(In millions,Amounts reported in this Annual Report on Form 10-K, except per share amounts, are stated in millions unless otherwise stated)
COMPANY OVERVIEW
Unless the context otherwise indicates, referencesspecified. References herein to "ITT," "the Company," and such words as "we," "us," and "our" include ITT Inc. and its subsidiaries.subsidiaries on a consolidated basis, unless the context otherwise indicates.)
COMPANY OVERVIEW
ITT is a diversified manufacturer of highly engineered critical components and customized technology solutions primarily for the transportation, industrial and oil and gasenergy markets. We manufacture components that are integral to the operation of equipment, systems and manufacturing processes in these key markets. Our products provide enablingenable functionality for applications where reliability and performance are critically important to our customers and the users of their products.
We are a global company with approximately 10,000 employees in approximately 35 countries and 2017 revenue of $2.6 billion, which we derived from sales in more than 100 countries. In 2017, 67% of our sales were outside the U.S., including 33% from emerging markets. Accordingly, approximately half of our manufacturing facilities are outside of the U.S. in order to achieve strategic proximity to customers, further increase global sales and market share, and lower costs.
We have a balanced and diversified portfolio of businesses, which are organized inoperate through three segments –primary segments: Motion Technologies (MT), Industrial Process Motion Technologies,(IP), and Connect & Control Technologies. Technologies (CCT).
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2023 COMPANY SNAPSHOT |
• $3.3 billion of sales across approx. 125 countries | • Approx. 10,600 employees in 37 countries |
• Global presence with 67% of revenue outside the U.S. | • Balanced and diversified portfolio |
MT is a global manufacturer of highly engineered and durable brake pads, shock absorbers and damping technologies for the automotive and rail markets. IP is a global manufacturer of industrial pumps, valves, and monitoring and control systems, and provides aftermarket services for the energy, chemical and petrochemical, pharmaceutical, general industrial, mining, pulp and paper, food and beverage, and biopharmaceutical markets. CCT is a global designer and manufacturer of harsh-environment connectors and critical energy absorption and flow control components, primarily for the aerospace, defense and industrial markets. For additional segment information, see Segment Information section.
Business Model and Strategy
Our businesses share a common, repeatable operating model centered on our engineering aptitude.capabilities. Each business applies its technology and engineering expertise to solve some of theour customers' most pressing challenges of our customers.challenges. Our applied engineering provides a specialtechnological applications foster an ongoing business fitrelationship with our customers given the critical nature of their applications. This in turnwhich provides us with unique insight into our customers' requirements and enableswhile enabling us to develop solutions to better assist our customers to achieve their business goals. Our technology and customer intimacy together produceprovide opportunities to capture recurring revenue streams, aftermarket opportunities and long-lived platforms from original equipment manufacturers (OEMs).
We possess strong leading brands, such as Goulds Pumps, Bornemann, Engineered Valves, Cannon, VEAM, BIW Connector Systems, KONI, Axtone, Wolverine, Enidine, Aerospace Controls,create long-term stakeholder value through our four strategic priorities of customer centricity, operational excellence, effective capital deployment, and ITT, in many of our niche markets. These brands are associated with quality, reliability, durability,sustainability and engineering excellence.innovation. Our brands extend internationally and participate in emerging markets including China, Mexico, Brazil, Saudi Arabia, and Russia.
We are committed to creating long-term sustainable value for all of our stakeholders, supported by our balanced operating strategy is designed to achieve long-termpremier financial performance by combining profitable growth. The elements of this strategy are disciplined organic growth through global market expansion and new product development, combined with operational improvements, thatwhile keeping our customers at the center of everything we do.
Our operational focus centers on the principles of Lean Six Sigma (herein referred to as Lean) to reduce costssafety, quality, on-time delivery and cycle times while improving overall productivity, quality, and safetyproductivity. We are on a continuing basis. We have also movedjourney to establish a higher performance culture that goes beyond the factory floor to improve the efficiency and effectiveness of otherall critical processes in the value chain to become a truly lean enterprise. This initiative encompasseschain. These initiatives encompass not only core Lean problem solving and continuous improvement principles,
Given these dynamics and our technology investments, global reach and vibrant brands,When value-generating opportunities arise, we believe we have the opportunity to continueseek to expand geographically, broadeninto new markets and invest in new products that leverage our product lines, improve our market position, and increase earnings through organic revenue growth, and operational efficiencies and through targeted acquisitions.deep engineering capabilities. We continue to prioritize deployingevaluate investments that will enable us to strategically and efficiently deploy capital, for organic growth before acquisitive growth. Our acquisition strategy generally targets firms in similar businesses and end-marketsincluding close-to-core acquisitions that have unique and differentiated products, services and technologies. Effective capital deployment, including resource optimization and a disciplined focus on liquidity and cash flow management, isare a major part of how we plan to achieve our strategy and deliver strong shareholder returns.
Primary Businesses and Brands
Our brands have a strong international presence across many emerging markets, including China, India, Mexico, Brazil and Saudi Arabia. Below is a list of the key brands in each segment.
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OUR KEY BRANDS |
MT | • ITT Friction TechnologiesTM | • KONI® | • Wolverine Advanced Materials® |
| • Axtone® | • NovitekTM | • GALT.® |
IP | • Goulds PumpsTM | • Bornemann® | • Engineered Valves® |
| • PRO Services® | • C'treat® | • i-ALERT® |
| • Rheinhütte Pumpen® | • HabonimTM | |
CCT | • Cannon® | • VEAM® | • BIW Connector Systems® |
| • Aerospace ControlsTM | • Enidine® | • Compact AutomationTM |
| • Neo-Dyn® Process Controls | • Conoflow® | • Micro-ModeTM |
Environmental, Social & Governance
Environmental, social & governance (ESG) practices play an essential role in our business and are firmly rooted in how we conduct our operations and in our daily decisions. Our products, manufacturing processes and innovations reflect our drive to help make the world and the communities we serve more sustainable. We believe ingraining ESG priorities into our strategy will drive long-term growth and shareholder value and help our customers meet their ESG goals and, furthermore, is simply the right thing to do.
Environmental
We recognize climate change is a global crisis and we are committed to doing our part to reduce the environmental impact of our operations. Our approach to environmental stewardship falls into three categories:
▪Development of innovative products that help customers reduce their greenhouse gas (GHG) emissions, achieve their sustainability goals and comply with emissions reduction regulations;
▪Investment in technologies to reduce CO2 emissions, waste sent to landfills and water usage and increase our energy supply security through solar installations; and
▪Development of a credible path to carbon neutrality through our Reduce–Avoid–Offset framework, in which we seek to reduce our carbon footprint and commit to using renewable energy sources.
We partner with our customers to solve challenging problems and deliver best-in-class solutions. ITT's products enable our customers to operate more efficiently, reduce their total cost of ownership and produce sustainable, environmentally friendly technologies and processes.
At the same time, it is a business imperative for us to ensure our operations are efficient, sustainable and environmentally conscious. In 2021, we launched our Reduce–Avoid–Offset framework as part of our development of a credible plan to carbon neutrality. After developing the framework, we announced a goal of reducing our global Scope 1 and 2 GHG emissions for all of ITT by 10% by the end of 2026, compared to 2021. In 2022, we launched a pilot program at our three most energy-intensive locations geared towards more precise measurement and analysis of Scope 1 and 2 GHG emissions. In 2023, we expanded the pilot program to sites in Czechia and Mexico. As part
of this, we are also in the process of collecting and measuring preliminary Scope 3 emissions to further understand the source of our emissions and how to most accurately reduce them.
We are subject to stringent federal, state, local, and foreign environmental laws and regulations concerning air emissions, water discharges and waste disposal. In the U.S., these include, but are not limited to, the Federal Clean Air Act, the Clean Water Act, the Resource, Conservation and Recovery Act, and the Comprehensive Environmental Response, Compensation and Liability Act. We closely monitor our environmental responsibilities, together with trends in environmental laws. Separate from our Reduce–Avoid–Offset framework, we have established an internal program to assess compliance with applicable environmental requirements at our facilities. The program, which includes periodic audits of many of our locations, including our major operating facilities, is designed to identify problems in a timely manner, correct potential deficiencies and maintain continued regulatory compliance. ITT's environmental liabilities are, for the most part, not associated with current operating facilities (only two of ITT's 26 locations with current environmental obligations are associated with active operating sites). Additionally, ITT’s diligent approach to remediation has resulted in a reduction in the number of ongoing environmental remediation matters by approximately 50% over the past eight years.
Environmental laws and regulations are subject to change, and the nature and timing of such changes, if any, is difficult to predict. To minimize our exposure, we have purchased insurance protection against certain environmental risks arising from our business activities. As actual costs incurred at identified sites in future periods may vary from our current estimates given the inherent uncertainties in evaluating environmental exposures, it is not possible to reasonably predict the outcome of these uncertainties or any resulting impact on our financial statements.
Social
We recognize that sustainable performance goals.and growth are made possible only through the efforts of our dynamic, diverse team of approximately 10,600 ITTers globally. Given this, one of our most important commitments as a company is to create an engaging, inspiring place to work and drive actions that enable every individual's full potential and performance. Refer to the "Human Capital Management" section below for further information.
Governance
Our Board of Directors (the “Board”) is composed of highly experienced and diverse individuals. The role of the Board is to oversee the affairs of the Company, including those pertaining to ESG, and to ensure the overall success of the business. ITT's Board believes in strong corporate governance and is committed to sound principles and practices. Meanwhile, our ethics and compliance and enterprise risk management programs, and ongoing shareholder engagement, help us to understand key risks and market trends as an organization and deploy resources appropriately to meet our current and future needs. ITT has been an early adopter of many of the most significant governance advances over the last two decades, including majority voting for uncontested director elections, proxy access bylaws, an independent Board Chair and shareholder rights to call a special meeting.
While we are proud of the strides we have made with respect to our ESG efforts to date, we will continue looking for ways to improve upon these efforts to help bring additional value to our employees, customers, communities and business. For further information regarding our ESG commitment, refer to our ITT 2023 Sustainability Update (the "2023 Sustainability Update"), which is a supplement to the full report we published in 2022 and outlines our progress towards our sustainability goals. It is available on our website at www.itt.com/sustainability.
Segment
Human Capital Management
We believe that sustainable performance and growth are made possible only through the efforts of our dynamic and diverse team of employees. In order to continue innovating in the industries and key end markets we serve, ITT remains committed to attracting and retaining top talent globally. We strive to make ITT an inclusive and safe workplace for all, and to create a higher performance culture with opportunities and training for all employees to develop and grow professionally and personally. In addition, we offer competitive compensation, benefits, and health and wellness programs.
As of December 31, 2023, we had approximately 10,600 employees located in 37 countries, including approximately 2,850 employees in the U.S. As of December 31, 2023, approximately 20% of our U.S. employees are represented by unions. No one unionized facility in the U.S. accounted for more than 15% of ITT's total revenues. In addition, many of our employees outside the U.S. are covered by collective agreements or represented
by works councils or other groups. We continually focus on building strong relationships with our employees. and we have not experienced any material strikes or work stoppages in the past several years.
Diversity, Equity and Inclusion
Diversity, equity and inclusion (DEI) are key business priorities for ITT and core to our values as a company. We are committed to fostering an inclusive culture that is fueled by diverse ideas and perspectives, and to leveraging these differences in ways that positively impact our performance, the engagement of our people and the global communities in which we operate. We demonstrate our commitment to DEI through actions and we align our efforts to our strategic workplace and marketplace goals. This includes creating an environment where all ITTers can fully engage, achieve their potential and freely share ideas to guide us toward innovative thinking and better business decisions and solutions. It also includes driving practices and programs to build and support diverse representation in our employee population, including diversity with regard to race, religion, gender, disability, nationality, age, sexual orientation, ethnic background and more. We firmly believe we will create more success by fostering diversity of thought and continuously learning from each other's ideas, opinions and experiences. We also believe that by creating a diverse environment, we will sustain and propel our success in the global marketplace to create long-term sustainable value for all our stakeholders. For additional information about the actions we are taking to drive our DEI strategy along with our diversity goals please refer to our 2023 Sustainability Update. Our 2022 Sustainability Report and our 2021 Sustainability Supplement, both of which can be found on our website at www.itt.com/sustainability, also provide information and the history of our DEI journey. In addition, to provide additional transparency regarding our commitment to diversity, our most recent Employment Information Report (EEO-1 report) is available on our website at www.itt.com/our-people/eeo-1-report. We will post our 2023 EEO-1 report to this website when it becomes available.
Health, Safety and Well-being
At ITT, the health, safety, and well-being of our employees is our number one priority. Our Environmental, Safety, Health and Security Council provides for the systemic control of workplace risks and drives continual improvement of environmental and occupational safety and health protocols at all of our sites around the world. We challenge ourselves to continually reduce injury frequency and severity by engaging employees in our “Accept Only Zero” safety accountability system and fostering an environment where employees take responsibility for their actions and have access to tools and training to work safely together. Despite these comprehensive measures, accidents still occur. In such cases, we report the accident, its root cause and any corrective measures taken in ITT’s company-wide accident reporting and tracking tool. Accident reporting and analysis helps ITT gauge the effectiveness of our safety initiatives and procedures across all sites, and it helps us find creative solutions to mitigate risks to our employees at our sites.
Talent Development
In order to foster a higher-performance culture, we are committed to maintaining effective strategies to support recruiting and hiring, onboarding and training, compensation planning, performance management and professional development. We invest significant resources to develop our talent in order to remain a worldwide leader in the manufacturing of highly engineered customized products and solutions. We focus on providing meaningful, equitable career development pathways and support to help ITTers realize their career aspirations. Our development philosophy is built around a “know-do” framework which includes both formal training and experiential learning. Tailored learning programs, coaching and mentoring elevate both technical and other skills (the “know”) while challenging, well-planned work experiences and global assignments prepare ITTers for current and future roles (the “do”). Successful employee development is also supported by thoughtful plans built in partnership between employees and their managers. Our development planning tools and processes ensure targeted, concrete action planning, and we promote continuous feedback and regular check-ins.
Compensation and Benefits
We provide flexible compensation and benefits programs to help meet the needs of our employees and their families. In addition to base salaries, we offer numerous benefits for eligible employees, including annual bonuses, stock awards, an employee stock purchase plan, a 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, flexible work schedules, retirement benefits, employee assistance programs and tuition reimbursement. ITT’s pay and recognition practices leverage data to ensure our employees receive competitive, equitable salaries supported by evaluations of roles, experience, performance and union or works council agreements in select areas. Our variable incentive plans reinforce pay for performance and our strong belief in meritocracy. The majority of our employees are eligible for either a performance-based bonus or a statutory profit-sharing payment. The bonus plans align employee compensation with financial or operational results and individual performance. With respect to stock awards, we have used discretionary equity-based grants
with time-based vesting conditions to facilitate the retention of key personnel, particularly those identified as high-performing talent.
SEGMENT INFORMATION
See Note 3, Segment Information, to the Consolidated Financial Statements for financial information about each of our segments. Industrial Process
The Industrial Process segment, commonly referred to as IP, is an original equipment manufacturer and aftermarket parts and service provider offering an extensive portfolio of industrial pumps, valves, plant optimization systems, and related services. IP is aligned around three product categories – Industrial Products, Engineered Systems, and Aftermarket Solutions – serving an extensive base of customers from large multi-national companies and engineering, procurement and construction (EPC) firms to regional distributors and end-user customers. IP has a global manufacturing footprint with significant operations located in the United States, South Korea, and Germany. IP's customers operate in global infrastructure and natural resource markets such as oil and gas, chemical and petrochemical, pharmaceutical, general industrial, mining, pulp and paper, food and beverage, and power generation. Brands include Goulds Pumps, Bornemann, Engineered Valves, PRO Services, and C'treat.
Industrial Products
Industrial Products designs and manufactures configured-to-order industry standards-based industrial pumps, valves, and equipment for both original equipment installations and replacement parts and pumps. These products include a broad portfolio of centrifugal process pumps and engineered industrial and sanitary valves.
Engineered Systems
Engineered Systems provides highly engineered and customized pumping systems typically used in severe service conditions via both original equipment installations and replacement parts and pumps. Products include API (American Petroleum Institute) centrifugal pumps, vertical centrifugal pumps, twin screw and positive displacement pumps, and water systems. Our pumping systems are generally part of larger capital projects, which have longer lead times and are generally managed by EPC firms.
Aftermarket Solutions
Aftermarket Solutions provides customers with parts, services, and plant optimization solutions that reduce total cost of ownership for pumps and rotating equipment. In addition to providing standard repairs and upgrades, the business also develops engineered solutions for specific customer process issues. Examples include innovative technologies like PumpSmart Controllers and i-ALERT2 Equipment Health Monitoring Devices to control and monitor pumps and other rotating equipment in an industrial environment.
IP goes to market via a global and diversified sales channel structure. End-users are serviced by an extensive network of independent industrial distributors, which account for approximately one-third of revenue, and representatives which complement our customer-focused direct sales and service organization. We also have focused channels dedicated to supporting EPC firms as their needs are often distinct from those of other distributors and end-user customers.
The pump and valve markets served are highly competitive, especially in the last few years, due to uncertainty and volatility in the oil and gas market. For most of our products there are hundreds of regional competitors and a limited number of larger global peers. Primary customer purchase decision drivers include price, delivery terms, and on-time performance, brand recognition and reputation, perceived quality, breadth of product and service offerings, commercial terms, technical support and localization. Pricing can be very competitive for large projects because of overcapacity, fewer investment projects, and aftermarket opportunities for the original equipment provider.
