, whose mission is to make a sustainable mark in the world by providing safe water to children and families in need. We are dedicated to protecting the environment and fostering knowledge and awareness of the world’s water issues through our support of non-governmental organizations (NGOs). With our NGO partners, we have provided safe water, sanitation and hygiene education to more than 300 schools in India, China and Latin America. We also proactively secure and provide safe water to people in times of emergency (for example, in the aftermath of


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the recent earthquakes in Japan, Haiti and China). We believe our strong culture of social responsibility is a manifestation of the values of our employees and reflects areas of interest to our customers, as well as helping our company to attract and retain talented and committed people.
 
Employees
 
As of December 31, 2010, we employed approximately 11,700 people. Generally, labor relations have been maintained in a satisfactory manner.
 
Environmental Matters and Regulation
 
Our manufacturing operations worldwide are subject to many requirements under environmental laws. In the United States, the Environmental Protection Agency and similar state agencies administer laws and regulations concerning air emissions, water discharges, waste disposal, environmental remediation, and other aspects of environmental protection. Such environmental laws and regulations in the United States include, for example, 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 significantly affect our operations. We have established an internal program to address compliance with applicable environmental requirements.
 
While environmental laws and regulations are subject to change, such changes can be difficult to predict reliably and the timing of potential changes is uncertain. Management does not believe, based on current circumstances, that compliance costs pursuant to such regulations will have a material adverse effect on our financial position, results of operations or cash flows. However, the effect of future legislative or regulatory changes could be material to our financial condition or results of operations.
 
We are responsible, or are alleged to be responsible, for ongoing environmental investigation and remediation of sites in several countries. These sites are in various stages of investigation and/or remediation and at some of these sites our liability is considered de minimis. We have received notification from the U.S. Environmental Protection Agency (EPA), and from similar state and foreign environmental agencies, that a number of sites formerly or currently owned and/or operated by us, and other properties or water supplies that may be or have been impacted from those operations, contain disposed or recycled materials or wastes and require environmental investigation and/or remediation. These sites include instances where we have been identified as a potentially responsible party under federal and state environmental laws and regulations. Our 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. It can be difficult to estimate reliably the final costs of investigation and remediation due to various factors. In our opinion, the total amount accrued is appropriate based on facts and circumstances as currently known to us. We do not anticipate these liabilities will have a material adverse effect on our combined financial position, results of operations or cash flows. We cannot assure you that other sites, or new details about sites known to us, that could give rise to environmental liabilities with such material adverse effects on us will not be identified in the future.
 
Legal Proceedings
 
WCO and its subsidiaries from time to time are involved in legal proceedings, the majority of which are incidental to the operation of their businesses. Some of these proceedings seek remedies relating to personal injury claims, environmental matters, intellectual property matters, copyright infringement, employment and pension matters, government contract issues and commercial or contractual disputes, sometimes related to acquisitions or divestitures.


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MANAGEMENT
 
Our Executive Officers
 
The following table sets forth certain information as of June 30, 2011, concerning certain of our executive officers, including a five-year employment history and any directorships held in public companies following the spin-off.
 
             
Name
  Age  
Position(s)
 
Gretchen W. McClain
    48     Chief Executive Officer
Steven A. Loranger
    59     Executive Chairman
Michael T. Speetzen
    41     Chief Financial Officer
Frank R. Jimenez
    46     General Counsel and Corporate Secretary
Angela A. Buonocore
    53     Chief Communications Officer
 
Gretchen W. McClain — Gretchen W. McClain will serve as our Chief Executive Officer and a Director on the Board of Directors. Ms. McClain currently serves as President of the ITT Fluid and Motion Control business. Ms. McClain joined ITT in September 2005 as the President of ITT’s Residential & Commercial Water business. She was named President of ITT Fluid Technology in March 2007 and served in that role before being named President of Fluid and Motion Control in December 2008. Prior to joining ITT, Ms. McClain was Vice President and General Manager of the Business, General Aviation & Helicopters (BGH) Electronics division at Honeywell Aerospace. Prior to assuming the BGH position, she held a variety of leadership positions in Honeywell Aerospace’s Engines, Systems & Services division, including Vice President for Engineering and Technology and Vice President for Program Management. She joined AlliedSignal in 1999, which later merged with Honeywell. Earlier, Ms. McClain spent nine years with NASA and served as Deputy Associate Administrator for Space Development, where she played a pivotal role in the successful development and launch of the International Space Station Program. Also with NASA, she served as Chief Director for Space Station, and as a Deputy Director for Space Flight. Ms. McClain currently serves on the board of Faradyne, an ITT joint venture with Pentair, Inc., and she is a former board member of the Hydraulic Institute, the largest association of pump producers in North America. Ms. McClain is a graduate of the University of Utah in Salt Lake City, where she earned her bachelor’s degree in mechanical engineering.
 
