ITT Inc. (NYSE:ITT) Q1 2020 Results Earnings Conference Call May 1, 2020 9:00 AM ET Company Participants Emmanuel Caprais - Group Chief Financial Officer Luca Savi - President and CEO Tom Scalera - Chief Financial Officer Conference Call Participants Jeff Hammond - KeyBanc Capital Damian Karas - UBS Brett Linzey - Vertical Research Partners Mike Halloran - Baird Joe Ritchie - Goldman Sachs Nathan Jones - Stifel John Inch - Gordon Haskett Brian Blair - Oppenheimer Andrew Obin - Bank of America Joe Giordano - ...

```markdown PART I – FINANCIAL INFORMATION [Financial Statements (unaudited)](index=5&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) For the first quarter ended March 31, 2020, ITT reported revenue of $663.3 million, a decrease from $695.5 million in the prior year period. Despite the revenue decline, net income attributable to ITT Inc. increased to $84.8 million from $71.3 million, primarily due to a significant asbestos-related benefit. The balance sheet shows increased cash and short-term debt, reflecting proactive liquidity measures. Cash flow from operations improved to $53.5 million [Consolidated Condensed Statements of Operations](index=5&type=section&id=Consolidated%20Condensed%20Statements%20of%20Operations) Revenue for Q1 2020 was $663.3 million, down 4.6% from $695.5 million in Q1 2019. Operating income rose to $109.3 million from $90.6 million, largely due to a $40.7 million asbestos-related benefit, which offset a $16.3 million asset impairment charge. Diluted EPS from continuing operations increased to $0.95 from $0.80 year-over-year Q1 2020 vs Q1 2019 Statement of Operations Highlights | Metric (in millions, except EPS) | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | **Revenue** | $663.3 | $695.5 | | Gross Profit | $209.4 | $218.8 | | Asbestos-related (benefit) costs, net | $(40.7) | $12.6 | | Asset impairment charges | $16.3 | $— | | **Operating Income** | $109.3 | $90.6 | | Net Income Attributable to ITT Inc. | $84.8 | $71.3 | | **Diluted EPS (Continuing Operations)** | $0.95 | $0.80 | [Consolidated Condensed Balance Sheets](index=7&type=section&id=Consolidated%20Condensed%20Balance%20Sheets) As of March 31, 2020, total assets were $4.28 billion, up from $4.11 billion at year-end 2019. Cash and cash equivalents significantly increased to $839.9 million from $612.1 million, while short-term debt rose to $386.8 million from $86.5 million, reflecting borrowings under the revolving credit facility. Total shareholders' equity slightly decreased to $2.02 billion Balance Sheet Highlights (in millions) | Account | March 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $839.9 | $612.1 | | Total current assets | $1,948.2 | $1,736.8 | | Goodwill | $914.4 | $927.2 | | Total Assets | $4,276.6 | $4,107.7 | | Short-term debt | $386.8 | $86.5 | | Total Liabilities | $2,261.0 | $2,029.9 | | Total Shareholders' Equity | $2,015.6 | $2,077.8 | [Consolidated Condensed Statements of Cash Flows](index=8&type=section&id=Consolidated%20Condensed%20Statements%20of%20Cash%20Flows) Net cash from operating activities increased to $53.5 million in Q1 2020 from $42.1 million in Q1 2019, driven by effective working capital management. Investing activities used $26.2 million, primarily for capital expenditures. Financing activities provided $212.0 million, mainly from $378.3 million in borrowings from short-term revolving loans, which was partially offset by $83.4 million in share repurchases and $82.7 million in commercial paper repayments Q1 2020 vs Q1 2019 Cash Flow Highlights (in millions) | Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Cash – Operating activities | $53.5 | $42.1 | | Net Cash – Investing activities | $(26.2) | $(28.8) | | Net Cash – Financing activities | $212.0 | $(21.0) | | Net change in cash and cash equivalents | $227.8 | $(7.4) | [Notes to Consolidated Condensed Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Condensed%20Financial%20Statements) The notes detail the company's business segments, the initial impacts of the COVID-19 pandemic, and key accounting policies. Segment performance shows revenue declines in Motion Technologies and Connect & Control Technologies, but growth in Industrial Process. Significant events include a $16.3 million asset impairment in the IP segment, a new restructuring plan in response to COVID-19, a $66.4 million asbestos insurance settlement, and increased borrowing to bolster liquidity - ITT operates through three segments: Motion Technologies (MT), Industrial Process (IP), and Connect & Control Technologies (CCT)[23](index=23&type=chunk) Q1 2020 Segment Revenue and Operating Income (in millions) | Segment | Revenue | Operating Income | Operating Margin | | :--- | :--- | :--- | :--- | | Motion Technologies | $297.9 | $53.1 | 17.8% | | Industrial Process | $227.3 | $8.9 | 3.9% | | Connect & Control Technologies | $138.7 | $15.9 | 11.5% | - In March 2020, the company finalized an insurance settlement for asbestos claims, receiving a lump sum of **$66.4 million** and recognizing a benefit of **$52.5 million**[86](index=86&type=chunk) - The company recorded asset impairment charges of **$16.3 million** in Q1 2020 related to a business within the IP segment due to challenging conditions in the oil and gas market and the COVID-19 pandemic[55](index=55&type=chunk)[58](index=58&type=chunk) - As of March 31, 2020, the company had drawn **€350 million ($384.5 million)** under its revolving credit facility to enhance liquidity in response to economic uncertainty[64](index=64&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the significant impact of the COVID-19 pandemic on operations, financials, and markets. Q1 2020 organic revenue declined 5.3% due to weakness in transportation and industrial markets, partially offset by growth in oil and gas. Adjusted segment operating margin fell 170 basis points to 14.5%. The company has taken decisive actions to enhance liquidity, including drawing down its credit facility and implementing cost-reduction plans. The outlook for the remainder of 2020 anticipates significant headwinds across all businesses [Overview](index=25&type=section&id=Overview) The overview section highlights the company's response to the COVID-19 pandemic, focusing on three priorities: the health of its people, business, and financials. Key financial results for Q1 2020 showed a 5.3% organic revenue decline and a 12% decrease in adjusted EPS to $0.80. The company has taken significant liquidity and cost actions, including drawing down its credit facility, suspending share repurchases, and initiating a $50 million restructuring plan. The outlook for 2020 is challenging due to market uncertainty - The company's response to COVID-19 focuses on three priorities: health of people, health of business, and health of financials[105](index=105&type=chunk) - Key liquidity and cost actions taken include drawing down the **$500M** revolving credit facility, securing new credit agreements, suspending share repurchases, and implementing a new restructuring plan expected to yield **$70M** in annual savings[108](index=108&type=chunk)[113](index=113&type=chunk) Q1 2020 Key Performance Indicators | Metric | Result | Change vs. Q1 2019 | | :--- | :--- | :--- | | Revenue | $663 M | -5% | | Organic Revenue | $659 M | -5% | | Adjusted Segment Operating Income | $96 M | -14% | | Adjusted Segment Operating Margin | 14.5% | -170bp | | Adjusted EPS | $0.80 | -12% | [Discussion of Financial Results](index=28&type=section&id=Discussion%20of%20Financial%20Results) Total revenue decreased 4.6% to $663.3 million. Organic revenue fell 5.3%, with Motion Technologies down 3.0% due to COVID-19 impacts in China and Europe, and Connect & Control Technologies down 17.4% from Boeing 737 MAX delays and industrial weakness. Industrial Process grew 0.8% organically, driven by pump projects. Operating income increased to $109.3 million due to a net asbestos benefit, but adjusted segment operating income fell 14.4% on lower volumes and operational disruptions - Motion Technologies (MT) organic revenue decreased **3.0%** due to a significant reduction in demand in China and Europe from COVID-19[121](index=121&type=chunk) - Industrial Process (IP) organic revenue increased **0.8%**, driven by