PART I – FINANCIAL INFORMATION [Item 1. Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated condensed financial statements for Q3 and nine months ended September 30, 2020, including operations, balance sheets, cash flows, and notes on segment performance, restructuring, and asbestos liability [Consolidated Condensed Statements of Operations](index=6&type=section&id=Consolidated%20Condensed%20Statements%20of%20Operations) Q3 & Nine Months 2020 vs 2019 Performance | Metric | Q3 2020 (in millions) | Q3 2019 (in millions) | YTD 2020 (in millions) | YTD 2019 (in millions) | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | $591.2 | $711.9 | $1,769.2 | $2,127.3 | | **Gross Profit** | $190.6 | $231.3 | $563.6 | $682.1 | | **Operating (Loss) Income** | $(62.5) | $152.5 | $67.3 | $329.1 | | **Net (Loss) Income Attributable to ITT Inc.** | $(46.8) | $118.6 | $86.0 | $256.7 | | **Diluted EPS (Continuing Operations)** | $(0.55) | $1.34 | $0.94 | $2.90 | [Consolidated Condensed Balance Sheets](index=8&type=section&id=Consolidated%20Condensed%20Balance%20Sheets) Balance Sheet Summary (as of Sept 30, 2020 vs Dec 31, 2019) | Account | Sep 30, 2020 (in millions) | Dec 31, 2019 (in millions) | | :--- | :--- | :--- | | **Total Current Assets** | $1,822.8 | $1,736.8 | | Cash and cash equivalents | $782.3 | $612.1 | | **Total Assets** | $4,176.4 | $4,107.7 | | **Total Current Liabilities** | $866.0 | $849.7 | | Asbestos-related liabilities | $856.7 | $731.6 | | **Total Liabilities** | $2,151.9 | $2,029.9 | | **Total Shareholders' Equity** | $2,024.5 | $2,077.8 | [Consolidated Condensed Statements of Cash Flows](index=9&type=section&id=Consolidated%20Condensed%20Statements%20of%20Cash%20Flows) Cash Flow Summary (Nine Months Ended Sep 30) | Activity | 2020 (in millions) | 2019 (in millions) | | :--- | :--- | :--- | | **Net Cash – Operating activities** | $318.1 | $221.7 | | **Net Cash – Investing activities** | $(50.4) | $(180.8) | | **Net Cash – Financing activities** | $(109.9) | $(36.9) | | **Net change in cash and cash equivalents** | $170.2 | $(5.5) | [Note 3. Segment Information](index=13&type=section&id=Note%203.%20Segment%20Information) - The company operates through three reportable segments: Motion Technologies (brake components, shock absorbers), Industrial Process (engineered fluid process equipment), and Connect & Control Technologies (connectors, flow control components)[30](index=30&type=chunk)[31](index=31&type=chunk) Segment Revenue and Operating Income (Nine Months Ended Sep 30) | Segment | Revenue 2020 (in millions) | Revenue 2019 (in millions) | Operating Income 2020 (in millions) | Operating Income 2019 (in millions) | | :--- | :--- | :--- | :--- | :--- | | **Motion Technologies** | $769.0 | $937.4 | $113.9 | $169.6 | | **Industrial Process** | $614.7 | $688.6 | $44.5 | $70.2 | | **Connect & Control Technologies** | $387.5 | $503.1 | $40.7 | $85.4 | | **Total Segments** | $1,771.2 | $2,129.1 | $199.1 | $325.2 | [Note 5. Restructuring Actions](index=16&type=section&id=Note%205.%20Restructuring%20Actions) - In 2020, the company initiated a global restructuring plan to reduce its cost structure, primarily in response to anticipated demand reduction from the COVID-19 pandemic[42](index=42&type=chunk) 2020 Global Restructuring Plan Costs | Metric | Amount (in millions) | | :--- | :--- | | **Total Expected Costs** | $55.0 | | **Costs Incurred to Date** | $43.3 | | **Ending Accrual Balance (Sep 30, 2020)** | $23.9 | [Note 19. Commitments and Contingencies](index=26&type=section&id=Note%2019.%20Commitments%20and%20Contingencies) - In Q3 2020, the company extended its asbestos liability projection to include claims expected to be filed through 2052, a significant change from the previous 10-year forecast period. This was due to increased stability in claims data and certainty regarding insurance recoveries[91](index=91&type=chunk)[92](index=92&type=chunk) Asbestos Liability Remeasurement Impact (Q3 2020) | Item | Amount (in millions) | | :--- | :--- | | **Increase in Estimated Asbestos Liability** | $155.7 | | **Increase in Asbestos-Related Asset (Insurance Recoveries)** | $19.8 | | **Net Remeasurement Cost** | $135.9 | Total Asbestos Liability and Asset (as of Sep 30, 2020) | Account | Amount (in millions) | | :--- | :--- | | **Total Asbestos Liability** | $948.0 | | **Total Asbestos-Related Asset** | $409.4 | | **Net Asbestos Liability** | $538.6 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q3 2020 financial results, highlighting the COVID-19 pandemic's impact on revenue and operating income, proactive cost-saving measures, and the significant asbestos liability remeasurement, alongside strong operating cash flow [Overview](index=31&type=section&id=Overview) - The COVID-19 pandemic continued to impact customers and end markets in Q3 2020. The company's priorities