Motion Technologies (MT)
The Motion Technologies segment commonly referred to as MT, is a manufacturer of brakingbrake pads, shims, shock absorbers, and energy absorption components and sealing technologies primarily for the transportation industry, including passenger cars and trucks, light- and heavy-duty commercial and military vehicles, buses and rail.trains. MT consists of threethe following primary business units,units: ITT Friction Technologies, Wolverine Advanced Materials, KONI, and KONI.Axtone.
Friction Technologies
OurITT Friction Technologies business(Friction)
Friction manufactures a range of brake pads installed as original equipment (OE) pads on passenger cars (both internal combustion engine vehicles and light-electric vehicles) and heavy-dutylight commercial vehicles. Demandvehicles for MT's products stem from a variety of end customers and automotive platforms around the world. OE brake pads are sold either directly to original equipment manufacturers (OEMs)OEMs or to Tier-1 brake manufacturers. Our OE brake pads are designed to meet customer specifications and environmental regulations, and to satisfy an array of performance standards and geographic applications.across multiple geographies. Most automobileautomotive OEM platforms (car model)models) require specific brake pad formulations and have demanding quality, delivery and volume schedules.
Friction anticipated the industry transition towards copper-free brake pads and is a recognized industry leader in the paradigm shift towards new brake pad formulations that are designed, developed and tested specifically for electric vehicles (EVs). Success in developing brake pads for EVs has led Friction to win multiple EV platform awards with established and new OEMs.
Friction Technologies also manufactures aftermarket brake pads designed for the automotive service and repairs market. This market consists of both OE dealers, also referred to as original equipment sparesservice (OES) networks, and independent aftermarket (AM) networks. Brake pads sold within the OES network generally match the specifications of an original auto platform OE brake pad while ourand are sold either directly to OEMs or to Tier-1 brake manufacturers, such as Continental AG (Continental), or indirectly through independent distributor channels. Our catalog of AM pads featuresold in independent aftermarket networks features technology designed to provide a range of braking performance levels. Within the service and repairs market, pads are sold either directly to OE manufacturers or Tier-1 brake manufacturers (such as Continental or TRW) or indirectly through independent distributor channels.
Combined sales to Continental and TRW, MT's two largest customers, were 35% of 2017 MT revenue, however, 43% of the Continental and TRW derived revenue is directly attributable to OES supply agreements signed directly with OEMs. Also, in many cases OEMs specify the use of our pads in a braking system with brake manufacturers, such as Continental and TRW.
Wolverine Advanced Materials (Wolverine)
Wolverine is a manufacturer of customizedcustom damping technologies for automotive braking systems (for both internal combustion engine vehicles and EVs) and specialized gasket sealing solutions for harsh operating environments across a rangeenvironments. Wolverine sells its products, which consist primarily of industries.brake shims and gaskets, to Tier-2 brake pad suppliers (including Friction) and to Tier-1 manufacturers. Brake shims are thin metal and rubber adhesive dampeners that fit onto the brake pad and against the brake caliper to prevent excessive noise and vibration. Gaskets are an anti-vibration solution and a sealing solution that prevent fluid spillage within applications tosuch as engines, transmissions, exhaust systems, fuel systems and a variety of pneumatic systems. These products are sold either as coils of rubber-coated sheet metal or stamped into finished component parts.
KONI &and Axtone
The KONI and Axtone businesses are organized into threeservice four main product groups:end markets: railway rolling stock;stock for freight and passenger trains; car &and racing; and bus, truck & trailer.and trailer; and defense.
Railway Rolling Stockprovides a wide range of equipment for passenger rail, locomotives, freight cars, high speed trains and light rail. Offerings include customized energy absorption solutions, hydraulic shock absorbers (primary, lateral, and inter-car), yaw dampers, springs, visco-elastic and hydraulic buffers, coupler components and coupler components.crash mitigation equipment. Revenue opportunities forfrom our rail damping systems areis balanced between OE and AMaftermarket customers. Sales are made either directly to train manufacturers and train operators carrying out scheduled train maintenance programs or indirectly through distributors. KONI and Axtone are lifetime partners of rail customers, also offering repair and overhauling capabilities for their products.
Car &and Racing features performance shock absorbers often using our Frequency Selective Damping (FSD) technology. FSD products generally have beenare used by car and racing enthusiasts who desire to modify their cars for increased handling performance and comfort, and are now also being incorporated into OEM platform designs.comfort. KONI aftermarket car shock absorbers are sold all overaround the world,
directly to customers and through a distribution network that markets KONI products into specific geographies or customer groups. KONI shock absorbers are also incorporated into new OEM platform designs and sold to Tier-1 shock absorber manufacturers.
Bus, Truck &and Trailer,and Defense manufactures hydraulic and hydro-pneumatic shock absorbers and bus dampers, for sale to both OEM and AMaftermarket customers.
MT has a market reputation, derived from many years of mutual collaboration with major OEMs, of customer satisfaction, quality and on-time delivery. Other Information
MT has a global manufacturing footprint with advanced automation capabilities, with production facilities in Western Europe, Eastern Europe, China, North America and North America.India.
MT competes in markets primarily served by large and well-established national and global companies. Key competitive drivers within the brake pad businessand brake shim businesses include technical expertise, formulation development capabilities, scale production, product performance, high-quality standards, customer intimacy, reputation and the ability to meet demanding delivery and volume schedules in a reducedlimited amount of time. We have well-established, long-term relationships with our OE and OES brake pad customers usually require long-lasting and well-established relationships, based on mutual trust, local proximity and a wide range of cooperative activities, startingranging from the design, to the sampling, prototyping and testing phases of brake pads. Within the independent AM pads market,
MT is a leading European providerglobal leader in a highly fragmented global market.
rail suspension components, freight coupling devices currently used in Europe and crash absorption systems. Competitive drivers in theMT's rail damping systems business include customer intimacy, price, technical expertise and product performance. Rail damping systemsMT's rail products are considered critical components because of safety requirements and thus they have to beare designed specifically designed according to manyfor different train applications and must satisfy strict compliance requirements.
MT's sales to Continental, a supplier to the automotive industry and MT's largest customer, represented 16% of MT's 2023 revenue. Automaker requests to use ITT brake pads in their Continental-produced braking systems (calipers) typically account for approximately half of MT's revenue from Continental. These automaker requests are generally formalized through supply agreements signed directly between MT and the automakers. The remainder of MT's sales to Continental is through a long-term agreement to supply Continental with aftermarket parts.
Industrial Process (IP)
The Industrial Process segment is an OEM and an aftermarket parts and service provider of industrial pumps, valves, plant optimization and remote monitoring systems and services. IP's products serve an extensive base of customers ranging from large multi-national companies and engineering, procurement and construction (EPC) firms to regional distributors and various other end-users. IP has a global manufacturing footprint with significant operations in the United States, South Korea, Saudi Arabia, Mexico and Germany. IP's customers operate in global infrastructure and natural resource markets such as energy, chemical and petrochemical, pharmaceutical, biopharmaceutical, general industrial, mining, pulp and paper, food and beverage, and power generation. IP's marketplace-recognized brands include Goulds PumpsTM, Bornemann®, Rheinhütte Pumpen®, Engineered Valves®, PRO Services®, C'treat®, i-ALERT® and HabonimTM.
Industrial Pumps
Industrial pumps are used by a wide array of customers and applications primarily in the chemical, energy, mining, general industrial, pharmaceutical and power generation markets. IP designs and manufactures configured-to-order and standards-based industrial pumps that are highly engineered and customized to customer needs. These products include a broad portfolio of centrifugal and twin screw positive displacement pumps that meet the following industry-recognized standards: American Petroleum Institute (API), American National Standards Institute (ANSI), ATmosphere EXplosible, European Directive 2014/34/EC (ATEX), IEC standards (IECEx) and International Organization for Standardization (ISO). Our project pumps are generally part of larger and more complex capital projects, have longer lead times than baseline pumps and are generally managed by EPC firms.
Valves
Valves are manufactured to handle a wide variety of process conditions and solve unique challenges in the biopharmaceutical, chemical, mining, power generation, pulp and paper, and general industrial markets. Our portfolio of valve products includes knife-gate valves, ball valves, hygienic and industrial diaphragm valves, and valve actuators, marketed under the brand names EnviZion®, Cam-LineTM, Cam-Tite®, Dia-Flo®, Fabri-Valve®, Pure-Flo®, Skotch®, and HabonimTM. Also included within our portfolio is the Integrated Sensing Platform (ISP), which is a leadernext-generation linear position sensing technology for EnviZion® and Pure-Flo® hygienic diaphragm valves, developed specifically for the toughest applications in the rail dampers componentbiopharmaceutical and sanitary industries.
Aftermarket
Our aftermarket solutions, which represented approximately 45% of IP's revenue in 2023, provide customers with replacement parts, services and plant optimization solutions that reduce total cost of ownership of pumps and rotating equipment. In addition to providing standard repairs, IP also develops engineered solutions for specific customer process issues. Examples include innovative technologies like PumpSmart® Control & Protection Technology and i-ALERT® Equipment Health Monitoring Devices, which remotely control and monitor pumps and other rotating equipment in an industrial environment.
Other Information
IP markets its products via a global and diversified sales channel structure. Sales to independent distributors, who service end-users, account for approximately one-third of IP's revenue. We also sell directly to end-users through our customer-focused direct sales and service organization. In addition, we have focused channels dedicated to supporting EPC firms as their needs are often distinct from those of distribution and end-user customers.
The pump and valve markets we serve are highly competitive and fragmented. For most of our products, there are many regional competitors and a limited number of larger global peers. Primary customer purchase decision drivers include price, lead time and on-time performance, brand recognition, quality, breadth of product and service offerings, commercial terms, technical support and localization. Pricing can be very competitive for large projects because completed projects generate ongoing profitable aftermarket opportunities for the complete rail damper system in Europe and continues to gain market share in China.
OE provider.
Connect & Control Technologies (CCT)
During the first quarter of 2017, we combined our former Interconnect Solutions and Control Technologies segments to form Connect & Control Technologies. The Connect & Control Technologies segment commonly referred to as CCT, designs and manufactures a range of highly engineeredhighly-engineered connectors and specialized control componentsproducts for critical applications supporting various markets including aerospace and defense, industrial, transportation (including EVs), medical and oil and gas.energy. CCT’s products are often part ofcomponents on long-lived platforms that provide forgenerate recurring aftermarket and replacement opportunities. CCT has organized its business around product offerings and end-user markets, with dedicated teams that specializespecializing in solutions for their specific markets, providing focused customer support and expertise.
CCT has a global production footprint, including major facilities in the United States, Mexico, Germany, and China, which provides close geographic proximity to key customers. CCT competes with a large number of competitors in highly fragmented industries. CCT’s competitors can range from large public multi-national corporations to small privately held local firms, depending on the product line and region. CCT's ability to compete successfully depends upon numerous factors, including quality, price, availability, performance, brand recognition, customer service, innovation, application expertise and previous installation history. In addition, collaboration with customers to deliver a wide range of product offerings has allowed CCT to compete effectively, to cultivate and maintain customer relationships, and to expand into new markets. CCT products are sold directly and through numerous channels including distributors. CCT has long-lasting relationships with distributors, as many have been selling certain CCT products for over 70 years. Sales to distributors represented approximately 30% of 2017 CCT revenue.
Connector Products
The connector product portfolio includes high performance electricalhigh-performance connectors of the following types: Circular, Rectangular, Radio Frequency, Fiber Optic, D-sub Miniature, Micro-Miniature and cable assemblies. Brands include Cannon®, VEAM®, Micro-ModeTM, and BIW Connector Systems®, which deliver solutions to enable the transfer of data, signal,signals and power intofor various end-user markets including aerospace, defense, industrial, transportation, medical and oil and gas.energy. These brands are known for high-performance, high-reliability solutions which withstand high vibrationstemperatures and pressure and are resistant to dirt and fluids.corrosive environments. In certain harsh environment niche markets, our connector products are considered market leaders because of theirour technological capabilities, cost performance and global footprint.
Products for the commercial aerospace and defense markets include industry standards-based connectors and late-stage customized solutions for most segments of the commercial aviation and defense industries.solutions. These products are designed to withstand the extreme shock, exposure, and vibrationconditions in harsh environments that are typical in aviation and military applications and where reliability and safety are critical factors.
Products for the industrial markets include connectors for industrial production and transportation equipment, industrial electronics and instruments, and other industrial and medical applications. Products for the transportation markets include connectors for high-speed, mainline, metro and lightelectric vehicle charging station applications, passenger rail and heavy-duty vehicles, and electric vehicle applications.vehicles.
Products for the oil and gasenergy markets include connectors that provide power for electric submersible pumps in oil and gas wells, reservoir monitoring instruments and electrical downhole heaters. Oil and gasSpecific product applications include electrical power penetrationspenetrators for wellheads, packers and pods that are able to accommodate any sizevarious sizes and provide for multiple sealing strategies and ratings.
Control Products
The control product portfolio providesconsists of highly engineered actuation, fuel management, noise andflow control, energy absorption, and environmental control, system applications, with a specialized set of design and application engineering skills and capabilities that enables CCT to engineer differentiated customcomposite component solutions for unique applications for the aerospace, and defense and industrial markets.
Control products for the aerospace and defense markets consist of fuelinclude actuators, valves, pumps and water pumps, valves, electro-mechanical rotary and linear actuators, and pressure, temperature, limit, and flow switches for various aircraft systems. These products also include stowage binflow control applications, rate controls, rotary hinge dampers and actuators, seat recline locks and control cables, electromechanical seat actuation, a variety of engineered elastomer isolators to protect equipmentfor aircraft interiors, elastomeric
bearings for rotorcraft vibration isolation, heaters, hoses, and keep the interior of the aircraft quiet, certain energy absorption products and other aerospace components. Other control productscomposite ducting for this market include environmental control systems, such as climate control and ice protection heaters, composite conveyance ductingadvanced composites for engine applications. Brands include Aerospace Controls® and acoustically engineered inlets and exhausts for auxiliary power units.Enidine®.
Control products for the industrial markets include large and small bore shock absorbers, linearwire ropes and rotary actuators for factory and warehouse automation, regulators and switches for process control instrumentation, such as highapplications, seismic isolators and low pressurelarge bore shocks for protection of critical infrastructure, and regulators for natural gas vehicles. Brands include Enidine®, Compact AutomationTM, Turn-Act®, Neo-Dyn®and flow, temperature,Conoflow®.
Other Information
CCT has a global production footprint, including facilities in the United States, Mexico, Germany, Italy, China and pressure switches. The shock absorbersJapan, which provide close geographic proximity to key customers. CCT competes with a large number of companies in highly fragmented industries, ranging from large public multi-national corporations to small privately-held local firms, depending on the product line and actuators serveregion. CCT's ability to compete successfully depends upon numerous factors including quality, price, lead time, performance, brand recognition, customer service, innovation, application expertise and previous installation history. In addition, collaboration with customers to deliver a wide range of applications in a diverse setproduct offerings has allowed CCT to compete effectively, to cultivate and maintain strong customer relationships and to expand into new markets. CCT products are sold directly and indirectly through numerous channels, including distributors. CCT has long-lasting relationships with distributors, as many have been selling certain CCT products for decades. Sales to distributors represented approximately 30% of end-markets including production, packaging,CCT's 2023 revenue.
OTHER COMPANY INFORMATION
Key Components and factory automation. The process control products primarily serve the chemical, petrochemical, and energy segments of the industrial market.
Other Company Information
Raw Materials
All of our businesses require various OEM products, manufactured components and raw materials;materials, the availability and prices of which may fluctuate. The principal OEM products and manufactured components assembled into our products include motors, castings, mechanical seals, machined castings, metal fabrications and miscellaneous metal, plastic, or electronic components. The primary raw
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MANUFACTURED COMPONENTS ASSEMBLED INTO OUR PRODUCTS |
• Motors | • Castings |
• Mechanical Seals | • Machined Castings |
• Metal Fabrications | • Miscellaneous Metal, Plastic, and Electronic Components |
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PRIMARY RAW MATERIALS |
• Steel | • Gold | • Copper | • Nickel |
• Iron | • Aluminum | • Tin | • Rubber |
• Specialty Alloys, including Titanium | | |
Raw materials used in manufacturing our products include steel, gold, copper, nickel, iron, aluminum, tin, and rubber, as well as specialty alloys, including titanium. Materials are purchased in various forms, such as sheet, bar, rod and wire stock, pellets and metal powders.
We also use various specialty resins and adhesives. Raw materials, supplies and product subassemblies are purchased from third-party suppliers, contract manufacturers and commodity dealers. For most of our products, we have existing alternate sources of supply or such materials are readily available. InHowever, in some instances we depend on a single source of supply, manufacturing or assembly or participate in commodity markets that may be subject to a limited number of suppliers.
