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

 

 

 

ITT WCO, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

Registrant’s telephone number, including area code:

(914) 304-1700

 

Securities to be registered pursuant to Section 12(b) of the Act:

 

 

 

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):

 

(Do not check if a smaller reporting company)

 

INFORMATION REQUIRED IN REGISTRATION STATEMENT

 

CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10

 

 

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.

 

 

The information required by this item is contained under the section “Risk Factors” of the Information Statement. That section is incorporated herein by reference.

 

 

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.

 

 

The information required by this item is contained under the section “Business — Properties” of the Information Statement. That section is incorporated herein by reference.

 

 

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.

 

 

The information required by this item is contained under the section “Management” of the Information Statement. That section is incorporated herein by reference.

 

 

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.

 

 

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.

 

 

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.

 

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.

 

 

Not applicable.

 

 

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.

 

 

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.

 

 

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.

 

 

None.

 

 

 

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.

 

The following documents are filed as exhibits hereto:

 

 

 

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.

 

Chief Executive Officer

 

Date: July 11, 2011

Exhibit 99.1

 

 

          , 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.

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

[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.

 

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.

 

TABLE OF CONTENTS

 

 

SUMMARY

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.”

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).

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

		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

		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

		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

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

		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;

		• 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

		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,

		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.

		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

 

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:

 

 

 

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.

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

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:

 

 

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.

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

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

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.

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

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:

 

 

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.”

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.

 

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.

 

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:

 

 

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.

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.

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:

 

 

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.

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:

 

 

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:

 

 

 

Under certain circumstances, ITT would recognize taxable gain on the distribution. These circumstances would include the following:

 

 

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

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

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:

 

 

 

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.

 

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:

 

 

 

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:

 

 

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.

 

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.

 

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.”

 

 

 

 

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.

 

 

 

 

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 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.

The significant assumptions involved in determining our estimates of recurring costs of being a stand-alone public company include:

 

 

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:

 

 

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.

PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
QUARTER ENDED MARCH 31, 2011

 

PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 2010

 

PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2011

 

NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

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

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:

 

 

Financial highlights for 2010 include the following:

 

 

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

following non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators:

 

 

 

 

 

 

 

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 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.

 

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.

 

 

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.

 

 

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

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.

 

 

 

*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.

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.