are the health of its people, business, and financials[125](index=125&type=chunk) - Proactive measures taken in 2020 to enhance liquidity and reduce costs include implementing **$160 million** in cost actions, securing additional credit facilities, and reducing capital expenditures[123](index=123&type=chunk)[127](index=127&type=chunk) Q3 2020 Key Performance Indicators (vs Q3 2019) | Metric | Value | Change | | :--- | :--- | :--- | | **Revenue** | $591M | -17% | | **Organic Revenue** | $584M | -18% | | **Segment Operating Income** | $84M | -22% | | **Adjusted Segment Operating Income** | $96M | -19% | | **EPS** | ($0.55) | -141% | | **Adjusted EPS** | $0.82 | -15% | [Discussion of Financial Results](index=33&type=section&id=Discussion%20of%20Financial%20Results) - Total revenue for Q3 2020 decreased **17.0%** to **$591.2 million**, with an organic revenue decline of **18.0%**, driven by weakness across all segments due to COVID-19[136](index=136&type=chunk) - Segment performance declines in Q3 2020: * **Motion Technologies (MT):** Organic revenue down **13.3%** due to weakness in automotive demand * **Industrial Process (IP):** Organic revenue down **18.6%** driven by declines in pump projects * **Connect & Control Technologies (CCT):** Organic revenue down **25.6%** due to declines in commercial aerospace and defense[137](index=137&type=chunk)[138](index=138&type=chunk)[141](index=141&type=chunk) - Operating expenses increased significantly to **$253.1 million** in Q3 2020 from **$78.8 million** in Q3 2019, primarily due to a **$141.4 million** asbestos-related charge from the liability remeasurement[143](index=143&type=chunk)[147](index=147&type=chunk) [Liquidity](index=38&type=section&id=Liquidity) - The company expects to have sufficient liquidity to fund operations for at least the next 12 months, supported by cash flow, commercial paper access, and bank credit lines[161](index=161&type=chunk) - To bolster liquidity amid COVID-19 uncertainty, the company secured two new 364-day revolving credit agreements totaling **$200 million**, supplementing its existing **$500 million** facility. No borrowings were outstanding under these agreements as of September 30, 2020[162](index=162&type=chunk)[168](index=168&type=chunk) - Net cash from operating activities for the first nine months of 2020 increased to **$318.1 million** from **$221.7 million** in the prior year, driven by proactive working capital management and lower cash payments for asbestos, postretirement contributions, and taxes[171](index=171&type=chunk)[172](index=172&type=chunk) [Critical Accounting Estimates](index=44&type=section&id=Critical%20Accounting%20Estimates) - The most significant change to critical accounting estimates relates to Asbestos Matters. In Q3 2020, the company extended the forecast period for its asbestos liability to **2052**, reflecting the full time horizon of expected claims[194](index=194&type=chunk)[200](index=200&type=chunk) - The ability to extend the forecast horizon was driven by increased stability in claims data following the implementation of a one-firm defense strategy and greater certainty regarding insurance recoveries from recent settlements and litigation developments[201](index=201&type=chunk)[206](index=206&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company reports no material changes in market risk disclosures since its 2019 Annual Report on Form 10-K - There has been no material change in the company's market risk disclosures since its 2019 Annual Report[207](index=207&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[208](index=208&type=chunk) - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[209](index=209&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) This section details the company's primary legal proceedings, focusing on asbestos and environmental liabilities, including a net asbestos liability of **$538.6 million** as of September 30, 2020 - The company's primary legal proceedings relate to asbestos and environmental exposures[211](index=211&type=chunk) - As of September 30, 2020, the company recorded an undiscounted asbestos-related liability of **$948.0 million** and an associated insurance recovery asset of **$409.4 million**, resulting in a net exposure of **$538.6 million**[213](index=213&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) This section updates the company's risk factors, emphasizing the adverse effects of the COVID-19 pandemic, cyclical customer capital investment, and significant uncertainties regarding asbestos-related liabilities and insurance recoveries - The COVID-19 pandemic is identified as a significant risk factor, with potential adverse effects including facility closures, reduced customer demand, supply chain disruptions, and liquidity challenges[217](index=217&type=chunk)[218](index=218&type=chunk) - The company's business is impacted by cyclical customer capital investment, especially in the oil and gas, chemical, and mining industries, which are subject to commodity price volatility and economic downturns[219](index=219&type=chunk)[220](index=220&type=chunk) - Significant uncertainties remain regarding the ultimate cost of resolving pending and future asbestos claims and the amount of probable insurance recoveries[223](index=223&type=chunk)[224](index=224&type=chunk)[225](index=225&type=chunk)