strength in oil and gas pump projects in the Middle East[122](index=122&type=chunk) - Connect & Control Technologies (CCT) organic revenue decreased **17.4%**, driven by Boeing 737 MAX production delays and lower demand for aerospace aftermarket components[124](index=124&type=chunk) - Operating expenses decreased **21.9%** primarily due to a **$53.3 million** year-over-year positive swing in net asbestos-related benefit/costs, which was partially offset by a **$16.3 million** asset impairment charge[126](index=126&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk) [Liquidity](index=31&type=section&id=Liquidity) The company has taken proactive measures to enhance liquidity amid the COVID-19 pandemic. As of March 31, 2020, it had drawn $384.5 million on its revolving credit facility, and subsequently drew down the full $500 million. In April 2020, it secured two additional 364-day revolving credit agreements totaling $200 million. Share repurchase activity was suspended after repurchasing $73.2 million in Q1. The company is also evaluating governmental programs like the CARES Act to maximize liquidity - The company fully drew down its **$500M** Revolving Credit Facility and secured two new 364-Day Revolving Credit Agreements totaling **$200M** to enhance liquidity[142](index=142&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) - Share repurchases of **$73.2 million** were executed in Q1 2020, but further activity has been temporarily suspended[146](index=146&type=chunk) - Net cash distributions from foreign subsidiaries to the U.S. totaled **$270.2 million** in Q1 2020 to support global liquidity needs[144](index=144&type=chunk) [Key Performance Indicators and Non-GAAP Measures](index=35&type=section&id=Key%20Performance%20Indicators%20and%20Non-GAAP%20Measures) This section defines and reconciles non-GAAP measures used by management, including organic revenue, adjusted operating income, and adjusted EPS. For Q1 2020, organic revenue was $658.8 million, a 5.3% decrease. Adjusted operating income was $88.7 million with a margin of 13.4%. Adjusted income from continuing operations was $70.1 million, or $0.80 per diluted share, down from $0.91 in the prior year Reconciliation of Revenue to Organic Revenue (Q1 2020, in millions) | Description | Amount | | :--- | :--- | | 2020 Revenue | $663.3 | | Acquisitions | $(16.9) | | Foreign currency translation | $12.4 | | **2020 Organic revenue** | **$658.8** | | 2019 Revenue | $695.5 | | **Organic decline** | **$(36.7)** | Reconciliation of Income from Continuing Operations to Adjusted (Q1 2020, in millions) | Description | Amount | | :--- | :--- | | Income from continuing operations attributable to ITT Inc. | $83.7 | | Net asbestos-related benefit, net of tax | $(31.8) | | Asset impairment charges, net of tax | $16.2 | | Restructuring costs, net of tax | $2.3 | | Other adjustments | $(0.3) | | **Adjusted income from continuing operations** | **$70.1** | [Quantitative and Qualitative Disclosures about Market Risk](index=37&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) There have been no material changes to the company's market risk disclosures from the 2019 Annual Report, except for increased interest rate exposure due to new borrowings. As of March 31, 2020, the company had $384.5 million in outstanding variable rate debt. A hypothetical 100 basis point increase in interest rates would result in approximately $4 million of additional annual interest expense - As of March 31, 2020, the company had **$384.5 million** in variable rate debt. A **100 basis point** increase in interest rates would add approximately **$4 million** to annual interest expense[179](index=179&type=chunk) [Controls and Procedures](index=37&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2020. There were no material changes to internal control over financial reporting during the quarter. The company has not experienced any material impact on its internal controls despite many employees working remotely due to COVID-19 - Management concluded that disclosure controls and procedures were effective as of the end of the quarter[180](index=180&type=chunk) - No material changes in internal control over financial reporting occurred in Q1 2020, and the shift to remote work due to COVID-19 has not had a material impact on controls[181](index=181&type=chunk) PART II – OTHER INFORMATION [Legal Proceedings](index=38&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is involved in various legal proceedings, primarily related to asbestos and environmental matters. As of March 31, 2020, the company recorded an undiscounted asbestos-related liability of $804.8 million and an associated insurance recovery asset of $420.8 million. The company is also responsible for ongoing environmental investigation and remediation at various sites - As of March 31, 2020, the company has an undiscounted asbestos-related liability of **$804.8 million** and an associated asset for estimated insurance recoveries of **$420.8 million**, resulting in a net exposure of **$384.0 million**[185](index=185&type=chunk) - The company is responsible for ongoing environmental investigation and remediation at sites where it has been identified as a potentially responsible party[186](index=186&type=chunk) [Risk Factors](index=38&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section updates risk factors from the 2019 Annual Report, with a significant new disclosure on the adverse effects of the COVID-19 pandemic. It details potential disruptions to operations, sales, supply chain, and liquidity. It also reiterates the risk related to customer capital investment levels, particularly in the cyclical oil and gas, chemical, and mining markets, which have been exacerbated by recent price volatility and the pandemic - A significant new risk factor details the potential adverse effects of the COVID-19 pandemic, including facility closures, reduced demand, supply chain disruptions, and liquidity challenges[188](index=188&type=chunk) - The company highlights risks from customer capital expenditure cycles, especially in the oil and gas market (**10%** of 2019 revenue), which is facing an oversupply and price collapse due to actions by Saudi Arabia/Russia and COVID-19[190](index=190&type=chunk)[191](index=191&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) In Q1 2020, the company repurchased 1.7 million shares for $73.2 million under its publicly announced plans. The company completed its 2006 share repurchase plan and began repurchases under a new $500 million plan approved in October 2019. As of March 31, 2020, $488.7 million remained available for repurchase under the new plan Q1 2020 Share Repurchase Activity | Period | Total Shares Purchased (millions) | Average Price Paid Per Share | Value of Shares Remaining for Purchase (millions) | | :--- | :--- | :--- | :--- | | March 2020 | 1.9 | $44.09 | $488.7 | - The company completed its 2006 share repurchase plan and commenced repurchases under a new indefinite term $500 million program approved in October 2019[194](index=194&type=chunk) [Other Information](index=41&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This section includes a disclosure related to the Iran Threat Reduction & Syria Human Rights Act (ITRA) concerning a legacy performance bond from the 2012 acquisition of Bornemann GmbH. The bond remains outstanding, and the company paid minor fees to a German financial institution in Q1 2020. Additionally, on April 29, 2020, the Board of Directors adopted amended and restated by-laws to permit shareholder meetings to be held solely by remote communication - A legacy performance bond from the 2012 Bornemann acquisition related to an Iranian customer remains outstanding, with fees of approximately **€3 thousand** paid in Q1 2020[199](index=199&type=chunk) - On April 29, 2020, the company amended its by-laws to allow for shareholder meetings to be conducted solely by remote communication[200](index=200&type=chunk) ```

ITT Inc. Q1 2020 Results 05.01.2020 Safe Harbor This presentation contains "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our business, future financial results and the industry in which we operate, and other legal, regulatory and economic developments. Th ...

