ITT INC. (ITT) FY 2023 MD&A

OVERVIEW

ITT Inc., through its worldwide subsidiaries, is a diversified manufacturer of highly engineered critical components and customized technology solutions for the transportation, industrial and energy markets. Our product and service offerings are organized into three segments: Motion Technologies (MT), Industrial Process (IP), and Connect & Control Technologies (CCT). Refer to Part I, Item 1, Description of Business, for a further overview of our company, segments, products and service offerings, and other information about the business.

EXECUTIVE SUMMARY

During 2023, despite evolving macroeconomic conditions, we delivered strong financial results, which included revenue and operating income growth, operating margin expansion, EPS growth and effective deployment of capital. The following table provides a summary of key performance indicators for 2023 in comparison to 2022.

See the section titled "Key Performance Indicators and Non-GAAP Measures" for a definition and reconciliation of organic revenue, adjusted operating income, adjusted operating margin, and adjusted EPS.

Our 2023 results include:

•Revenue of $3,283.0 increased $295.3 due to higher sales volume and pricing actions, particularly within IP's aftermarket business, MT's Friction OE business, and CCT's components business. In addition, our 2023 results benefited by $30.5 from our recent acquisitions of Habonim and Micro-Mode Products, Inc. ("Micro-Mode"), and by $23.1 from favorable foreign currency translation.

•Operating income of $528.2 increased $60.2, primarily due to higher revenue, productivity savings, a gain of $7.2 on the sale of a product line within our CCT segment, lower charges related to the suspension of business in Russia, and the accretive impact of our recent acquisitions of Habonim and Micro-Mode. The increase in operating income was partially offset by higher labor, raw material and overhead costs, unfavorable foreign currency impacts and product mix, a loss of $15.3 on the sale of our Matrix Composites, Inc. ("Matrix") business, and a prior year gain of $15.5 on the sale of facilities within our IP segment.

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•Income from continuing operations was $4.97 per diluted share, an increase of $0.57 as compared to the prior year. The increase was primarily due to higher operating income, as discussed above, and lower share count resulting from open-market share repurchases executed during the year.

Throughout 2023, we remained committed to creating value through effective capital deployment, which included the following:

•In May, we acquired Micro-Mode, a leading provider of highly engineered connectors for harsh environment defense and space applications.

•We announced our intent to acquire Denmark-based Svanehøj Group A/S ("Svanehøj"), a leading provider of customized critical liquid and cryogenic pumps for liquefied gas applications for the marine sector, which will expand our international footprint and we expect will position us to benefit from the energy transition. The acquisition closed on January 19, 2024.

•We increased our capital expenditures by 4% over the prior year to fund investments in innovation, capacity and green energy, including solar installations.

•We repurchased 0.7 shares of common stock on the open market for $61, and announced a new $1 billion share repurchase program.

•We paid $96 in dividends to our shareholders. Our dividends declared in 2023 of $1.16 per share represented a 10% increase over the dividends per share declared of $1.056 in 2022.

Global Macroeconomic Conditions

During 2023, the global economy experienced a mix of challenges that impacted the Company's performance. These challenges included geopolitical uncertainty, trade disputes, supply chain disruptions, production challenges, labor shortages, raw material constraints, and inflation. These items are described further below.

Israel-Palestine Conflict

In October 2023, tensions between Israel and Palestine escalated, resulting in war, regional instability, and market volatility. This situation has further increased geopolitical tensions, has attracted international attention, and has raised humanitarian and economic concerns. Our operations in Israel are limited to Habonim, which we acquired in April 2022. Habonim is part of our IP segment and had sales of $57.4 and $45.0, respectively, during 2023 and 2022. Further escalation of this conflict could result in supply chain disruptions, inflation, workforce disruptions, demand fluctuations, or the inability to fulfill customer requests in the region. We are currently unable to reasonably estimate any future impacts on our business and financial results.

Russia-Ukraine War

In February 2022, the United States and other leading nations announced targeted economic sanctions on Russia and certain Russian citizens in response to Russia’s war with Ukraine, which has increased regional instability and global economic and political uncertainty.

During the years ended December 31, 2023 and 2022, we recorded total pre-tax charges of $2.5 and $7.9, primarily related to suspending our business in Russia. Any future impacts on our business and financial results are not expected to be material.

Inflationary Pressures

Since 2020, the cost of energy and raw materials we use in our production processes, including commodities such as steel, oil, copper, and tin, have significantly increased. The rising prices are primarily due to reduced supply caused by supply chain disruptions primarily stemming from the COVID-19 pandemic and the ongoing Russia-Ukraine war.

Beginning in 2022, central banks around the world have been raising interest rates to counter inflation. Rising interest rates increased our cost of debt and contributed to instability in the global banking system during 2023, which has impacted consumer behavior, including demand for our products.

The manufacturing industry continues to experience a skilled labor shortage, which has created difficulties in attracting and retaining factory employees and has resulted in higher labor costs.

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Global macroeconomic conditions have led and may continue to lead to decreased demand for our products, increased costs, and reduced operating margins. We have been able to offset most of these negative impacts through pricing actions and productivity savings, which we continue to pursue. Future impacts on our business and financial results as a result of these conditions are not estimable at this time, and depend, in part, on the extent to which these conditions improve or worsen, which remains uncertain. For additional discussion of the risks related to global macroeconomic conditions, see Part I, Item 1A, Risk Factors, herein.

DISCUSSION OF FINANCIAL RESULTS

2023 VERSUS 2022

All comparisons included within the Discussion of Financial Results for 2023 versus 2022 refer to results for the year ended December 31, 2023 compared to the year ended December 31, 2022, unless stated otherwise.

