UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended OctoberJuly 2, 20212022
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Commission File Number: 001-05672
ITT INC.
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State of Indiana | | 81-1197930 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification Number) |
1133 Westchester Avenue, White Plains, NY 10604100 Washington Boulevard, 6th Floor, Stamford, CT 06902
(Principal Executive Office)
Telephone Number: (914) 641-2000
Former name, former address and former fiscal year, if changed since last report:
1133 Westchester Avenue, White Plains, NY 10604
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $1.00 per share | ITT | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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☑ | Large accelerated filer | ☐ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company |
☐ | Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of NovemberAugust 2, 2021,2022, there were 85.682.7 million shares of Common Stock (par value $1.00 per share) of the issuer outstanding.
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION | PART I – FINANCIAL INFORMATION | PART I – FINANCIAL INFORMATION |
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3. | 3. | | | 3. | | |
4. | 4. | | | 4. | | |
PART II – OTHER INFORMATION | PART II – OTHER INFORMATION | PART II – OTHER INFORMATION |
1. | 1. | | | 1. | | |
1A. | 1A. | | | 1A. | | |
2. | 2. | | | 2. | | |
3. | 3. | | | 3. | | |
4. | 4. | | | 4. | | |
5. | 5. | | | 5. | | |
6. | 6. | | | 6. | | |
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission (the SEC). The SEC maintains a website at www.sec.gov on which you may access our SEC filings. In addition, we make available free of charge at www.itt.com/investorswww.investors.itt.com copies of materials we file with, or furnish to, the SEC as soon as reasonably practical after we electronically file or furnish these reports, as well as other important information that we disclose from time to time. Information contained on our website, or that can be accessed through our website, does not constitute a part of this Quarterly Report on Form 10-Q (this Report). We have included our website address only as an inactive textual reference and do not intend it to be an active link to our website.
Our corporate headquarters are located at 1133 Westchester Avenue, White Plains, New York 10604100 Washington Boulevard, 6th Floor, Stamford, CT 06902 and the telephone number of this location is (914) 641-2000.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Some of the information included herein includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts, but rather represent only a belief regarding future events based on current expectations, estimates, assumptions and projections about our business, future financial results and the industry in which we operate, and other legal, regulatory and economic developments. These forward-looking statements include, but are not limited to, future strategic plans and other statements that describe the company’s business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future events and future operating or financial performance.
We use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “future,” “may,” “will,” “could,” “should,” “potential,” “continue,” “guidance” and other similar expressions to identify such forward-looking statements. Forward-looking statements are uncertain and, by their nature, many are inherently unpredictable and outside of ITT’s control, and involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such forward-looking statements.
Where in any forward-looking statement we express an expectation or belief as to future results or events, such expectation or belief is based on current plans and expectations of our management, expressed in good faith and believed to have a reasonable basis. However, there can be nowe cannot provide any assurance that the expectation or belief will occur or that anticipated results will be achieved or accomplished.
Among the factors that could cause our results to differ materially from those indicated by forward-looking statements are risks and uncertainties inherent in our business including, without limitation:
•impacts on our business due to the COVID-19 pandemic, including:
◦variant strains of the virus, as well as the timing, effectiveness and availability of, and people’s receptivity to, vaccines or other medical remedies;
