ITT INC. (ITT) FY 2024 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 2024, 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 2024 in comparison to 2023.

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 2024 results include:

•Revenue of $3,630.7 increased $347.7 primarily due to the acquisitions of Svanehøj and kSARIA which contributed $230.1 to total revenue growth. The increase was also due to higher sales volume, particularly within IP's project pump and short cycle businesses, MT's Friction OEM and KONI rail businesses, and CCT's connectors business, and pricing actions. This was offset by the Wolverine and Matrix divestitures, which reduced total revenue by $79.0, and unfavorable foreign currency translation of $24.7.

•Operating income of $676.0 increased $147.8, primarily due to higher revenue and a $47.8 gain on sale of the Wolverine business in MT, partially offset by higher material, labor, overhead, M&A costs, and unfavorable sales mix.

•Income from continuing operations was $6.30 per diluted share, an increase of $1.33 as compared to the prior year. The increase was primarily due to higher operating income, and lower share count resulting from open-market share repurchases executed during the year, partially offset by higher interest due to acquisition-related debt, and higher corporate expenses.

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Throughout 2024, we remained committed to creating value through effective capital deployment, which included the following:

•In January, we acquired Svanehøj for $407.6, a leading provider of customized critical liquid and cryogenic pumps for liquefied gas applications for the marine sector. This acquisition expands our international footprint and positions us to benefit from the energy transition.

•In July, we completed the sale of Wolverine business for a price of $186.2 (or $177.9, net of cash divested).

•In September, we acquired kSARIA for a preliminary purchase price of $461.8. kSARIA is a leading manufacturer of mission-critical cable assembly and networking application solutions primarily for the aerospace and defense market. See Note 21, Acquisitions, Investments, and Divestitures, to the Consolidated Financial Statements for further information.

•We increased our capital expenditures by 15% compared to the previous year reflecting our commitment to innovation and growth, capacity expansion, and green energy, including solar installations.

•We repurchased 0.8 shares of common stock on the open market for $104.8.

•We paid $104.7 in dividends to our shareholders. Our dividends declared in 2024 of $1.28 per share represented a 10% increase over the dividends per share declared of $1.16 in 2023.

Global Macroeconomic Conditions

During 2024, geopolitical uncertainty, supply chain disruptions, labor shortages, and raw material constraints impacted the Company's performance. These items are described further below.

Middle East Conflict

The conflict in the Middle East has been ongoing throughout 2024. Our operations in Israel are limited to Habonim Industrial Valves and Actuators Ltd. (Habonim), which we acquired in April 2022 as part of our IP segment. While there has been no material impact on our business to date, further escalation of this conflict could result in further supply chain disruptions, inflation, workforce disruptions, demand fluctuations, or the inability to fulfill customer requests in the region. We are closely monitoring this situation, however, we are unable to reasonably estimate future impacts on our business and financial results at this time.

Inflationary Pressures

Inflationary pressures, driven by factors such as supply chain disruptions and the ongoing Russia-Ukraine and Middle East conflicts, have led to increased prices for energy and raw materials we use in our production processes, including commodities such as steel, oil, copper, and tin. Additionally, 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. We have been able to offset most of these 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.

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DISCUSSION OF FINANCIAL RESULTS

2024 VERSUS 2023

All comparisons included within the Discussion of Financial Results for 2024 versus 2023 refer to results for the year ended December 31, 2024 compared to the year ended December 31, 2023, 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, 2024 decreased $10.0 primarily due to the loss of $68.7 of revenue as a result of the divestiture of Wolverine in July 2024. Our Friction business grew 4% due to strong OEM and aftermarket demand. Additionally, our KONI and Axtone businesses grew 15% and 6% respectively, due to strength in our rail business. The current year period also benefited from favorable foreign currency translation of $9.7. Excluding the impact from foreign currency translation and the divestiture, organic revenue increased $68.4 or 4.9%.

Industrial Process

IP revenue for the year ended December 31, 2024 increased $231.4 primarily driven by the acquisition of Svanehøj, which closed in January 2024 and contributed $156.2 to total revenue growth. Our pump project revenue grew 19%, primarily within the energy and chemical markets, and the short cycle business grew 5% primarily within the energy and industrial markets. The current year period also benefited by $13.0 from favorable foreign currency translation. Excluding the impacts from the acquisition and foreign currency translation, organic revenue increased $88.2 or 7.8%.