Our operating results are generally exposed to fluctuations in the prices and supply constraints of raw materials and commodities due to inflation, supply chain disruptions, foreign currency fluctuations, and tariffs imposed by the U.S. and other countries. We continually monitor the business conditions of our supply chain to maintain our market position and to avoid potential supply disruptions. ThereThese supply chain challenges have been noresulted in shortages of materials, including commodities such as steel, and other components that we use in our production processes. In 2023, decreased availability of raw material shortages thatmaterials and component parts adversely affected our ability to deliver products to our customers. Because of the rising demand for raw materials globally, we have had a material adverse impact onexperienced increases in prices, particularly in the first half of the year, which impacted our business as a whole,financial results. See Item 7, Management's Discussion and weAnalysis for additional information. We have been able to develop a robustmitigate the impact of this inflation via fixed-price supply chain such that we do not anticipate shortages of such materials in the future. Although some costcontracts with suppliers, price increases may be recovered through increased prices to customers our operating results are generally exposed to fluctuations due to inflation of prices for raw materials and commodities. When practical, we attempt to control such costs through fixed-priced contracts with suppliers.productivity savings. We typically acquire materials and components through a combination of blanket and scheduled purchase orders to support our materials requirements for an average of four to eight weeks, with the exception of some specialty materials. From time to time, we experience price volatility or supply constraints for raw materials based on market supply and demand dynamics. In limited circumstances, we may have to obtain scarce components for higher prices on the spot market, which may
have a negative impact on gross margin and can periodically create a disruption to production and delivery.our results. We also acquire certain inventory in anticipation of supply constraints or enter into longer-term pricing commitments with vendors to improve the priority, price and availability of supply. We evaluate hedging opportunities to mitigate or minimize the risk of operating margin erosion resulting from the volatility of commodity prices. The challenges associated with supply chain disruptions and inflation are expected to continue in 2024, and we are unable to reasonably predict when they will be resolved. As a result, we cannot provide assurance that we will not be adversely affected by materials price volatility or the availability of supplies to meet customer demand in the future.
Manufacturing Methods
WeOur businesses utilize two primary methods of fulfillingto fulfill demand for products: build-to-order and engineer-to-order.
•Build-to-order consists of assembling a group of products with the same pre-defined specifications, generally for our OEM customers. Engineer-to-order consists of assembling a customized system according to a customer’s individual order specifications. In both cases, we offer design, integration, test and other production value-added services. We employ build-to-order capabilities to maximize manufacturing and logistics efficiencies by producing high volumes of basic product configurations. Engineering products-to-order
•Engineer-to-order consists of assembling a customized system according to a customer’s individual order specifications. Engineer-to-order permits the configuration of units to meet the customized requirements of our customers.
In both cases, we offer design, integration, test and other production value-added services. Our inventory management and distribution practices in both build-to-order and engineer-to-order seek to improve customer delivery performance and minimize inventory holding periods, and improve customer delivery performance.
Backlog
Our backlog represents firm orders that have been received, acknowledged and entered into our production systems. Our backlog may vary due to market volatility or other changes in macroeconomic conditions. In addition, delivery schedules vary from customer to customer based on their requirements. For example, large complex projects in specialized markets such as oil and gas, chemical, and mining at IP require longer lead times and production cycles. Delivery delays could arise from supply chain limitations, internal production challenges, changes in the customer’s requirements, or technical difficulties. Total backlog as of December 31, 2017 and 2016 was $869.7 and $785.1, respectively. Total backlog by segment as of December 31, 2017 and 2016 was: IP - $336.5 and $347.2; MT - $299.7 and $201.2; and CCT - $233.5 and $236.7. We expect to satisfy nearly all December 31, 2017 backlog commitments during 2018.
periods.
Intellectual Property
We generallyWhere appropriate, we seek patent protection for certain inventions and improvements that are likely to be incorporated into our products or where proprietary rights are expected to improve our competitive position. The highly customized application engineering embedded within our products, our proprietary rights, and our knowledge capabilities and our brand recognition all contribute to enhancing our competitive position.
WhileAlthough we own and control a significant number of patents, trade secrets, confidential information, trademarks, trade names, copyrights and other intellectual property rights which, in the aggregate, are of material importance to our business, management believes that our Company, as a whole, as well as each of our core segments, is not materially dependent on any one intellectual property right or related group of such rights. Patents, patent applications and license agreements will expire or terminate over time by operation of law, in accordance with their terms or otherwise. As the portfolio of our patents, patent applications and license agreements has evolved over a long period of time, we do not expect the expiration of any specific patent or other intellectual property right to have a material adverse effect on our financial statements.
Research and Development
Research and Development (R&D) is a key element ofto our engineering culturestrategy and is generally focused on the design and development of products and solutions that anticipate customer needs and emerging trends. Our approach tohighly engineered solutions. R&D often begins by workingfocuses on developing competitive solutions to address clear needs in the market segments we serve. In addition, we work closely with our customers to address their needs by engineering solutions to fit their particular application, thus enabling our customers to achieve their specific goals. For example, during 2023, we have been piloting new smart motor technologies that reduce energy and GHG emissions for flow machines in harsh industrial environments. We believe R&D is a problem, then engineering a solutionsource of competitive advantage and, in recent years, we have invested in new product innovation, including opening new innovation centers in Italy and China to the particular customer need. As a result,support our R&D is based on taking technology quicklyefforts. We plan to continue with these efforts in the tangible phase, increasing the competitive offering, and increasing the customer service experience through engineered application solutions. During 2017, 2016 and 2015, we recognizedfuture. R&D expensesas a percentage of $93.7, $80.8, and $78.9, respectively, which were 3.6%, 3.4%, and 3.2%,sales was approximately 3% during each of revenues, respectively.the past three years.
Cyclicality and Seasonality
Many of the businesses in which we operate are subject to specific industry and general economic cycles. We consider our connector products in our CCT segment to be an early cycleearly-cycle business, meaning it generally is impacted more in the early portion of an economic cycle, while thecycle. Our automotive and aerospace components businesses tend to be impacted in the middle portion of the cycle, and theour industrial pump business typically is impacted late in the economic cycle.
Our businesses experience limited seasonal variations, with demand generally lower during summer months (our third quarter) mainly attributable to manufacturing shutdowns and the planned industrial maintenance activities of our customers.variations. Revenue impacts from the limited seasonal variations are typically mitigated by our backlog of orders that allowallows us to adjust levels of production across the summer months.different periods.
We are subject to stringent federal, state, local, and foreign environmental laws and regulations concerning air emissions, water discharges and waste disposal. In the U.S., these include, but are not limited to, the Federal Clean Air Act, the Clean Water Act, the Resource, Conservation and Recovery Act, and the Comprehensive Environmental Response, Compensation and Liability Act. Environmental requirements are significant factors affecting our operations. We have established an internal program to assess compliance with applicable environmental requirements at our facilities. The program, which includes periodic audits of many of our locations, including our major operating facilities, is designed to identify problems in a timely manner, correct deficiencies and prevent future noncompliance.
We closely monitor our environmental responsibilities, together with trends in environmental laws. In addition, we have purchased insurance protection against certain environmental risks arising from our business activities. Environmental laws and regulations are subject to change, however, and the nature and timing of such changes, if any, is difficult to predict. As actual costs incurred at identified sites in future periods may vary from our current estimates given the inherent uncertainties in evaluating environmental exposures, management believes it is possible that the outcome of these uncertainties may have a material adverse effect on our financial statements. See "Critical Accounting Estimates" within Item 7, Management's Discussion and Analysis, as well as Note 18, Commitments and Contingencies, to the Consolidated Financial Statements for additional information regarding environmental matters.
Employees
As of December 31, 2017, we had approximately 10,000 employees, of which approximately 3,100 were located in the U.S. Approximately 20% of our U.S. employees are represented by unions. We also have unionized employees in Italy, Germany, and Brazil. No one unionized facility accounts for more than 11% of ITT's total revenues. Although our relations with our employees are strong and we have not experienced any material strikes or work stoppages recently, we can provide no assurance that we will not experience these or other types of conflict with labor unions, works councils, other groups representing employees or our employees generally, or that any future negotiations with our labor unions will not result in significant increases in our cost of labor.
General Developments of the Business
On October 31, 2011, ITT completed the tax-free spin-off (referred toAcquisitions and Divestitures
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Date of Transaction | Type | Segment | Business Acquired | Description |
May 2, 2023 | Acquisition | CCT | Micro-Mode Products, Inc. | Specialty designer and manufacturer of high-bandwidth radio frequency (RF) connectors for harsh environment defense and space applications. |
December 29, 2023 | Divestiture | CCT | Matrix Composites, Inc. | Manufacturer of precision composite components in the aerospace and defense market. |
January 19, 2024 | Acquisition | IP | Svanehøj Group A/S | Supplier of pumps and related aftermarket services with leading positions in cryogenic applications for the marine sector. |
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Other than as described herein, as the 2011 spin-off) of its Defensethere have been no significant developments since our previous Form 10-K filing. See Note 22, Acquisitions, Investments, and Information Solutions business, Exelis Inc. (Exelis), and its water-related businesses, Xylem Inc. (Xylem) by way of a distribution of all of the issued and outstanding shares of Exelis common stock and Xylem common stock, on a pro rata basis, to ITT shareholders of record on October 17, 2011. The 2011 spin-off was made pursuant to a Distribution Agreement, dated October 25, 2011, among ITT, Exelis and Xylem (the Distribution Agreement). Following the 2011 spin-off, ITT did not own any shares of common stock of Exelis or Xylem. On May 29, 2015, Exelis was acquired by Harris Corporation (Harris). On May 16, 2016, we consummated a corporate reorganization into a holding company structure. As a result of the reorganization ITT Inc., an Indiana corporation formed in 2016 that was previously a wholly owned subsidiary of ITT Corporation, became the publicly traded holding company of ITT Corporation and its subsidiaries and the successor issuer to ITT Corporation under Rule 12g-3(a) under the Securities Exchange Act of 1934 (Exchange Act). As the successor issuer, ITT Inc. common stock was deemed to be registered under Section 12(b) of the Exchange Act and ITT Inc. succeeded to ITT Corporation’s obligation to file reports, proxy statements and other information required by the Exchange Act with the SEC. For additional information regarding the holding company reorganization, please refer to the Current Report on Form 8-K that we filed with the SEC on May 16, 2016.
Acquisitions
On March 31, 2015, we completed the acquisition of Environmental Control Systems (f/k/a Hartzell Aerospace), a designer and manufacturer of products to support aerospace applications. Environmental Control Systems is included as part of our Connect & Control Technologies segment.
On October 5, 2015, we completed the acquisition of Wolverine Automotive Holdings Inc., the parent company of Wolverine Advanced Materials LLC (Wolverine). Wolverine is a manufacturer of customized technologies for automotive braking systems and specialized sealing solutions. Wolverine is included as part of our Motion Technologies segment.
On January 26, 2017, we completed the acquisition of Axtone Railway Components (Axtone), a leading manufacturer of highly engineered and customized components for railway and other harsh-environment industrial markets. Axtone is included as part of our Motion Technologies segment.
See Note 21, DivestituresAcquisitions, to the Consolidated Financial Statements for additional information.
We are subject to a wide range of factors that could materially affect future developments and performance. Because of these factors, past performance may not be a reliable indicator of future results. Set forth below and elsewhereYou should carefully consider, together with the other information contained in this document are descriptions ofAnnual Report on Form 10-K, the risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this document. The most significant factors affecting our business and operations include the following:
Business and Operating Risks
Our exposure to pending and future asbestos claims and related liabilities, assets, and cash flows is subject to significant uncertainties.
Subsidiaries of ITT, including ITT LLC (f/k/a ITT Corporation) and Goulds Pumps LLC (f/k/a Goulds Pumps, Inc.), have been sued, along with many other companies, in numerous lawsuits in which the plaintiffs claim damages for personal injury arising from exposure to asbestos from component parts of certain products sold or distributed by various defendants, including certain ITT subsidiaries. We expect they will be sued in similar actions in the future. As such, we record an estimated liability related to pending claims and claims estimated to be filed over the next 10 years based on a number of key assumptions, including the plaintiffs’ propensity to sue, claim acceptance rates, disease type, settlement values and defense costs.described below. These assumptions are derived from ITT’s recent experience and reflect the Company’s expectations about future claim activities. Although it is probable that the Company will incur additional costs for asbestos claims filed beyond the next 10 years, we do not believe that there is a reasonable basis for estimating those costs at this time.
In addition, we record an asset that represents our best estimate of probable recoveries from our insurers for the estimated asbestos liabilities. There are significant assumptions made in developing estimates of asbestos-related recoveries, such as policy triggers, policy or contract interpretation, the methodology for allocating claims to policies, and the continued solvency of the Company’s insurers. Certain of our primary coverage-in-place agreements are exhausted whichrisks may result in higher net cash outflows until excess carriers begin accepting claims for reimbursement. Performance by our insurers could differ from the assumptions underlying the recognized asset and could result in lower collections of receivables than are currently expected to reduce the Company’s asbestos costs.
Due to these uncertainties, as well as our inability to reasonably estimate any additional asbestos liability for claims that may be filed beyond the next 10 years, it is difficult to predict the ultimate cost, including potential recoveries, of resolving pending and unasserted asbestos claims. Changes in estimates related to these uncertainties may result in increases or decreases to the net asbestos liability, particularly if the quality, number of claims, or settlement or defense costs change significantly, if there are significant developments in the trend of case law or court procedures, or if legislation or another alternative solution is implemented. The resolution of asbestos claims may take many years. We believe it is possible that the future events affecting the key factors and other variables within the next 10 years, as well as the cost of asbestos claims filed beyond the next 10 years, net of expected recoveries, could have a material adverse effect on our financial condition,reputation, business, results of operations, financial condition, or cash flowsflows. In addition to these risks, there may be additional risks and uncertainties that adversely affect our business, performance or financial condition in any given period.the future that are not presently known, are not currently believed to be significant or are not identified below because they are common to most or all companies.
As part of the 2011 spin-off, ITT Corporation (n/k/a ITT LLC) indemnified ExelisBusiness and Xylem with respect to asserted and unasserted asbestos claims that relate to the presence or alleged presence of asbestos in products manufactured, repaired or sold prior to the 2011 spin-off, subject to limited exceptions.Operating Risks
Our operating results have been, and our abilitymay continue to maintain liquidity or procure capital may be, adversely affected by unfavorable or uncertain global economicmacroeconomic and capital market conditions.
WeAdverse global macroeconomic conditions, including due to heightened geopolitical tensions, inflation, slowing growth or a recession, currency fluctuations, new or increased tariffs or barriers to trade, tighter credit, higher interest rates, union strikes, and higher unemployment can negatively impact customer confidence, spending, and demand for our products and services. In addition, these conditions can negatively impact our customers and suppliers. A downturn in the economic environment can also lead to increased credit and collectability risk or slower collection on the Company's trade receivables, increased bankruptcy risk amongst our suppliers, the failure of derivative counterparties or other financial institutions, limitations on the ability of the Company to issue new debt, reduced liquidity, declines in the fair value of the Company's financial instruments, and increased impairment risk for the Company's goodwill and intangible assets. These and other economic factors could materially adversely affect the Company's business and financial results.
Because a significant portion of our sales are to customers operating outside the U.S., our financial results have experiencedbeen, and expect tomay continue to experience volatilitybe, adversely impacted by foreign currency fluctuations, which are influenced by changes in revenues, operating resultsglobal macroeconomic conditions. The primary foreign currencies to which we have exposure are the Euro, Chinese renminbi, Czech koruna, Polish zloty, South Korean won, Saudi riyal, Mexican peso, and profitability. We have undertaken measures to reduceIsraeli new shekel. Any significant change in the impactvalue of this volatility through diversificationcurrencies of markets and expansion of geographic regionsthe countries in which we operate. The end markets we serve include automotive, aerospace, oil and gas, industrial, mining, chemical, and defense, each of which is impacted by specific industry and general economic cycles. Important factors impacting our businesses include, but are not limiteddo business relative to the overall strengthvalue of the global economyU.S. dollar could reduce our revenue and adversely impact our customers’ confidenceability to sell products or control costs. In addition, our international subsidiaries report their results of operations and financial position in their respective local currencies (i.e., functional currencies), which are then translated into U.S. dollars for financial reporting purposes. As the relationship between these foreign currencies and the U.S. dollar changes, our financial results have been, and may continue to be, adversely affected upon translation. From time to time, we enter into derivative contracts to hedge some of our foreign currency exposures. However, our hedging strategy may fail to reduce our exposure and could even result in an unfavorable impact on our financial results. Refer to Note 21, Derivative Financial Instruments, for further information. During 2023, global macroeconomic conditions industrial spending, tax rates, interest rates, the availabilitycontinued to be influenced by a number of commercial financing, and regulations in the jurisdictions in which we operate. Instability in the global credit markets andfactors, including heightened geopolitical environment in many parts of the world may put pressure on global economic conditions. If global economic and market conditions, or economic conditions in key markets or regions deteriorate, we may experience material impacts on our financial statements.
We closely monitor the credit worthiness of our insurers and customers and evaluate their ability to service their obligations to us. However, adversetensions. Adverse changes to financialmacroeconomic conditions could jeopardize these counterparty obligations. A tightening of credit marketsobligations with our customers and may reduce funds available tofor our customers to pay for our products and services for a
prolonged and perhaps unknown period of time. Restrictive credit marketsThese factors have resulted and may alsocontinue to result in customers extending terms for payment or failing to timely pay accounts when due and may result in ourus having higher customer receivables with increased risk of default. We have experienced and may continue to experience volatility in revenues, operating results and profitability primarily as a result of these uncertain global macroeconomic conditions.
Should marketContinued instability in the geopolitical environment and global credit markets may put further pressure on global macroeconomic conditions. If these conditions, deteriorate, thisor the economic conditions in the key markets or regions in which we operate, do not improve, we could experience material adverse impacts on our financial results.
Our business has been, and may alsocontinue to be, adversely affected by raw material price volatility, a limited number of suppliers and the inability of suppliers to meet quality and delivery requirements.
Our business relies on third-party suppliers for raw materials, components and contract manufacturing services to produce our products. Commodity prices and the prices for other raw materials necessary for production have fluctuated, and may continue to fluctuate, and in 2023 increases in raw material costs negatively impacted our financial results.We are not always able to pass along raw material and component price increases to our customers which has impacted, and may continue to impact, our sales growth and profitability.