Steven R. Loranger — Steven R. Loranger will serve as our Executive Chairman. Mr. Loranger currently serves as President, Chief Executive Officer and Chairman of the Board of Directors of ITT. Mr. Loranger is a member of the Business Roundtable, serves on the boards of the National Air and Space Museum and the Congressional Medal of Honor Foundation and is on the Executive Committee of the Aerospace Industries Association Board of Governors. Mr. Loranger has extensive operational and manufacturing experience with industrial companies and, in particular, he has intimate knowledge of the Company’s business and operations having served as Chief Executive Officer of ITT since 2004. Prior to ITT, Mr. Loranger previously served as Executive Vice President and Chief Operating Officer of Textron, Inc. from 2002 to 2004, overseeing Textron’s manufacturing businesses, including aircraft and defense, automotive, industrial products and components. From 1981 to 2002, Mr. Loranger held executive positions at Honeywell International Inc. and its predecessor company, AlliedSignal, Inc., including serving as President and Chief Executive Officer of its Engines, Systems and Services businesses. Mr. Loranger has been a Director of ITT since 2004 and has served as a Director of FedEx Corporation since 2006. Mr. Loranger holds a bachelor’s and master’s degree in science from the University of Colorado.
 
Michael T. Speetzen — Michael T. Speetzen will serve as our Chief Financial Officer. Mr. Speetzen is currently Vice President of Finance for the Fluid and Motion Control business of ITT. He joined ITT in 2009 as Vice President of Finance for Fluid Technology, and his role was expanded to his current position later that year. Before joining ITT, Mr. Speetzen served as Executive Vice President and Chief Financial Officer for the StandardAero division of private equity firm Dubai Aerospace Enterprise. Previously, he held positions with Honeywell and General Electric. Mr. Speetzen currently serves on the board of Faradyne, an ITT joint venture with Pentair, Inc. Mr. Speetzen holds a bachelor’s degree in management with an emphasis in finance from Purdue University, and a Master of Business Administration from Thunderbird’s School of Global Management.


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Frank R. Jimenez — Frank R. Jimenez will serve as our General Counsel and Corporate Secretary. Mr. Jimenez is currently Vice President and General Counsel for ITT. He joined ITT in June 2009 and previously served under U.S. Presidents Bush and Obama as the General Counsel of the U.S. Navy. Earlier, Mr. Jimenez served as Chief of Staff of the U.S. Department of Housing and Urban Development (HUD). Prior to HUD, he was Deputy Chief of Staff and acting General Counsel for Florida Governor Jeb Bush. Previously, he practiced commercial and white-collar litigation as a partner in the Miami office of Steel Hector & Davis LLP (now Squire Sanders & Dempsey LLP). Mr. Jimenez received his law degree from the Yale Law School, and he holds a master of business administration, with majors in finance and strategic management, from the University of Pennsylvania’s Wharton School, and a master’s degree in national security and strategic studies, with distinction, from the U.S. Naval War College. He earned his bachelor’s degree, with honors, from the University of Miami.
 
Angela A. Buonocore — Angela A. Buonocore will serve as our Chief Communications Officer. Ms. Buonocore currently serves as the Senior Vice President and Chief Communications Officer for ITT Corporation. She joined ITT in March 2007 from The Pepsi Bottling Group where she served as Vice President, Corporate Communications since 2001. Prior to her 12-year career in the PepsiCo system, Buonocore spent 11 years with IBM and five years at General Electric Company in various internal and external communications roles. Ms. Buonocore is a trustee of the Arthur W. Page Society and the Institute for Public Relations, and a member of the Wisemen and the Seminar, all organizations of senior corporate communications executives. In 2003, she was elected a member of the Accademia Europea per le Relazioni Econimiche e Culturali, a Rome-based organization that honors Italians and Italian-Americans who are leaders in their fields. In 2010, she was honored by the National Organization for Women’s New York City chapter as a Woman of Power and Influence. Ms. Buonocore holds a bachelor’s degree in advertising with high honors from the University of Florida and was honored as a Distinguished Alumna of the College of Journalism and Communications in May 2007.
 
Our Board of Directors
 
The following table sets forth information with respect to those persons who are expected to serve on our Board of Directors following the spin-off. See “— Our Executive Officers” for Mr. Loranger’s and Ms. McClain’s biographical information. We are in the process of identifying three additional individuals who will become Directors following the spin-off, and we expect to provide details regarding these individuals in an amendment to this Information Statement.
 