◦disruptions to our operations and demand for our products, increased costs, disruption ofcontinued supply chain disruptions, and other constraints in the availability of key commodities and other necessary services;
◦government-mandated site closures, employee illness, skilled labor shortages, the impact of potential travel restrictions, stay-in-place restrictions, and vaccination requirements on our business and workforce; and
◦customer and supplier bankruptcies, impacts to the global economy and financial markets, and liquidity challenges in accessing capital markets;
•uncertain global economic and capital markets conditions, including those due to COVID-19, trade disputes between the U.S. and its trading partners, the new U.S. administration,impact of inflation, political and social unrest, and the availability and fluctuations in prices of steel, oil, copper, tin, and other commodities;
•volatility in raw material prices and our suppliers’ ability to meet quality and delivery requirements;
•failure to manage the distribution of products and services effectively;
•failure to compete successfully and innovate in our markets;
•failure to protect our intellectual property rights or violations of the intellectual property rights of others;
•the extent to which there are quality problems with respect to manufacturing processes or finished goods;
•the risk of cybersecurity breaches;
•loss of or decrease in sales from our most significant customers;
•risks due to our operations and sales outside the U.S. and in emerging markets;
•the impacts on our business from Russia’s invasion of Ukraine, and the global response to it;
•fluctuations in foreign currency exchange rates and the impact of such fluctuations on our effective tax rate, including as a resulthedging arrangements;
•fluctuations in interest rates and the impact of possible tax reform legislation in the U.S.;such fluctuations on our cost of debt;
•fluctuations in demand or customers’ levels of capital investment and maintenance expenditures, especially in the oil and gas, chemical, and mining markets, or changes in our customers’ anticipated production schedules, especially in the commercial aerospace market;
•failure to manage the distribution of products and services effectively;
•the risk of material business interruptions, particularly at our manufacturing facilities;
•risks due to our operationsrisk of liabilities from past divestitures and sales outside the U.S. and in emerging markets;
•the extent to which there are quality problems with respect to manufacturing processes or finished goods;
•loss of or decrease in sales from our most significant customers;
•fluctuations in foreign currency exchange rates;spin-offs;
•failure of portfolio management strategies, including cost-saving initiatives, to compete successfully and innovate in our markets;meet expectations;
•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, including the impact of the COVID-19 vaccine mandate on our ability to continue to participate in federal contracting;government;
•failure to protectfluctuations in our intellectual property rights or violationseffective tax rate, including as a result of possible tax reform legislation in the intellectual property rights of others;
•the risk of cybersecurity breaches;
•changes in laws relating to the use and transfer of personalU.S. and other information;
•failure of portfolio management strategies, including cost-saving initiatives, to meet expectations;jurisdictions;
•changes in environmental laws or regulations, discovery of previously unknown or more extensive contamination, or the failure of a potentially responsible party to perform;
•failure to comply with the U.S. Foreign Corrupt Practices Act (or other applicable anti-corruption legislation), export controls and trade sanctions, including tariffs;
•risk of product liability claims and litigation; and
•riskchanges in laws relating to the use and transfer of liabilities from past divestiturespersonal and spin-offs.other information.
More information on factors that could cause actual results or events to differ materially from those anticipated is included in Part II, Item 1A, “Risk Factors” herein, as well as in our reports filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 20202021 (particularly under the caption “Risk Factors”), our Quarterly Reports on Form 10-Q and in other documents we file from time to time with the SEC. The forward-looking statements included in this Report speak only as of the date of this Report. We undertake no obligation (and expressly disclaim any obligation) to update any forward-looking statements, whether written or oral or as a result of new information, future events or otherwise.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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| Three Months Ended | | Nine Months Ended |