REVENUE

The following table summarizes the revenue derived from each of our segments.

(a)See the section titled "Key Performance Indicators and Non-GAAP Measures" for a definition and reconciliation of organic revenue.

Motion Technologies

MT revenue for the year ended December 31, 2023 increased $83.8 primarily driven by higher sales volume and pricing actions. Our Friction business grew 6% due to strong OEM demand. Additionally, our KONI and Axtone businesses grew 6% and 10%, respectively. These increases were partially offset by a decline in our Wolverine business of 7%, which was primarily attributable to a decline in sales of sealing materials. The current year period also benefited from favorable foreign currency translation of $17.0. Excluding the impact from foreign currency translation, organic revenue increased $66.8.

In March 2023, our Friction business signed a new 10-year agreement, effective January 1, 2024, for the supply of ITT aftermarket brake pads to Continental AG. The previous 10-year agreement with Continental AG expired on December 31, 2023. The new agreement is expected to generate over $1 billion in revenue over its term.

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Industrial Process

IP revenue for the year ended December 31, 2023 increased $158.6 primarily driven by higher sales volume and pricing actions. Our aftermarket business grew 16% primarily within the energy, chemical, and mining markets, and our pump project revenue grew 31%, primarily within the chemical and energy markets. The current year period also benefited by $15.0 from our acquisition of Habonim, which closed in the second quarter of 2022, and $4.7 from favorable foreign currency translation. Excluding the impacts from acquisition and foreign currency translation, organic revenue increased $138.9.

The level of order and shipment activity at IP can vary significantly from period to period due to pump projects which are highly engineered, customized to customer needs, and have longer lead times. Total IP orders during 2023 were $1,227.0, an increase of 11.4% compared to the prior year, including $285.9 of orders in the fourth quarter, which represents 5.5% growth from the fourth quarter of last year. IP's backlog as of December 31, 2023 was $676.8, reflecting an increase of $96.8, or 16.7%, compared to December 31, 2022. Our backlog represents firm orders that have been received, acknowledged, and entered into our production systems.

Connect & Control Technologies

CCT revenue for the year ended December 31, 2023 increased $53.8 primarily driven by pricing actions and higher sales volume. Specifically, component sales grew 21%, primarily within the aerospace and defense markets, while connector sales grew 1%. The current year period also benefited $15.5 from our second quarter acquisition of Micro-Mode and $1.4 from favorable foreign currency translation. Excluding the impacts from acquisition and favorable foreign currency translation, organic revenue increased $36.9.

GROSS PROFIT

Gross profit for 2023 was $1,107.3, reflecting a gross margin of 33.7%. Gross profit for 2022 was $922.3, reflecting a gross margin of 30.9%. The increases in gross profit and gross margin were primarily driven by an increase in revenue, described above in the section titled "Revenue", partially offset by increases in raw material, labor, and overhead costs, which were driven by inflationary pressures during the year, as discussed above in the section titled "Global Macroeconomic Conditions".

OPERATING EXPENSES

The following table provides a disaggregation of our operating expenses by expense type, as well as by segment.

(a)The prior year presentation has been updated to conform to the current year presentation.

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General and administrative (G&A) expenses increased $85.4 for the year ended December 31, 2023. The increase was primarily due to higher incentive-based compensation and payroll costs, including as a result of higher headcount stemming from our acquisitions of Habonim in the second quarter of 2022 and Micro-Mode in the second quarter of 2023, a loss of $15.3 on the sale of our Matrix business, higher restructuring charges, and unfavorable foreign currency impacts. The increase was partially offset by a gain of $7.2 resulting from the sale of a product line within our CCT segment, income of $3.7 from a recovery of costs associated with the 2020 lease termination of a legacy site, higher corporate-owned life insurance investment gains, and lower asset impairment charges.

Sales and marketing expenses increased $17.1 for the year ended December 31, 2023, primarily driven by higher personnel and other sales-related costs to support higher sales activity. The increase in personnel costs was partially attributable to higher headcount stemming from, and timing of, our recent Habonim and Micro-Mode acquisitions.

Research and development (R&D) expenses increased $6.1 for the year ended December 31, 2023, primarily driven by higher personnel costs to support investments in innovation and new product development.

Gain on sale of long-lived assets decreased by $16.2 for the year ended December 31, 2023. The prior year period included a one-time gain of $15.5 related to the sale of facilities that were previously held within our IP segment.

OPERATING INCOME

The following table summarizes our operating income and operating margin by segment.

MT operating income for the year ended December 31, 2023 increased $22.3 primarily due to higher revenue, as discussed above, productivity savings, and lower charges related to the suspension of business in Russia. The increase was partially offset by higher raw material, labor and overhead costs, as well as unfavorable foreign currency impacts and product mix.

IP operating income for the year ended December 31, 2023 increased $56.0, driven by higher revenue, as discussed above, productivity savings, lower charges related to the suspension of business in Russia, and the accretive impact of the acquisition of Habonim, which occurred in the second quarter of 2022. The increase was partially offset by higher labor and overhead costs, and unfavorable foreign currency impacts. The prior year period also benefited from a non-recurring gain of $15.5 related to the sale of facilities.

CCT operating income for the year ended December 31, 2023 decreased $8.3, driven by a $15.3 loss on the sale of our Matrix business, and higher raw material, labor and overhead costs. The decrease was partially offset by higher revenue, as discussed above, productivity savings, a gain of $7.2 related to the sale of a product line, and the accretive impact of the second quarter acquisition of Micro-Mode.