             
Name
  Age  
Position(s)
 
Steven A. Loranger
    59     Executive Chairman
Gretchen W. McClain
    48     Director
Curtis J. Crawford
    63     Director
John J. Hamre
    60     Director
Surya N. Mohapatra
    61     Director
Markos I. Tambakeras
    60     Director
 
Curtis J. Crawford, Ph.D. — Curtis J. Crawford will serve as a Director on our Board of Directors. Dr. Crawford has been a Director of ITT since 1996. He is a Director of E.I. DuPont de Nemours and Company and ON Semiconductor Corporation. Dr. Crawford was previously a Director of Agilysys, Inc. from April 2005 to June 2008. Dr. Crawford is President and Chief Executive Officer of XCEO, Inc. From April 1, 2002 to March 31, 2003, he served as President and Chief Executive Officer of Onix Microsystems, a private photonics technology company. He was Chairman of the Board of Directors of ON Semiconductor Corporation from September 1999 until April 1, 2002. Previously, he was President and Chief Executive Officer of ZiLOG, Inc. from 1998 to 2001 and its Chairman from 1999 to 2001. Dr. Crawford also has extensive executive experience with AT&T Corporation and IBM Corporation. He is a member of the Board of Trustees of DePaul University. He holds a bachelor’s degree in business administration and computer science and a master’s degree from Governors State University, a master of business administration from DePaul University and a


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Ph.D. from Capella University. Governors State University awarded him an honorary doctorate in 1996 and he received an honorary doctorate degree from DePaul University in 1999.
 
John J. Hamre — John J. Hamre will serve as a Director on our Board of Directors. Dr. Hamre has been a Director of ITT since 2000. Dr. Hamre was elected President and Chief Executive Officer of Center for Strategic & International Studies (“CSIS”), a public policy research institution dedicated to strategic, bipartisan global analysis and policy impact, in April of 2000. Prior to joining CSIS, he served as U.S. Deputy Secretary of Defense from 1997 to 2000 and Under Secretary of Defense (Comptroller) from 1993 to 1997. Dr. Hamre is a Director of MITRE Corporation, a not-for-profit organization chartered to work in the public interest, with expertise in systems engineering, information technology, operational concepts, and enterprise modernization. He has served as a Director of SAIC, Inc. since 2005 and Oshkosh Corporation since 2009. Dr. Hamre was previously a Director of Choicepoint, Inc. from May 2002 through September 2008. He holds a bachelor’s degree, with highest distinction, from Augustana College in Sioux Falls, South Dakota, was a Rockefeller Fellow at Harvard Divinity School and was awarded a Ph.D., with distinction, from the School of Advanced International Studies, Johns Hopkins University, in 1978.
 
Surya N. Mohapatra, Ph.D. — Surya N. Mohapatra will serve as a Director on our Board of Directors. Dr. Mohapatra has been Director of ITT since February 2008. He has also been a Director of Quest Diagnostics Incorporated since 2002 and served as a Director of Vasogen, Inc. from 2002 to 2006. Dr. Mohapatra was appointed President and Chief Operating Officer of Quest Diagnostics Incorporated in June 1999, a Director in 2002, its Chief Executive Officer in May 2004, and Chairman of the Board in December 2004. Dr. Mohapatra joined Quest Diagnostics as Senior Vice President and Chief Operating Officer in 1999. Prior to joining Quest, Dr. Mohapatra was Senior Vice President of Picker International, a worldwide leader in advanced medical imaging technologies, where he served in various executive positions during his 18-year tenure. Dr. Mohapatra is also a Trustee of the Rockefeller University and a member of the Corporate Advisory Board of Johns Hopkins Carey Business School. Dr. Mohapatra holds a bachelor’s degree in electrical engineering from Sambalpur University in India. Additionally, he holds a master’s degree in medical electronics from the University of Salford, England, as well as a doctorate in medical physics from the University of London and The Royal College of Surgeons of England.
 
Markos I. Tambakeras — Markos I. Tambakeras will serve as a Director on our Board of Directors. Mr. Tambakeras has been a Director of ITT since 2001. Previously, he was a Director of Kennametal, Inc. from July 1999 through December 2006. Mr. Tambakeras has served on the Board of Parker Hannifin Corporation since 2005 and served as a Director of the Board of Newport Corporation from May 2008 through December 31, 2009. Mr. Tambakeras served as Chairman of the Board of Directors, Kennametal, Inc. from July 1, 2002 until December 31, 2006. He was also President and Chief Executive Officer of Kennametal from July 1999 through December 31, 2005. From 1997 to June 1999, Mr. Tambakeras served as President, Industrial Controls Business, for Honeywell Incorporated. He is a trustee of Arizona State University and has served for two years on the President’s Council on Manufacturing. He was previously the Chairman of the Board of Trustees of the Manufacturers Alliance/MAPI, which is the manufacturing industry’s leading executive development and business research organization. Mr. Tambakeras received a B.Sc. degree from the University of Witwatersrand, Johannesburg, South Africa and a master of business administration from Loyola Marymount University, Los Angeles, CA.
 
Structure of the Board of Directors
 
Our Board of Directors will be divided into three classes that will be, as nearly as possible, of equal size. Initially, Class I directors will serve for a one-year term, Class II directors for a two-year term, and Class III directors for a three-year term. The terms of the Class I, Class II and Class III directors will expire at the annual meeting in 2012, 2013 and 2014, respectively. Upon the expiration of each initial term, directors will subsequently serve three-year terms if renominated and reelected. The proposed Class I directors will include     , the proposed Class II directors will include      and the proposed Class III directors will include     .
 