| October 2, 2021 | | September 26, 2020 | | October 2, 2021 | | September 26, 2020 |
Revenue | $ | 689.6 | | | $ | 591.2 | | | $ | 2,079.6 | | | $ | 1,769.2 | |
Costs of revenue | 467.6 | | | 400.6 | | | 1,404.0 | | | 1,205.6 | |
Gross profit | 222.0 | | | 190.6 | | | 675.6 | | | 563.6 | |
General and administrative expenses | 55.9 | | | 47.1 | | | 168.2 | | | 148.8 | |
Sales and marketing expenses | 37.4 | | | 33.4 | | | 112.4 | | | 110.7 | |
Research and development expenses | 22.5 | | | 19.7 | | | 70.0 | | | 61.3 | |
Asbestos-related costs (benefit), net | — | | | 141.4 | | | (74.4) | | | 116.7 | |
Restructuring costs | 4.5 | | | 11.5 | | | 8.2 | | | 42.5 | |
Asset impairment charges | — | | | — | | | — | | | 16.3 | |
Operating income (loss) | 101.7 | | | (62.5) | | | 391.2 | | | 67.3 | |
Interest and non-operating expenses (income), net | 0.5 | | | 1.2 | | | (4.3) | | | 4.0 | |
Income (loss) from continuing operations before income tax expense (benefit) | 101.2 | | | (63.7) | | | 395.5 | | | 63.3 | |
Income tax expense (benefit) | 14.1 | | | (16.2) | | | 182.7 | | | (19.6) | |
Income (loss) from continuing operations | 87.1 | | | (47.5) | | | 212.8 | | | 82.9 | |
Income from discontinued operations, net of tax benefit (expense) of $0.5, $0.5, $0.5, and $(0.2), respectively | 0.9 | | | 1.2 | | | 0.9 | | | 3.9 | |
Net income (loss) | 88.0 | | | (46.3) | | | 213.7 | | | 86.8 | |
Less: Income attributable to noncontrolling interests | 0.5 | | | 0.5 | | | 1.0 | | | 0.8 | |
Net income (loss) attributable to ITT Inc. | $ | 87.5 | | | $ | (46.8) | | | $ | 212.7 | | | $ | 86.0 | |
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Amounts attributable to ITT Inc.: | | | | | | | |
Income (loss) from continuing operations, net of tax | $ | 86.6 | | | $ | (48.0) | | | $ | 211.8 | | | $ | 82.1 | |
Income from discontinued operations, net of tax | 0.9 | | | 1.2 | | | 0.9 | | | 3.9 | |
Net income (loss) attributable to ITT Inc. | $ | 87.5 | | | $ | (46.8) | | | $ | 212.7 | | | $ | 86.0 | |
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Earnings (loss) per share attributable to ITT Inc.: | | | | | | | |
Basic: | | | | | | | |
Continuing operations | $ | 1.01 | | | $ | (0.55) | | | $ | 2.46 | | | $ | 0.95 | |
Discontinued operations | 0.01 | | | 0.01 | | | 0.01 | | | 0.04 | |
Net income (loss) | $ | 1.02 | | | $ | (0.54) | | | $ | 2.47 | | | $ | 0.99 | |
Diluted: | | | | | | | |
Continuing operations | $ | 1.00 | | | $ | (0.55) | | | $ | 2.45 | | | $ | 0.94 | |
Discontinued operations | 0.01 | | | 0.01 | | | 0.01 | | | 0.04 | |
Net income (loss) | $ | 1.01 | | | $ | (0.54) | | | $ | 2.46 | | | $ | 0.98 | |
Weighted average common shares – basic | 85.9 | | | 86.4 | | | 86.1 | | | 86.8 | |
Weighted average common shares – diluted | 86.3 | | | 86.4 | | | 86.6 | | | 87.4 | |
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| Three Months Ended | | Six Months Ended |
| July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 |
Revenue | $ | 733.3 | | | $ | 691.6 | | | $ | 1,459.5 | | | $ | 1,390.0 | |
Cost of revenue | 511.1 | | | 467.0 | | | 1,018.9 | | | 936.4 | |
Gross profit | 222.2 | | | 224.6 | | | 440.6 | | | 453.6 | |
General and administrative expenses | 57.0 | | | 60.3 | | | 117.4 | | | 116.0 | |
Sales and marketing expenses | 40.4 | | | 38.3 | | | 78.8 | | | 75.0 | |
Research and development expenses | 24.3 | | | 23.2 | | | 49.3 | | | 47.5 | |
Asbestos-related benefit, net | — | | | (76.8) | | | — | | | (74.4) | |
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Operating income | 100.5 | | | 179.6 | | | 195.1 | | | 289.5 | |
Interest and non-operating expense (income), net | 0.5 | | | (3.5) | | | 0.3 | | | (4.8) | |
Income from continuing operations before income tax expense | 100.0 | | | 183.1 | | | 194.8 | | | 294.3 | |
Income tax expense | 24.0 | | | 143.9 | | | 43.5 | | | 168.6 | |
Income from continuing operations | 76.0 | | | 39.2 | | | 151.3 | | | 125.7 | |
Loss from discontinued operations, net of tax benefit of $0.4, $0.0, $0.4, and $0.0, respectively | (1.2) | | | — | | | (1.2) | | | — | |
Net income | 74.8 | | | 39.2 | | | 150.1 | | | 125.7 | |
Less: Income attributable to noncontrolling interests | 0.2 | | | 0.2 | | | 0.7 | | | 0.5 | |
Net income attributable to ITT Inc. | $ | 74.6 | | | $ | 39.0 | | | $ | 149.4 | | | $ | 125.2 | |