Within Corporate & Other, corporate costs, net, increased $9.8 for the year ended December 31, 2023, primarily driven by higher personnel-related costs, including incentive-based compensation. The increase was partially offset by income of $3.7 from a recovery of costs associated with the 2020 lease termination of a legacy site as well as by higher corporate-owned life insurance investment gains. The prior year period also included a $1.7 asset impairment charge related to the relocation of the Company’s corporate headquarters.

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INTEREST AND OTHER NON-OPERATING EXPENSE (INCOME), NET

The following table summarizes our interest and other non-operating expense (income), net.

The increase in interest and other non-operating expense, net for the year ended December 31, 2023 was primarily due to higher interest expense associated with a higher average interest rate on our commercial paper borrowings, and $1.4 of interest expense related to a tax audit settlement in Italy, as discussed below in the section titled "Income Tax Expense". This increase was partially offset by an increase in interest income, which was primarily due to higher weighted average interest rates during the year, and an increase in postretirement benefits due to a prior year plan amendment.

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INCOME TAX EXPENSE

The following table summarizes our income tax expense and effective tax rate.

The higher effective tax rate in 2023 compared to 2022 resulted from the Company recording tax expense in 2023 of $14.2 relating to a tax audit in Italy covering tax years 2016-2022. The 2023 expense includes $6.8 of U.S. tax on foreign earnings. These tax expenses were offset by $16.1 from valuation allowance reversals on deferred tax assets in Germany. ITT also recognized tax benefits of $4.9 from the filing of an amended 2017 consolidated federal tax return.

We are closely monitoring the potential passage of new U.S. and foreign tax legislation, which could result in substantial changes to the current U.S. or foreign tax systems, including changes to the statutory corporate tax rate. In October 2021, the Organization for Economic Cooperation and Development (OECD) and G20 Finance Ministers reached an agreement, known as Base Erosion and Profit Shifting (BEPS) Pillar Two, which is a multi-jurisdictional plan of action to address base erosion and profit shifting. On December 20, 2021, the OECD released the Model GloBE Rules for Pillar Two defining a 15% global minimum tax rate for large multinational corporations. The OECD continues to release additional guidance and countries are implementing legislation with widespread adoption of the Model GloBE Rules for Pillar Two expected by calendar year 2024. We are continuing to evaluate the Model GloBE Rules for Pillar Two and related legislation, and their potential impact on future periods. Enactment of this regulation in its current form could increase the amount of global corporate income tax paid by the Company. These increases could have a material adverse effect on our effective tax rate. As the effects of a change in U.S. or foreign tax law must be recognized in the period in which the new legislation is enacted, should new legislation be signed into law, our financial results could be materially impacted.

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the Inflation Reduction Act) into law. The Inflation Reduction Act includes a new corporate alternative minimum tax (the Corporate AMT) of 15% on the adjusted financial statement income (AFSI) of corporations with an average AFSI exceeding $1.0 billion over a three-year period. The Corporate AMT was effective for the Company beginning in 2023. Given the AFSI threshold, the Corporate AMT was not applicable to the Company in 2023, but the Corporate AMT may have potential impacts on our future U.S. tax expense, cash taxes and effective tax rate. Additionally, the Inflation Reduction Act imposes a 1% excise tax on the fair market value of net stock repurchases made after December 31, 2022. The impact of this provision was not material in 2023 and future impacts will be dependent on the extent of share repurchases made in future periods.

We operate in various tax jurisdictions and are subject to examination by tax authorities in these jurisdictions. We are currently under examination in several jurisdictions including Czechia, Germany, Hong Kong, India, Italy, Japan, the U.S. and Venezuela. The calculation of our tax liability for unrecognized tax benefits includes dealing with uncertainties in the application of complex tax laws and regulations in various tax jurisdictions. Due to the complexity of some uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit. Over the next 12 months, the net amount of the tax liability for unrecognized tax benefits in foreign and domestic jurisdictions is not expected to change by a significant amount.

See Note 6, Income Taxes, to the Consolidated Financial Statements for further information on tax-related matters.

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LIQUIDITY AND CAPITAL RESOURCES

Funding and Liquidity Strategy

We monitor our funding needs and execute strategies to meet overall liquidity requirements, including the management of our capital structure, on both a short- and long-term basis. Significant factors that affect our overall management of liquidity include our cash flow from operations, credit ratings, the availability of commercial paper, access to bank lines of credit, term loans, and the ability to attract long-term capital on satisfactory terms. We assess these factors along with current market conditions on a continuous basis, and as a result, may alter the mix of our short- and long-term financing when it is advantageous to do so. We expect to have enough liquidity to fund operations for at least the next 12 months and beyond.

We manage our worldwide cash requirements considering available funds among the many subsidiaries through which we conduct business and the cost effectiveness with which those funds can be accessed. We support our growth and expansion in markets outside of the U.S. through the enhancement of existing products and development of new products, increased capital spending, and potential foreign acquisitions. We look for opportunities to access cash balances in excess of local operating requirements to meet our global liquidity needs in a cost-efficient manner. We transfer cash between certain international subsidiaries and the U.S. when it is cost effective to do so. Net cash distributions from foreign countries to the U.S. during the years ended December 31, 2023 and 2022 were $357.5 and $74.0, respectively. The timing and amount of any additional future distributions remains under evaluation based on our jurisdictional cash needs.