Pursuant to the Distribution Agreement, we have agreed that WCO shall nominate a slate of directors to be elected at our shareholder meeting to be held in 2013 and each year thereafter so that (i) a majority of the


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Board of Directors shall consist of persons who had not served as a director or executive officer of ITT at any time during the twelve month period immediately prior to the distribution (each, a “Legacy Director”) and (ii) no director of WCO that is a Legacy Director shall also be a director of ITT.
 
Committees of the Board of Directors
 
Following the spin-off, the standing committees of our Board of Directors will include an Audit Committee, a Compensation and Personnel Committee and a Nominating and Governance Committee, each as further described below. Following our listing on the NYSE and in accordance with the transition provisions of the rules of the NYSE applicable to companies listing in conjunction with a spin-off transaction, each of these committees will, by the date required by the rules of the NYSE, be composed exclusively of directors who are independent. Other committees may also be established by the Board of Directors from time to time.
 
Audit Committee.  The members of the Audit Committee are expected to be Markos I. Tambakeras (chair),           and          . The Audit Committee will have the responsibility, among other things, to meet periodically with management and with both our independent auditor and internal auditor to review audit results and the adequacy of and compliance with our system of internal controls. In addition, the Audit Committee will appoint or discharge our independent auditor, and review and approve auditing services and permissible non-audit services to be provided by the independent auditor in order to evaluate the impact of undertaking such added services on the independence of the auditor. The responsibilities of the Audit Committee, which are anticipated to be substantially identical to the responsibilities of ITT’s Audit Committee, will be more fully described in our Audit Committee charter. The Audit Committee charter will be posted on our website and will be available in print to any shareholder who requests it. By the date required by the transition provisions of the rules of the NYSE, all members of the Audit Committee will be independent and financially literate. Further, the Board of Directors has determined that Mr. Tambakeras,           and          possess accounting or related financial management expertise within the meaning of the NYSE listing standards and that each qualifies as an “audit committee financial expert” as defined under the applicable SEC rules.
 
Compensation and Personnel Committee.  The members of the Compensation and Personnel Committee are expected to be Curtis J. Crawford (chair),           and          . The Compensation and Personnel Committee will oversee all compensation and benefit programs and actions that affect our senior executive officers. The Compensation and Personnel Committee will also provide strategic direction for our overall compensation structure, policies and programs and will oversee and approve the continuity planning process. The responsibilities of the Compensation and Personnel Committee, which are anticipated to be substantially identical to the responsibilities of ITT’s Compensation and Personnel Committee, will be more fully described in the Compensation and Personnel Committee charter. The Compensation and Personnel Committee charter will be posted on our website and will be available in print to any shareholder who requests it. Each member of the Compensation and Personnel Committee will be a non-employee director and there are no Compensation and Personnel Committee interlocks involving any of the projected members of the Compensation and Personnel Committee.
 
Nominating and Governance Committee.  The members of the Nominating and Governance Committee are expected to be Surya N. Mohapatra (chair),           and          . The Nominating and Governance Committee will be responsible for developing and recommending to the Board of Directors criteria for identifying and evaluating director candidates; identifying, reviewing the qualifications of and proposing candidates for election to the Board of Directors; and assessing the contributions and independence of incumbent directors in determining whether to recommend them for reelection to the Board of Directors. The Nominating and Governance Committee will also review and recommend action to the Board of Directors on matters concerning transactions with related persons and matters involving corporate governance and, in general, oversee the evaluation of the Board of Directors. The responsibilities of the Nominating and Governance Committee, which are anticipated to be substantially identical to the responsibilities of ITT’s Nominating and Governance Committee, will be more fully described in the Nominating and Governance Committee charter. The Nominating and Governance Committee charter will be posted on our website and will be available in print to any shareholder who requests it.


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Director Independence.  Our Board of Directors, upon recommendation of our Nominating and Governance Committee, is expected to formally determine the independence of its directors following the spin-off. The Board of Directors of ITT has affirmatively determined that the following directors, who are anticipated to be elected to our Board of Directors, are independent: Curtis J. Crawford, John J. Hamre, Surya N. Mohapatra and Markos I. Tambakeras. Our Board of Directors is expected to annually determine the independence of directors based on a review by the directors and the Nominating and Governance Committee. No director will be considered independent unless the Board of Directors determines that he or she has no material relationship with us, either directly or as a partner, shareholder, or officer of an organization that has a material relationship with us. Material relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable, and familial relationships, among others. To evaluate the materiality of any such relationship, the Board of Directors has determined it is in the best interests of the company to adopt categorical independence standards which will be set forth in the Corporate Governance Guidelines. The standards that will be relied upon by the Board of Directors in affirmatively determining whether a director is independent are composed, in part, of those objective standards set forth in the NYSE rules, which generally provide that:
 
  •  A director who is an employee, or whose immediate family member (defined as a spouse, parent, child, sibling, father- and mother-in-law, son- and daughter-in-law, brother- and sister-in-law and anyone, other than a domestic employee, sharing the director’s home) is an executive officer, of the company, would not be independent until three years after the end of such relationship.
 