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Amounts attributable to ITT Inc.: | | | | | | | |
Income from continuing operations | $ | 75.8 | | | $ | 39.0 | | | $ | 150.6 | | | $ | 125.2 | |
Loss from discontinued operations, net of tax | (1.2) | | | — | | | (1.2) | | | — | |
Net income attributable to ITT Inc. | $ | 74.6 | | | $ | 39.0 | | | $ | 149.4 | | | $ | 125.2 | |
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Earnings per share attributable to ITT Inc.: | | | | | | | |
Basic: | | | | | | | |
Continuing operations | $ | 0.91 | | | $ | 0.45 | | | $ | 1.79 | | | $ | 1.45 | |
Discontinued operations | (0.01) | | | — | | | (0.01) | | | — | |
Net income | $ | 0.90 | | | $ | 0.45 | | | $ | 1.78 | | | $ | 1.45 | |
Diluted: | | | | | | | |
Continuing operations | $ | 0.91 | | | $ | 0.45 | | | $ | 1.79 | | | $ | 1.44 | |
Discontinued operations | (0.02) | | | — | | | (0.02) | | | — | |
Net income | $ | 0.89 | | | $ | 0.45 | | | $ | 1.77 | | | $ | 1.44 | |
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Weighted average common shares – basic | 83.1 | | | 86.1 | | | 84.0 | | | 86.2 | |
Weighted average common shares – diluted | 83.4 | | | 86.5 | | | 84.3 | | | 86.7 | |
The accompanying Notes to the Consolidated Condensed Financial Statements are an integral part of the Statements of Operations.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(IN MILLIONS)
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| Three Months Ended | | Nine Months Ended |
| October 2, 2021 | | September 26, 2020 | | October 2, 2021 | | September 26, 2020 |
Net income (loss) | $ | 88.0 | | | $ | (46.3) | | | $ | 213.7 | | | $ | 86.8 | |
Other comprehensive (loss) income: | | | | | | | |
Net foreign currency translation adjustment | (21.5) | | | 23.5 | | | (43.1) | | | (25.7) | |
Net change in postretirement benefit plans, net of tax expense of $0.8, $0.6, $0.6, and $1.2, respectively | 3.1 | | | 1.8 | | | 3.1 | | | 3.6 | |
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Other comprehensive (loss) income | (18.4) | | | 25.3 | | | (40.0) | | | (22.1) | |
Comprehensive income (loss) | 69.6 | | | (21.0) | | | 173.7 | | | 64.7 | |
Less: Comprehensive income attributable to noncontrolling interests | 0.5 | | | 0.5 | | | 1.0 | | | 0.8 | |
Comprehensive income (loss) attributable to ITT Inc. | $ | 69.1 | | | $ | (21.5) | | | $ | 172.7 | | | $ | 63.9 | |
Disclosure of reclassification and other adjustments to postretirement benefit plans: |
Reclassification adjustments (see Note 15): |
Amortization of prior service benefit, net of tax expense of $(0.2), $(0.3), $(0.8) and $(0.9), respectively | $ | (0.7) | | | $ | (1.0) | | | $ | (2.6) | | | $ | (2.9) | |
Amortization of net actuarial loss, net of tax benefit of $0.1, $0.6, $0.5 and $1.8, respectively | 0.9 | | | 1.8 | | | 2.8 | | | 5.5 | |
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Other adjustments: | | | | | | | |
Net actuarial gain, net of tax expense of $0.9, $0.3, $0.9 and $0.3, respectively | 2.9 | | | 1.0 | | | 2.9 | | | 1.0 | |
Net change in postretirement benefit plans, net of tax | $ | 3.1 | | | $ | 1.8 | | | $ | 3.1 | | | $ | 3.6 | |
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| Three Months Ended | | Six Months Ended |
| July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 |
Net income | $ | 74.8 | | | $ | 39.2 | | | $ | 150.1 | | | $ | 125.7 | |
Other comprehensive (loss) income: | | | | | | | |
Net foreign currency translation adjustment | (70.8) | | | 8.4 | | | (82.5) | | | (21.6) | |
Net change in postretirement benefit plans, net of tax expense of $(0.2), $(0.1), $(0.3) and $(0.2), respectively | (0.2) | | | — | | | (0.5) | | | — | |
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Other comprehensive (loss) income | (71.0) | | | 8.4 | | | (83.0) | | | (21.6) | |
Comprehensive income | 3.8 | | | 47.6 | | | 67.1 | | | 104.1 | |
Less: Comprehensive income attributable to noncontrolling interests | 0.2 | | | 0.2 | | | 0.7 | | | 0.5 | |
Comprehensive income attributable to ITT Inc. | $ | 3.6 | | | $ | 47.4 | | | $ | 66.4 | | | $ | 103.6 | |
Disclosure of reclassification adjustments to postretirement benefit plans: |
Reclassification adjustments: |
Amortization of prior service benefit, net of tax expense of $(0.3), $(0.3), $(0.6) and $(0.6), respectively | $ | (0.9) | | | $ | (0.9) | | | $ | (1.9) | | | $ | (1.9) | |
Amortization of net actuarial loss, net of tax benefit of $0.1, $0.2, $0.3 and $0.4, respectively | 0.7 | | | 0.9 | | | 1.4 | | | 1.9 | |