Financial Performance - Adjusted EPS was $0.82, a decrease of 15% compared to Q3 2019[9], but an increase of 44% compared to Q2 2020[6, 11] - Free cash flow reached $271 million, a 77% increase compared to the previous year[6, 8, 9] - The company raised its full-year free cash flow margin target to 13%-15%[6] - Total revenue was $591 million, a decrease of 17% compared to Q3 2019[9], but an increase of 15% compared to Q2 2020[9, 11] - Adjusted segment operating income was $96 million, a decrease of 19% compared to Q3 2019, but an increase of 48% compared to Q2 2020[9, 11] Segment Results - Motion Technologies revenue was $272 million, down 11% year-over-year[14] - Industrial Process revenue was $194 million, down 19% year-over-year[15] - Connect & Control Technologies revenue was $126 million, down 25% year-over-year[16] Cost Reduction & Asbestos Management - The company is targeting $160 million in cost savings through various actions[17] - The projected 10-year average outflow for asbestos-related payments is down to $25 million at the midpoint[19] - The company received $100 million in insurance settlements related to asbestos in 2020[19]

ITT Inc. (NYSE:ITT) Q2 2020 Earnings Conference Call July 31, 2020 9:00 AM ET Company Participants Emmanuel Caprais - Group Chief Financial Officer Luca Savi - Chief Executive Officer & President Tom Scalera - Chief Financial Officer Conference Call Participants Mike Halloran - Baird Joe Ritchie - Goldman Sachs Damian Karas - UBS Matt Summerville - D.A. Davidson Jeff Hammond - KeyBanc Capital Markets John Inch - Gordon Haskett Bryan Blair - Oppenheimer Brett Linzey - Vertical Research Emily Shu - Bank of Am ...

PART I – FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents ITT Inc.'s unaudited consolidated financial statements for the period ended June 30, 2020, accompanied by detailed notes on accounting policies, segment performance, and significant liabilities [Consolidated Condensed Statements of Operations](index=6&type=section&id=Consolidated%20Condensed%20Statements%20of%20Operations) ITT Inc. reported a significant decline in Q2 2020 revenue to $514.7 million and operating income to $20.5 million, resulting in lower net income and diluted EPS compared to Q2 2019 Consolidated Condensed Statements of Operations (Q2 & H1 2020 vs 2019) | (In Millions, except per share amounts) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | $514.7 | $719.9 | $1,178.0 | $1,415.4 | | **Gross Profit** | $163.6 | $232.0 | $373.0 | $450.8 | | **Operating Income** | $20.5 | $86.0 | $129.8 | $176.6 | | **Net Income Attributable to ITT Inc.** | $48.0 | $66.8 | $132.8 | $138.1 | | **Diluted EPS (Continuing Operations)** | $0.53 | $0.75 | $1.49 | $1.56 | [Consolidated Condensed Balance Sheets](index=8&type=section&id=Consolidated%20Condensed%20Balance%20Sheets) As of June 30, 2020, ITT Inc. reported a slight increase in total assets to $4,151.3 million, driven by higher cash, while total liabilities also rose due to increased short-term debt Consolidated Condensed Balance Sheet Highlights | (In Millions) | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Current Assets** | $1,826.8 | $1,736.8 | | Cash and cash equivalents | $819.1 | $612.1 | | **Total Assets** | $4,151.3 | $4,107.7 | | **Total Current Liabilities** | $947.6 | $849.7 | | Short-term debt and current maturities | $247.5 | $86.5 | | **Total Liabilities** | $2,096.3 | $2,029.9 | | **Total Shareholders' Equity** | $2,055.0 | $2,077.8 | [Consolidated Condensed Statements of Cash Flows](index=9&type=section&id=Consolidated%20Condensed%20Statements%20of%20Cash%20Flows) For H1 2020, net cash from operating activities significantly improved to $203.1 million, while investing cash outflows decreased and financing cash inflows increased due to higher borrowings Consolidated Condensed Statements of Cash Flows (Six Months Ended June 30) | (In Millions) | 2020 | 2019 | | :--- | :--- | :--- | | **Net Cash – Operating activities** | $203.1 | $101.1 | | **Net Cash – Investing activities** | $(37.1) | $(132.3) | | **Net Cash – Financing activities** | $41.2 | $0.4 | | **Net change in cash and cash equivalents** | $207.1 | $(29.0) | [Notes to Consolidated Condensed Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Condensed%20Financial%20Statements) These notes detail financial statement