Capital Resources

As of December 31, 2023, we have access to short- and long-term funding sources. These include access to the capital markets through a commercial paper program, as well as $700 of available borrowing capacity under our 2021 Revolving Credit Agreement, which may potentially be expanded to $1,050 under the agreement. In addition, we have market access to secure longer-term funding, if needed. Our commercial paper program is supported by our 2021 Revolving Credit Agreement and our policy is to maintain unused committed bank lines of credit in an amount greater than outstanding commercial paper balances. These sources of capital are described further below.

Commercial Paper

When available and economically feasible, we have accessed the commercial paper market through programs in place in the U.S. and Europe to supplement cash flows generated internally and to provide additional short-term funding.

The following table presents our outstanding commercial paper borrowings. See Note 15, Debt, for further information.

The decrease in commercial paper outstanding from December 31, 2022 to December 31, 2023 was primarily related to higher share repurchase and acquisition activity in the prior year that was financed using commercial paper, and timing of repayments. See Note 18, Capital Stock, and Note 22, Acquisitions, Investments, and Divestitures, for further information.

All outstanding commercial paper for both periods had maturity terms of less than three months from the date of issuance. Our average daily outstanding commercial paper balance for the years ended 2023 and 2022 was $366.9 and $459.6, respectively, and the maximum outstanding commercial paper during each of those respective years was $669.9 and $561.7.

Revolving Credit Agreement

On August 5, 2021, we entered into a revolving credit facility agreement with a syndicate of third party lenders including Bank of America, N.A., as administrative agent (as amended, the 2021 Revolving Credit Agreement). The 2021 Revolving Credit Agreement matures in August 2026 and provides for an aggregate principal amount of up to $700 of (i) revolving extensions of credit (the revolving loans) outstanding at any time, and (ii) letters of credit for a face amount up to $100 at any time outstanding. Subject to certain conditions, we are permitted to terminate permanently the total commitments and reduce commitments by a minimum aggregate amount of $10 or any whole

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multiple of $1 in excess thereof. Borrowings under the credit facility are available in U.S. dollars, Euros, British pound sterling or any other currency that may be requested by us, subject to the approval of the administrative agent and each lender. We are permitted to request that lenders increase the commitments under the facility by up to $350 for a maximum aggregate principal amount of $1,050; however, this is subject to certain conditions and therefore may not be available to us. As of December 31, 2023 and 2022, we had no outstanding borrowings under the 2021 Revolving Credit Agreement. See Note 15, Debt, to the Consolidated Financial Statements for further information.

Long-term Debt

Long-term debt is generally defined as any debt with an original maturity greater than 12 months. Our long-term debt is primarily related to outstanding Italian government loans maturing in June 2027. Our long-term debt carries a weighted average fixed interest rate of 0.86% and requires annual principal and interest payments of approximately $2.0, on average, through maturity. The table below provides our long-term debt outstanding as of December 31, 2023 and 2022.

See Note 15, Debt, for further information.

Term Loan

On January 12, 2024, ITT Italia S.r.l. (“ITT Italia”), an indirect wholly owned subsidiary of ITT, entered into a facility agreement (the “ITT Italia Credit Agreement”), among the Company, as a guarantor, ITT Italia, as borrower, and BNP Paribas, Italian Branch, as bookrunner, sole underwriter and global coordinator, mandated lead arranger and agent.

The ITT Italia Credit Agreement has an initial maturity of three years and provides for term loan borrowings in an aggregate principal amount of €300 million, €275 million of which have been used to finance the Company’s acquisition of Svanehøj Group A/S, which closed on January 19, 2024.

See Note 15, Debt, for further information.

Credit ratings

The Company's ability to access the global capital markets and the related cost of financing is dependent upon, among other factors, the Company's credit ratings. Our credit ratings as of December 31, 2023 were as follows:

In December 2023, Fitch Ratings upgraded ITT's short-term ratings, which include its Short-term Issuer Default rating and Commercial Paper rating, from F2 to F1. The upgraded ratings reflect ITT's conservative capital structure, product and geographic diversification, installed base, sizeable aftermarket revenue, solid EBITDA margins, and good financial flexibility. There were no other changes to our credit ratings during 2023. Please refer to the rating agency websites and press releases for more information.

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Sources and Uses of Liquidity

In addition to the capital resources discussed above, our principal source of liquidity is our cash flow generated from operating activities, which provides us with the ability to meet the majority of our short-term funding requirements. The following table summarizes net cash derived from operating, investing, and financing activities for the years ended December 31, 2023 and 2022.

Operating Activities

The increase in net cash from operating activities of $260.3 was primarily driven by favorable net working capital impacts primarily due to improved inventory management and timing of accounts receivable collections, higher operating income, and lower incentive-based compensation payments related to the prior year.

Investing Activities

The increase in net cash from investing activities of $74.1 was primarily driven by our acquisition and equity-method investment activity. In 2023, we acquired Micro-Mode for a purchase price of $79.3. In 2022, we acquired Habonim for a purchase price of $139.9 and we purchased a minority investment in CRP Technology Srl and CRP USA LLC for $23.0. In addition, during 2023, we received proceeds of $10.5 from the sale of a product line within our CCT segment and $1.0 from the sale of our Matrix business, while in 2022 we received proceeds of $20.9 from the sale of facilities within our IP segment. Refer to Note 22, Acquisitions, Investments, and Divestitures, and Note 11, Plant, Property and Equipment, Net, for further information.

Financing Activities

The decrease in net cash from financing activities of $349.0 was primarily driven by a higher cash outflows of $525.7 associated with commercial paper borrowings due to timing of repayments. This was partially offset by lower cash outflows of $185.3 related to repurchases of ITT common stock.