Part I [Item 1. Description of Business](index=5&type=section&id=ITEM%201.%20DESCRIPTION%20OF%20BUSINESS) ITT is a diversified manufacturer of engineered components and technology solutions across transportation, industrial, and oil & gas markets, generating **$2.85 billion** revenue in 2019 with **65%** from outside the U.S. - ITT is a diversified manufacturer with three main segments: **Motion Technologies (MT)**, **Industrial Process (IP)**, and **Connect & Control Technologies (CCT)**[20](index=20&type=chunk)[23](index=23&type=chunk) 2019 Company Snapshot | Metric | Value | | :--- | :--- | | 2019 Revenue | $2.85 Billion | | Employees | Approx. 10,500 in 35 Countries | | Revenue Outside U.S. | 65% | | Sales Presence | Approx. 125 Countries | - The company's strategy is centered on **expanding in global markets**, **investing in new products** leveraging engineering capabilities, and **operational improvements**[27](index=27&type=chunk)[28](index=28&type=chunk) - In 2019, ITT acquired **Matrix Composites** (CCT segment) and **Rheinhütte Pumpen Group** (IP segment) to expand its portfolio[75](index=75&type=chunk) Total Backlog by Segment (as of Dec 31) | Segment | 2019 ($M) | 2018 ($M) | | :--- | :--- | :--- | | Motion Technologies | 167.4 | 152.4 | | Industrial Process | 395.4 | 444.2 | | Connect & Control Technologies | 290.8 | 273.7 | | **ITT Inc. Total** | **853.6** | **870.3** | [Motion Technologies (MT)](index=6&type=section&id=Motion%20Technologies%20(MT)) The Motion Technologies segment manufactures brake pads, shock absorbers, and energy absorption components for the transportation industry, with Continental accounting for **22%** of its 2019 revenue. - MT manufactures **brake pads, shims, shock absorbers, and sealing technologies** for the transportation industry, including passenger cars, commercial vehicles, and rail[31](index=31&type=chunk) - Sales to Continental, MT's largest customer, represented **22%** of the segment's 2019 revenue, covering both OEM and aftermarket sales[34](index=34&type=chunk) - The **KONI & Axtone** business serves railway, automotive (performance and racing), and commercial vehicle markets with customized damping and energy absorption solutions[36](index=36&type=chunk)[42](index=42&type=chunk) [Industrial Process (IP)](index=7&type=section&id=Industrial%20Process%20(IP)) The Industrial Process segment provides industrial pumps, valves, and optimization systems for diverse markets, with aftermarket solutions comprising approximately **40%** of its revenue. - IP manufactures **industrial pumps, valves, and provides aftermarket services** for markets including oil & gas, chemical, mining, and power generation[41](index=41&type=chunk) - Aftermarket solutions, including replacement parts, services, and optimization technologies like i-ALERT, represent approximately **40%** of IP's revenue[44](index=44&type=chunk) - IP utilizes a diversified sales channel, with about **one-third** of its revenue coming from a network of independent distributors, complemented by direct sales and support for EPC firms[45](index=45&type=chunk) [Connect & Control Technologies (CCT)](index=8&type=section&id=Connect%20%26%20Control%20Technologies%20(CCT)) The Connect & Control Technologies segment manufactures highly engineered connectors and specialized control products for critical applications, with distributors accounting for approximately **30%** of its 2019 revenue. - CCT designs and manufactures **highly engineered connectors and specialized products** for critical applications in markets like aerospace, defense, industrial, and medical[47](index=47&type=chunk) - Connector products (**Cannon, VEAM, BIW**) are known for high-reliability solutions in harsh environments, while Control products (**Aerospace Controls, Enidine**) provide actuation, fuel management, and energy absorption systems[48](index=48&type=chunk)[52](index=52&type=chunk)[53](index=53&type=chunk) - CCT utilizes a mix of direct sales and distributor channels, with distributors accounting for about **30%** of its 2019 revenue[55](index=55&type=chunk) [Item 1A. Risk Factors](index=12&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces significant risks from asbestos claims, international operations (**68%** of 2019 sales), foreign currency fluctuations, cyclical customer spending, and reliance on Continental (**10%** of 2019 revenue). - **Significant uncertainty** exists regarding exposure to pending and future asbestos claims. The net asbestos liability is subject to changes in claim trends, settlement costs, and insurance recoveries, which could materially affect financial results[77](index=77&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk) - The company is exposed to risks from international operations, which accounted for **68%** of total sales in 2019. These risks include unfavorable laws, currency fluctuations, tariffs, and political instability in emerging markets[84](index=84&type=chunk)[87](index=87&type=chunk) - The business is impacted by cyclical capital investment from customers in the oil and gas, chemical, and mining industries, which represented approximately **10%**, **9%**, and **3%** of 2019 revenue, respectively[91](index=91&type=chunk) - Sales to Continental, ITT's largest customer, were approximately **10%** of total revenue in 2019. The loss of this customer could have a material adverse effect on the business[104](index=104&type=chunk) - A material business interruption, such as from the **2019 novel coronavirus outbreak**, could negatively impact operations, especially at manufacturing facilities[110](index=110&type=chunk)[112](index=112&type=chunk) - Past divestitures and spin-offs, such as the 2011 separation of Xylem and Exelis, expose the company to potential liabilities through **contractual indemnification agreements**, including for asbestos claims[126](index=126&type=chunk) [Item 1B. Unresolved Staff Comments](index=21&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The company reports no unresolved staff comments from the SEC. - None[128](index=128&type=chunk) [Item 2. Properties](index=21&type=section&id=ITEM%202.%20PROPERTIES) As of December 31, 2019, ITT owns or leases over 100 global properties, totaling approximately **8.0 million** square feet, with the largest footprints in North America and Europe. Material Properties Summary (as of Dec 31, 2019) | Region | Owned Area (sq. ft. '000) | Leased Area (sq. ft. '000) | Total Area (sq. ft. '000) | | :--- | :--- | :--- | :--- | | North America | 2,527 | 818 | 3,345 | | Europe | 2,239 | 685 | 2,924 | | Asia | 705 | 865 | 1,570 | | South America | 43 | 110 | 153 | | **Total** | **5,514** | **2,478** | **7,992** | [Item 3. Legal Proceedings](index=22&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) ITT is involved in significant legal proceedings, primarily asbestos-related, with a net liability of **$430.8 million** as of December 31, 2019, and ongoing environmental remediation responsibilities. - As of December 31, 2019, ITT recorded an undiscounted asbestos-related liability of **$817.6 million** and an associated insurance recovery asset of **$386.8 million**, for a net exposure of **$430.8 million**[134](index=134&type=chunk) - The liability covers pending claims and claims estimated to be filed over the next **10 years**. The ultimate cost beyond this period is not reasonably estimable[134](index=134&type=chunk) - The company is also responsible for ongoing **environmental investigation and remediation** at various sites under federal, state, and foreign laws[135](index=135&type=chunk) [Item 4. Mine Safety Disclosures](index=22&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company. - Not applicable[136](index=136&type=chunk) [Executive Officers of the Registrant](index=23&type=section&id=EXECUTIVE%20OFFICERS%20OF%20THE%20REGISTRANT) The report lists the company's executive officers as of February 1, 2020, including Luca Savi as CEO and President, and Thomas M. Scalera as EVP and CFO. Key Executive Officers (as of Feb 1, 2020) | Name | Age | Title | | :--- | :--- | :--- | | Luca Savi | 54 | Chief Executive Officer and President | | Thomas M. Scalera | 48 | Executive Vice President and Chief Financial Officer | | Farrokh Batliwala | 44 | Senior Vice President and President, Connect & Control Technologies | | Carlo Ghirardo | 49 | Senior Vice President and President, Motion Technologies | | George Hanna | 68 | Senior Vice President and President, Industrial Process | Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=25&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) ITT's common stock trades on the NYSE, significantly outperforming S&P 400 indices with a **93.6%** cumulative return from 2014-2019, with no open-market share repurchases in Q4 2019. - ITT's common stock is traded on the **NYSE** under the symbol 'ITT'[143](index=143&type=chunk) Cumulative Total Return (2014-2019) | Index | 12/31/2014 | 12/31/2019 | % Change | | :--- | :--- | :--- | :--- | | ITT Inc. | $100.00 | $193.63 | +93.6% | | S&P 400 Mid-Cap | $100.00 | $153.87 | +53.9% | | S&P 400 Capital Goods | $100.00 | $177.92 | +77.9% | - **No open-market share repurchases** were made in the fourth quarter of 2019[146](index=146&type=chunk) [Item 6. Selected Financial Data](index=27&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) This section provides a five-year summary of ITT's financial data (2015-2019), showing revenue growth to **$2.85 billion** in 2019 and diluted EPS of **$3.65**. Selected Financial Data (2015-2019) | (In Millions, except per share) | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $2,846.4 | $2,745.1 | $2,585.3 | $2,405.4 | $2,485.6 | | Operating income | $411.4 | $397.3 | $319.3 | $276.6 | $376.5 | | Income from continuing ops. | $323.4 | $332.4 | $115.0 | $181.9 | $312.4 | | Diluted EPS from cont. ops. | $3.65 | $3.75 | $1.29 | $2.02 | $3.44 | | Total assets | $4,107.7 | $3,846.8 | $3,700.2 | $3,601.7 | $3,723.6 | | Total debt and finance leases | $99.4 | $125.0 | $171.9 | $216.3 | $248.5 | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) In 2019, ITT's revenue grew **3.7%** to **$2.85 billion** with **4.5%** organic growth, driven by market strength, while facing 2020 challenges from the Boeing 737 MAX and coronavirus outbreak. 2019 vs 2018 Performance Summary | Metric | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $2,846.4 M | $2,745.1 M | 3.7% | | Organic Revenue | $2,868.3 M | $2,745.1 M | 4.5% | | Operating Income | $411.4 M | $397.3 M | 3.5% | | Adjusted Segment Operating Income | $456.7 M | $414.2 M | 10.3% | | Diluted EPS | $3.65 | $3.75 | (2.7)% | | Adjusted EPS | $3.81 | $3.23 | 18.0% | | Operating Cash Flow | $357.7 M | $371.8 M | (3.8)% | - Strategic actions in 2019 included completing acquisitions of Rheinhütte and Matrix for **$118M**, funding organic investments, and returning **$94M** to shareholders via dividends and repurchases[164](index=164&type=chunk) - The company faces uncertainty in 2020 from the **Boeing 737 MAX production halt** and the **2019 novel coronavirus outbreak** in China[164](index=164&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) In 2019, total revenue grew **3.7%** to **$2.85 billion** (**4.5%** organic), with Industrial Process leading segment growth at **10.3%** organically, while operating income increased **3.5%** to **$411.4 million**. 2019 Revenue and Organic Growth by Segment | Segment | Revenue ($M) | Change | Organic Growth | | :--- | :--- | :--- | :--- | | Motion Technologies | 1,241.8 | (2.5)% | 2.0% | | Industrial Process | 943.8 | 14.1% | 10.3% | | Connect & Control Technologies | 663.9 | 2.7% | 2.1% | | **Total Revenue** | **2,846.4** | **3.7%** | **4.5%** | 2019 Operating Income and Margin by Segment | Segment | Operating Income ($M) | Change | Operating Margin | | :--- | :--- | :--- | :--- | | Motion Technologies | 216.1 | (3.3)% | 17.4% | | Industrial Process | 104.7 | 14.6% | 11.1% | | Connect & Control Technologies | 111.5 | 15.5% | 16.8% | | **Total Segment Operating Income** | **432.3** | **5.1%** | **15.2%** | - Gross margin declined **30 basis points** to **32.0%** due to higher commodity costs, tariffs, and unfavorable product mix, partially offset by productivity improvements[177](index=177&type=chunk) - The company recognized a net asbestos-related benefit of **$20.2 million** in 2019, compared to a cost of **$4.9 million** in 2018, primarily due to a favorable remeasurement benefit[183](index=183&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) ITT maintains liquidity through cash flow and a **$500 million** credit facility, with 2019 operating cash flow at **$357.7 million**, and projects **$20-$30 million** annual asbestos cash outflows over the next five years. Summary of Cash Flows (2019 vs 2018) | (In Millions) | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash – Operating activities | $357.7 | $371.8 | | Net Cash – Investing activities | $(203.4) | $(52.3) | | Net Cash – Financing activities | $(101.5) | $(128.8) | - The company maintains a **$500 million** revolving credit facility, extendable to **$700 million**, which was unused as of year-end 2019[201](index=201&type=chunk)[224](index=224&type=chunk) - In **February 2020**, the Board of Directors authorized the termination of the **U.S. qualified pension plan**, which is expected to result in a non-cash settlement charge of approximately **$130-$140 million** before tax[221](index=221&type=chunk)[222](index=222&type=chunk) - The company projects average annual net cash outflows for asbestos of **$20-$30 million** over the next **five years**, increasing to **$35-$45 million** thereafter within the **10-year projection period**[213](index=213&type=chunk) [Critical Accounting Estimates](index=44&type=section&id=Critical%20Accounting%20Estimates) Management identifies critical accounting estimates including asbestos liabilities (10-year forecast), revenue recognition for long-term contracts, income taxes, goodwill impairment, and environmental liabilities, all requiring significant judgment. - **Asbestos Matters:** Estimating the liability for pending and future claims over a **10-year horizon** and the related insurance asset involves **significant uncertainty** and key assumptions about claim rates, settlement values, and insurer solvency[251](index=251&type=chunk)[255](index=255&type=chunk) - **Revenue Recognition:** For certain long-term, customized projects, revenue is recognized over time using a **cost-to-total-cost method**, which requires **significant judgment** in estimating total contract revenues and costs[262](index=262&type=chunk) - **Goodwill Impairment:** Goodwill is tested annually for impairment by comparing the fair value of each reporting unit, estimated using a **discounted cash flow model**, to its carrying value. This process involves **significant estimates** about future operating results and discount