  •  A director who receives, or whose immediate family member receives, more than $120,000 per year in direct compensation from the company, other than director and committee fees and pension or other forms of deferred compensation for prior services (provided such compensation is not contingent in any way on continued service) would not be independent until three years after ceasing to receive such amount.
 
  •  A director who is a partner of or employed by, or whose immediate family member is a partner of or employed by and personally works on the company’s audit, a present or former internal or external auditor of the company would not be independent until three years after the end of the affiliation or the employment or auditing relationship.
 
  •  A director who is employed, or whose immediate family member is employed, as an executive officer of another company where any of the company’s present executives serve on the other company’s compensation committee would not be independent until three years after the end of such service or employment relationship.
 
  •  A director who is an employee, or whose immediate family member is an executive officer, of a company that makes payments to, or receives payments from, the company for property or services in an amount which, in any single fiscal year, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues, would not be independent until three years after falling below such threshold.
 
Compensation of Non-Employee Directors
 
Following the spin-off, director compensation will be determined by our Board of Directors with the assistance of its Nominating and Governance Committee. It is anticipated that such compensation will consist of an annual retainer, an annual equity award, annual fees for serving as an Audit Committee chair and other types of compensation.
 
Director Compensation Table
 
The following table sets forth information concerning the 2010 compensation awarded by ITT to non-employee directors of ITT who are expected to be non-employee directors of WCO. The table below represents the 2010 grant date fair value of compensation computed in accordance with GAAP. All non-employee directors received the same cash, stock, and options awards for service as a non-employee director.


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Mr. Loranger, as an employee director, did not receive compensation for his service on the Board of Directors. The grant date fair value of stock awards and option awards granted to non-employee directors in 2010 is provided in footnote (b) to the table. Stock awards are composed of restricted stock units. Option awards are composed of non-qualified stock options.
 
                                 
    Fees Earned or Paid in
                   
    Cash
    Stock Awards
    Option Awards
    Total
 
Name
  $(a)     ($)(b)     ($)(b)     ($)  
 
Curtis J. Crawford
    90,000       90,192       40,126       220,318  
John J. Hamre
    90,000       90,192       40,126       220,318  
Surya N. Mohapatra
    90,000       90,192       40,126       220,318  
Markos I. Tambakeras
    90,000       90,192       40,126       220,318  
 
 
(a) Fees earned were paid, at the election of the director, in cash or deferred cash. Non-employee directors could have irrevocably elected deferral into an interest-bearing cash account or an account that tracks an index of ITT’s stock.
 
(b) Awards reflect the grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718, Stock Compensation. Non- employee directors do not receive differing amounts of equity compensation, the grant date fair value for restricted stock units was $52.59 and was determined on May 11, 2010, the date of the ITT’s 2010 Annual Meeting. The grant price reflects the closing price of ITT stock on the grant date. The grant date fair value of non-qualified stock options was $14.03, determined on March 5, 2010, the date on which director stock options were awarded.


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EXECUTIVE COMPENSATION
 
Compensation Discussion and Analysis
 
Introduction
 
We are currently a wholly owned subsidiary of ITT, which will, following the spin-off, own the subsidiaries that currently conduct the operations of ITT’s water-related businesses. Therefore, our historical compensation strategy has been primarily determined by the Compensation and Personnel Committee of ITT’s Board of Directors (the “ITT Compensation Committee”), which approves and oversees administration of ITT’s executive compensation program. Since the information presented in this document relates primarily to the 2010 fiscal year, which ended on December 31, 2010, this Compensation Discussion and Analysis focuses primarily on ITT’s compensation programs and decisions with respect to 2010, describing all elements of ITT’s executive compensation program as determined by the ITT Compensation Committee. This Compensation Discussion and Analysis also describes the ways in which we anticipate that our compensation philosophy will differ from that of ITT’s after we become a separate public company. As explained under “The Spin-Off — Reasons for the Spin-Off” separation from ITT will provide us with the flexibility to establish appropriate compensation policies to attract, motivate and retain our executives. We will form our own Compensation Committee (the “WCO Compensation Committee”) that will be responsible for our executive compensation programs prospectively, which may be different from the compensation programs in place for 2010.
 
This Compensation Discussion and Analysis describes ITT’s compensation philosophy for those individuals who are expected to be the most highly compensated WCO executive officers based on their fiscal 2010 compensation with ITT. These officers are referred to herein as Named Executive Officers (“NEOs”) and WCO also is referred to as “we”, “us” or “our.” Our named executives are Gretchen W. McClain, who is expected to be Chief Executive Officer and was Senior Vice President and President, Fluid and Motion Control of ITT; Michael T. Speetzen, who is expected to be Chief Financial Officer and was Vice President of Finance for Fluid and Motion Control of ITT; Steven R. Loranger, who is expected to be Executive Chairman of the Board and was Chairman, President and CEO of ITT; Frank R. Jimenez, who is expected to be General Counsel and Corporate Secretary and was Vice President and General Counsel of ITT; and Angela A. Buonocore, who is expected to be Chief Communications Officer and was Senior Vice President, Chief Communications Officer of ITT.
 