Dividends

The amount and timing of dividends payable on our common stock are within the sole discretion of our Board of Directors and will be based on, and affected by, a number of factors, including our financial position and results of operations, available cash, expected capital spending plans, prevailing business conditions, and other factors the Board of Directors deems relevant. Therefore, we cannot provide any assurance as to what level of dividends, if any, will be paid in the future. Aggregate dividends declared in 2023 were $95.9, compared to $87.7 in 2022, reflecting annual per share amounts of $1.160 and $1.06, respectively. In the first quarter of 2024, we declared a quarterly dividend of $0.319 per share for shareholders of record on March 8, 2024, which will be paid on April 1, 2024.

Open-market Share Repurchases

On October 30, 2019, the Board of Directors approved our current program, an indefinite term $500 open-market share repurchase program (the 2019 Plan). All repurchased shares are retired immediately following the repurchases. During the years ended December 31, 2023 and 2022, we spent $60.0 and $245.3, respectively, on open-market share repurchases under the 2019 Plan. As of December 31, 2023, there was $78.8 of remaining authorization left under the 2019 Plan.

On October 4, 2023, the Board of Directors approved an indefinite term $1,000 open-market share repurchase program (the 2023 Plan). Repurchases under this authorization will begin upon the completion of the 2019 Plan.

See Note 18, Capital Stock for more information.

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Funding of Postretirement Plans

The following table provides a summary of the funded status of our postretirement benefit plans.

Our non-U.S. pension plans, which are typically not funded due to local regulations, had an increase in projected benefit obligation of $5.3 during 2023, primarily due to a lower discount rate. Our other employee-related benefit plans are generally unfunded plans as well. The projected benefit obligation of these plans declined by $4.5 during 2023 primarily due to a decrease in the discount rate.

Contributions to our U.S. and non-U.S. pension and other postretirement plans were $9.5 and $11.0 during 2023 and 2022, respectively, which were used to fund participant benefits. We currently estimate 2024 contributions to our pension and other postretirement benefits plans of approximately $12.

See Note 16, Postretirement Benefit Plans, for additional financial information related to our postretirement obligations.

Contractual Obligations

The following table summarizes ITT’s commitment to make future payments under long-term contractual obligations as of December 31, 2023.

In addition to the amounts presented in the table above, we have recorded liabilities for uncertain tax positions of $5.7 in our Consolidated Balance Sheet as of December 31, 2023. This amount has been excluded from the contractual obligations table due to an inability to reasonably estimate the timing of payments in individual years.

(a)Represents unconditional purchase agreements that are enforceable and legally binding and that specify all significant terms to purchase goods or services, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase agreements that are cancellable without penalty have been excluded.

(b)Represents the projected timing of payments for benefits earned to date and the expectation that certain future service will be earned by current active employees for our pension and other employee-related benefit plans. See Note 16, Postretirement Benefit Plans, for additional financial information related to our postretirement obligations.

(c)Other long-term obligations include amounts recorded in our Consolidated Balance Sheet as of December 31, 2023, including estimated environmental payments and employee compensation agreements. We estimate based on historical experience that we will spend, on average, approximately $6 per year on environmental investigation and remediation. A portion of our environmental investigation and remediation costs are legally mandated through various orders and agreements with state and federal oversight agencies. As of December 31, 2023, our recorded environmental liability was $56.0. See Note 19, Commitments and Contingencies, to the Consolidated Financial Statements for further information.

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Off-Balance Sheet Arrangements

Off-balance sheet arrangements represent transactions, agreements or other contractual arrangements with unconsolidated entities, where an obligation or contingent interest exists. Our off-balance sheet arrangements as of December 31, 2023 consist of indemnities related to acquisition and disposition agreements and certain third-party guarantees.

Indemnities

Since our founding in 1920 (pre-spin-offs), we have acquired and disposed of numerous businesses. The related acquisition and disposition agreements allocate certain assets and liabilities among the parties and contain various representation and warranty clauses and may provide indemnities for a misrepresentation or breach of the representations and warranties by either party or for assumed or excluded liabilities. These provisions address a variety of subjects. The term and monetary amounts of each such provision are defined in the specific agreements and may be affected by various conditions and external factors. Many of the provisions have expired either by operation of law or as a result of the terms of the agreement. We do not have a liability recorded for these expired provisions and are not aware of any claims or other information that would give rise to material payments under such provisions.

Guarantees

We had $159.4 of guarantees, letters of credit and similar arrangements outstanding as of December 31, 2023, primarily pertaining to commercial or performance guarantees and insurance matters. We have not recorded any material loss contingencies under these guarantees, letters of credit and similar arrangements as of December 31, 2023 as the likelihood of nonperformance by the underlying obligors is considered remote. From time to time, we may provide certain third-party guarantees that may be affected by various conditions and external factors, some of which could require that payments be made under such guarantees. We do not consider the maximum exposure or current recorded liabilities under our third-party guarantees to be material either individually or in the aggregate. We do not believe such payments would have a material adverse impact on our financial statements.