In addition, the supply of raw materials to ITT and to its component parts suppliers has been, and may continue to be, interrupted for a variety of reasons affecting our suppliers, including congested shipping ports around the world, production interruptions, heightened geopolitical tensions, including related to the Russia-Ukraine and Israel-Palestine conflicts, global pandemics, the impaired financial condition of a particular supplier, capacity constraints, labor disputes or shortages, the ability to meet regulatory requirements and commitments to other purchasers. For most of our products, we have existing alternate sources of supply, or the required materials have historically been readily available. In limited instances, we depend on a single source of supply, manufacturing or assembly, or participate in commodity markets that may be subject to a limited number of suppliers. Although we believe we could obtain and qualify alternative sources for most sole and limited source supplier materials if necessary, the transition to an alternative source could be complex, costly, and protracted, especially if the change requires us to redesign our systems or re-qualify our products. In 2023, decreased availability of raw materials and component parts adversely affected our ability to deliver products to our customers and resulted in increased backlog.
Any further delay in our suppliers’ abilities to provide us with sufficient quality or flow of materials or any supplier price increases, or any decreased availability of raw materials or commodities, could further impair our ability to deliver products to our customers and may impact our profitability.
Recent mergers, acquisitions or venture investments could present operational challenges and past divestitures and spin-offs may expose us to potential liabilities, all of which could adversely affect our results of operations and financial position.
We regularly review our portfolio of businesses and pursue growth through the acquisition of other companies, assets and product lines that either complement or expand our existing businesses. In addition, from time to time, we make minority investments in other early-stage companies, and we risk losing part or all of our capital in any such investment. Refer to Note 22, Acquisitions, Investments, and Divestitures, for further information regarding acquisitions and investments made during the year. Although we conduct what we believe to be a prudent level of investigation regarding the operating and financial condition of the businesses we acquire, a level of risk remains regarding the actual operating condition of these businesses. Until we actually assume operating control of these businesses and their operations, we may not be able to ascertain the actual value or understand the potential liabilities of, or challenges facing, the acquired businesses and their operations. Acquisitions involve a number of risks and present financial, managerial and operational challenges that could have a material adverse effect on our reputation, financial results and business. These include the possibility that: •an acquired business could under-perform relative to our expectations;
•we could fail to realize the expected synergies of an acquisition;
•we could experience difficulties in the integration of technology, operations, personnel and financial and other systems;
•we could have acquired substantial undisclosed liabilities;
•there could be insufficient internal controls over financial activities or financial reporting at an acquired company that could impact us on a consolidated basis;
•management attention could be diverted from other businesses;
•an acquired business may have been impacted by a previous security breach where system/data integrity was compromised, or data was stolen without the seller's awareness;
•we could lose key employees of the acquired businesses;
•we could experience increased capital requirements; and
•the acquisition could result in customer dissatisfaction.
We have divested a number of businesses, including as part of spin-offs in 1995 and 2011 and our sale of InTelCo Management LLC (InTelCo), the entity holding asbestos-related assets and liabilities, in 2021. With respect to some of these former businesses, we have contractually agreed to indemnify the counterparties against, or otherwise retain, certain liabilities including certain product liability claims and environmental matters. Even without ongoing contractual indemnification obligations, we could be exposed to liabilities arising out of such divestitures. In addition, the counterparties to those divestitures may have agreed to indemnify us or assume certain liabilities relating to those divestitures. However, there can be no assurance that the indemnity or assumption of liability by the counterparties will be sufficient to protect us against the full amount of these liabilities or that a counterparty will be able to fully satisfy its obligations. Third parties also could seek to hold us responsible for any of the liabilities that a counterparty agreed to assume. Even if we ultimately succeed in recovering any amounts for which we were initially held liable, we may be temporarily required to bear these losses ourselves.
The industries in which we operate are experiencing a skilled labor shortage and if we are unable to hire and retain key personnel, including engineering talent and senior management talent, our ability to manage inventory levelsoperate or grow our business could be negatively impacted.
The manufacturing industry is currently experiencing a skilled labor shortage. This shortage has created difficulties for the Company in attracting and maintain current levelsretaining factory employees, in meeting customer demand and in controlling labor costs. We currently have a significant number of profitability. If, for any reason,open positions, and we lose accessexpect this to remain so in 2024. A failure to attract or retain engineering and other highly skilled personnel could adversely affect our operating results, our ability to deliver products and services to our currently available linescustomers and our ability to grow our business. Our future success will continue to depend, to a significant extent, on our ability to attract or retain engineers, senior management, our skilled labor source and other key personnel, which will depend on our ability to offer competitive compensation, training, flexibility and other benefits that our current and prospective employees desire.
Failure to provide high quality and reliable products, innovate or respond to competitors in our markets or protect our intellectual property rights could adversely impact our business and financial results.
We believe product performance, reliability and innovation, application expertise, enforcement of credit,intellectual property rights, brand reputation, and price are principal points of competition in our markets.
We manufacture key components that are integral to the operation of systems and manufacturing processes in the markets we serve. The reliability and performance of our products are critically important to our customers and the users of their products. Accordingly, quality is extremely important to us and our customers due to the potentially costly consequences of product failure. Our quality certifications, including products manufactured to military specifications, are critical to the marketing success of our goods and services. Our success in part depends on our ability to attract and retain skilled engineers and to manufacture to exact tolerances precision-engineered components, subassemblies and finished devices from multiple materials. If our components fail to meet these standards or fail to adapt to evolving standards, we could damage our reputation as a manufacturer of high-quality components, which could hurt our ability to remain competitive and result in a loss of customers, market share or product sales.
Maintaining and improving our competitive position will require continued investment by us in manufacturing, research and development, engineering, marketing, customer service and support, and our distribution networks. Insufficient investment in these areas may result in a failure to maintain our competitive position. In addition, our existing competitors, or potential new competitors, may develop products that are cheaper and/or superior to our products, or may develop more efficient or effective methods of providing products and services or may adapt more quickly than we do to new technologies or evolving customer requirements. These pressures may result in us having to take actions, such as adjusting the prices of certain products, in order to stay competitive.
Obtaining, maintaining and enforcing our proprietary rights is another factor that is critical to the success of our business and our ability to remain competitive. For certain products and manufacturing processes, we rely on patents, trademarks, trade secrets, non-disclosure agreements and other contracts to protect these rights. These contracts may be breached, or may not prevent competitors from independently developing or selling similar products. In addition, during the normal course of business, we could unintentionally infringe or violate the proprietary rights of others. Intellectual property litigation could be time consuming for management and could result in significant legal expenses to either pursue claims against others, or to defend ourselves. If we are unable to protect our patents, trademarks, or other proprietary rights, or if we infringe or violate the rights of others, our ability to remain competitive could be adversely impacted.
If we are requiredunable to raise additional capital,maintain our competitive position, our business, results of operations or financial condition could be materially adversely affected.
Our operations could be disrupted, and our business could be materially and adversely affected by our inability to prevent, detect or adequately respond to cybersecurity breaches.
The efficient operation of our business is dependent on information technology (IT) systems, some of which are owned or managed by third parties. In the ordinary course of business, we collect and store confidential information, including proprietary business information belonging to us, our customers, suppliers, business partners and other third parties, as well as personally identifiable information of our employees and others.
Our information technology systems and those of our third-party service providers may be susceptible to damage, disruptions or shutdowns due to power outages, hardware failures, telecommunication failures, cybersecurity incidents and user errors that may affect our operations. Although we actively manage the risks to our information technology systems that are within our control, we can provide no assurance that our actions or those of
our third-party service providers will always be successful in eliminating or mitigating risks to our systems, networks or data. Even the most well-protected information technology systems are vulnerable to internal and external cybersecurity incidents including, but not limited to, those by employees and by computer hackers and other threat actors utilizing techniques such as phishing, ransomware or denial of service attacks. We have experienced cybersecurity incidents in the past which have not had a material impact on our operations or financial results. If we experience a future disruption in our information technology systems, it could result in the loss of sales and customers and significant incremental costs, which could materially adversely affect our business. In addition, as a provider of products and services to government and commercial customers, and particularly as a government contractor, we are subject to a heightened risk of cybersecurity incidents caused by computer viruses, illegal break-ins or hacking, sabotage, or acts of vandalism, including by foreign governments, hackers and cyber terrorists. Furthermore, information technology security threats are increasing in sophistication, intensity and frequency. A cybersecurity incident may occur, including breaches that we may be unable to do so,detect in a timely manner. The unavailability of our information technology systems, the failure of these systems to perform as anticipated for any reason, or any significant breach of security could cause significant disruption to our business or could result in decreased performance and increased costs.
We continue to monitor data security regulations in the jurisdictions in which we operate. The processing and storage of certain information is increasingly subject to privacy and data security regulations, and many such regulations are country-specific. The interpretation and application of data protection laws in the U.S., Europe, and elsewhere are uncertain, evolving and may be able to do so only on unfavorable terms. Deteriorating market conditions could also indicate an impairment in the value of our goodwillinconsistent across jurisdictions. Compliance with these various laws may be onerous and intangible assets in one or more of our reporting units which would require us to recognizeincur substantial costs or to change our business practices in a non-cash chargemanner that adversely affects our business, while failure to comply with such laws may subject us to substantial penalties.
If we are unable to protect sensitive information, our customers or governmental authorities could question the adequacy of our security processes and procedures and our compliance with evolving privacy and data security regulations and government cybersecurity requirements for government contractors, potentially causing us to lose business. A breach could also result in the loss of our intellectual property, potentially impacting our long-term capability to compete for sales of affected products. In addition, a breach of security of our information technology systems could result in litigation, regulatory action and potential liability, as well as increased costs to implement further information security measures. If we are unable to prevent, detect or adequately respond to cybersecurity incidents, our operations could be disrupted, our reputation could be harmed, and our business could be materially and adversely affected.
The Company’s ability to manage its business and monitor results is highly dependent upon information and communication systems, and a failure of these systems, including flaws in the implementation of any enterprise resource planning (ERP) systems, could adversely impact our business or financial results.
The Company is dependent upon a variety of information technology IT systems, including ERP and communication systems, to operate its business. Over the past several years, we have been implementing new ERP systems at many of our sites, including within our shared services subsidiary, and we expect these ERP implementations to continue for the next several years. These ERP implementations have required and will continue to require significant investment in capital and deployment of human resources. Potential flaws in implementing ERP systems or in the failure of any portion or module of the ERP systems may pose risks to our Statementability to operate successfully and efficiently. In addition, failure to implement the appropriate internal controls with respect to new ERP systems may result in the ERP systems producing inaccurate or unreliable information. Any disruptions, delays or deficiencies in the design or implementation of Operations. We test both goodwillthe new ERP systems or related internal controls, or in the performance of legacy IT systems, could adversely affect the Company’s ability to effectively manage its business, which could adversely affect the Company’s reputation, competitive position and intangible assetsfinancial results.
A significant portion of our revenue is derived from a single customer. Loss of this customer, a loss of business with this customer, or a reduction in this customer's market share, could adversely impact our financial results.
Sales to Continental, a supplier to the automotive industry and ITT's largest customer, were approximately 7% of our total revenue in 2023. Requests by automakers to use ITT brake pads in their Continental-produced braking systems (calipers) typically account for impairmentapproximately half of MT's revenue from Continental. These automaker requests are generally formalized through supply agreements signed directly between MT and the automakers. The remainder of MT's sales to Continental in 2023 was generated from a 10-year agreement to supply Continental with aftermarket parts, which expired on an annual basisDecember 31, 2023. A new 10-year agreement, effective January 1, 2024, and whenever eventsextending through December 31, 2033, was signed in March 2023. The loss of this customer, or changesa reduction in circumstances indicatethis
customer's market share could have a material adverse effect on our business, results of operations or financial condition.
Due to our operations and sales outside of the carrying value of an asset may not be recoverable.
WeU.S., we are subject to inherent business risks, due toincluding the imposition of tariffs, which may adversely affect our operations and sales outside the U.S. and in emerging markets.financial results.
Our international operations, including U.S. exports, comprise a growing portion of our operations and are a strategic focus for continued future growth. Our strategy calls for increasing sales in overseas markets, including emerging markets such as Mexico, South America, China, Russia, and the Middle East.East have been increasing. In 2017,both 2023 and 2022, approximately 67% of our total sales were to customers operating outside of the United States. Our sales from international operations and export sales are subject into varying degrees toof risks inherent toin doing business outside of the United States. These risks include the following, some of which could be impacted by changesfollowing:
•war or geopolitical instability in international trade agreements between the United States and other countries:regions where we operate;
•fluctuations in foreign exchange rates;
•possibility of unfavorable circumstances arising from host country laws or regulations;
•restrictions, regulations, or tax liabilities on currency repatriation;
•potential negative consequences from changes to taxation policies;
•the disruption of operations from labor and political disturbances;
•our ability to hire and maintain qualified staff in these regions; and
•changes in tarifftariffs and trade barriers, sanctioned countries and individuals, and import and export licensing requirements.
In addition to the general risks that we face outside the U.S., we now conduct more of ourOur operations in emerging markets than we have in the past, which could involve additional uncertainties includingsuch as challenges in our ability to protect our intellectual property, pressure on the pricing of our products, and risks that governmentsof political instability. Governments of emerging market countries may also impose limitations or prohibitions on our ability to repatriate funds, impose or increase withholding or other taxes on remittances and other payments to us, seek to nationalize our assets, or impose or increase investment barriers or other restrictions that may adversely affect our business. In addition, emerging markets pose
Under the previous administration, the U.S. government undertook a series of actions to increase tariffs on certain goods imported into the U.S., including steel and aluminum, and in response certain governments imposed retaliatory tariffs on various goods. These tariffs have negatively impacted demand for our products as well as the cost of certain parts and materials that we purchase from vendors located overseas, particularly in China. We have been mitigating, and will continue attempting to mitigate, the impact of tariffs by lowering input costs through efficient utilization of our global manufacturing footprint, supplier and customer negotiations, and diversification strategies. However, we expect that any new or continued trade disputes or increased tensions between the U.S. and other uncertainties,countries, and any governmental actions, including challengesincreases of existing tariffs or the imposition of new tariffs, in response to our abilitythose trade disputes or increased tensions, may continue to protect our intellectual property, pressure on the pricing ofadversely impact demand for our products and risks of political instability.our financial results.
The cost of compliance with increasingly complex and often conflicting regulations worldwide can also impair our flexibility in modifying product, marketing, pricing or other strategies for growing our businesses, as well as our ability to improve productivity and maintain acceptable profit margins.
Our business is impacted by our customers' levels of capital investment, and maintenance expenditures, particularly in the oilproduction, and gas, chemical, and mining markets.market cyclicality.
Demand for certain of our industrial products and services dependdepends on the levellevels of capital investment, and planned maintenance expenditures, and/or production of our customers. Our customers' levels of capital expenditures depends,customers which, in turn, depend on general economic conditions, availability of credit, economic conditions within their respective industries, supply and demand shocks, workforce strikes or employee absenteeism, volatility in commodity prices, expectations of future market behavior. Additionally, volatility in commodity prices can negatively affect the level of these activitiesbehavior and can result in postponement of capital spending decisions or the delay or cancellation of existing orders.their liquidity and financial position. The ability of our customers to finance capital investment, and maintenance, and/or production may also be affected by factors independent of the conditions in their industries, such as the condition of global credit and capital markets.
The businesses of many Accordingly, some of our customers have chosen to postpone capital investment, maintenance, and/or production, and may continue doing so in the future, potentially even during favorable conditions in their industries or markets, which has led, and may continue leading, to a delay or cancellation of orders.
Our customer's businesses, particularly those in the oil and gas,energy, chemical and mining industries, which representrepresented approximately 10%, 6%9%, and 3%4%, respectively, of our 20172023 revenue, are to varying degrees cyclical and have experienced, orand may in the future experience, periodic downturns of varying severity. For example, the volatility of
the energy market has generally been dependent upon the prevailing view of future gas and oil prices, which are influenced by numerous supply and demand factors, including availability and cost of capital, global and domestic economic conditions, environmental regulations, policies of the Organization of the Petroleum Exporting Countries (OPEC) countries and Russia and other factors. Our customers in these industries, particularly those whose demand for our products and services is primarily profit-driven, historically have tended to delay large capital projects, including expensive maintenance and upgrades, during economic downturns. Additionally, fluctuating energy demand forecasts and lingering uncertainty concerning commodity pricing and other macroeconomic factors canmay cause our customers to be more conservative in their capital planning, which maycould reduce demand for our products and services. Reduced demand for our products and services, could result in the delay or cancellation of existing orders, or lead to excess manufacturing capacity, which unfavorably impacts our absorption of fixed manufacturing costs. This reduced demand may also erode average selling prices in our industry. Any of these results could adversely affect our business and financial results.
Additionally, some of our industrial products customers may choose to delay capital investment and maintenance, even during favorable conditions in their industries or markets. Despite these favorable conditions, the general health of global credit and capital markets and our customers' ability to access such markets may significantly impact investments in large capital projects, as well as necessary maintenance and upgrades. In addition, the liquidity and financial position of our customers, which is typically directly linked to the economies in which they operate, could impact capital investment decisions and their ability to pay in full and/or on a timely basis. Any of theseThese factors whether individually or in the aggregate, could have a material adverse effect on our customersbusiness, results of operations and financial condition.
A material business interruption, particularly at one of our manufacturing facilities, could negatively impact our ability to generate sales and meet customer demand.