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Connect & Control Technologies

CCT revenue for the year ended December 31, 2024 increased $125.7 primarily driven by our acquisitions of kSARIA in September 2024 and Micro-Mode in May 2023, which contributed $73.9 to total revenue growth. In addition, connector sales grew 12%, primarily within the aerospace and defense markets, and component sales grew 8%, primarily within the defense and industrial markets. Revenue growth for the year was partially offset by a weaker demand for electric vehicle charging applications and the loss of $10.2 of revenue from our Matrix business which we divested in December 2023. Excluding the impacts from acquisition, divestiture, and foreign currency translation, organic revenue increased $64.0 or 9.3%.

GROSS PROFIT

Gross profit for 2024 was $1,247.3, reflecting a gross margin of 34.4%. Gross profit for 2023 was $1,107.3, reflecting a gross margin of 33.7%. The increases in gross profit and gross margin were primarily driven by higher revenue, including pricing actions, described above in the section titled "Revenue", partially offset by increases in material and labor costs, 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.

** Percentage not deemed meaningful.

General and administrative (G&A) expenses increased $2.1 for the year ended December 31, 2024. The increase was primarily driven by the acquisitions of Svanehøj and kSARIA, and a prior year gain of $3.7 associated with a lease termination, partially offset by the divestiture of the Wolverine business and lower incentive compensation cost.

Sales and marketing expenses increased $31.7 for the year ended December 31, 2024, primarily driven by the additions of kSARIA and Svanehøj, as well as higher personnel and other selling and marketing-related costs to support higher sales activity. The increase was partially offset by the divestiture of the Wolverine business.

Research and development (R&D) expenses increased $13.7 for the year ended December 31, 2024, primarily driven by acquisitions, higher personnel costs and continued strategic investments to support innovation and new product development, partially offset by the divestiture of the Wolverine business.

Gain on sale of businesses includes $47.8 related to our July 2024 sale of the Wolverine business which was previously held within our MT segment. The 2023 loss on sale of businesses includes a $15.3 loss due to the divestiture of our Matrix business, partially offset by a gain on sale of a product line, both previously held within our CCT segment.

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OPERATING INCOME

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

MT operating income for the year ended December 31, 2024 increased $83.8 primarily due to a $47.8 gain on sale of the Wolverine business. In addition, operating income benefited from higher revenue and savings from productivity and sourcing initiatives as well as lower material and overhead costs. Operating income growth was partially offset by higher labor costs and strategic investments.

IP operating income for the year ended December 31, 2024 increased $32.7, driven by higher revenue, as discussed above, savings from productivity and sourcing initiatives. The increase was partially offset by higher material, labor, overhead, M&A costs, and unfavorable sales mix.

CCT operating income for the year ended December 31, 2024 increased $38.6, driven by higher revenue, as discussed above, and productivity savings. This was partially offset by a prior year net loss on the sale of businesses of $8.1, and higher material, labor, overhead costs, and incentive-based compensation in the current year.

Corporate & Other costs increased $7.3 for the year ended December 31, 2024, primarily driven by the impact of a prior year gain of $3.7 associated with a lease termination and higher legal expenses in the current year. The increase was partially offset by favorable foreign currency impacts and lower incentive-based compensation.

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, 2024 was primarily due to higher interest expense related to our long-term debt in connection with our acquisitions of Svanehøj and kSARIA and a higher average interest rate on our commercial paper borrowings. In 2023 we had $1.4 of interest expense related to a tax audit settlement in Italy, as discussed below in the section titled "Income Tax Expense."

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INCOME TAX EXPENSE

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

The lower effective tax rate in 2024 compared to 2023 primarily resulted from the Company recording a tax benefit of $6.7 from valuation allowance reversals on U.S. state deferred tax assets and a $5.7 tax benefit of U.S. tax on foreign earnings in 2024. ITT recorded a deferred tax asset of $29.1 on the $138.4 capital loss realized on the Wolverine divestiture. As the Company does not currently anticipate having capital gains sufficient to utilize the capital loss, a full valuation allowance was recorded against the deferred tax asset. The higher rate in 2023 was also due to expense 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 in 2023.