preparation, key accounting policies, the material impact of COVID-19, segment performance, a 2020 restructuring plan, a significant tax benefit, increased debt, and ongoing asbestos liabilities - ITT operates as a diversified manufacturer across three segments: Motion Technologies, Industrial Process, and Connect & Control Technologies[22](index=22&type=chunk) - The COVID-19 pandemic is anticipated to negatively impact business, operations, and financial position, though the full extent of future effects remains uncertain[23](index=23&type=chunk) Segment Revenue and Operating Income (Q2 2020) | Segment | Revenue (Millions) | Operating Income (Millions) | Operating Margin | | :--- | :--- | :--- | :--- | | Motion Technologies | $199.3 | $10.4 | 5.2% | | Industrial Process | $193.3 | $18.5 | 9.6% | | Connect & Control Technologies | $122.9 | $8.4 | 6.8% | - In 2020, the company initiated a global restructuring plan with **$55.6 million** in expected costs, primarily for severance, incurring **$31.8 million** by June 30, 2020, in response to reduced demand from the COVID-19 pandemic[42](index=42&type=chunk)[44](index=44&type=chunk) - The effective tax rate was significantly lower in Q2 and H1 2020, primarily due to a **$26.7 million** tax benefit from a European internal reorganization and a **$7.2 million** benefit from the CARES Act[46](index=46&type=chunk)[48](index=48&type=chunk) - As of June 30, 2020, the company reported an undiscounted asbestos-related liability of **$803.8 million** and an associated recovery asset of **$405.3 million**, resulting in a net exposure of **$398.5 million**[198](index=198&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the significant negative impact of the COVID-19 pandemic on Q2 2020 results, detailing revenue declines, proactive cost measures, segment performance, and improved operating cash flow amidst an uncertain outlook [Impact of COVID-19 on our Business](index=29&type=section&id=Impact%20of%20COVID-19%20on%20our%20Business) ITT prioritized health, business, and financial stability during COVID-19, implementing safety measures, minimizing supply chain disruptions, enhancing liquidity to **$1.4 billion**, and executing **$160 million** in cost-saving actions, including an **$80 million** annualized restructuring benefit - The company has implemented proactive measures to enhance liquidity and reduce costs, navigating the uncertain environment caused by COVID-19[119](index=119&type=chunk) - ITT secured strong available liquidity of **$1.4 billion**, comprising **$819 million** in cash and access to undrawn revolving credit facilities[124](index=124&type=chunk) - The company implemented **$160 million** in cost actions, including an organizational-wide restructuring plan projected to yield **$80 million** in annualized pre-tax benefits[124](index=124&type=chunk) [Executive Summary](index=30&type=section&id=Executive%20Summary) Q2 2020 performance was significantly impacted by COVID-19, with revenue falling **29%** to **$515 million** and adjusted EPS decreasing **39%**, though operating cash flow for H1 increased **100.9%** due to working capital management Summary of Key Performance Indicators for Q2 2020 | Metric | Value | YoY Change | | :--- | :--- | :--- | | Revenue | $515M | -29% | | Organic Revenue | $521M | -28% | | Segment Operating Income | $37M | -65% | | Adjusted Segment Operating Income | $65M | -44% | | EPS | $0.53 | -29% | | Adjusted EPS | $0.57 | -39% | - Year-to-date cash flow from operations increased **100.9%** to **$203.1 million**, driven by proactive working capital management, favorable cash collection timing, lower tax payments, and reduced asbestos and incentive compensation payments[125](index=125&type=chunk)[126](index=126&type=chunk) [Discussion of Financial Results](index=31&type=section&id=Discussion%20of%20Financial%20Results) Q2 2020 revenue decreased **28.5%** to **$514.7 million**, with an organic decline of **27.6%**; all segments were down, with Motion Technologies falling **37.3%** due to automotive weakness; operating income plummeted **76.2%** to **$20.5 million**, driven by lower volumes, higher restructuring costs (**$27.9 million**), and bad debt reserves, partially offset by cost actions; a significant tax benefit of **$28.1 million**, primarily from a European reorganization, helped bolster net income Q2 2020 Revenue by Segment | Segment | Revenue (Millions) | YoY Change | Organic Decline | | :--- | :--- | :--- | :--- | | Motion Technologies | $199.3 | (37.3)% | (34.7)% | | Industrial Process | $193.3 | (16.9)% | (16.6)% | | Connect & Control Technologies | $122.9 | (27.8)% | (29.3)% | | **Total Revenue** | **$514.7** | **(28.5)%** | **(27.6)%** | - Motion Technologies' organic revenue decline was primarily driven by a **42%** drop in Friction sales due to weak automotive demand