rates[274](index=274&type=chunk)[276](index=276&type=chunk) - **Income Taxes:** **Judgment is required** in assessing the realizability of deferred tax assets and establishing valuation allowances, as well as in determining liabilities for uncertain tax positions across multiple jurisdictions[267](index=267&type=chunk)[271](index=271&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=49&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) ITT is exposed to market risks from foreign currency, interest rates, and commodity prices, with a **10%** adverse FX change impacting pre-tax earnings by **$27 million**, and a **10%** steel price change by **$6-$8 million**. - A hypothetical **10%** adverse change in foreign currency exchange rates would result in a translation impact to pre-tax earnings of approximately **$27 million**[283](index=283&type=chunk) - A hypothetical **100 basis point** increase in interest rates would result in approximately **$1 million** of additional annual interest expense on its **$84.2 million** of variable rate debt[284](index=284&type=chunk) - A hypothetical **10%** change in steel prices would impact pre-tax earnings by approximately **$6 to $8 million**[285](index=285&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=49&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure. - None[287](index=287&type=chunk) [Item 9A. Controls and Procedures](index=50&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019, excluding recent acquisitions (**3.5%** of assets, **1.9%** of revenue). - Management concluded that disclosure controls and procedures were **effective** as of December 31, 2019[290](index=290&type=chunk) - Management determined that internal control over financial reporting was **effective** as of December 31, 2019[294](index=294&type=chunk) - The 2019 acquisitions of Rheinhütte and Matrix were **excluded** from the scope of management's assessment of internal control over financial reporting[295](index=295&type=chunk) [Item 9B. Other Information](index=51&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) The company discloses an outstanding pre-acquisition performance bond of **€1.3 million** related to an Iranian customer, with annual fees of **€11,000** paid in 2019. - A disclosure is made regarding a pre-acquisition performance bond of **€1.3 million** issued by its subsidiary Bornemann to an Iranian customer, which remains outstanding[300](index=300&type=chunk) - Bornemann paid annual fees of approximately **€11,000** in 2019 related to this bond but received no revenue or income from it[300](index=300&type=chunk) Part III [Items 10-14](index=53&type=section&id=ITEMS%2010-14) Information for Items 10-14, covering governance, compensation, and ownership, is incorporated by reference from the company's 2020 Definitive Proxy Statement. - Information for Items 10, 11, 12, 13, and 14 is **incorporated by reference** from the company's 2020 Proxy Statement[310](index=310&type=chunk)[315](index=315&type=chunk)[316](index=316&type=chunk) Part IV [Item 15. Exhibits and Financial Statement Schedules](index=54&type=section&id=ITEM%2015.%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists the financial statements and exhibits filed as part of the Form 10-K report, with schedules omitted as information is included elsewhere. - Refers to the **Index to Consolidated Financial Statements** and the **Exhibit Index** for lists of documents filed with the report[321](index=321&type=chunk) [Item 16. Form 10-K Summary](index=54&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) This item is not applicable. - Not Applicable[320](index=320&type=chunk) Financial Statements and Notes [Report of Independent Registered Public Accounting Firm](index=52&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Deloitte & Touche LLP issued unqualified opinions on ITT's 2019 financial statements and internal control over financial reporting, identifying asbestos-related liabilities and insurance recovery assets as Critical Audit Matters. - The auditor, Deloitte & Touche LLP, issued an **unqualified opinion** on the financial statements and the effectiveness of internal control over financial reporting[303](index=303&type=chunk)[325](index=325&type=chunk) - The audit of internal controls **excluded** the 2019 acquisitions of Rheinhütte and Matrix[305](index=305&type=chunk) - The auditor identified two **Critical Audit Matters (CAMs)**: the valuation of asbestos-related liabilities and the valuation of asbestos-related insurance recovery assets, due to the high degree of management judgment and subjectivity[330](index=330&type=chunk)[333](index=333&type=chunk) [Consolidated Financial Statements](index=59&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements for 2019 show ITT's revenue at **$2.85 billion**, net income of **$325.1 million**, and total assets of **$4.11 billion**. Consolidated Statement of Operations Highlights (2019) | (In Millions) | Amount | | :--- | :--- | | Revenue | $2,846.4 | | Gross Profit | $910.1 | | Operating Income | $411.4 | | Net Income Attributable to ITT Inc. | $325.1 | Consolidated Balance Sheet Highlights (Dec 31, 2019) | (In Millions) | Amount | | :--- | :--- | | Total Current Assets | $1,736.8 | | Total Assets | $4,107.7 | | Total Current Liabilities | $849.7 | | Total Liabilities | $2,029.9 | | Total Shareholders' Equity | $2,077.8 | [Notes to the Consolidated Financial Statements](index=65&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) The notes detail ITT's accounting policies and financial results, including asbestos liabilities (**$817.6 million**), 2019 acquisitions, and the 2020 authorization to terminate the U.S. qualified pension plan. - **Note 20 (Asbestos):** As of Dec 31, 2019, the asbestos liability was **$817.6M** and the related insurance asset was **$386.8M**. The net asbestos benefit for 2019 was **$20.2M**, driven by a favorable remeasurement[544](index=544&type=chunk)[546](index=546&type=chunk) - **Note 22 (Acquisitions):** In 2019, ITT acquired **Rheinhütte** for **€82.5M** (IP segment) and **Matrix** for **$25.8M** (CCT segment), adding a preliminary **$54.4M** in goodwill[558](index=558&type=chunk)[559](index=559&type=chunk)[560](index=560&type=chunk) - **Note 16 (Pensions):** In **Feb 2020**, the board authorized termination of the **U.S. qualified pension plan**. The plan had a projected benefit obligation of **$310.4M** and assets of **$319.9M** at year-end 2019[471](index=471&type=chunk)[476](index=476&type=chunk) - **Note 4 (Revenue):** A single customer, **Continental**, accounted for **9.8%** of consolidated revenue in 2019, primarily within the Motion Technologies segment[418](index=418&type=chunk) - **Note 18 (Capital Stock):** The company has a new indefinite term **$500M** share repurchase program approved in Oct 2019, after nearly completing its previous **$1B** program[523](index=523&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-05672 ITT INC. State of Indiana 81-1197930 (State or Other Jurisdiction of Incorporation or Organization) 1133 Westchester ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-05672 ITT INC. State of Indiana 81-1197930 (State or Other Jurisdiction of Incorporation or Organization) 1133 Westchester Avenu ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 or o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-05672 ITT INC. State of Indiana 81-1197930 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Iden ...