Our Executive Compensation Program
 
Overall compensation policies and programs
 
Historically.  In 2010, the ITT Compensation Committee retained Pay Governance LLC as its independent compensation consultant (“Pay Governance” or the “Compensation Consultant”). Pay Governance provides independent consulting services in support of the ITT Compensation Committee’s charter. The Compensation Consultant also provided independent consulting services in support of ITT’s Nominating and Governance Committee’s charter, including providing competitive data on director compensation. The Compensation Consultant’s engagement leader provided objective expert analyses, assessments, research and recommendations for executive employee compensation programs, incentives, perquisites, and compensation standards. In this capacity, the Compensation Consultant provided services that related solely to work performed for and at the direction of ITT’s Compensation Committee including analysis of material prepared by ITT for ITT’s Compensation Committee’s review. In 2010, ITT’s human resources, finance and legal departments supported the work of the ITT Compensation Committee, provided information, answered questions and responded to requests. Additionally, the Compensation Consultant provided analyses to ITT’s Nominating and Governance Committee and the full Board of Directors on Non-Management Director compensation. The Compensation Consultant provided no other services to ITT during 2010.
 
In 2010, as in past years, the ITT Compensation Committee looked to competitive market compensation data for companies comparable to ITT to establish overall policies and programs that address executive compensation, benefits and perquisites. This review included analysis of the Towers Watson Compensation Data Bank (“CDB”) information provided by the Compensation Consultant. The analyses used a sample of


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174 companies from the S&P® Industrials Companies that were available in the CDB. The compensation data from these companies were evaluated by the Compensation Consultant for differences in the scope of operation as measured by annual revenue. Appendix A at the end of this section lists the sample of companies from the S&P® Industrials Companies that were used in the CDB analyses. The ITT Compensation Committee believes that these 174 companies most closely reflect the labor market in which ITT competes for talent.
 
The ITT Compensation Committee has delegated to ITT’s Senior Human Resources Executive responsibility for administering the executive compensation program. During 2010, ITT’s Chief Executive Officer and Senior Human Resources Executive made recommendations to the ITT Compensation Committee regarding executive compensation actions and incentive awards. The ITT Compensation Committee reviewed each compensation element for Mses. McClain and Buonocore and Messrs. Loranger and Jimenez, as each of these individuals was a NEO of ITT in 2010, and made the final determination regarding executive compensation for these officers using the processes described in this Compensation Discussion and Analysis. With respect to Mr. Speetzen, Ms. McClain, in her role as Senior Vice President of ITT and President of its Fluid and Motion Control businesses made recommendations to Mr. Loranger, in his role as President and CEO of ITT and to ITT’s Senior Vice President and Chief Financial Officer, regarding Mr. Speetzen’s executive compensation. After discussing Ms. McClain’s recommendations, the final executive compensation determinations for Mr. Speetzen were made jointly by Mr. Loranger, as ITT’s President and CEO, ITT’s Senior Vice President and Chief Financial Officer and Ms. McClain. The ITT Compensation Committee also approved the 2010 long-term incentive awards for the NEOs. The ITT Compensation Committee believes ITT’s compensation programs reflect ITT’s overarching business rationale and are designed to be reasonable, fair, fully disclosed, and consistently aligned with long-term value creation. The ITT Compensation Committee further believes this compensation philosophy encourages individual and group behaviors that balance risk and reward and assist ITT in achieving steady, sustained growth and earnings performance.
 
Going Forward.  Following the separation, it is expected that the WCO Compensation Committee will retain a compensation consultant and the nature and scope of the compensation consultant’s engagement will be similar to that of ITT’s Compensation Consultant. In addition, we expect to establish a similar executive compensation philosophy with respect to our NEOs following the separation. We expect that our compensation objective will be to implement compensation programs that reflect overarching business rationale and are designed to be reasonable, fair, fully disclosed, and consistently aligned with long-term value creation. We also expect that the WCO Compensation Committee will delegate to a senior Human Resources executive responsibility for administering the Executive Compensation program.
 
Individual executive positions
 
Historically.  ITT’s senior management positions, including each of its NEO positions, were compared to positions with similar attributes and responsibilities based on the CDB information. This information was used to provide the market median dollar value for annual base salary, annual incentives and long-term incentives. Compensation levels within approximately 10% above or below the market median dollar value are considered by the Compensation Consultant and the ITT Compensation Committee to be within the market median range. The ITT Compensation Committee used the CDB information, along with other qualitative information described below, in making its determination of target and actual compensation provided to each of ITT’s NEOs. The ITT Compensation Committee may consider deviations from the market median range depending on a position’s strategic value, ITT’s objectives and strategies, and individual experience and performance in the position. The ITT Compensation Committee may, but is not required to, consider prior year’s compensation, including short-term or long-term incentive payouts, restricted stock or restricted stock unit vesting or option exercises in compensation decisions for the NEOs.
 