If operations at one or more of our manufacturing facilities were to be disrupted or damaged as a result of war (including related to Russia-Ukraine, Israel-Palestine, and China-Taiwan), an epidemic or pandemic (including, without limitation, COVID-19), changing weather or climate conditions (including increases in turn,storm intensity, sea-level rise, melting of permafrost and temperature extremes on facilities or operations; and changes in the availability or quality of water, or other natural resources on which our business and financial results.
Significant movementsdepends), IT system failure, cyber-attack, equipment failure, labor dispute, natural disaster, power outage, fire, explosion, act of terrorism, relocation of production location or any other catastrophic event or reason, our ability to meet customer demand for our products may be impacted. We have business continuity plans in foreign currency exchange ratesplace to mitigate the effects of such interruptions, but these plans may adversely affect our financial statements.
not be sufficient to resolve the issues in a timely manner. A significant interruption in production capability could also require us to make substantial payments due to non-performance. We also have insurance for certain covered losses which we believe to be adequate to offset a significant portion of the costs for reconstruction of facilities and equipment, as well as certain financial losses resulting from production interruptions or shutdowns. However, any recovery under our salesinsurance policies would be subject to deductibles and, depending on the coverage, may not offset the lost revenues or increased expenses that may be experienced during the disruption of operations.
Increased scrutiny from investors, lenders and other market participants regarding our environmental, social and governance or sustainability responsibilities could expose us to additional costs and adversely impact our reputation, business, financial performance and growth.
There is an increasing focus from certain investors, customers and other key stakeholders on corporate responsibility, specifically related to ESG matters, including companies' contribution to climate change and loss of biodiversity. Some investors have used, and may continue to use, ESG criteria to guide their investment strategies and, in some cases, have chosen, and may continue to choose, not to invest in ITT, or to divest their holdings of ITT if they believe our policies relating to corporate responsibility are inadequate.
The ESG factors by which companies’ corporate responsibility practices are assessed have been evolving and may continue to customers operating outsideevolve. Additionally, requirements on U.S. public companies and companies with European operations with regards to ESG compliance have been increasing and may continue to increase, including, but not limited to, the U.S.SEC's proposal to require extensive climate-related disclosures and the European Union's Corporate Sustainability Reporting Directive (CSRD), therefore,which could additionally require third-party assurance disclosures. These evolving standards and regulations have caused us, and may continue causing us, to undertake costly initiatives to satisfy such new criteria. If we are exposedunable to fluctuations in foreign currency exchange rates. The primary currenciessatisfy new corporate responsibility criteria, investors may conclude our policies are inadequate and choose not to which we have exposure are the Euro, Chinese renminbi, Czech koruna, South Korean won, Polish zloty, British pound, and Mexican peso. From time to time, we may enter into derivative contracts to hedge some of these foreign currency exposures. However, our hedging strategy may fail to reduce our exposure or could result in unfavorable impact to our operating results.
As we continue to grow our business internationally, our operating results could be affected by the relative strength or weakness of global economies and the impact of foreign currency exchange rate fluctuations. Any significant change in the value of currencies of the countries in which we do business relative to the value of the U.S. dollar could affect our ability to sell products competitively and control our cost structure, which could have a material adverse effect on our financial statements. Accordingly, fluctuations in foreign currency exchange rates may also impact our results when the currency of a transaction differs from the functional currency of our operating unit, or when financial statements in the functional currency of non-U.S. operating units are translated into U.S. dollars. Given that the majority of our sales are non-U.S. based, a strengthening or weakening of the U.S. dollar against other major foreign currencies could adversely affect our results of operations.
Failure to compete successfullyinvest in our markets could adversely affect our business.
We provide products and servicessecurities or to competitive markets. We believe the principal points of competition in our markets are product performance, reliability and innovation, application expertise, brand reputation, energy efficiency, product life cycle cost, timeliness of delivery, proximity of service centers, effectiveness of our distribution channels and price.
Maintaining and improving our competitive position will require continued investment by us in manufacturing, research and development, engineering, marketing, customer service and support, and our distribution networks. We may not be successful in maintaining our competitive position. Our competitors may develop products that are superior to our products, or may develop more efficient or effective methods of providing products and services or may adapt more quickly than we do to new technologies or evolving customer requirements. Pricing pressures also could cause us to adjust the prices of certain products to stay competitive. We may not be able to compete successfully with existing or new competitors.
Our operating costs are subject to fluctuations, particularly due to changes in commodity prices, raw materials, energy and related utilities, freight, and cost of labor. In order to remain competitive, we may not be able to recoupdivest all or a portion of their current holdings, which in either case may adversely affect the price of our securities.
In addition, as we identify ESG topics for voluntary disclosure and work to align with the recommendations of the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD) and Sustainability Accounting Standards Board (SASB) standards and our own assessment of priority of ESG issues, we have expanded and, in the future, may continue to expand our disclosures in these higher costs fromareas. Statements about our customers through product price increases. Further, our ability to realize financial benefits from Lean activitiesESG initiatives and goals, and progress against those goals, may not be able to mitigate fully or in part these manufacturing and operating cost increases and, as a result, could negatively impact our profitability.
Quality problems with our manufacturing processes or finished goods could harm our reputationbased on standards for producing high-quality products and erode our competitive advantage, sales, and market share.
We manufacture key componentsmeasuring progress that are integralstill developing, internal controls and processes that continue to the operation of systemsevolve, and manufacturing processesassumptions that are subject to change in the energy, transportation, defense, aerospace,future. If our ESG-related data, processing and industrial markets. Our products provide enabling functionality for applications for which reliability and performancereporting are critically important to our customers and the users of their products. As such, quality is extremely important to us and our customers due to the potentially costly consequences of product failure. Our quality certifications, including products manufactured to military specifications, are critical to the marketing success of our goods and services. Ifincomplete or inaccurate, if we fail to meet these standards,achieve progress on our metrics on a timely basis or at all, or if we fail to satisfy the expectations of investors and other key stakeholders, our reputation, business, and financial performance could be damaged, we could lose customers or the ability to sell certain products,adversely affected.
Legal and our revenue and results of operations could be materially adversely affected. Aside from specific customer standards, our success in part depends on our ability to manufacture to exact tolerances precision-engineered components, subassemblies, and finished devices from multiple materials. If our components fail to meet these standards or fail to adapt to evolving standards, our reputation as a manufacturer of high-quality components will be harmed, our competitive advantage could be damaged, and we could lose customers, market share or our ability to sell certain products.
Regulatory Risks
We are subject to risks related to government contracting, including changes in levels of government spending and regulatory and contractual requirements applicable to sales to the U.S. government.
Our Connect & Control TechnologiesCCT and Motion TechnologiesMT segments derive a portion of their revenue from sales to U.S. government customers and higher tier contractors who sell to the U.S. government. GovernmentThe government's expenditures are subject to political and budgetary fluctuations and constraints, which may result in significant unexpected changes in levels of demand for our products. In addition, the award, administration and performance of government contracts are subject to regulatory and contractual requirements that differ significantly from the terms and conditions that apply to contracts with our non-governmental customers. We have in the past and may in the future be subject to audits and investigations to evaluate our compliance with these requirements. If we are found to have failed to comply with requirements applicable to government contractors, we may be subject to various actions, including but not limited to fines or penalties, reductions in the value of our government contracts, restrictions on the sale of certain products to the government, or suspension or debarment from government contracting. Failure to comply with applicable requirements also could harm our reputation and our ability to compete for future government contracts or sell equivalent commercial equivalent products. Any of these outcomes
If we are not able to meet the requirements for government contractors, we may lose orders, which could have a material adverse effect on our business, financial condition and results of operations and financial condition.
Our business could be adversely affected by raw material price volatility and the inability of suppliers to meet quality and delivery requirements.
Our business relies on third-party suppliers for raw materials, components, and contract manufacturing services to produce our products. The supply of raw materials to the Company and to its component parts suppliers and the supply of castings, motors, and other critical components could be interrupted for a variety of reasons, including availability and pricing. Prices for raw materials necessary for production have fluctuated significantly in the past and significant increases could adversely affect the Company’s results of operations and profit margins. Due to pricing pressure or other factors, the Company may not be able to pass along increased raw material and components parts prices to its customers in the form of price increases or its ability to do so could be delayed. Consequently, our results of operations and financial condition may be adversely affected.
For most of our products, we have existing alternate sources of supply, or such materials are readily available. In limited instances we depend on a single source of supply, manufacturing or assembly or participate in commodity markets that may be subject to a limited number of suppliers. Delays in obtaining supplies may result from a number of factors affecting our suppliers, including production interruptions at suppliers, capacity constraints, labor disputes, the impaired financial condition of a particular supplier, the ability of suppliers to meet regulatory requirements, and suppliers’ allocations to other purchasers. Any delay in our suppliers’ abilities to provide us with sufficient quality and flow of materials, price increases, or decreased availability of raw materials or commodities could impair our ability to deliver products to our customers and, accordingly, could have an adverse effect on our business, results of operations and financial position.
If we fail to manage the distribution of our products and services effectively, our revenue, gross margin and profitability could suffer. A significant portion of our revenue is derived from a single customer.
We use a variety of sales channels to sell our products and services. Successfully managing these sales channels is a complex process as we sell a broad mix of products through a network of approximately 700 distributors, agents, and value-added resellers. Moreover, since each distribution method has distinct risks and profit margins, our failure to implement the most advantageous balance in the delivery model for our products and services could adversely affect our revenue and profit margins. In addition, changes to the sales channels could introduce additional complexity to the sales and inventory management processes and could cause disruptions to customer service or create channel conflicts.
Further, we must manage inventory effectively, particularly with respect to sales to distributors, which involves forecasting demand and potential pricing issues. Distributors may increase orders during periods of product shortages, cancel orders if their inventory is too high or delay orders in anticipation of new products. Our reliance on indirect distribution methods may reduce visibility to end-customer demand, generating a time lag to the market trend with potential negative impacts on inventory levels and strategic decisions, including pricing, capital deployment, and operational decisions.
Our financial results could be adversely affected by the loss of a distributor, the loss or deterioration of some distribution or reseller arrangements, channel conflicts, including the consolidation of third-party distributors, or if the financial conditions of our channel partners were to weaken. It is not unreasonable to suspect that some of our distributors may have insufficient financial resources and may not be able to withstand changes in business conditions, including economic weakness, leading to a slowness or difficulty in the cash collection process.
Approximately 11% of our total revenue is derived from a single customer, Continental ATE, whom we sell to through OE brake pad contracts and OES supply agreements with automakers, and which is also a third-party distributor for us in the independent aftermarket channel. The loss of this customer could have a material adverse effect on our business, results of operations, or financial condition.operations.
Changes in our effective tax rates as a result of changes in the realizability of our deferred tax assets, the geographic mix of earnings, tax examinations or disputes, tax authority rulings or changes in the tax laws may adversely affect our financial results.
The Company is subject to income taxes in the U.S. and in various foreign jurisdictions. We exercise significant judgment in calculating our provision for income taxes and other tax liabilities. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Furthermore, changesChanges in domestic or foreign income tax laws and regulations, or their interpretation, could result in higher or lower income tax rates assessed or changes in the taxability of certain income or the deductibility of certain expenses, thereby affecting our income tax expense and profitability.
Any significant increase in our future effective tax rates could reduce net income in future periods. Given the global nature of our business, a number of factors may increase our future effective tax rates, including:
decisions to repatriate non-U.S. earnings for which we have not previously provided for withholding or other income taxes;
including changes in the geographic mix of our profits among jurisdictions with differing statutory income tax rates;
sustainability of historical income tax rates in the jurisdictions in which we conduct business;
changes in tax laws applicable to us;
expiration, renewal or application of tax holidays;
the resolution of issues arising from tax audits with various tax authorities; or
changes in the valuation of our deferred tax assets, deferred tax liabilities and deferred tax asset valuation allowances.
The amount of income taxes and other taxes we have paid are subject to ongoing audits by U.S. federal, state, and local tax authorities and by non-U.S. authorities. If these audits result in assessments different from amounts paid or reserved, future financial results may include unfavorable tax adjustments. We are currently under routine examination by the U.S. Internal Revenue Service and other U.S. and non-U.S. tax authorities, and we may be subject to additional examinations in the future. The tax authorities may disagree with our tax treatment of certain material items and thereby increase our tax liability. Failure to sustain our position in these matters could result in a material adverse effect on our financial statements.
Failure to retain our existing senior management, engineeringWe are closely monitoring the potential passage of new U.S. and other key personnel or the inability to attract and retain new qualified personnel could negatively impact our ability to operate or grow our business.
Our success will continue to depend to a significant extent on our ability to retain or attract a significant number of employees in senior management, engineering and other key personnel. The ability to attract or retain employees will depend on our ability to offer competitive compensation, training and cultural benefits. We will need to continue to develop a roster of qualified talent to support business growth and replace departing employees. A failure to retain or attract highly skilled personnel could adversely affect our operating results or ability to operate or grow our business.
A material business interruption, particularly at one of our manufacturing facilities, could negatively impact our ability to generate sales and meet customer demand.
If operations at one of our manufacturing facilities were to be disrupted as a result of a significant equipment failure, natural disaster, power outage, fire, explosion, terrorism, IT system failure, cyber-based attack, adverse weather conditions, labor disputes, relocation of production location, or any other reason, our financial performance could be adversely affected as a result of our inability to meet customer demand for our products. A significant interruption in production capability could also require us to make substantial payments due to non-performance,foreign tax legislation, which could negatively affect our results of operations. We have insurance for certain covered losses which we believe to be adequate to provide for reconstruction of facilities and equipment, as well as certain financial losses resulting from any production interruption or shutdown. However, any recovery under our insurance policies may not offset the lost revenues or increased expenses that may be experienced during the disruption of operations.
Additionally, we have intentions to upgrade or replace existing Enterprise Resource Planning (ERP) systems over the next several years. Implementing new ERP systems may result in unintendedsubstantial changes to the way in which production is performed and transactions are processed. Our ability to execute these ERPcurrent U.S. or foreign tax systems, implementations will directly impact our potential risk exposure during this implementation period.
Information technology security breaches andincluding changes in laws relating to the usestatutory corporate tax rate. In October 2021, the Organization for Economic Cooperation and transferDevelopment (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 personal information could adversely affect our businessaction to address base erosion and results of operations.
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 efficient operation of our business is dependent on computer hardwareOECD continues to release additional guidance and software systems. While we believe we have taken many steps to protect our information systems, even the most well-protected information systemscountries are vulnerable to internal and external security breaches including, but not limited to, those by computer hackers and cyber terrorists utilizing techniques such as phishing, ransomware or denial of service attacks. Furthermore, information technology security threats are increasing in sophistication and frequency. While we actively manage the risks to our information systems that are within our control, we can provide no assurance that our actions will be successful in eliminating or mitigating risks to our systems, networks or data. The unavailability of our information systems, the failure of these systems to perform as anticipated for any reason or any significant breach of security could cause significant disruption to our business or could result in decreased performance and increased overhead costs, causing an adverse effect on our reputation, business, financial condition and results of operations. A breach could also result in the loss of our intellectual property, potentially impacting our long-term capability to compete on sales for affected products. In addition, a breach of security of our information systems could result in litigation, regulatory action and potential liability, as well as increased costs to implement further information security measures.
The regulatory environment surrounding information security and privacy is increasingly demanding,implementing legislation with frequent imposition of new and changing requirements. For example, the European Union's General Data Protection Regulation (GDPR), which will become effective in May 2018, imposes significant new requirements on how we collect, process and transfer personal data, as well as significant fines for non-compliance. The costs of compliance with the GDPR and the potential for fines and other related costs in the event of a breachwidespread adoption of the GDPR or other information security or privacy requirements may have an adverse effect on our financial results.
Portfolio management strategiesModel GloBE Rules for growth, including cost-saving initiatives, may not meet expectations.
Pillar Two expected by calendar year 2024. We regularly review our portfolio of businessesare continuing to evaluate the Model GloBE Rules for Pillar Two and pursue growth through the acquisition of other companies, assets and product lines that either complement or expand our existing business. Although we conduct what we believe to be a prudent level of investigation regarding the operating and financial condition of the businesses we purchase, a level of risk remains regarding the actual operating condition of these businesses. Until we actually assume operating control of these business assetsrelated legislation, and their operations, we may not be able to ascertainpotential impact on future periods. Enactment of this regulation in its current form could increase the actual value or understandamount of global corporate income tax paid by the potential liabilities of the acquired entities and their operations. Acquisitions involve a number of risks and present financial, managerial and operational challenges thatCompany.These increases could have a material adverse effect on our reputation and business, including that an acquired business could under-perform relative toeffective 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 expectations, the failure to realize expected synergies, integration of technology, operations, personnel and financial and other systems, the possibility that we have acquired substantial undisclosed liabilities, potentially insufficient internal controls over financial activities or financial reporting at an acquired company that could impact us on a consolidated basis, diversion of management attention from other businesses, loss of key employees of the acquired businesses, and customer dissatisfaction or performance.
Our portfolio reviews also include the potential for cost-saving initiatives through restructuring and other initiatives. We strive for and expect to achieve cost savings in connection with certain initiatives, including: (i) manufacturing process and supply chain rationalization; (ii) streamlining redundant administrative overhead and support activities; and (iii) restructuring and repositioning actions. Cost savings expectations are inherently estimates that are difficult to predict and we cannot provide assurance that we will achieve expected, or any, actual cost savings. Our restructuring activities may place substantial demands on our management, which could lead to the diversion of management’s attention from other business priorities and result in a reduced customer focus. In addition, restructuring activities may result in a loss of knowledge or expertise of existing products or business processes or could negatively impact employee performance and retention.