[PART I](index=4&type=section&id=PART%20I) [Business Description](index=4&type=section&id=ITEM%201.%20DESCRIPTION%20OF%20BUSINESS) ITT Inc. is a diversified manufacturer of highly engineered components and technology solutions for transportation, industrial, and oil and gas markets Company Snapshot (2018) | Metric | Value | | :--- | :--- | | 2018 Revenue | $2.75 Billion | | Employees | Approx. 10,000 in 35 Countries | | Revenue Outside U.S. | 68% | | Sales Presence | Over 100 Countries | - The company's business is organized into three primary segments: - **Motion Technologies (MT):** Produces friction, shock, and vibration equipment - **Industrial Process (IP):** Delivers industrial flow equipment and services - **Connect & Control Technologies (CCT):** Manufactures electronic connectors and various control products[21](index=21&type=chunk) - ITT's operating strategy is centered on disciplined organic growth through market expansion and new product development, combined with operational improvements using Lean Six Sigma principles to enhance productivity and reduce costs[26](index=26&type=chunk) Backlog by Segment (in millions) | Segment | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Motion Technologies | $303.1 | $299.7 | $201.2 | | Industrial Process | $444.2 | $385.5 | $347.2 | | Connect & Control Technologies | $273.7 | $233.5 | $236.7 | | **Total ITT Inc.** | **$1,021.0** | **$918.7** | **$785.1** | [Motion Technologies (MT)](index=5&type=section&id=Motion%20Technologies%20(MT)) The MT segment manufactures brake pads, shock absorbers, and energy absorption components for the global transportation industry - MT's primary products include **brake pads**, **shims**, **shock absorbers**, and **sealing technologies** for the transportation sector[29](index=29&type=chunk) - Sales to Continental, MT's largest customer, accounted for **23% of the segment's 2018 revenue**, largely driven by OEM specifications for ITT brake pads within Continental's systems[32](index=32&type=chunk) [Industrial Process (IP)](index=6&type=section&id=Industrial%20Process%20(IP)) The IP segment manufactures and services industrial pumps, valves, and plant optimization systems for diverse markets - IP's portfolio includes industrial pumps (**Goulds Pumps, Bornemann**), valves (**Engineered Valves**), and aftermarket services (**PRO Services, i-ALERT**)[39](index=39&type=chunk) - Independent industrial distributors contribute to approximately **one-third of the segment's revenue** through an extensive global network[43](index=43&type=chunk) [Connect & Control Technologies (CCT)](index=7&type=section&id=Connect%20%26%20Control%20Technologies%20(CCT)) The CCT segment designs and manufactures highly engineered connectors and control products for critical applications - CCT's product portfolio includes high-performance electrical connectors (**Cannon, VEAM, BIW**) and control products like actuators, pumps, and switches for various critical applications[47](index=47&type=chunk)[51](index=51&type=chunk) - Distributors accounted for about **30% of the segment's 2018 revenue**, with products sold both directly and through numerous channels[46](index=46&type=chunk) [Risk Factors](index=12&type=section&id=ITEM%201A.%20RISK%20FACTORS) ITT faces significant risks from asbestos claims, global economic conditions, international operations, tariffs, and customer concentration - The company faces significant uncertainty from pending and future asbestos claims, with potential material adverse effects on financial condition, and has indemnified its 2011 spin-offs for certain pre-spin-off asbestos claims[76](index=76&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk) - International operations, accounting for **68% of total sales in 2018**, expose the company to various risks including unfavorable laws, currency repatriation restrictions, political instability, and changes in tariffs[83](index=83&type=chunk) - Recently announced U.S. tariffs have negatively impacted the price of certain parts and materials, and continued trade disputes could adversely affect demand, costs, customers, and suppliers[87](index=87&type=chunk) - Sales to Continental, ITT's largest customer, accounted for approximately **11% of total revenue in 2018**, posing a material adverse risk if this customer relationship is lost[102](index=102&type=chunk) [Unresolved Staff Comments](index=21&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The company reported no unresolved staff comments from the SEC - None[127](index=127&type=chunk) [Properties](index=22&type=section&id=ITEM%202.%20PROPERTIES) ITT operates 24 owned and 29 leased manufacturing facilities globally, totaling 7.3 million square feet, deemed adequate for its needs Owned Manufacturing Facilities by Region (as of Dec 31, 2018) | Region | Number of Facilities | Area (sq. ft. in thousands) | | :--- | :--- | :--- | | North America | 10 | 2,438.0 | | Europe | 11 | 2,169.2 | | Asia | 2 | 704.4 | | South America | 1 | 42.7 | | **Total** | **24** | **5,354.3** | Leased Manufacturing Facilities by Region (as of Dec 31, 2018) | Region | Number of Facilities | Area (sq. ft. in thousands) | | :--- | :--- | :--- | | North America | 12 | 534.6 | | Europe | 9 | 459.5 | | Asia | 6 | 807.7 | | South America | 2 | 49.6 | | **Total** | **29** | **1,851.4** | [Legal Proceedings](index=23&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) ITT faces significant legal proceedings, primarily asbestos claims with a net liability of **$472.6 million**, and a **$10 million** accrual for a DOJ investigation - As of December 31, 2018, the company recorded an undiscounted asbestos-related liability of **$849.3 million** and an associated insurance recovery asset of **$376.7 million**, resulting in a net exposure of **$472.6 million** for claims estimated over the next 10 years[133](index=133&type=chunk) - The company is cooperating with a U.S. Department of Justice (DOJ) civil investigation into certain connector products, with a **$10 million** accrual recorded as the best estimate of probable loss, and the Criminal Division of the DOJ has declined to prosecute[135](index=135&type=chunk) [Mine Safety Disclosures](index=23&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Not applicable[136](index=136&type=chunk) [Executive Officers](index=24&type=section&id=Executive%20Officers%20of%20the%20Registrant) This section lists the executive officers, including **Luca Savi** who became CEO and President in January 2019 - **Luca Savi** was appointed Chief Executive Officer and President, effective January 2019[138](index=138&type=chunk) - On December 31, 2018, **Denise L. Ramos** retired from her role as