The following chart sets out 2010 total target NEO compensation for annual base salary, annual incentive, long-term incentive and total compensation relative to the market median dollar value. For Ms. McClain and Mr. Jimenez, deviations below the market median range were primarily related to the relatively short tenure of each in their current positions at ITT. For Mr. Loranger, the deviations above the market median range were primarily related to a desire to tie a significant portion of Mr. Loranger’s compensation to the achievement of sustained, long-term company performance. For Mr. Speetzen and Ms. Buonocore, deviations above the market


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median range were primarily related to their individual experience and the importance of their positions to the success of the business.
 
                                 
    Annual Base
    Annual Incentive
    Long-Term
    Total
 
    Salary
    Target
    Incentive
    Compensation
 
    Position as
    Position as
    Position as
    Position as
 
    Percentage of
    Percentage of
    Percentage of
    Percentage of
 
Named Executive
  Market Median
    Market Median
    Market Median
    Market Median
 
Officer and Title
  Dollar Value     Dollar Value     Dollar Value     Dollar Value  
 
Gretchen W. McClain,
Chief Executive Officer
(formerly SVP and President, Fluid and Motion Control of ITT)
    96%       94%       84%
(Below market
median range)
      89%
(Below market
median range)
 
Michael T. Speetzen,
Chief Financial Officer(1)
(formerly VP of Finance, Fluid and
Motion Control of ITT)
    114%
(Above market
median range)
      111%
(Above market
median range)
      117%
(Above market
median range)
      122%
(Above market
median range)
 
Steven R. Loranger,
Executive Chairman
(formerly Chairman, President and
Chief Executive Officer of ITT)
    96%       91%       112%
(Above market
median range)
      105%  
Frank R. Jimenez,
General Counsel and Corporate Secretary
(formerly Vice President and General Counsel of ITT)
    82%
(Below market
median range)
      66%
(Below market
median range)
      50%
(Below market
median range)
      61%
(Below market
median range)
 
Angela A. Buonocore,
Chief Communications Officer
(formerly SVP and Chief Communications
Officer of ITT)
    105%       120%
(Above market
median range)
      133%
(Above market
median range)
      119%
(Above market
median range)
 
 
 
(1) Mr. Speetzen also received 8,000 shares of restricted stock as a special retention award.
 
Going Forward.  While it is expected that the WCO Compensation Committee will adopt a similar approach to evaluating and determining target and actual compensation provided to each of our NEOs, the use of the CDB or the peers included in the market sample may change to be more reflective of our industry, size and/or business model.
 
Our compensation cycle
 
Historically.  Compensation is reviewed in detail every year during the first quarter. This review includes:
 
  •  Annual performance reviews for the prior year,
 
  •  Base salary merit increases — normally established in March,
 
  •  Annual Incentive Plans (“AIP”) target awards, and
 
  •  Long-term incentive target awards (including stock options, restricted stock or restricted stock units and target total shareholder return (“TSR”) awards).
 
The actual award date of stock options, restricted stock or restricted stock units and target TSR awards is determined on the date on which the ITT Compensation Committee approves these awards. In recent years, this date has been in March. Target TSR awards reflect a performance period starting on January 1 of the year in which the ITT Compensation Committee approved the TSR award. Restricted stock or restricted stock units, TSR and stock option award recipients receive communication of the award as soon as reasonably practical after the grant date of the award. The ITT Compensation Committee reviewed and assessed the performance of ITT’s NEOs during 2010. The ITT Compensation Committee will continue to review and assess the performance of the Chief Executive Officer and all senior executives and authorize salary actions it believes are appropriate and commensurate with relevant competitive data and the approved salary program.
 
Going Forward.  It is expected that the WCO Compensation Committee will review, decide and award compensation to our NEOs following a similar annual cycle.


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Qualitative considerations
 
Historically.  ITT considers individual performance, including consideration of the following qualitative performance factors, in addition to the quantitative measures discussed in this Compensation Discussion and Analysis. While there is no formal weighting of qualitative factors, the following factors may be considered important in making compensation decisions:
 
  •  Portfolio Repositioning,
 
  •  Differentiated Organic Growth,
 
  •  Strategic Execution, and
 
  •  Cultural Transformation.
 
Going forward.  It is expected that the WCO Compensation Committee will consider similar qualitative factors in making compensation decisions. These qualitative performance factors may change to reflect our business focus and strategy.
 
Compensation Program Objectives
 
Historically.  The following sections, including material supplied in tabular form, provide more information about the ITT compensation program, and its objectives, general principles and specific approaches.
 