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KEY PERFORMANCE INDICATORS AND NON-GAAP MEASURES

Management reviews a variety of key performance indicators including revenue, segment operating income and margins, and earnings per share, some of which are calculated other than in accordance with accounting principles generally accepted in the United State of America (GAAP). In addition, we consider certain measures to be useful to management and investors when evaluating our operating performance for the periods presented. These measures provide a tool for evaluating our ongoing operations and management of assets from period to period. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives, including, but not limited to, acquisitions, dividends, and share repurchases. Some of these metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for measures determined in accordance with GAAP. We consider the non-GAAP measures disclosed in this Annual Report on Form 10-K to be key performance indicators. These measures, which may not be comparable to similarly titled measures reported by other companies, consist of the following:

•“Organic revenue” is defined as revenue, excluding the impacts of foreign currency fluctuations and acquisitions. The period-over-period change resulting from foreign currency fluctuations is estimated using a fixed exchange rate for both the current and prior periods. Management believes that reporting organic revenue provides useful information to investors by facilitating comparisons of our revenue performance with prior and future periods and to our peers.

A reconciliation of revenue to organic revenue for the year ended December 31, 2023 is provided below.

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•“Adjusted operating income (loss)” is defined as operating income (loss), adjusted to exclude special items that include, but are not limited to, certain gain on sale of long-lived assets, restructuring, severance, certain asset impairment charges, certain acquisition- and divestiture-related impacts and unusual or infrequent operating items. Special items represent charges or credits that impact current results, which management views as unrelated to the Company’s ongoing operations and performance. “Adjusted operating margin” is defined as adjusted operating income (loss) divided by revenue. We believe that these financial measures are useful to investors and other users of our financial statements in evaluating ongoing operating profitability, as well as in evaluating operating performance in relation to our competitors.

Reconciliations of operating income (loss) to adjusted operating income (loss) for the years ended December 31, 2023 and 2022 are provided below.

(a)Relates to the sale of our Matrix business in December 2023. See Note 22, Acquisitions, Investments, and Divestitures, to the Consolidated Financial Statements for further information.

(b)Includes income from a recovery of costs associated with the 2020 lease termination of a legacy site.

(c)2022 includes a gain of $14.7 related to the sale of a former operating facility that was previously held by a business within our IP segment. See Note 11, Plant, Property and Equipment, Net, to the Consolidated Financial Statements for further information.

(d)2022 includes severance charges and accelerated amortization of an intangible asset.

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•“Adjusted income from continuing operations” is defined as income from continuing operations attributable to ITT Inc. adjusted to exclude special items that include, but are not limited to, certain gain on sale of long-lived assets, restructuring, severance, certain asset impairment charges, certain acquisition- and divestiture-related impacts, income tax settlements or adjustments and unusual or infrequent items. Special items represent charges or credits, on an after-tax basis, that impact current results, which management views as unrelated to the Company’s ongoing operations and performance. The after-tax basis of each special item is determined using the jurisdictional tax rate of where the expense or benefit occurred. “Adjusted income from continuing operations per diluted share” (adjusted EPS) is defined as adjusted income from continuing operations divided by diluted weighted average common shares outstanding. We believe that adjusted income from continuing operations and adjusted EPS are useful to investors and other users of our financial statements in evaluating ongoing operating profitability, as well as in evaluating operating performance in relation to our competitors.

Reconciliations of adjusted income from continuing operations attributable to ITT to income from continuing operations attributable to ITT and adjusted income from continuing operations attributable to ITT per diluted share to income from continuing operations attributable to ITT per diluted share (EPS) for the years ended December 31, 2023 and 2022 are provided below. Per share amounts are reported in ones and may not calculate due to rounding.

(a)Relates to the sale of our Matrix business in December 2023. See Note 22, Acquisitions, Investments, and Divestitures, to the Consolidated Financial Statements for further information.

(b)2022 includes a gain of $14.7 on the sale of a former operating facility previously held by a business within our IP segment. See Note 11, Plant, Property and Equipment, Net, to the Consolidated Financial Statements for further information.

(c)2023 primarily includes income of $3.7 from a recovery of costs associated with the 2020 lease termination of a legacy site, partially offset by interest expense of $1.4 related to a tax audit settlement in Italy. 2022 primarily includes severance costs.

(d)The tax impact of each adjustment is determined using the jurisdictional tax rate of where the expense or benefit occurred.

(e)2023 tax-related special items include benefits from valuation allowance reversals of $(16.4), a settlement expense primarily related to a tax audit in Italy of $14.4, the tax impact on distributions of $7.5, a benefit related to the amendment of our federal tax return of $(4.9), and other of $(2.6). 2022 tax-related special items include a benefit related to a change in deferred tax asset valuation allowance of $(1.2), a benefit related to a change in uncertain tax positions of $(0.7), a tax benefit on future distribution of foreign earnings of $(0.3), and other of $(0.1). See Note 6, Income Taxes, to the Consolidated Financial Statements for further information.

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CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements and related disclosures in accordance with GAAP requires us to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant accounting policies used in the preparation of the financial statements are discussed in Note 1, Description of Business, Basis of Presentation and Summary of Significant Accounting Policies, to the Consolidated Financial Statements. An accounting policy is deemed critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes to the estimate that are reasonably possible could materially affect the financial statements. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of ITT’s Board of Directors.

The accounting estimates and assumptions discussed below are those that we consider most critical to fully understanding our financial statements and evaluating our results as they are inherently uncertain, involve the most subjective or complex judgments, include areas where different estimates reasonably could have been used, and the use of an alternative estimate that is reasonably possible could materially affect the financial statements. We base our estimates on historical experience and other data and assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management believes the accounting estimates employed and the resulting balances reported in the Consolidated Financial Statements are reasonable; however, actual results could differ materially from our estimates and assumptions.

Revenue Recognition

Revenue is derived from the sale of products and services to customers. We recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. For product sales, other than certain long-term construction and production type contracts where we have no alternative use for the product and have an enforceable right to payment, we recognize revenue at the time control of our promised goods or services passes to the customer, generally when products are shipped and the contractual terms have been fulfilled.