stemming from COVID-19[134](index=134&type=chunk) - Connect & Control Technologies' organic revenue decline was driven by a **41%** drop in aerospace and defense, impacted by reduced air traffic and lower Boeing 737 MAX production[137](index=137&type=chunk) - Restructuring costs significantly increased to **$27.9 million** in Q2 2020 from **$3.1 million** in Q2 2019, primarily due to the new 2020 Global Restructuring Plan[139](index=139&type=chunk)[144](index=144&type=chunk) [Liquidity](index=35&type=section&id=Liquidity) ITT is managing liquidity during the COVID-19 crisis by supplementing operating cash flow with commercial paper and revolving credit facilities, securing **$200 million** in new agreements, and increasing H1 2020 operating cash flow to **$203.1 million** through working capital management and deferred tax payments - To enhance liquidity during the pandemic, the company secured two new 364-day revolving credit agreements totaling **$200 million** in April 2020[159](index=159&type=chunk) - Net cash provided by operating activities increased to **$203.1 million** in H1 2020 from **$101.1 million** in H1 2019, primarily due to proactive working capital management, favorable customer collection timing, and a **$23.0 million** decline in income taxes paid[167](index=167&type=chunk)[169](index=169&type=chunk) - During H1 2020, the company repurchased **1.7 million** shares for **$73.2 million** under its share repurchase plans[162](index=162&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company reports no material changes in market risk disclosures from its 2019 Annual Report on Form 10-K - There has been no material change in the information concerning market risk from the 2019 Annual Report[193](index=193&type=chunk) [Item 4. Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded the company's disclosure controls were effective, with no material changes to internal controls over financial reporting, despite the shift to remote work due to COVID-19 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2020[194](index=194&type=chunk) - No material changes occurred in internal control over financial reporting during the quarter that have affected or are reasonably likely to affect the company's internal controls[195](index=195&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) ITT is involved in various legal proceedings, primarily related to asbestos, with a net liability of **$398.5 million**, and environmental matters requiring investigation and remediation at several sites - As of June 30, 2020, ITT recorded an undiscounted asbestos-related liability of **$803.8 million** and an associated asset of **$405.3 million**, resulting in a net asbestos exposure of **$398.5 million**[198](index=198&type=chunk) - The company is engaged in ongoing environmental investigation and remediation at multiple sites where it has been identified as a potentially responsible party[199](index=199&type=chunk) [Item 1A. Risk Factors](index=45&type=section&id=Item%201A.%20Risk%20Factors) This section highlights key business risks, focusing on the adverse effects of the COVID-19 pandemic, including operational disruptions and liquidity challenges, and the company's dependence on cyclical customer capital expenditures - The COVID-19 pandemic presents significant risks, including potential facility closures, reduced customer demand, supply chain disruptions, and liquidity challenges, which may materially adversely affect financial condition[202](index=202&type=chunk) - The business is impacted by customer capital investment levels, particularly in the oil and gas, chemical, and mining markets, where recent oil price volatility and the COVID-19 pandemic have significantly reduced customer spending[204](index=204&type=chunk)[205](index=205&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=46&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) ITT did not conduct open-market share repurchases of its common stock during Q2 2020 but received shares for tax withholding on vested employee stock awards - The company conducted no open-market share repurchases of its common stock during the quarter ended June 30, 2020[208](index=208&type=chunk) [Item 5. Other Information](index=46&type=section&id=Item%205.%20Other%20Information) This section includes a disclosure under the Iran Threat Reduction & Syria Human Rights Act, noting an outstanding **€1.3 million** performance bond related to Bornemann's former Iranian activities, with **€5 thousand** in associated fees paid in H1 2020 - A performance bond of **€1.3 million** related to a former Iranian customer of the Bornemann subsidiary remains outstanding, with Bornemann paying approximately **€5 thousand** in associated fees during H1 2020[212](index=212&type=chunk)

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 ...