The level of returns on postretirement benefit plan assets, changes in interest rates and other factors could affect our earnings and cash flows in future periods.
A portion of our current and retired employee population is covered by pension and other employee-related defined benefit plans (collectively, postretirement benefit plans). We may experience significant fluctuations in costs related to postretirement benefit plans as a result of macroeconomic factors, such as interest rates, that are beyond our control. The cost of our postretirement plans is incurred over long periods of time and involves various factors and uncertainties during those periods, which can be volatile and unpredictable, including the rates of return on postretirement benefit plan assets and discount rates used to calculate liabilities and expenses. Management develops each assumption using relevant Company experience in conjunction with market-related data. Our liquidity, cash flows and financial statementsresults could be materially affected by significant changesimpacted.
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 key economic indicators, volatility2023. Given the AFSI threshold, the Corporate AMT was not applicable to the Company in 2023, but the financial markets,Corporate AMT may have potential impacts on our future legislationU.S. tax expense, cash taxes and other governmental regulatory actions.
We make contributions to fund our postretirement benefit plans when considered necessary or advantageous to do so. The macro-economic factors discussed above, includingeffective tax rate. Additionally, the returnInflation Reduction Act imposes a 1% excise tax on postretirement benefit plan assets and the minimum funding requirements established by local government funding or taxing authorities, or established by other agreements, may influence future funding requirements. A significant decline in the fair market value of our plan assets, or other adverse changes to our overall pensionnet stock repurchases made after December 31, 2022. The impact of this provision was not material in 2023 and other employee-related benefit plans could require increased funding contributions and could adversely affect our financial statements. Future minimum funding requirementsfuture impacts will depend primarilybe dependent on the return on plan assets and discount rate. Depending on these factors, the levelextent of share repurchases made in future minimum contributions could be material.
Our business could be adversely affected by the inability of suppliers to provide us with certifications relating to conflict minerals.
Since our supply chain is complex, ultimately we may not be able to sufficiently discover the origin of the conflict minerals (generally defined as the minerals tin, tantalum, titanium and gold which have been extracted from the Democratic Republic of the Congo or adjoining countries) used in our products through the due diligence procedures that we implement, which may adversely affect our reputation with our customers, shareholders, and other stakeholders. We may also face difficulties in satisfying customers who require that all of our products are certified as conflict mineral free. If we are not able to meet such requirements, customers may choose not to purchase our products, which could adversely affect our sales and the value of portions of our inventory. Further, there may be only a limited number of suppliers offering conflict free minerals and, as a result, we cannot be sure that we will be able to obtain metals, if necessary, from such suppliers in sufficient quantities or at competitive prices. Any one or a combination of these various factors could harm our business, reduce market demand for our products, and adversely affect our financial results.
Other Risks, Including Litigation and Regulatory Riskperiods.
Changes in environmental laws or regulations, the discovery of previously unknown or more extensive contamination or the failure of a potentially responsible party to perform may adversely affect our financial results.
We are subject to a variety of federal, state, local and foreign laws, rules and regulations related to the use, storage, handling, discharge or disposal of certain toxic, volatile or otherwise hazardous chemicals, gases and other substances used in manufacturing our products, as well as laws related to greenhouse gas emissions (including cap-and-trade laws). These laws could require us to incur substantial expenses. Environmental laws and regulations allow for the assessment of substantial fines and criminal sanctions as well as facility shutdowns to address violations and may require the installation of costly pollution control equipment or operational changes to limit emissions or discharges. The discovery of previously unknown or more extensive contamination at a site which the Company previously operated or currently operates could suddenly subject the Company to costly remediation efforts. We also could be affected directly or indirectly through impacts on our customers and suppliers by changes in environmental laws or regulations, including, for example, those imposed in response to vapor intrusion or climate change concerns.
Accruals for environmental liabilities are recorded on a site-by-site basis when it is probable that a liability has been incurredconcerns and the amount of the liability can be reasonably estimated based on current law and existing technologies. Our estimated liability is undiscounted and 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. Such estimates are subject to change and may be affected by many factors, such as new information about a site, evolving scientific knowledge about risk associated with any contamination involved, developments affecting remediation technology, and enforcement by regulatory authorities.
Developments such as the adoption of new environmental laws and regulations, violations by us of such laws and regulations, discovery of previously unknown or more extensive contamination, litigation involving environmental impacts,regulations. We may also be impacted by the adequacy of insurance policies, our inability to recover costs associated with any such developments, or financial insolvency of other potentially responsible parties which could have a material adverse effect on our business, financial statements.condition and results of operations. In addition, new laws and regulations that might favor the increased use of non-fossil fuels, including nuclear, wind, solar and biofuels or that are designed to increase energy efficiency could reduce demand for oil and gas production or power generation resulting in lower spending by our IP customers.
Failure to comply with the U.S. Foreign Corrupt Practices Act or other applicable anti-corruption legislation, as well as export controls and trade sanctions, could result in fines or criminal penalties.
We operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws. We are subject, however, to the riskHowever, we cannot provide assurance that we, our affiliated entities,internal controls will always protect us from reckless or the respective officers, directors,criminal acts committed by our employees, agents or business partners that would violate U.S. and/or applicable non-U.S. laws, including anti-bribery, competition, trade sanctions and agents of ITT, may take action determined to be in violation of such anti-corruptionregulation, and other laws including but not limited to, the U.S. Foreign Corrupt Practices Act of 1977 and the U.K. Bribery Act of 2010, as well as trade sanctions administered by the Office of Foreign Assets Control, (OFAC), the U.S. Department of State and the U.S. Department of Commerce. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, suspension or debarment from government contracts or curtailment of operations in certain jurisdictions, and might adversely affect our business, financial condition or results of operations or financial position. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.
Even the allegation or appearance of our employees, agents or business partners acting improperly or illegally could damage our reputation and result in significant expenditures in investigating and responding to such actions.
We are subject to laws, regulations and potential liabilityclaims relating to claims, complaints and proceedings, including those related to product and other matters.
We are subject to various laws, ordinances, regulations and other requirements of government authorities in the U.S. and in foreign countries. Any violations or failure to comply with securities laws, trade or tax rules or similar regulations could create a substantial liability for us, and also could cause harm to our reputation. Changes in laws, ordinances, regulations or other government policies, the nature, timing, and effect of which are uncertain, may significantly increase our expenses and liabilities.liability.
Our business exposes us to potential product liability risks that are inherent in the design, manufacture, and marketing of products for the markets we serve. In addition, many of the devices we manufacture and sell are critical components designed to be used in harsh environments for long periods of time where the cost of failure is high. Component failures, manufacturing defects, design flaws, or inadequate disclosure of product-related risks or product-related information could result in an unsafe condition or injury to, or death of, an end-user of our products. The occurrence of such a problem could result in product liability claims or a recall of, or safety alert relating to, one or more of our products which could ultimately result, in certain cases, in the removal of such products from the marketplace and claims regarding costs associated therewith. Product liability claims or product recalls in the future, regardless of their ultimate outcome, could have a materialan adverse effect on our business and reputation and on our ability to attract and retain customers for our products.
From time to time we are involved in legal proceedings that are incidental to the operation of our businesses. Some of these proceedings allege damages relating to personal injury claims, employment and employee benefit matters and commercial or contractual disputes, sometimes related to acquisitions or divestitures. Additionally, we may become subject to significant claims of which we are currently unaware or the claims of which we are aware may result in our incurring a significantly greater liability than we anticipate or can estimate.
Past divestitures and spin-offs may expose us to potential liabilities.
Over our more than 100 year history, we have divested a number of businesses, including as part of spin-offs in 1995 and 2011. With respect to some of these former businesses, we have contractually agreed to indemnify the counterparties against, or otherwise retain, certain liabilities, including, for example certain lawsuits, tax liabilities, product liability claims, asbestos claims or environmental matters. Even without ongoing contractual indemnification obligations, we could be exposed to liabilities arising out of such divestitures. In addition, the counterparties to those divestitures may have agreed to indemnify us or assume certain liabilities relating to those divestitures. Similarly, there can be no assurance that the indemnity or assumption of liability by the counterparties will be sufficient to protect us against the full amount of these liabilities, or that a counterparty will be able to fully satisfy its obligations. Third parties also could seek to hold us responsible for any of the liabilities that a counterparty agreed to assume. Even if we ultimately succeed in recovering any amounts for which we were initially held liable, we may be temporarily required to bear these losses ourselves. For example, as part of the Distribution Agreement that we signed in 2011, ITT LLC, Exelis, and Xylem indemnified each other with respect to such parties' assumed or retained liabilities pursuant to the Distribution Agreement and breaches of the Distribution Agreement or related spin agreements. As a result of these types of arrangements, conditions outside our control could have a material adverse effect on our future financial results.
Anti-takeover provisions in our organizational documents and Indiana law could delay or prevent a change in control.
Certain provisions of our articles of incorporation and by-laws may delay or prevent a merger or acquisition that a shareholder may consider favorable. For example, the articles of incorporation authorize our Board of Directors to issue one or more series of preferred stock. In addition, the articles of incorporation and by-laws, among other things, do not permit action by written consent of the shareholders. TheseSuch provisions may also discourage acquisition proposals or delay or prevent a change in control, which could harm our stock price. Indiana law also imposes some restrictions on mergers and other business combinations between any holder of 10% or more of our outstanding common stock and us as well as certain restrictions on the voting rights of "control shares" of an "issuing public corporation."
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ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
Cybersecurity Risk Management and Strategy
We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of our critical systems and information. Our cybersecurity risk management program includes a cybersecurity incident response plan.
We design and assess our program based on the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF). This does not imply that we meet any particular technical standards, specifications, or requirements, only that we use the NIST CSF as a guide to help us identify, assess, and manage the cybersecurity risks that are relevant to our business.
Our cybersecurity risk management program is integrated into, and forms an integral part of, our overall enterprise risk management program, and shares common methodologies, reporting channels and governance processes that apply across the enterprise risk management program to other legal, compliance, strategic, operational, and financial risk areas.
We have established a proactive approach to identify and manage material cybersecurity threats which includes, but is not limited to, the following:
•Security policies and practices aligned with NIST Special Publication 800-171, Revision 2 (NIST 800-171 Rev 2) and the organization’s enterprise risk management requirements;
•Annual cybersecurity reporting and strategic update to ITT's Board of Directors;
•Enterprise-wide centralized Security Information and Event Management (SIEM);
•Regular red-team attack simulations led by industry-leading third-party cybersecurity firms;
•Continuous internal and external facing vulnerability management scanning;
•Threat intelligence feeds from various external sources (fee and non-fee based);
•Threat hunting;
•Strategically deployed artificial intelligence-based threat detection technology;
•Cyber risk assessment and classification processes;
•Cyber threat tabletop simulation exercises;
•Cyber Incident Response Plan processes;
•Externally led, targeted threat hunting exercises;
•Engagement of forensic cybersecurity and data analysis firms (as needed) to conduct independent validation assessments if a breach is suspected and/or validated;
•Engagements with third party consultants to build, design, and improve cyber risk management tools and processes;
•Third-party technology and service provider risk evaluation process; and
•Cybersecurity insurance coverage.
During 2023, there were no cybersecurity incidents that had a material effect on the Company. Furthermore, we have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected us to date, including our business, business strategy, results of operations, or financial condition. For a discussion of prospective risks related to potential cybersecurity incidents, please refer to Item 1A, Risk Factors.
Cybersecurity Governance
Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee oversight of cybersecurity and other information technology risks. The Audit Committee oversees management’s implementation of our cybersecurity risk management program and discusses with management the Company's cybersecurity and other information technology risks, controls, and procedures.
The Board receives annual reports from management on our cybersecurity risks and strategic updates. These reports are designed to provide the Board a view into the progress of previous efforts, an update on existing and new material risks, and an overview of proposed or planned cybersecurity-related projects, and foster a discussion of cyber threats trending within the industry and their applicability to the organization. If a new material risk is identified, or if the Company is impacted by a material security incident, the Audit Committee and the full Board of Directors are notified and apprised of developments.
ITT employs a team of certified cybersecurity professionals responsible for assessing and managing cybersecurity risks, led by the Chief Information Security Officer (CISO), who altogether make up ITT’s Cyber Security Operations Center (CSOC). The qualifications of our cybersecurity team include the following industry-recognized certifications: Certified Ethical Hacker (C|EH), Security+, GIAC Incident Handler Certification (GCIH), and GIAC Foundational Cybersecurity Technologies (GFACT). Additionally, our cybersecurity team possesses several Federal Emergency Management Agency (FEMA) and Department of Homeland Security (DHS) certificates pertaining to cybersecurity. The CSOC monitors the global ITT landscape for cyber threats, provides prevention strategies, initiates incident response for detected intrusions, and prescribes proactive and reactive mitigation strategies. The CSOC serves as the cornerstone for protecting, assessing, and managing cybersecurity risks for the enterprise, which includes, but is not limited to, back office processes, critical manufacturing processes, intellectual property, and sensitive data. The CISO reports to the Chief Information Officer (CIO), who in turn reports to the Chief Financial Officer (CFO). The combined expertise and qualifications of our cybersecurity team enable us to effectively monitor, assess, and respond to cybersecurity threats.
Management is actively informed about, and monitors, cybersecurity incidents, including their prevention, detection, mitigation, and remediation, through defined processes and reporting mechanisms. This proactive approach includes the alignment of security policies and practices with NIST 800-171 Rev 2 and the organization's enterprise risk management requirements. Twice annually, the CFO and CEO are briefed by the CISO and CIO regarding ongoing projects, investments and changes to the threat landscape that have impacted, or may impact, the organization, ensuring that the highest levels of management are kept abreast of the Company's cybersecurity posture. Overall, this comprehensive approach ensures that management is well-informed and actively involved in safeguarding the Company from cybersecurity threats.
We consider the offices,own or lease approximately 170 manufacturing plants, warehouses, service centers, and othersales and administrative offices to support our operations. These properties that we own or leaseare located in various regions around the world, including North America, Europe, Asia, South America and the Middle East. We consider these properties to be in good condition and generally suitable for their intended purpose. We believe these properties are adequate forwith sufficient capacity to accommodate the Company’s needs and will generally allow for expansion of capacity if needed. needs.
The following table summarizes the number and area (in thousands of square feet) of our material properties (other than our corporate headquarters) by region and business segment as of December 31, 2017.2023. We consider our properties containing 25,000 square feet or more, which primarily consist of manufacturing locations, to be material. Our material properties account for over 90% of the total square feet of our properties.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Motion Technologies | | Industrial Process | | Connect & Control Technologies | | | | Total |
Number of Owned Locations | | 13 | | 11 | | 5 | | | | | 29 |
Number of Leased Locations | | 9 | | 22 | | 6 | | | | | 37 |
Total Locations | | 22 | | 33 | | 11 | | | | | 66 |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Facilities - Owned |
| | Industrial Process | | Motion Technologies | | Connect & Control Technologies | | Other | | Total |
Location | | # | Area | | # | Area | | # | Area | | # | Area | | # | Area |
Manufacturing: | | | | | | | | | | | | | | | |
North America | | 3 |
| 1,109.0 |
| | 4 |
| 813.6 |
| | 4 |
| 540.4 |
| | — |
| — |
| | 11 |
| 2,463.0 |
|
Europe | | 1 |
| 356.8 |
| | 10 |
| 1,609.1 |
| | 1 |
| 231.3 |
| | — |
| — |
| | 12 |
| 2,197.2 |
|
Asia | | 1 |
| 670.9 |
| | 1 |
| 8.8 |
| | 1 |
| 13.4 |
| | — |
| — |
| | 3 |
| 693.1 |
|
South America | | 1 |
| 68.0 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | 1 |
| 68.0 |
|
| | 6 |
| 2,204.7 |
| | 15 |
| 2,431.5 |
| | 6 |
| 785.1 |
| | — |
| — |
| | 27 |
| 5,421.3 |
|
| | | | | | | | | | | | | | | |
Non-Manufacturing: | | | | | | | | | | | | | | | |
North America | | 3 |
| 112.5 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | 3 |
| 112.5 |
|
Europe | | — |
| — |
| | 1 |
| 38.5 |
| | — |
| — |
| | — |
| — |
| | 1 |
| 38.5 |
|
| | 3 |
| 112.5 |
| | 1 |
| 38.5 |
| | — |
| — |
| | — |
| — |
| | 4 |
| 151.0 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Facilities - Leased |
| | Industrial Process | | Motion Technologies | | Connect & Control Technologies | | Other | | Total |
Location | | # | Area | | # | Area | | # | Area | | # | Area | | # | Area |
Manufacturing: | | | | | | | | | | | | | | | |
North America | | 3 |
| 156.0 |
| | 3 |
| 56.6 |
| | 9 |
| 442.1 |
| | — |
| — |
| | 15 |
| 654.7 |
|
Europe | | — |
| — |
| | 4 |
| 350.7 |
| | 3 |
| 69.0 |
| | — |
| — |
| | 7 |
| 419.7 |
|
Asia | | 2 |
| 221.5 |
| | 2 |
| 348.6 |
| | 1 |
| 294.4 |
| | — |
| — |
| | 5 |
| 864.5 |
|
South America | | 1 |
| 31.8 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | 1 |
| 31.8 |
|
| | 6 |
| 409.3 |
| | 9 |
| 755.9 |
| | 13 |
| 805.5 |
| | — |
| — |
| | 28 |
| 1,970.7 |
|
| | | | | | | | | | | | | | | |
Non-Manufacturing: | | | | | | | | | | | | | | | |
North America | | 16 |
| 421.6 |
| | 2 |
| 58.0 |
| | — |
| — |
| | 2 |
| 64.6 |
| | 20 |
| 544.2 |
|
Europe | | 10 |
| 133.0 |
| | 1 |
| 28.0 |
| | — |
| — |
| | 1 |
| 3.2 |
| | 12 |
| 164.2 |
|
Middle East | | 2 |
| 14.8 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | 2 |
| 14.8 |
|
Asia | | 10 |
| 140.9 |
| | 2 |
| 5.5 |
| | 4 |
| 7.2 |
| | 2 |
| 11.9 |
| | 18 |
| 165.5 |
|
South America | | 6 |
| 220.9 |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | 6 |
| 220.9 |
|
| | 44 |
| 931.2 |
| | 5 |
| 91.5 |
| | 4 |
| 7.2 |
| | 5 |
| 79.7 |
| | 58 |
| 1,109.6 |
|
From time to time, we are involved in litigation, claims, government inquiries, investigations andlegal proceedings including but not limitedthat are incidental to thosethe operation of our businesses. Some of these proceedings allege damages relating to environmental exposures,exposure, intellectual property matters, copyright infringement, personal injury claims, regulatory matters, commercial and government contract issues,product liabilities, employment and employee benefit matters, government contract issues and commercial or contractual disputes and securities matters.