We recognize revenue for certain highly customized long-term design and build projects using the cost-to-cost method, based upon the percentage of costs incurred to total projected costs. Revenue and profit recognized under the cost-to-cost method are based on management’s estimates of measures such as total contract revenues, contract costs and the extent of progress toward completion. Due to the long-term nature of the contracts, these estimates are subject to uncertainties and require significant judgment. Estimates of contract costs include labor hours and rates, and material costs. These estimates consider historical performance, the complexity of the work to be performed, the estimated time to complete the project, and other economic factors such as inflation and market rates. We update our estimates on a periodic basis and any revisions to such estimates are recorded in earnings in the period in which they are determined. Provisions for estimated losses, if any, on uncompleted long-term contracts, are made in the period in which such losses are determined.

For contracts recognized at a point in time, provisions for estimated losses, if any, on uncompleted arrangements are recognized in the period in which such losses are determined. These estimates are subject to uncertainties and require significant judgment. They may consider historical performance, the complexity of the work to be performed, the estimated time to complete the project, and other economic factors such as inflation.

Additionally, accruals for estimated expenses related to sales returns and warranties are made at the time products are sold. Reserves for sales returns, rebates and other allowances are established using historical information on the frequency of returns for a particular product and period over which products can be returned. For distributors and resellers, our typical return period is less than 180 days. Future market conditions and product transitions may require us to take actions to increase customer incentive offerings, possibly resulting in a reduction in revenue at the time the incentive is offered.

Warranty accruals are established using historical information on the nature, frequency, and average cost of warranty claims and estimates of future costs. Our standard product warranty terms generally include post-sales support and repairs or replacement of a product at no additional charge for a specified period of time. Although we engage in extensive product quality programs and processes, we base our estimated warranty obligation on product warranty terms offered to customers, ongoing product failure rates, materials usage, service delivery costs incurred in correcting a product failure, and specific product class failures outside of our baseline experience and associated overhead costs. If actual product failure rates, repair rates, or any other post-sales support costs differ from these estimates, revisions to the estimated warranty liability would be required.

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For certain highly complex contracts, design, engineering, and other preproduction costs may be capitalized if the costs relate directly to a contract or anticipated contract that the entity can specifically identify, the costs generate or enhance resources of the entity that will be used in satisfying performance obligations in the future and the costs are expected to be recovered. In addition to direct labor and materials to fulfill a contract or anticipated contract, we exercise judgment in determining which costs are allocated, including allocations of contract management and depreciation of tooling used to fulfill the contract. Additionally, overall contract profitability is estimated in determining cost recoverability.

Income Taxes

Deferred income tax assets and liabilities are determined based on the estimated future tax effects of differences between the financial reporting and tax bases of assets and liabilities, applying currently enacted tax rates in effect for the year in which we expect the differences will reverse. We periodically assess the likelihood that we will be able to recover our deferred tax assets, and we reflect any changes to our estimate of the amount we are more likely than not to realize as a valuation allowance, with a corresponding adjustment to earnings or other comprehensive income (loss), as appropriate. The ultimate realization of deferred tax assets depends on the generation of future taxable income (including the reversals of deferred tax liabilities) during the periods in which those deferred tax assets will become deductible.

The Company assesses all available positive and negative evidence regarding the realizability of its deferred tax assets. Significant judgment is required in assessing the need for any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, both positive and negative, including the future reversal of existing taxable temporary differences, taxable income in carryback periods, prudent and feasible tax planning strategies, estimated future taxable income, and whether we have a recent history of losses. The valuation allowance can be affected by changes to tax regulations, interpretations and rulings, changes to enacted statutory tax rates, and changes to future taxable income estimates.

Our effective tax rate reflects the impact of certain undistributed foreign earnings for which we have not provided U.S. taxes because these earnings are considered indefinitely reinvested outside of the U.S. We plan foreign earnings remittance amounts based on projected cash flow needs, as well as the working capital and long-term investment requirements of our foreign subsidiaries and our domestic operations. Based on these assumptions, we estimate the amount we will distribute to the U.S. and accrue U.S. and foreign taxes on these planned foreign remittance amounts. Material changes in our estimates of cash, working capital and long-term investment requirements in the various jurisdictions in which we do business could impact our effective tax rate. Our provision for income taxes could be adversely impacted by changes in our geographic mix of earnings or changes in the enacted tax rates in the jurisdictions in which we conduct our business.

The calculation of our deferred and other tax balances involves significant management judgment when dealing with uncertainties in the application of complex tax regulations and rulings in a multitude of taxing jurisdictions across our global operations. The Company is routinely audited by U.S. federal, state and foreign tax authorities, the results of which could cause proposed assessments against the Company. We recognize potential liabilities and record tax liabilities for anticipated tax audit issues based on our estimate of whether, and to the extent to which, additional taxes will be due. Furthermore, we recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position in consideration of applicable tax statutes and related interpretations and precedents and the expected outcome of the proceedings (or negotiations) with the taxing authorities. Tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized on ultimate settlement.

We adjust our liability for uncertain tax positions in light of changing facts and circumstances; however, the ultimate resolution of a tax examination may differ from the amounts recorded in the financial statements for a number of reasons, including the Company’s decision to settle rather than litigate a matter, relevant legal precedent related to similar matters, and the Company’s success in supporting its filing positions with the tax authorities. If our estimate of tax liabilities proves different than the ultimate outcome, such differences will affect the provision for income taxes in the period in which such determination is made.