Chief Executive Officer and Director[69](index=69&type=chunk) [PART II](index=26&type=section&id=PART%20II) [Market for Common Equity and Related Matters](index=26&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) ITT's common stock trades on the NYSE, with no open-market share repurchases in Q4 2018, and a **$100** investment yielding **$117.74** by 2018 - The company's common stock is traded on the NYSE under the symbol **"ITT"**[141](index=141&type=chunk) - No open-market share repurchases of common stock were made during the quarter ended December 31, 2018[144](index=144&type=chunk) Cumulative Total Return (Based on $100 investment on 12/31/2013) | Index | 12/31/2013 | 12/31/2018 | | :--- | :--- | :--- | | ITT Inc. | $100.00 | $117.74 | | S&P 400 Mid-Cap | $100.00 | $133.91 | | S&P 400 Capital Goods | $100.00 | $134.00 | [Selected Financial Data](index=28&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) This section summarizes five-year financial data, showing 2018 revenue of **$2,745.1 million** and net income of **$333.7 million** Selected Financial Data (in millions, except per share amounts) | Metric | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Revenue | $2,745.1 | $2,585.3 | $2,405.4 | | Gross Profit | $887.2 | $819.9 | $760.9 | | Operating Income | $397.3 | $319.3 | $276.6 | | Net Income attributable to ITT Inc. | $333.7 | $113.5 | $186.1 | | Diluted EPS | $3.76 | $1.28 | $2.07 | | Dividends declared per share | $0.536 | $0.512 | $0.496 | [Management's Discussion and Analysis (MD&A)](index=29&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) ITT achieved record revenue and orders in 2018, driven by strong operational performance and organic growth, while maintaining robust liquidity and managing key risks [Executive Summary](index=29&type=section&id=EXECUTIVE%20SUMMARY) In 2018, ITT delivered strong financial results with record revenue and orders, driven by organic growth and strategic capital deployment 2018 Key Performance Indicators vs. 2017 | Metric | 2018 Value | YoY Change | | :--- | :--- | :--- | | Revenue | $2,745M | +6% | | Orders | $2,892M | +10% | | Segment Operating Income | $411M | +27% | | EPS | $3.75 | +$2.46 | | Operating Cash Flow | $372M | +50% | - Organic revenue increased **4.2%**, driven by growth in industrial and transportation markets, including market share gains in automotive and strength in rail and commercial aerospace[159](index=159&type=chunk) - Capital deployment in 2018 included returning **$97 million** to shareholders, comprising **$47 million** in dividends and **$50 million** through share repurchases[160](index=160&type=chunk) [Financial Results: 2018 vs. 2017](index=31&type=section&id=DISCUSSION%20OF%20FINANCIAL%20RESULTS%202018%20VERSUS%202017) In 2018, revenue increased **6.2%** to **$2,745.1 million**, with operating income up **24.4%** and a significantly lower effective tax rate due to prior-year tax reform impact Financial Performance Comparison (2018 vs. 2017) | Metric | 2018 | 2017 | Change | | :--- | :--- | :--- | :--- | | Revenue | $2,745.1M | $2,585.3M | +6.2% | | Gross Profit | $887.2M | $819.9M | +8.2% | | Operating Income | $397.3M | $319.3M | +24.4% | | Operating Margin | 14.5% | 12.4% | +210bp | | Net Income | $333.7M | $113.5M | +194.0% | Segment Revenue Growth (2018 vs. 2017) | Segment | Total Growth | Organic Growth | | :--- | :--- | :--- | | Motion Technologies | 8.3% | 4.2% | | Industrial Process | 2.5% | 2.7% | | Connect & Control Technologies | 6.8% | 5.9% | - The increase in operating income includes a net gain of **$38.5 million** from the sale of a former operating location[181](index=181&type=chunk)[185](index=185&type=chunk) - The effective tax rate decreased from **62.9% in 2017 to 14.8% in 2018**, primarily due to the 2017 rate including a **$129.2 million** provisional charge related to the U.S. Tax Cuts and Jobs Act[194](index=194&type=chunk)[195](index=195&type=chunk) [Financial Results: 2017 vs. 2016](index=37&type=section&id=DISCUSSION%20OF%20FINANCIAL%20RESULTS%202017%20VERSUS%202016) In 2017, revenue grew **7.5%** to **$2,585.3 million**, with operating income up **15.4%**, but income from continuing operations fell **36.8%** due to a **$129.2 million** provisional tax expense from U.S. tax reform Financial Performance Comparison (2017 vs. 2016) | Metric | 2017 | 2016 | Change | | :--- | :--- | :--- | :--- | | Revenue | $2,585.3M | $2,405.4M | +7.5% | | Operating Income | $319.3M | $276.6M | +15.4% | | Operating Margin | 12.4% | 11.5% | +90bp | | Income from Continuing Ops | $115.0M | $181.9M | -36.8% | | Effective Tax Rate | 62.9% | 29.4% | +3,350bp | - Motion Technologies revenue grew **19.6%**, including **$74.0 million** from the Axtone acquisition, with organic revenue for the segment growing **9.8%**[202](index=202&type=chunk) - The effective tax rate surged to **62.9% in 2017**, primarily due to a **$129.2 million** provisional tax expense related to the U.S. Tax Act[224](index=224&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) ITT maintains strong liquidity through operating cash flows and credit facilities, with net cash from operations increasing to **$371.8 million** in 2018, and projected asbestos outflows of **$20-$30 million** annually Summary of Cash Flows (in millions) | Activity | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Operating | $371.8 | $247.2 | $240.7 | | Investing | $(52.3) | $(223.2) | $(54.4) | | Financing | $(128.8) | $(112.5) | $(141.9) | - The company has access to a **$500 million** revolving credit agreement, which matures in November 2021 and had no outstanding borrowings as of December 31, 2018[232](index=232&type=chunk) - In 2018, the company repurchased **1.0 million shares** for **$50.0 million** under its share repurchase program[229](index=229&type=chunk) - Projected net cash outflows for asbestos defense and indemnity are expected to average **$20 to $30 million annually** over the next five years[247](index=247&type=chunk) [Key Performance Indicators and Non-GAAP Measures](index=47&type=section&id=KEY%20PERFORMANCE%20INDICATORS%20AND%20NON-GAAP%20MEASURES) This section defines and reconciles non-GAAP measures, showing 2018 organic revenue growth of **4.2%**, adjusted segment operating income of **$414.2 million**, and adjusted free cash flow of **$308.9 million** Reconciliation of Revenue to Organic Revenue (2018) | (in millions) | Amount | | :--- | :--- | | 2018 Revenue | $2,745.1 | | Less: Acquisitions | $(5.5) | | Less: Foreign currency translation | $(45.7) | | **2018 Organic Revenue** | **$2,693.9** | | 2017 Revenue | $2,585.3 | | **Organic Revenue Growth** | **4.2%** | Reconciliation of Net Income to Adjusted