Asbestos Proceedings
Subsidiariesacquisitions or divestitures. Descriptions of ITT, including ITT LLC and Goulds Pumps LLC, have been joined as defendants with numerous other companies in product liability lawsuits alleging personal injury duecertain legal proceedings to asbestos exposure. These claims allege that certain of their products sold prior to 1985 contained a part manufactured by a third party (e.g., a gasket) which contained asbestos. To the extent these third-party parts may have contained asbestos, it was encapsulated in the gasket (or other) material and was non-friable. Frequently, the plaintiffs are unable to identify any ITT LLC or Goulds Pumps LLC products as a source of asbestos exposure. In addition, a large majority of claims pending against the Company's subsidiaries have been placed on inactive dockets because the plaintiff cannot demonstrate a significant compensable loss. Our experience to date is that a substantial portion of resolved claims have been dismissed without payment by the Company's subsidiaries.
We have recorded a liability for pending asbestos claims and asbestos claims estimated to be filed over the next 10 years. While it is probable that we will incur additional costs for future claims to be filed against the Company is a liability for potential future claims beyond the next 10 years is not reasonably estimable due to the uncertainties and variables inherent in the long-term projection of the Company's asbestos exposures and potential recoveries. As of December 31, 2017, we have recorded an undiscounted asbestos-related liability for pending claims and unasserted claims estimated to be filed over the next 10 years of $877.2, which includes expected legal fees and we have recorded an associated asset of $368.7, which represents estimated recoveries from insurers, resulting in a net exposure of $508.5. See information providedparty are contained in Note 18,19, Commitments and Contingencies, to the Consolidated Financial Statements for further information.Statements.Environmental
In the ordinary course of business, we are subject to federal, state, local, and foreign environmental laws and regulations. We are responsible, or are alleged to be responsible, for ongoing environmental investigation and site remediation. These sites are in various stages of investigation and/or remediation and in many of these proceedings our liability is considered de minimis. We have received notification from the U.S. Environmental Protection Agency, and from similar state and foreign environmental agencies, that a number of sites formerly or currently owned and/or operated by ITT, and other properties or water supplies that may be or have been impacted from those operations, contain disposed or recycled materials or wastes and require environmental investigation and/or remediation. These sites include instances where we have been identified as a potentially responsible party under federal and state environmental laws and regulations. See information provided in Note 18, Commitments and Contingencies, to the Consolidated Financial Statements for further information.
Other Matters
The Company received a civil subpoena from the Department of Defense, Office of the Inspector General, in the second quarter of 2015 as part of an investigation being led by the Civil Division of the U.S. Department of Justice (DOJ). The subpoena and related investigation involve certain connector products manufactured by the Company’s Connect & Control Technologies segment that are purchased or used by the U.S. government. In addition, in the third quarter of 2017, the Company learned that the Criminal Division of DOJ is also investigating this matter. The Company is cooperating with the government and has produced documents responsive to the subpoena to the Civil Division. Based on its current analysis following discussions with DOJ to resolve the civil matter, the Company has accrued$5 as its current best estimate of the minimum amount of probable loss. It is reasonably possible that any actual loss related to this matter may be higher than this amount, but at this time management is unable to estimate a range of potential loss in excess of the amount accrued.
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ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company as of February 1, 2018,2024, are listed below.
| | | | | | | | | | | |
Name | Age | | Current Title |
Luca Savi | 58 | | |
Name | Age | | Current Title |
Denise L. Ramos | 61 | | President and Chief Executive Officer and President |
Farrokh BatliwalaDavide Barbon | 4254 | | Senior Vice President and President, Connect & ControlMotion Technologies and Asia Pacific |
Victoria L. CreamerEmmanuel Caprais | 4849 | | Senior Vice President Human Resourcesand Chief Financial Officer |
Steven C. GiulianoCheryl de Mesa Graziano | 4851 | | Vice President and Chief Accounting Officer |
Mary Beth GustafssonMaurine C. Lembesis | 5857 | | Senior Vice President and Chief Human Resources Officer |
Bartek Makowiecki | 45 | | Senior Vice President, Strategy and Business Development |
Lori B. Marino | 49 | | Senior Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer |
David MalinasFernando Roland | 4350 | | Senior Vice President and President, Industrial Process |
Luca Savi | 52 | | Executive Vice President and Chief Operating Officer |
Thomas M. Scalera | 46 | | Executive Vice President and Chief Financial Officer |
Denise L. RamosLuca Savi was appointedhas served as our Chief Executive Officer, President and a director of the Company in October 2011. Shesince January 2019. He previously served as Senior Vice President and Chief FinancialOperating Officer of the Company since 2007. Priorfrom August 2018 to joining the Company, Ms. Ramos served as Chief Financial Officer for Furniture Brands International from 2005 to 2007. From 2000 to 2005, Ms. Ramos served as Senior Vice President and Corporate Treasurer at Yum! Brands, Inc. and Chief Financial Officer for the U.S. division of KFC Corporation. Ms. Ramos began her career in 1979 at Atlantic Richfield Company (ARCO), where she had more than 20 years of business and financial experience serving in a number of increasingly responsible finance positions, including Corporate General Auditor and Assistant Treasurer. Ms. Ramos is currently a director of the following public company: Phillips 66, since 2016 (Audit and Finance Committee, Nominating and Governance Committee and Public Policy Committee). She serves on the Board of Trustees for the Manufacturers Alliance for Productivity and Innovation and is also a member of the Business Council. Ms. Ramos was included in the Top 100 CEO Leaders in Science, Technology, Engineering and Math publication by STEMconnector, she received a Distinguished Leadership Award from the New York Hall of Science and she was named to Fortune magazine’s 2014 Top People in Business. She also served on the board of the following public company within the last five years: Praxair, Inc. from 2014 to 2016.
Farrokh Batliwala has served as our Senior Vice President and President, Connect & Control Technologies since May 2017. Prior to the consolidation of ITT's Control Technologies and Interconnect Solutions segments, Mr. Batliwala served as the Senior Vice President and President of Control Technologies and Interconnect Solutions, from November 2016 to May 2017, and previously served as Senior Vice President and President, Control Technologies from October 2015 to November 2016. Prior to joining us, Mr. Batliwala served as Vice President and General Manager, Hydraulics, Power and Motion Control Division for Eaton Corporation (Eaton), a diversified global power management technology company, from 2013 to 2015. Mr. Batliwala held various other positions of increasing levels of responsibility at Eaton since 2004.
Victoria L. Creamer has served as our Senior Vice President, Human Resources since February 2015. Prior to joining ITT, Ms. Creamer served as Vice President, Global Compensation and Recognition of International Business Machines Corporation (IBM), a global technology and consulting company, from April 2013 to January 2015. Ms. Creamer held various other positions of increasing levels of responsibility at IBM since 1991.
Steven C. Giuliano has served as our Vice President and Chief Accounting Officer since January 2014. Prior to joining, Mr. Giuliano served as Senior Vice President and Chief Financial Officer from 2009 to 2011, and was Vice President and Chief Financial Officer from 2007 to 2009, of Arch Chemicals, Inc. Mr. Giuliano was Controller of Arch Chemicals from 1999 through 2007, while assuming increasing levels of responsibility.
Mary Beth Gustafsson has served as our Senior Vice President and General Counsel since February 2014December 2018 and as our Chief Compliance Officer since August 2014. Prior to joining us, Ms. Gustafsson served as Executive Vice President, General Counsel and Corporate Secretary of First Solar Inc., a global provider of comprehensive photovoltaic solar systems, from 2009 to 2013 and from 2008 to 2009 as Vice President, General Counsel. Ms. Gustafsson was previously Senior Vice President, General Counsel and Secretary of American Standard Companies, Inc. (American Standard) from 2005 to 2008, and held various other positions of increasing levels of responsibility at American Standard since 2001.
David Malinas has served as our Senior Vice President and President, Industrial Process since June 2017. He previously served as Vice President and General Manager of Thermo Fisher Scientific, a leading provider of scientific tools and services, from April 2008 through June 2017. In addition, while at Thermo Fisher Scientific, he held a variety of leadership roles across the United States and Japan. Mr. Malinas also previously held a variety of management roles at Danaher Corporation in the Environmental and Motion platforms in the USA, England, Germany and Mexico.
Luca Savi has served as our Executive Vice President and Chief Operating Officer sincefrom January 2017 and previouslyto August 2018. Prior to that, he served as Executive Vice President, Motion Technologies sincefrom February 2016. He joined ITT in November 20112016 to January 2017 and as Senior Vice President and President, Motion Technologies.Technologies from November 2011 to February 2016. Prior to joining us,ITT, Mr. Savi served as Chief Operating Officer, Comau Body Welding at Comau, a subsidiary of the Fiat Group responsible for producing and serving advanced manufacturing systems, and from 2009 to 2011 and prior to that as Chief Executive Officer, Comau North America from 2007 to 2009 and Chief Executive Officer, Comau China from 2004 to 2007.2009. Mr. Savi previously held senior leadership roles at Honeywell International, Royal Dutch Shell and technical roles at Ferruzzi-Montedison Group. Mr. Savi is currently a director of MSA Safety Inc. and serves on its compensation committee.
Thomas M. ScaleraDavide Barbon has served as our Executive Vice President and Chief Financial Officer since February 2016 and previously as our Senior Vice President Chief Financial Officer and StrategyPresident, Motion Technologies and IT LeaderAsia Pacific Region since August 2014October 2023. He previously served as our Senior Vice President and priorPresident, Asia Pacific Region since October 2020. Prior to that, he served as General Manager of the KONI and Axtone businesses within Motion Technologies from January 2017. Mr. Barbon joined the Company in 2010, initially serving in the Brazil, Russia, India and China business of Motion Technologies, and then led its China business for five years. Prior to joining ITT, he spent 14 years with JLG Industries, where he had a number of roles of increasing responsibility across the United States, Europe, and Latin America.
Emmanuel Caprais has served as our Senior Vice President and Chief Financial Officer since October 2011.2020. He previously served as Vice President Corporateof Finance from 2010 to 2011 and Director,Group Chief Financial Officer, in charge of the Company’s business unit finance teams, Financial Planning & Analysis and Investor Relations for the company.Mr. Caprais joined ITT in 2012, at which time he served as segment Chief Financial Officer of Motion Technologies and later Industrial Process. Prior to joining ITT, Mr. Caprais held leadership roles in finance at Marelli, and earlier held positions of increasing responsibility in finance at Valeo across North America and Europe.
Cheryl de Mesa Graziano has served as our Vice President and Chief Accounting Officer since November 2022. Prior to joining ITT, she served as Chief Accounting Officer of Party City Holdco Inc. (Party City) from 2008December 2021 to 2010.October 2022. Ms. de Mesa Graziano also served as Vice President, Global Controller and Vice President, Financial Reporting and Accounting at Party City. She previously held various positions of increasing responsibility at Stanley Black & Decker, Inc. from May 2013 to October 2019, including Assistant Corporate Controller and Global Leader, Corporate Technical Accounting and Compliance. Before 2013, Ms. de Mesa Graziano held finance leadership roles at other companies including IBM and Financial Executives International.
Maurine C. Lembesis has served as our Senior Vice President and Chief Human Resources Officer since January 2019. Prior to that, Ms. Lembesis served as our Vice President and Corporate Human Resources Business Partner. Prior to joining ITT in 2006,2013, she held roles of increasing responsibility in Human Resources at Avon Products Inc., including the role of Executive Director of Human Resources. In addition, Ms. Lembesis held various other human resources roles at Capital Group Companies, Pfizer Inc. and GE Capital.
Bartek Makowiecki has served as our Senior Vice President, Strategy and Business Development since September 2021. Prior to joining ITT, he served as Global Head of Strategy, M&A and Venturing of Ingredion Incorporated from October 2017 to September 2021. Immediately prior, he served as Director, Corporate Strategy & Head of M&A at Owens Corning from November 2015 to October 2017. Prior to that, Mr. ScaleraMakowiecki held senior financial roles with R.R. Donnelley, Dover Corp.,of increasing responsibility in global strategy and PricewaterhouseCoopers, LLP.M&A at Parker-Hannifin Corporation from August 2003 to October 2015.
Lori B. Marino has served as our Senior Vice President and General Counsel since January 2023. She was appointed as Corporate Secretary and Chief Compliance Officer in October 2023. Ms. Marino previously served as Vice President, Deputy General Counsel and Secretary of ITT from May 2016 to April 2019 and as Vice President, Chief Corporate Counsel and Corporate Secretary from September 2013 to May 2016. Prior to rejoining ITT, Ms. Marino served as Executive Vice President, General Counsel, Secretary and Chief Human Resources Officer at New Senior Investment Group Inc. from April 2019 to September 2021.
Fernando Roland has served as our Senior Vice President and President of Industrial Process since August 2023. Prior to joining ITT, Mr. Roland served as Senior Vice President, Customer Engineered Solutions — Americas, and held other leadership roles at Continental AG from March 2013 to July 2023. Prior to that, Mr. Roland held various business leadership positions at companies such as DuPont de Nemours, Inc., Hyosung Corporation, and Performance Fibers from 1996 to 2013.
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ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
PART II
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ITEM 5. | MARKET FOR REGISTRANT’SREGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
COMMON STOCK – MARKET PRICES AND DIVIDENDS
The table below reflects the range of market prices of ourOur common stock asis reported in the consolidated transaction reporting system of the New York Stock Exchange (NYSE), the principal market in which this security is traded (under the trading symbol "ITT").
|
| | | | | | | | | | | | | | | |
| 2017 | | 2016 |
| High | | Low | | High | | Low |
Three Months Ended: | | | | | | | |
March 31 | $ | 44.00 |
| | $ | 38.52 |
| | $ | 38.96 |
| | $ | 29.15 |
|
June 30 | 42.73 |
| | 36.93 |
| | 39.70 |
| | 30.31 |
|
September 30 | 44.95 |
| | 38.66 |
| | 36.98 |
| | 30.06 |
|
December 31 | 54.79 |
| | 44.06 |
| | 43.07 |
| | 32.46 |
|
We declared dividends There were approximately 5,706 holders of $0.128 and $0.124 per sharerecord of our common stock in each of the four quarters of 2017 and 2016, respectively. In the first quarter of 2018, we declared a dividend of $0.134 per share for shareholders of record on March 12, 2018. February 9, 2024.
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 deems relevant. Therefore, there can be nowe cannot provide any assurance as to what level of dividends, if any, will be paid in the future.
There were approximately 9,136 holders of record of our common stock on February 14, 2018.
EQUITY COMPENSATION PLAN INFORMATION
The equity compensation plan information called for by Item 5(a) is set forth under the caption "Equity Compensation Plan Information" in our Proxy Statement for the 2018 Annual Meeting of Shareholders.
During the fiscal year ended December 31, 2017, no2023, the Company did not offer or sell any equity securities of the Company were sold by the Company that were not registered under the Securities Act.
ISSUER PURCHASES OF EQUITY SECURITIES
The following table summarizesOn October 30, 2019, the Board of Directors approved an indefinite term $500 share repurchase program (the 2019 Plan) under which $78.8 remained available as of December 31, 2023. We continue to utilize the 2019 Plan in a manner that is consistent with our purchasescapital allocation strategy, which has centered on those investments necessary to grow our businesses organically and through acquisitions, while also providing cash returns to shareholders.
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.
We have made no open-market share repurchases of our common stock forduring the quarter ended December 31, 2017.2023.
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| | | | | | | | | | | | | | |
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
PERIOD | TOTAL NUMBER OF SHARES PURCHASED | AVERAGE PRICE PAID PER SHARE(1) | TOTAL NUMBER OF SHARES PURCHASED AS PART OF PUBLICLY ANNOUNCED PLANS OR PROGRAMS(2) | MAXIMUM DOLLAR VALUE OF SHARES THAT MAY YET BE PURCHASED UNDER THE PLANS OR PROGRAMS(2) |
10/1/2017 - 10/31/2017 | — |
| | — |
| | — |
| | | $ | 140.6 |
| |
11/1/2017 - 11/30/2017 | — |
| | — |
| | — |
| | | $ | 140.6 |
| |
12/1/2017 - 12/31/2017 | — |
| | — |
| | — |
| | | $ | 140.6 |
| |
| |
(1) | Average price paid per share is calculated on a settlement basis and includes commissions. |
| |
(2) | On October 27, 2006, our Board of Directors approved a three-year $1 billion Share Repurchase Program. On December 16, 2008, our Board of Directors modified the provisions of the Share Repurchase Program to replace the original three-year term with an indefinite term. As of December 31, 2017, we had repurchased 21.2 shares for $859.4, including commissions, under the Share Repurchase Program. The program is consistent with our capital allocation process, which has centered on those investments necessary to grow our businesses organically and through acquisitions, while also providing returns to shareholders. Our strategy for cash flow utilization is to invest in our business, execute strategic acquisitions, pay dividends, and repurchase common stock. |
COMPANY STOCK PERFORMANCE
PERFORMANCE GRAPHThe following graph shows a comparison of the cumulative total shareholder return for ITT, the S&P 400 Mid Cap Index, and the S&P 400 Capital Goods Index over the five years ended December 31, 2023. It shows the share price appreciation of a $100 investment made on December 31, 2018, assuming any dividends paid are reinvested.