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Goodwill and Other Intangible Assets

We review goodwill and indefinite-lived intangible assets for impairment annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. We also review the carrying value of our finite-lived intangible assets for potential impairment when impairment indicators arise. We conduct our annual impairment tests as of the first day of the fourth quarter. When reviewing for impairment, we may opt to make an initial qualitative evaluation, which considers present events and circumstances, to determine the likelihood of impairment. Our decision to perform a qualitative impairment assessment for an individual reporting unit in a given year is influenced by a number of factors, including the significance of the excess of the reporting unit's estimated fair value over carrying value at the last quantitative assessment date, changes in macroeconomic, industry and reporting-unit specific conditions and the amount of time in between quantitative fair value measurements. If the likelihood of impairment is not considered to be more likely than not, then no further testing is performed.

In cases when we opt not to perform a qualitative evaluation, or the qualitative evaluation indicates that the likelihood of impairment is more likely than not, we then perform a quantitative impairment test for goodwill. We test each reporting unit for goodwill impairment quantitatively at a minimum of once every three years. We compare the estimated fair value of each reporting unit to its carrying value. If the estimated fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired. If the carrying value of the net assets assigned to the reporting unit exceeds its fair value, then we record an impairment loss equal to the difference. In our annual impairment test for indefinite-lived intangible assets, we compare the fair value of those assets to their carrying value. We recognize an impairment loss when the estimated fair value of the indefinite-lived intangible asset is less than its carrying value.

We estimate the fair value of our reporting units using an income approach. Under the income approach, we calculate fair value based on the present value of estimated future cash flows. We estimate the fair value of our indefinite-lived intangible assets using the relief from royalty method. The relief from royalty method estimates the portion of a company’s earnings attributable to an intellectual property asset based on an assumed royalty rate that the company would have paid had the asset not been owned.

Determining the fair value of a reporting unit or an indefinite-lived intangible asset is judgmental in nature and involves the use of significant estimates and assumptions, particularly related to future operating results and cash flows. These estimates and assumptions include, but are not limited to, revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, assumed royalty rates, future economic and market conditions, and the identification of appropriate market comparable data. In addition, the identification of reporting units and the allocation of assets and liabilities to the reporting units when determining the carrying value of each reporting unit also requires judgment. Goodwill is tested for impairment at the reporting unit level, which, based on the applicable accounting guidance, is either the operating segment or one level below (e.g., the divisions of our CCT segment). The fair value of our reporting units and indefinite-lived intangible assets are based on estimates and assumptions that are believed to be reasonable. Significant changes to these estimates and assumptions could adversely impact our conclusions. Actual future results may differ from those estimates. During the fourth quarter of 2023, we performed our annual impairment assessment and determined that the estimated fair values of our goodwill reporting units were substantially in excess of each of their carrying values. Had different reporting units been identified or had different valuation techniques or assumptions been utilized, the results of our impairment tests could have resulted in an impairment loss, which could have been material.

See Note 12, Goodwill and Other Intangible Assets, Net, to the Consolidated Financial Statements for more information.

Environmental Liabilities

We are subject to various federal, state, local, and foreign environmental laws and regulations that require environmental assessment or remediation efforts. Accruals for environmental exposures are recorded on a site-by-site basis when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. Significant judgment is required to determine both the likelihood of a loss and the estimated amount of loss. Engineering studies, probability techniques, historical experience, and other factors are used to identify and evaluate remediation alternatives and their related costs in estimating our reserve for environmental liabilities. Our environmental reserve of $56.0 at December 31, 2023, represents management’s estimate of undiscounted costs expected to be incurred related to environmental assessment or remediation efforts, including related legal fees, without regard to potential recoveries from insurance companies or other third parties. Our estimated liability is reduced to reflect the participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially

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capable of paying their respective share of the relevant costs and that share can be reasonably estimated. Our environmental accruals are reviewed and adjusted for progress of investigation and remediation efforts and as additional technical or legal information become available, such as the impact of negotiations with regulators and other potentially responsible parties, settlements, rulings, advice of legal counsel, and other current information.

We closely monitor our environmental responsibilities, together with trends in the environmental laws. Environmental remediation reserves are subject to numerous inherent uncertainties that affect our ability to estimate our share of the costs. Such uncertainties involve incomplete information regarding particular sites, incomplete information regarding other potentially responsible parties, uncertainty regarding the nature and extent of contamination at each site, uncertainties concerning the extent of remediation required under existing regulations, uncertainties concerning our share of any remediation liability, if any, widely varying cost estimates associated with potential alternative remedial approaches, uncertainty with regard to the length of time required to remediate a particular site, uncertainties concerning the potential effects of continuing improvements in remediation technology, and unpredictable nature and timing of changes in environmental standards and regulatory requirements. The effect of legislative or regulatory changes on environmental standards could be material to the Company’s financial statements. Additionally, violations by us of such laws and regulations, discovery of previously unknown or more extensive contamination, litigation involving environmental impacts, our inability to recover costs associated with any such developments, or financial insolvency of other potentially responsible parties could have a material adverse effect on our financial statements.

Although it is not possible to predict with certainty the ultimate costs of environmental remediation, the reasonably possible high-end of our estimated environmental liability range at December 31, 2023 was $98.2. See Note 19, Commitments and Contingencies, to the Consolidated Financial Statements for more information.

Recent Accounting Pronouncements

See Note 2, Recent Accounting Pronouncements, to the Consolidated Financial Statements for a complete discussion of recent accounting pronouncements.