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Net change in postretirement benefit plans, net of tax | $ | (0.2) | | | $ | — | | | $ | (0.5) | | | $ | — | |
The accompanying Notes to the Consolidated Condensed Financial Statements are an integral part of the Statements of Comprehensive Income.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
| | October 2, 2021 | | December 31, 2020 | |
As of the Period Ended | | As of the Period Ended | July 2, 2022 | | December 31, 2021 |
Assets | Assets | | Assets | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 585.8 | | | $ | 859.8 | | Cash and cash equivalents | $ | 525.7 | | | $ | 647.5 | |
Receivables, net | Receivables, net | 560.2 | | | 507.5 | | Receivables, net | 605.7 | | | 555.1 | |
Inventories, net | Inventories, net | 413.7 | | | 360.5 | | Inventories, net | 535.2 | | | 430.9 | |
Other current assets | Other current assets | 82.1 | | | 189.5 | | Other current assets | 109.8 | | | 88.6 | |
Total current assets | Total current assets | 1,641.8 | | | 1,917.3 | | Total current assets | 1,776.4 | | | 1,722.1 | |
Non-current assets: | | Non-current assets: | |
Plant, property and equipment, net | Plant, property and equipment, net | 494.7 | | | 525.1 | | Plant, property and equipment, net | 501.2 | | | 509.1 | |
Goodwill | Goodwill | 929.1 | | | 944.8 | | Goodwill | 963.8 | | | 924.3 | |
Other intangible assets, net | Other intangible assets, net | 90.8 | | | 106.4 | | Other intangible assets, net | 121.7 | | | 85.7 | |
Asbestos-related assets | — | | | 353.7 | | |
Deferred income taxes | 36.9 | | | 158.3 | | |
Other non-current assets | Other non-current assets | 260.9 | | | 272.0 | | Other non-current assets | 336.8 | | | 324.2 | |
Total non-current assets | Total non-current assets | 1,812.4 | | | 2,360.3 | | Total non-current assets | 1,923.5 | | | 1,843.3 | |
Total assets | Total assets | $ | 3,454.2 | | | $ | 4,277.6 | | Total assets | $ | 3,699.9 | | | $ | 3,565.4 | |
Liabilities and Shareholders’ Equity | Liabilities and Shareholders’ Equity | | Liabilities and Shareholders’ Equity | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Commercial paper and current maturities of long-term debt | Commercial paper and current maturities of long-term debt | $ | 198.6 | | | $ | 106.8 | | Commercial paper and current maturities of long-term debt | $ | 551.4 | | | $ | 197.6 | |
Accounts payable | Accounts payable | 342.0 | | | 306.8 | | Accounts payable | 418.1 | | | 373.4 | |
Accrued liabilities | Accrued liabilities | 358.6 | | | 457.4 | | Accrued liabilities | 333.9 | | | 357.3 | |
Total current liabilities | Total current liabilities | 899.2 | | | 871.0 | | Total current liabilities | 1,303.4 | | | 928.3 | |
Asbestos-related liabilities | — | | | 840.6 | | |
Non-current liabilities: | | Non-current liabilities: | |
Postretirement benefits | Postretirement benefits | 215.1 | | | 227.5 | | Postretirement benefits | 190.9 | | | 199.9 | |
Other non-current liabilities | Other non-current liabilities | 194.9 | | | 210.6 | | Other non-current liabilities | 189.0 | | | 206.5 | |
Total non-current liabilities | Total non-current liabilities | 410.0 | | | 1,278.7 | | Total non-current liabilities | 379.9 | | | 406.4 | |
Total liabilities | Total liabilities | 1,309.2 | | | 2,149.7 | | Total liabilities | 1,683.3 | | | 1,334.7 | |
Shareholders’ equity: | Shareholders’ equity: | | Shareholders’ equity: | |
Common stock: | Common stock: | | Common stock: | |
Authorized – 250.0 shares, $1 par value per share | Authorized – 250.0 shares, $1 par value per share | | Authorized – 250.0 shares, $1 par value per share | |
Issued and outstanding – 85.6 shares and 86.5 shares, respectively | 85.6 | | | 86.5 | | |
Issued and outstanding – 82.7 shares and 85.5 shares, respectively | | Issued and outstanding – 82.7 shares and 85.5 shares, respectively | 82.7 | | | 85.5 | |
Retained earnings | Retained earnings | 2,376.8 | | | 2,319.3 | | Retained earnings | 2,329.9 | | | 2,461.6 | |
Total accumulated other comprehensive loss | Total accumulated other comprehensive loss | (319.4) | | | (279.4) | | Total accumulated other comprehensive loss | (404.3) | | | (321.3) | |
Total ITT Inc. shareholders’ equity | Total ITT Inc. shareholders’ equity | 2,143.0 | | | 2,126.4 | | Total ITT Inc. shareholders’ equity | 2,008.3 | | | 2,225.8 | |
Noncontrolling interests | Noncontrolling interests | 2.0 | | | 1.5 | | Noncontrolling interests | 8.3 | | | 4.9 | |