COMPARISON OF CUMULATIVE FIVE-YEAR TOTAL RETURN
Based upon an initial investment on December 31, 2012 of $100 with dividends reinvested | | | 12/31/2012 | | 12/31/2013 | | 12/31/2014 | | 12/31/2015 | | 12/31/2016 | | 12/31/2017 |
| 12/31/2018 | | | 12/31/2018 | | 12/31/2019 | | 12/31/2020 | | 12/31/2021 | | 12/31/2022 | | 12/31/2023 |
ITT Inc. | $ | 100.00 |
| | $ | 187.38 |
| | $ | 176.37 |
| | $ | 160.26 |
| | $ | 172.46 |
| | $ | 241.55 |
|
S&P 400 Mid-Cap | $ | 100.00 |
| | $ | 133.46 |
| | $ | 146.45 |
| | $ | 143.25 |
| | $ | 172.95 |
| | $ | 201.02 |
|
S&P 400 Capital Goods | $ | 100.00 |
| | $ | 141.36 |
| | $ | 141.71 |
| | $ | 133.91 |
| | $ | 176.66 |
| | $ | 220.29 |
|
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This graph is not, and is not intended to be, indicative of future performance of our common stock. This graph shall not be deemed "filed" with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and should not be deemed to be incorporated by reference into any of our prior or subsequent filings under the Securities Act.
Not applicable.
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ITEM 6. | SELECTED FINANCIAL DATA |
The following table presents selected historical financial data derived from the Consolidated Financial Statements for each of the five years presented. The selected financial data should be read in conjunction with, and is qualified in its entirety by reference to Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and the Notes thereto.
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| | | | | | | | | | | | | | | | | | | |
(In Millions, except per share amounts) | 2017(a) |
| | 2016(b) |
| | 2015 |
| | 2014 |
| | 2013 |
|
Results of Operations | | | | | | | | | |
Revenue | $ | 2,585.3 |
| | $ | 2,405.4 |
| | $ | 2,485.6 |
| | $ | 2,654.6 |
| | $ | 2,496.9 |
|
Gross profit | 817.2 |
| | 758.2 |
| | 809.1 |
| | 866.4 |
| | 799.8 |
|
Gross margin | 31.6 | % | | 31.5 | % | | 32.6 | % | | 32.6 | % | | 32.0 | % |
Asbestos-related (benefit) costs, net(c) | (19.9 | ) | | (25.6 | ) | | (91.4 | ) | | 3.9 |
| | 32.8 |
|
Other operating costs | 527.4 |
| | 524.9 |
| | 520.4 |
| | 596.1 |
| | 583.4 |
|
Operating income | 309.7 |
| | 258.9 |
| | 380.1 |
| | 266.4 |
| | 183.6 |
|
Operating margin | 12.0 | % | | 10.8 | % | | 15.3 | % | | 10.0 | % | | 7.4 | % |
Income tax expense (benefit)(d) | 194.6 |
| | 76.0 |
| | 70.1 |
| | 71.3 |
| | (309.6 | ) |
Income from continuing operations attributable to ITT Inc. | 115.0 |
| | 181.9 |
| | 312.4 |
| | 188.4 |
| | 487.7 |
|
(Loss) income from discontinued operations, net of tax(e) | (1.5 | ) | | 4.2 |
| | 39.4 |
| | (3.9 | ) | | 0.8 |
|
Net income attributable to ITT Inc. | $ | 113.5 |
| | $ | 186.1 |
| | $ | 351.8 |
| | $ | 184.5 |
| | $ | 488.5 |
|
Income from continuing operations per basic share | $ | 1.30 |
| | $ | 2.04 |
| | $ | 3.48 |
| | $ | 2.06 |
| | $ | 5.36 |
|
(Loss) income from discontinued operations per basic share | $ | (0.01 | ) | | $ | 0.05 |
| | $ | 0.44 |
| | $ | (0.04 | ) | | $ | 0.01 |
|
Net income per basic share | $ | 1.29 |
| | $ | 2.09 |
| | $ | 3.92 |
| | $ | 2.02 |
| | $ | 5.37 |
|
Income from continuing operations per diluted share | $ | 1.29 |
| | $ | 2.02 |
| | $ | 3.44 |
| | $ | 2.03 |
| | $ | 5.28 |
|
(Loss) income from discontinued operations per diluted share | $ | (0.01 | ) | | $ | 0.05 |
| | $ | 0.44 |
| | $ | (0.04 | ) | | $ | 0.01 |
|
Net income per diluted share | $ | 1.28 |
| | $ | 2.07 |
| | $ | 3.88 |
| | $ | 1.99 |
| | $ | 5.29 |
|
Dividends declared | $ | 0.512 |
| | $ | 0.496 |
| | $ | 0.4732 |
| | $ | 0.44 |
| | $ | 0.40 |
|
Financial Position | | | | | | | | | |
Cash and cash equivalents | $ | 389.8 |
| | $ | 460.7 |
| | $ | 415.7 |
| | $ | 584.0 |
| | $ | 507.3 |
|
Total assets | 3,700.2 |
| | 3,601.7 |
| | 3,723.6 |
| | 3,631.5 |
| | 3,740.2 |
|
Total debt and capital leases | 171.9 |
| | 216.3 |
| | 248.5 |
| | 8.5 |
| | 48.9 |
|
| |
(a) | On January 26, 2017, we acquired Axtone Railway Components (Axtone). Our 2017 Consolidated Financial Statements include an additional 11 months of operations compared to 2016 related to this acquisition. See Note 21, Acquisitions, in our Notes to Consolidated Financial Statements for further information. |
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(b) | On October 5, 2015, we acquired Wolverine Automotive Holdings Inc. (Wolverine). Our 2016 Consolidated Financial Statements include an additional nine months of operations compared to 2015 related to this acquisition. See Note 21, Acquisitions, in our Notes to Consolidated Financial Statements for further information. |
| |
(c) | The asbestos-related benefit in 2015 primarily reflects a $100.7 benefit recognized related to a new single firm defense strategy and streamlined case management that is expected to significantly reduce asbestos defense costs. See Note 18, Commitments and Contingencies, in our Notes to the Consolidated Financial Statements for further information. |
| |
(d) | The 2017 income tax expense includes a $129.2 impact associated with the Tax Cuts and Jobs Act of 2017 that was signed into U.S. law in December 2017. See Note 5, Income Taxes, in our Notes to the Consolidated Financial Statements for further information. The 2013 income tax benefit of $309.6 includes the release of a U.S. deferred tax valuation allowance of $374.6. |
| |
(e) | The 2015 income from discontinued operations of $39.4, principally related to the settlement of the U.S. income tax audit. |
|
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ITEM 7. | MANAGEMENT’SMANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with the consolidated financial statements and the notes related thereto. As we noted earlier in the Forward-Looking and Cautionary Statements of this Annual Report on Form 10-K, this Part II, Item 7, "Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations", and Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk" (along with other sections of this Annual Report), may contain forward-looking statements. The risks discussed in Part I, Item 1A, "Risk Factors," and other risks identified in this Annual Report on Form 10-K could cause our actual results to differ materially from those expressed by such forward-looking statements. All comparisons included within this Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, refer to results for the year ended December 31, 2023 compared to the year ended December 31, 2022, unless stated otherwise. Additionally, all financial results and share repurchases other than per share amounts are reported in millions, unless stated otherwise. Per share amounts are reported in ones. Please refer to our Annual Report on Form 10-K (2022 Annual Report) for a discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021. 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 transportationmarkets. Our product and industrial markets. We refer youservice 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 servicesservice offerings, and other information about ourthe business. EXECUTIVE SUMMARY
During 2017,2023, despite evolving macroeconomic conditions, we continued to focus on optimizing execution across the enterprise while advancing our long-term strategiesdelivered strong financial results, which included revenue and drivingoperating income growth, operating margin expansion, EPS growth and share gains witheffective deployment of capital. The following table provides a summary of key customers, end markets, and geographies. In early 2017, we created a new operating model and Chief Operating Officer structure, which has been successfully driving more robust processes and performance across the company. The benefits generated from increased volume, productivity improvements across our businesses, and proactive restructuring actions more than offset unfavorable headwinds experienced during the year.indicators for 2023 in comparison to 2022.
Our 2017 results include:
Revenue of $2.6 billion, reflecting growth of $179.9, or 7.5%, and organic revenue growth of $76.4, or 3.2%, which excludes an incremental benefit of $74 from our acquisition of Axtone and $29.5 from favorable foreign exchange translation. Organic revenue growth was driven by a 7% increase to our transportation markets, led by automotive brake pads and KONI high speed rail, partially offset by lower aerospace revenues. Organic revenue to our industrial markets decreased 1% due to weaker chemical and industrial pumps, partially offset by strength in general industrial connectors and mining. Organic revenue to our oil & gas markets declined 4% amid project pump declines, partially offset by increased connector sales.
Operating income of $309.7 and operating margin of 12.0%, reflecting growth of $50.8 and 120 basis points, respectively, as sales volume growth, lower restructuring costs coupled with the benefits from current and prior year actions, and productivity improvements at all three segments, were partially offset by higher commodity costs, unfavorable price and sales mix, incremental investments to support long-term growth, higher incentive compensation costs, and unfavorable impacts from foreign currency fluctuations.
Income from continuing operations was $1.29 per diluted share that includes provisional tax expense impact of $129.2 ($1.45 per diluted share) from the Tax Cuts and Jobs Act of 2017 (herein referred to as the "Tax Act"). Adjusted income from continuing operations was $2.59 per diluted share for 2017, reflecting a 27 cent per share increase over the prior year. | | | | | | | | | | | | | |
Revenue | Operating Income | Operating Margin | | EPS | |
$3,283 | $528 | 16.1% | | $4.97 | |
10% Increase | 13% Increase | 40bp Increase | | 13% Increase | |
Organic Revenue | Adjusted Operating Income | Adjusted Operating Margin | | Adjusted EPS | |
$3,229 | $555 | 16.9% | | $5.21 | |
8% Increase | 17% Increase | 100bp Increase | | 17% Increase | |
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.
•Income from continuing operations.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 2017,2023, 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 advanced our strategic goals to drive long-term growth and share gains. The following highlights a few examples of strategic actions that occurred during the year that will help position us well for continued value creation:
We aligned the operations and managementacquired in April 2022. Habonim is part of our connectorsIP segment and control technologies businesses creating a newhad 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 segment, Connect & Control Technologies,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 increase focus on aerospaceRussia’s war with Ukraine, which has increased regional instability and industrial markets, optimize operations, leverage shared infrastructure,global economic and drive long-term growth.
At our Industrial Process segment, we continued our strategic transformation led by our structural reset and focused heavily on optimizing our project execution, leading to operating margin expansion.
Despite ongoing pricing and commodity cost headwinds, our Motion Technologies segment delivered exceptional operating results due to our World-Class Manufacturing Excellence Program, which began almost three years ago.
political uncertainty.
During the year,years ended December 31, 2023 and 2022, we drove market share gains by expandingrecorded total pre-tax charges of $2.5 and $7.9, primarily related to suspending our business in newRussia. Any future impacts on our business and existing key end marketsfinancial results are not expected to be material.
Inflationary Pressures
Since 2020, the cost of energy and geographies, including:
Advancing key strategiesraw materials we use in rotorcraft, aerospace and defense, electric vehicle, and high speed rail markets. In all categories, we were awarded significant multi-year awards that may also generate attractive aftermarket opportunities.
In the transportation market, we significantly outpaced global OEMour production rates in China, North America and Europe. We were also awarded 75 new automotive platforms,processes, including 42 in China and 15 for electric vehicles.
We launched the innovative ITT SMART Pad and are working with customers on both development and on-board opportunities.
In 2017, we continued to deploy our capital in balanced and effective ways, including:
Funding organic investments,commodities such as our phased investments in Mexico, China,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 Czech Republicongoing Russia-Ukraine war.
Beginning in 2022, central banks around the world have been raising interest rates to efficiently aligncounter inflation. Rising interest rates increased our friction footprint with the automotive platforms we have already secured.
Completing our acquisitioncost of Axtone Railway Components, which will expanddebt and complement our existing capabilitiescontributed to instability in the global railway market.banking system during 2023, which has impacted consumer behavior, including demand for our products.
Returning $75The manufacturing industry continues to shareholders; $45experience a skilled labor shortage, which has created difficulties in the formattracting and retaining factory employees and has resulted in higher labor costs.
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 quarterly dividendsthese negative impacts through pricing actions and $30 in share repurchases.
Asproductivity savings, which we
enter 2018, we plancontinue to
buildpursue. Future impacts on our
operationalbusiness and
strategic momentum by focusing heavilyfinancial results as a result of these conditions are not estimable at this time, and depend, in part, on
execution under our new operating model, by driving innovation & growth strategies through our businesses, and by deploying capital in a balanced and efficient way. We will also continuethe extent to
leveragewhich these conditions improve or worsen, which remains uncertain. For additional discussion of the
benefits of ourrisks related to global
and end-market diversification. We expect our primary top-line drivers of growth in 2018 to include global friction and rail share gains and improved short-cycle industrial and chemical pump demand, and we are encouraged by indications of stabilization in our key end markets. While higher commodity costs, price pressures, and non-functional corporate costs are expected to provide challenges in the coming year, we will direct our focus to areas that are within our control by continuing to drive productivity across all three of our business segments and initiating proactive restructuring actions as necessary. In addition, we plan to focus more of our efforts on growth and innovation, increasing research and development activities in 2018 as part of our long-term growth strategy. Finally, we will continue our track record of balanced and effective capital deployment by funding major organic investments that extend our global reach, expand our production capabilities in key end-markets such automotive friction and rotorcraft, and by focusing on our acquisition pipeline. We also raised our first quarter 2018 quarterly dividend by 5%macroeconomic conditions, see Part I, Item 1A, Risk Factors, which would represent our sixth consecutive year of dividend increases, and anticipate returning up to approximately $50 to shareholders in the form of share repurchases.herein.
DISCUSSION OF FINANCIAL RESULTS
20172023 VERSUS 20162022
| | | 2017 | | 2016 | | Change |
For the Year Ended December 31 | | For the Year Ended December 31 | 2023 | | 2022 | | Change |
Revenue | $ | 2,585.3 |
| | $ | 2,405.4 |
| | 7.5 | % | Revenue | $ | 3,283.0 | | | $ | | $ | 2,987.7 | | | 9.9 | | 9.9 | % |
Gross profit | 817.2 |
| | 758.2 |
| | 7.8 | % | Gross profit | 1,107.3 | | | 922.3 | | 922.3 | | | 20.1 | | 20.1 | % |
| Operating expenses | |
Operating expenses | |
Operating expenses | | 579.1 | | | 454.3 | | | 27.5 | % |
| Operating income | |
Operating income | |
Operating income | | 528.2 | | | 468.0 | | | 12.9 | % |
| Interest and other non-operating expense, net | |
Interest and other non-operating expense, net | |
Interest and other non-operating expense, net | | 8.7 | | | 6.2 | | | 40.3 | % |
Income tax expense | | Income tax expense | 104.8 | | | 91.1 | | | 15.0 | % |
| Income from continuing operations attributable to ITT Inc. | |
Income from continuing operations attributable to ITT Inc. | |
Income from continuing operations attributable to ITT Inc. | | 411.4 | | | 368.3 | | | 11.7 | % |
Net income attributable to ITT Inc. | | Net income attributable to ITT Inc. | $ | 410.5 | | | $ | 367.0 | | | 11.9 | % |
| Gross margin | 31.6 | % | | 31.5 | % | | 10 | bp |
Operating expenses | 507.5 |
| | 499.3 |
| | 1.6 | % |
Gross margin | |
Gross margin | | 33.7 | % | | 30.9 | % | | 280 | bp |
Operating expense to revenue ratio | 19.6 | % | | 20.8 | % | | (120 | )bp | Operating expense to revenue ratio | 17.6 | % | | 15.2 | % | | 240 | bp |
Operating income | 309.7 |
| | 258.9 |
| | 19.6 | % |
Operating margin | 12.0 | % | | 10.8 | % | | 120 | bp | Operating margin | 16.1 | % | | 15.7 | % | | 40 | bp |
Income tax expense | 194.6 |
| | 76.0 |
| | 156.1 | % |
Effective tax rate | 62.9 | % | | 29.4 | % | | 3,350 | bp | Effective tax rate | 20.2 | % | | 19.7 | % | | 50 | bp |
Income from continuing operations attributable to ITT Inc. | 115.0 |
| | 181.9 |
| | (36.8 | )% |
(Loss) income from discontinued operations, net of tax | (1.5 | ) | | 4.2 |
| | (135.7 | )% |
Net income attributable to ITT Inc. | $ | 113.5 |
| | $ | 186.1 |
| | (39.0 | )% |