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. 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. Countries are implementing legislation with widespread adoption of the Model GloBE Rules for Pillar Two. We continue to evaluate the Model GloBE Rules for Pillar Two and related legislation, and their potential impacts. Continuing enactment of these regulations 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. As of December 31, 2024, Pillar Two taxes have not had a significant impact on ITT's financial statements.

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 2024, 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 2024 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 5, 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, 2024 and 2023 were $230.4 and $357.5, 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, 2024, 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 (defined below), 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 14, Debt, for further information.

The increase in commercial paper outstanding from December 31, 2023 to December 31, 2024 was primarily related to acquisition activity that was partially financed using commercial paper, and timing of repayments. See Note 17, Capital Stock, and Note 21, 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 2024 and 2023 was $338.5 and $366.9, respectively, and the maximum outstanding commercial paper during each of those respective years was $455.0 and $669.9.

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 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

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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, 2024 and 2023, we had no outstanding borrowings under the 2021 Revolving Credit Agreement. See Note 14, 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 the outstanding U.S. term loan maturing in September 2027. The table below provides our long-term debt outstanding as of December 31, 2024 and 2023.

See Note 14, Debt, for further information.

U.S. Term Loan

On September 12, 2024, the Company entered into a credit agreement (the kSARIA Credit Agreement) among the Company, as borrower, each lender from time to time party thereto, and U.S. Bank National Association, as the administrative agent, sole lead arranger and sole bookrunner.

The kSARIA Credit Agreement has a maturity of three years and provides for a term loan of $464, which had been borrowed and was used to finance the Company’s acquisition of kSARIA on September 12, 2024. Total outstanding borrowings under the kSARIA Credit Agreement were $229 as of December 31, 2024. See Note 14, Debt, for further information.

Italian 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 had an initial maturity of three years and provided for term loan borrowings in an aggregate principal amount of €300 million (or $328.9), €275 million (or $301.5) of which were used to finance the Company’s acquisition of Svanehøj, which closed on January 19, 2024. During the third quarter of 2024, ITT Italia repaid €175, representing the remaining outstanding balance on the ITT Italia Credit Agreement. Year-to-date repayments of the facility agreement totaled €275. See Note 14, 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, 2024 were as follows:

In November 2024, Moody's upgraded ITT's senior unsecured rating, from Baa2 to Baa1. 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 2024. 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, 2024 and 2023.

Operating Activities

The increase in net cash from operating activities of $24.6 was primarily driven by higher operating income and favorable net working capital impacts primarily from focused inventory management and timing of accounts receivable collections, offset by higher compensation payments in the current year.

Investing Activities

The increase in net cash used in investing activities of $636.9 was primarily driven by the acquisitions of kSARIA and Svanehøj, offset by the proceeds from the divestiture of the Wolverine business. Refer to Note 21, Acquisitions, Investments, and Divestitures, for further information.

Financing Activities

The increase in net cash from financing activities of $667.2 was primarily driven by long-term debt issued to finance the current year acquisitions and higher cash inflows of $505.5 associated with commercial paper borrowings due to timing of repayments. The term loan borrowing used to partially fund the Svanehøj acquisition was fully repaid during 2024 and the term loan borrowing to fund the kSARIA acquisition was partially repaid. Additionally, there were higher repurchases of ITT common stock of $44.5 in the current year.

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 2024 were $104.8, compared to $95.9 in 2023, reflecting annual per share amounts of $1.276 and $1.160, respectively. In the first quarter of 2025, we declared a quarterly dividend of $0.351 per share for shareholders of record on March 6, 2025, which will be paid on March 31, 2025.

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). During 2024, we exhausted the remaining capacity under the 2019 Plan. All repurchased shares are retired immediately following the repurchases. During the years ended December 31, 2024 and 2023, we spent $104.5 and $60.0, respectively, on open-market share repurchases under the share repurchasing plans.