Total shareholders’ equity | Total shareholders’ equity | 2,145.0 | | | 2,127.9 | | Total shareholders’ equity | 2,016.6 | | | 2,230.7 | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 3,454.2 | | | $ | 4,277.6 | | Total liabilities and shareholders’ equity | $ | 3,699.9 | | | $ | 3,565.4 | |
The accompanying Notes to the Consolidated Condensed Financial Statements are an integral part of the Balance Sheets.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
| | Nine Months Ended | |
| October 2, 2021 | | September 26, 2020 | |
For the Six Months Ended | | For the Six Months Ended | July 2, 2022 | | July 3, 2021 |
Operating Activities | Operating Activities | | Operating Activities | |
Income from continuing operations attributable to ITT Inc. | Income from continuing operations attributable to ITT Inc. | $ | 211.8 | | | $ | 82.1 | | Income from continuing operations attributable to ITT Inc. | $ | 150.6 | | | $ | 125.2 | |
Adjustments to income from continuing operations: | Adjustments to income from continuing operations: | | Adjustments to income from continuing operations: | |
Depreciation and amortization | Depreciation and amortization | 85.3 | | | 82.0 | | Depreciation and amortization | 55.3 | | | 57.2 | |
Equity-based compensation | Equity-based compensation | 11.8 | | | 9.7 | | Equity-based compensation | 8.7 | | | 7.4 | |
| Asbestos-related (benefit) costs, net | (74.4) | | | 116.7 | | |
Asbestos-related costs (benefit), net | | Asbestos-related costs (benefit), net | — | | | (74.4) | |
| Asset impairment charges | — | | | 16.3 | | |
Other non-cash charges, net | Other non-cash charges, net | 17.9 | | | 33.5 | | Other non-cash charges, net | 17.3 | | | 11.2 | |
Asbestos-related payments, net | (14.9) | | | (8.9) | | |
Divestiture of asbestos-related assets and liabilities | Divestiture of asbestos-related assets and liabilities | (398.0) | | | — | | Divestiture of asbestos-related assets and liabilities | — | | | (398.0) | |
Changes in assets and liabilities: | Changes in assets and liabilities: | | Changes in assets and liabilities: | |
Change in receivables | Change in receivables | (63.0) | | | 77.8 | | Change in receivables | (77.6) | | | (51.6) | |
Change in inventories | Change in inventories | (62.6) | | | 13.8 | | Change in inventories | (106.5) | | | (50.8) | |
| Change in contract assets | | Change in contract assets | (10.9) | | | 4.0 | |
Change in contract liabilities | | Change in contract liabilities | 18.7 | | | (11.6) | |
Change in accounts payable | Change in accounts payable | 48.1 | | | (34.8) | | Change in accounts payable | 65.3 | | | 32.1 | |
Change in accrued expenses | Change in accrued expenses | 9.5 | | | 17.3 | | Change in accrued expenses | (33.0) | | | 20.5 | |
Change in income taxes | Change in income taxes | 129.4 | | | (63.9) | | Change in income taxes | (3.5) | | | 123.1 | |
Other, net | Other, net | (28.8) | | | (23.5) | | Other, net | (30.2) | | | (25.9) | |
Net Cash – Operating Activities | Net Cash – Operating Activities | (127.9) | | | 318.1 | | Net Cash – Operating Activities | 54.2 | | | (231.6) | |
Investing Activities | Investing Activities | | Investing Activities | |
Capital expenditures | Capital expenditures | (52.6) | | | (47.6) | | Capital expenditures | (47.5) | | | (35.1) | |
| Acquisitions, net of cash acquired | | Acquisitions, net of cash acquired | (146.9) | | | — | |
Payments to acquire interest in unconsolidated subsidiaries | | Payments to acquire interest in unconsolidated subsidiaries | (25.1) | | | — | |
| Other, net | Other, net | (1.3) | | | (2.8) | | Other, net | 1.1 | | | 0.4 | |
Net Cash – Investing Activities | Net Cash – Investing Activities | (53.9) | | | (50.4) | | Net Cash – Investing Activities | (218.4) | | | (34.7) | |
Financing Activities | Financing Activities | | Financing Activities | |
Commercial paper, net borrowings | Commercial paper, net borrowings | 95.4 | | | 30.7 | | Commercial paper, net borrowings | 364.6 | | | 95.4 | |
Short-term revolving loans, borrowings | — | | | 495.8 | | |
Short-term revolving loans, repayments | — | | | (524.7) | | |
Long-term debt, issued | — | | | 1.5 | | |
| Long-term debt, repayments | Long-term debt, repayments | (1.3) | | | (1.3) | | Long-term debt, repayments | (1.1) | | | (1.3) | |
Repurchase of common stock | (111.7) | | | (83.9) | | |
| Share repurchases under repurchase plan | | Share repurchases under repurchase plan | (240.9) | | | (50.4) | |
Share repurchases from net settlement of employee stock incentive plans | | Share repurchases from net settlement of employee stock incentive plans | (8.5) | | | (11.0) | |