EPS (2018) | (in millions, except per share) | Amount | | :--- | :--- | | Income from continuing operations | $332.4 | | After-tax special items adjustments | $(45.5) | | **Adjusted income from continuing operations** | **$286.9** | | Diluted EPS | $3.75 | | **Adjusted Diluted EPS** | **$3.23** | Adjusted Free Cash Flow Reconciliation (2018) | (in millions) | Amount | | :--- | :--- | | Net cash - Operating activities | $371.8 | | Capital expenditures | $(95.5) | | Adjustments (Insurance, Asbestos, Restructuring, etc.) | $32.6 | | **Adjusted free cash flow** | **$308.9** | | **Adjusted free cash flow conversion** | **107.7%** | [Critical Accounting Estimates](index=51&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) The company's critical accounting estimates involve significant judgment, particularly for asbestos matters, revenue recognition, goodwill impairment, and environmental liabilities - **Asbestos Matters:** The liability estimate is based on a 10-year forecast of claims and is highly sensitive to assumptions about mesothelioma and lung cancer claims, which represent approximately **99%** of the indemnity liability[279](index=279&type=chunk)[280](index=280&type=chunk) - **Revenue Recognition:** For certain highly customized long-term projects, revenue is recognized over time using a cost-to-cost method, which requires significant estimates of total contract revenues and costs[290](index=290&type=chunk) - **Goodwill Impairment:** Goodwill is tested for impairment annually using an income approach, which involves significant estimates of future cash flows, growth rates, and discount rates[301](index=301&type=chunk)[304](index=304&type=chunk) - **Environmental Liabilities:** Accruals for environmental remediation are recorded when a liability is probable and reasonably estimable, with a recorded liability of **$66.8 million** and a reasonably possible high-end range of **$115.9 million** as of December 31, 2018[306](index=306&type=chunk)[308](index=308&type=chunk) [Market Risk Disclosures](index=56&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) ITT is exposed to market risks from foreign currency, interest rates, and commodity prices, with a **10%** adverse currency change impacting pre-tax earnings by **$30 million** - A hypothetical **10%** change in foreign currency exchange rates would have resulted in a translation impact to pre-tax earnings of approximately **$30 million** for 2018[311](index=311&type=chunk) - A hypothetical **100 basis point** increase in interest rates would result in approximately **$1 million** of additional annual interest expense based on current variable rate debt levels[313](index=313&type=chunk) - A hypothetical **10%** change in steel prices would impact pre-tax earnings by approximately **$6 to $8 million**[314](index=314&type=chunk) [Financial Statements and Supplementary Data](index=56&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section contains the company's audited consolidated financial statements for 2016-2018, including statements of operations, balance sheets, cash flows, and accompanying notes - This section includes the full consolidated financial statements and supplementary data as indexed on page **59** of the report[315](index=315&type=chunk)[351](index=351&type=chunk) [Changes in and Disagreements with Accountants](index=56&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) The company reported no changes in or disagreements with its accountants on accounting and financial disclosure - None[316](index=316&type=chunk) [Controls and Procedures](index=57&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2018 - Based on an evaluation as of December 31, 2018, the CEO and CFO concluded that the company's disclosure controls and procedures are **effective**[319](index=319&type=chunk) - Management assessed internal control over financial reporting based on the **2013 COSO framework** and determined that it was **effective** as of December 31, 2018[323](index=323&type=chunk)[324](index=324&type=chunk) [Other Information](index=58&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) This section includes a disclosure regarding a **€1.3 million** performance bond related to a former Iranian customer of the acquired Bornemann subsidiary - A performance bond of **€1.3 million** related to a former Iranian customer of the acquired Bornemann subsidiary remains outstanding, with annual fees of approximately **€11 thousand** paid in 2018[329](index=329&type=chunk) [PART III](index=60&type=section&id=PART%20III) [Directors, Executive Officers and Corporate Governance](index=60&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2019 Proxy Statement - Information is incorporated by reference from the **2019 Proxy Statement**[338](index=338&type=chunk) [Executive Compensation](index=60&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Information on executive compensation, including discussion and analysis, is incorporated by reference from the company's 2019 Proxy Statement - Information is incorporated by reference from the **2019 Proxy Statement**[343](index=343&type=chunk) [Security Ownership and Related Matters](index=60&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Information on security ownership of beneficial owners and management is incorporated by reference from the company's 2019 Proxy Statement - Information is incorporated by reference from the **2019 Proxy Statement**[344](index=344&type=chunk) [Certain Relationships, Related Transactions, and Director Independence](index=60&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) Information on related party transactions and director independence is incorporated by reference from the company's 2019 Proxy Statement - Information is incorporated by reference from the **2019 Proxy Statement**[345](index=345&type=chunk) [Principal Accounting Fees and Services](index=60&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTING%20FEES%20AND%20SERVICES) Information on principal accounting fees and services is incorporated by reference from the company's 2019 Proxy Statement - Information is incorporated by reference from the **2019 Proxy Statement**[346](index=346&type=chunk) [PART IV](index=61&type=section&id=PART%20IV) [Exhibits and Financial Statement Schedules](index=61&type=section&id=ITEM%2015.%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K report - This section lists the documents filed as part of the report, including financial statements and exhibits[347](index=347&type=chunk) [Form 10-K Summary](index=61&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) This item is not applicable - Not Applicable[348](index=348&type=chunk)