On October 4, 2023, the Board of Directors approved an indefinite term $1,000 open-market share repurchase program (the 2023 Plan). There was $975.0 of remaining capacity left under the 2023 Plan as of December 31, 2024. In February 2025, the Company repurchased 0.2 shares for $25.6 under the 2023 Plan.

See Note 17, 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 a decrease in projected benefit obligation of $12.0 during 2024, primarily due to foreign currency impacts, the settlement of a plan in connection with the divestiture of Wolverine and a higher discount rate. Our other employee-related benefit plans are generally unfunded plans as well. The projected benefit obligation of these plans declined by $8.2 during 2024 due to an increase in the discount rate.

Contributions to our U.S. and non-U.S. pension and other postretirement plans were $10.5 and $9.5 during 2024 and 2023, respectively, which were used to fund participant benefits. We currently estimate 2025 contributions to our pension and other postretirement benefits plans of approximately $10.

See Note 15, 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, 2024.

In addition to the amounts presented in the table above, we have recorded liabilities for uncertain tax positions of $6.5 in our Consolidated Balance Sheet as of December 31, 2024. 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 15, 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, 2024, including estimated environmental payments and employee compensation agreements. We estimate based on historical experience that we will spend, on average, approximately $5 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, 2024, our recorded environmental liability was $54.9. See Note 18, 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, 2024 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 $176.5 of guarantees, letters of credit and similar arrangements outstanding as of December 31, 2024, 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, 2024 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, acquisitions, and divestitures that may or may not qualify as discontinued operations. Current year activity from acquisitions is excluded for twelve months following the closing date of acquisition. The period-over-period change resulting from foreign currency fluctuations is estimated using a fixed exchange rate for both the current and prior periods. Prior year revenue is adjusted to exclude activity during the comparable period for twelve months post-closing date for divestitures that do not qualify as discontinued operations. We believe that reporting organic revenue provides useful information to investors by helping identify underlying trends in our business and 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, 2024 is provided below.

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•“Adjusted Operating Income” is defined as operating income adjusted to exclude special items that include, but are not limited to, restructuring, 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 divided by revenue. We believe 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, 2024 and 2023 are provided below.

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

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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, restructuring, 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 and the tax deductibility under local tax rules. “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, 2024 and 2023 are provided below. Per share amounts are reported in ones and may not calculate due to rounding.

(a)Relates to the sale of our Wolverine business in July 2024 and Matrix business in December 2023. See Note 21, Acquisitions, Investments, and Divestitures, to the Consolidated Financial Statements for further information.

(b)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.

(c)2024 includes tax expense on distributions of $12.5, tax benefit from valuation allowance impacts of ($6.7), tax benefit on undistributed foreign earnings of ($5.7), tax benefit related to the Micro Mode acquisition of ($2.2), tax expense from tax rate change impacts of $1.6, and other tax expense items totaling $1.0.

(d)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, an amendment of our federal tax return of $(4.9), and other of $(2.6).

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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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Acquisitions, Goodwill and Other Intangible Assets

Our business acquisitions typically result in the creation of goodwill and other intangible asset balances, and these balances affect the amount and timing of future period amortization expense, as well as expense we could possibly incur as a result of an impairment charge. The cost of acquired companies is allocated to identifiable tangible and intangible assets based on estimated fair value, with the excess allocated to goodwill. Accordingly, we have a significant balance of acquisition date intangible assets, including customer relationships, trademarks, proprietary technology and goodwill. We engage third-party valuation specialists to assist us in determining the acquisition date fair values as necessary.

The allocation of purchase price requires management to make significant estimates and assumptions. Critical estimates include, but are not limited to, future revenue and profit margins, royalty rates, discount rates, customer retention rates, technology migration curves and useful lives assigned to acquired intangible assets. While we believe our assumptions and estimates are reasonable, they are inherently uncertain and based in part on experience, market conditions, projections of future performance and information obtained from management of the acquired companies.

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 2024, 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 11, Goodwill and Other Intangible Assets, Net, to the Consolidated Financial Statements for more information.

Environmental Liabilities

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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 $54.9 at December 31, 2024, 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 capable of paying their respective share of the relevant costs and that share can be reasonably estimated. Our environmental accruals are reviewed quarterly and adjusted if needed based on 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, 2024 was $95.9. See Note 18, 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.