Dividends paid | Dividends paid | (57.0) | | | (29.7) | | Dividends paid | (44.3) | | | (38.1) | |
Other, net | Other, net | 0.4 | | | 1.7 | | Other, net | 0.7 | | | 0.3 | |
Net Cash – Financing Activities | Net Cash – Financing Activities | (74.2) | | | (109.9) | | Net Cash – Financing Activities | 70.5 | | | (5.1) | |
Exchange rate effects on cash and cash equivalents | Exchange rate effects on cash and cash equivalents | (18.5) | | | 12.2 | | Exchange rate effects on cash and cash equivalents | (28.1) | | | (9.2) | |
Net cash – operating activities of discontinued operations | Net cash – operating activities of discontinued operations | 0.7 | | | 0.2 | | Net cash – operating activities of discontinued operations | — | | | (0.2) | |
Net change in cash and cash equivalents | Net change in cash and cash equivalents | (273.8) | | | 170.2 | | Net change in cash and cash equivalents | (121.8) | | | (280.8) | |
Cash and cash equivalents – beginning of year (includes restricted cash of $0.8 and $0.8, respectively) | Cash and cash equivalents – beginning of year (includes restricted cash of $0.8 and $0.8, respectively) | 860.6 | | | 612.9 | | Cash and cash equivalents – beginning of year (includes restricted cash of $0.8 and $0.8, respectively) | 648.3 | | | 860.6 | |
Cash and Cash Equivalents – End of Period (includes restricted cash of $1.0 and $0.8, respectively) | $ | 586.8 | | | $ | 783.1 | | |
Cash and Cash Equivalents – End of Period (includes restricted cash of $0.8 and $1.0, respectively) | | Cash and Cash Equivalents – End of Period (includes restricted cash of $0.8 and $1.0, respectively) | $ | 526.5 | | | $ | 579.8 | |
Supplemental Disclosures of Cash Flow Information | Supplemental Disclosures of Cash Flow Information | | Supplemental Disclosures of Cash Flow Information | |
Cash paid during the year for: | Cash paid during the year for: | | Cash paid during the year for: | |
Interest | Interest | $ | 3.3 | | | $ | 2.6 | | Interest | $ | 2.6 | | | $ | 0.7 | |
Income taxes, net of refunds received | Income taxes, net of refunds received | $ | 50.2 | | | $ | 40.9 | | Income taxes, net of refunds received | $ | 45.2 | | | $ | 42.3 | |
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The accompanying Notes to the Consolidated Condensed Financial Statements are an integral part of the Statements of Cash Flows.
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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As of and for the Three Months Ended October 2, 2021 | Common Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interest | | Total Shareholders' Equity |
| (Shares) | | (Dollars) | | | | | | | | |
July 3, 2021 | 86.1 | | 86.1 | | $ | 2,353.1 | | | $ | (301.0) | | | $ | 2.1 | | | $ | 2,140.3 | |
Net income | — | | | — | | | 87.5 | | — | | | 0.5 | | | 88.0 | |
Activity from stock incentive plans | 0.1 | | 0.1 | | 4.9 | | — | | | — | | | 5.0 | |
Share repurchases | (0.6) | | | (0.6) | | | (49.7) | | | — | | | — | | | (50.3) | |
Dividends declared ($0.22 per share) | — | | | — | | | (19.0) | | | — | | | — | | | (19.0) | |
Dividends to noncontrolling interest | — | | | — | | | — | | | — | | | (0.4) | | | (0.4) | |
Total other comprehensive loss, net of tax | — | | | — | | | — | | | (18.4) | | | — | | | (18.4) | |
Other | — | | | — | | | — | | | — | | | (0.2) | | | (0.2) | |
October 2, 2021 | 85.6 | | | $ | 85.6 | | | $ | 2,376.8 | | | $ | (319.4) | | | $ | 2.0 | | | $ | 2,145.0 | |
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As of and for the Three Months Ended July 2, 2022 | Common Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interest | | Total Shareholders' Equity |
| (Shares) | | (Dollars) | | | | | | | | |
April 2, 2022 | 83.6 | | 83.6 | | $ | 2,334.6 | | | $ | (333.3) | | | $ | 5.3 | | | $ | 2,090.2 | |
Net income | — | | | — | | | 74.6 | | — | | | 0.2 | | | 74.8 | |
Shares issued and activity from stock incentive plans | — | | | — | | | 5.0 | | | — | | | — | | | 5.0 | |
Share repurchases under repurchase plan | (0.9) | | | (0.9) | | | (62.1) | | | — | | | — | | | (63.0) | |
Share repurchases from net settlement of employee stock incentive plans | — | | | — | | | (0.1) | | | — | | | — | | | (0.1) | |
Dividends declared ($0.264 per share) | — | | | — | | | (22.0) | | | — | | | — | | | (22.0) | |
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Purchase of noncontrolling interest | — | | | — | | | — | | | — | | | 2.7 | | | 2.7 | |
Total other comprehensive loss, net of tax | — | | | — | | | — | | | (71.0) | | | — | | | (71.0) | |