         
    How We Achieve Our Objectives
Objective
 
General Principle
 
Specific Approach
 
Attract and retain well-rounded, capable leaders.   Design ITT’s executive compensation program to attract, reward and retain capable executives. Design total executive compensation to provide a competitive balance of salary, short-term and long-term incentive compensation.   ITT’s overarching philosophy is to target total compensation at the competitive median of the CDB. ITT considers total compensation (salary plus short-term and long-term compensation) when determining each component of NEO compensation.
Match compensation components to ITT’s short-term and long-term operating and strategic goals.   In addition to salary, ITT includes short-term and long-term performance incentives in its compensation program.   ITT believes the mix of short-term and long-term performance-based incentives focuses executive behavior on annual performance and operating goals, as well as strategic business objectives that will promote long-term shareholder value creation.
Provide a clear link between at-risk compensation with business performance.   ITT believes the measures of performance in our compensation programs must be aligned with measures key to the success of its businesses. The clear link between compensation and performance is intended to provide incentives for achieving performance and business objectives and increasing the long-term value of ITT’s stock. If ITT’s businesses succeed, our shareholders will benefit.   ITT links compensation and performance through its long-term incentive program, comprising restricted stock or restricted stock unit awards, non-qualified stock options awards and TSR target awards. If performance goals are not met, at-risk compensation is reduced or not paid at all.


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    How We Achieve Our Objectives
Objective
 
General Principle
 
Specific Approach
 
Align at-risk compensation with levels of executive responsibility.   As executives move to greater levels of responsibility, the proportion of compensation at risk, whether through annual incentive plans or long-term incentive programs, increases in relation to the increased level of responsibility.   NEO compensation is structured so that a substantial portion of compensation is at risk for executives with greater levels of responsibility. The ITT Compensation Committee considered allocation of short-term and long-term compensation, cash and non-cash compensation and different forms of non-cash compensation for NEOs based on its assessment of the proper compensation balance needed to achieve ITT’s short-term and long-term goals. The Compensation Consultant compiled and analyzed data that the ITT Compensation Committee considered in weighting compensation components for each of the NEOs.
Tie short-term executive compensation to specific business objectives.   The AIP performance metrics are designed to further ITT’s total enterprise objectives. By linking AIP performance to total enterprise performance, collaboration across the enterprise is rewarded.   The AIP sets out short-term performance components. If specific short-term performance goals are met, cash payments that reflect performance across the enterprise may be awarded.
Tie long-term executive compensation to increasing shareholder return.   The long-term incentive award programs link executive compensation to increases in absolute shareholder return or relative shareholder return against industrial peers.   Long-term executive compensation comprises restricted stock or restricted stock units, stock options and target TSR cash awards that are tied to the achievement of three-year relative total shareholder return goals.

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    How We Achieve Our Objectives
Objective
 
General Principle
 
Specific Approach
 
Provide reasonable and competitive benefits and perquisites.   Make sure that other employee benefits, including perquisites, are reasonable in the context of a competitive compensation program.   NEOs participate in many of the same benefit plans with the same benefit plan terms as other employees. Certain other benefit plans are available to NEOs and described more fully in “Compensation Tables — ITT Pension Benefits” and “Compensation Tables — ITT Deferred Compensation Plan.” The Compensation Consultant provides survey data on perquisites to the ITT Compensation Committee. Perquisites provided to NEOs are designed to be consistent with competitive practice and are regularly reviewed by the ITT Compensation Committee. Mr. Loranger has a Special Pension Arrangement discussed in “Compensation Tables — ITT Pension Benefits — Special Pension Arrangement.”
 
Going Forward.  It is expected that the WCO Compensation Committee will conduct a thorough review of the current ITT compensation program and adopt a program with objectives, principles and approaches that appropriately reflect our business needs and strategy.
 
Primary Compensation Components
 
Historically.  The following sections, including information supplied in tabular form, provide information about Base Salary, the AIP and Long-Term Incentive Target Awards.
 
BASE SALARY
 
     
General Principle
 
Specific Approach
 
A competitive salary provides a necessary element of stability.   Salary levels reflect comparable salary levels based on survey data provided by the Compensation Consultant. Salary levels are reviewed annually.
Base salary should recognize individual performance, market value of a position and the incumbent’s tenure, experience, responsibilities, contribution to ITT and growth in his or her role.   Merit increases are based on overall performance and relative competitive market position.

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ANNUAL INCENTIVE PLAN (AIP)
 
     
General Principle
 
Specific Approach
 
The AIP award recognizes contributions to the year’s results and is determined by performance against specific premier metrics on the enterprise level, as well as qualitative factors, as described in more detail in “Compensation Discussion and Analysis — Our Executive Compensation Program — Qualitative Considerations.” The 2010 AIP is structured to reward and emphasize overall enterprise performance and emphasizes collaboration among ITT’s Groups.  
The AIP focuses on operating performance, targeting premier metrics considered predictive of top-ranking operating performance. 2010 AIP targets were established based on these four internal premier performance metrics:

•   earnings per share performance,

•   free cash flow,

•   sum of Group return on invested capital, and

•   the sum of Group revenue.
Structure AIP target awards to achieve competitive compensation levels when targeted performance results are achieved. Use objective for