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Other | — | | | — | | | (0.1) | | | — | | | 0.1 | | | — | |
July 2, 2022 | 82.7 | | | $ | 82.7 | | | $ | 2,329.9 | | | $ | (404.3) | | | $ | 8.3 | | | $ | 2,016.6 | |
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As of and for the Six Months Ended July 2, 2022 | | | | | | | | |
December 31, 2021 | 85.5 | | | $ | 85.5 | | | $ | 2,461.6 | | | $ | (321.3) | | | $ | 4.9 | | | $ | 2,230.7 | |
Net income | — | | | — | | | 149.4 | | | — | | | 0.7 | | | 150.1 | |
Shares issued and activity from stock incentive plans | 0.3 | | | 0.3 | | | 9.1 | | | — | | | — | | | 9.4 | |
Share repurchases under repurchase plan | (3.0) | | | (3.0) | | | (237.9) | | | — | | | — | | | (240.9) | |
Share repurchases from net settlement of employee stock incentive plans | (0.1) | | | (0.1) | | | (8.4) | | | — | | | — | | | (8.5) | |
Dividends declared ($0.528 per share) | — | | | — | | | (43.9) | | | — | | | — | | | (43.9) | |
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Purchase of noncontrolling interest | — | | | — | | | — | | | — | | | 2.7 | | | 2.7 | |
Total other comprehensive loss, net of tax | — | | | — | | | — | | | (83.0) | | | — | | | (83.0) | |
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July 2, 2022 | 82.7 | | | $ | 82.7 | | | $ | 2,329.9 | | | $ | (404.3) | | | $ | 8.3 | | | $ | 2,016.6 | |
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As of and for the Nine Months Ended October 2, 2021 | | | | | | | | |
December 31, 2020 | 86.5 | | | $ | 86.5 | | | $ | 2,319.3 | | | $ | (279.4) | | | $ | 1.5 | | | $ | 2,127.9 | |
Net income | — | | | — | | | 212.7 | | | — | | | 1.0 | | | 213.7 | |
Activity from stock incentive plans | 0.4 | | | 0.4 | | | 12.5 | | | — | | | — | | | 12.9 | |
Share repurchases | (1.3) | | | (1.3) | | | (110.4) | | | — | | | — | | | (111.7) | |
Dividends declared ($0.66 per share) | — | | | — | | | (57.3) | | | — | | | — | | | (57.3) | |
Dividends to noncontrolling interest | — | | | — | | | — | | | — | | | (0.4) | | | (0.4) | |
Total other comprehensive loss, net of tax | — | | | — | | | — | | | (40.0) | | | — | | | (40.0) | |
Other | — | | | — | | | — | | | — | | | (0.1) | | | (0.1) | |
October 2, 2021 | 85.6 | | | $ | 85.6 | | | $ | 2,376.8 | | | $ | (319.4) | | | $ | 2.0 | | | $ | 2,145.0 | |
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As of and for the Three Months Ended September 26, 2020 | | | | | | | | |
June 27, 2020 | 86.3 | | | $ | 86.3 | | | $ | 2,398.2 | | | $ | (432.7) | | | $ | 3.2 | | | $ | 2,055.0 | |
Net (loss) income | — | | | — | | | (46.8) | | | — | | | 0.5 | | | (46.3) | |
Activity from stock incentive plans | 0.1 | | | 0.1 | | | 5.4 | | | — | | | — | | | 5.5 | |
Share repurchases | — | | | — | | | (0.2) | | | — | | | — | | | (0.2) | |
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Dividends declared ($0.169 per share) | — | | | — | | | (14.7) | | | — | | | — | | | (14.7) | |
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Total other comprehensive income, net of tax | — | | | — | | | — | | | 25.3 | | | — | | | 25.3 | |
Other | — | | | — | | | — | | | — | | | (0.1) | | | (0.1) | |
September 26, 2020 | 86.4 | | | $ | 86.4 | | | $ | 2,341.9 | | | $ | (407.4) | | | $ | 3.6 | | | $ | 2,024.5 | |
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As of and for the Nine Months Ended September 26, 2020 | | | | | | | | |
December 31, 2019 | 87.8 | | | $ | 87.8 | | | $ | 2,372.4 | | | $ | (385.3) | | | $ | 2.9 | | | $ | 2,077.8 | |
Net income | — | | | — | | | 86.0 | | | — | | | 0.8 | | | 86.8 | |
Activity from stock incentive plans | 0.5 | | | 0.5 | | | 10.9 | | | — | | | — | | | 11.4 | |
Share repurchases | (1.9) | | | (1.9) | | | (82.0) | | | — | | | — | | | (83.9) | |
Cumulative adjustment for accounting change | — | | | — | | | (1.2) | | | — | | | — | | | (1.2) | |
Dividends declared ($0.507 per share) | — | | | — | | | (44.2) | | | — | | | — | | | (44.2) | |
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Total other comprehensive loss, net of tax | — | | | — | | | — | | | (22.1) | | | — | | | (22.1) | |
Other | — | | | — | | | — | | | — | | | (0.1) | | | (0.1) | |
September 26, 2020 | 86.4 | | | $ | 86.4 | | | $ | 2,341.9 | | | $ | (407.4) | | | $ | 3.6 | | | $ | 2,024.5 | |
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CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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As of and for the Three Months Ended July 3, 2021 | Common Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interest | | Total Shareholders' Equity |
April 3, 2021 | 86.1 | | | $ | 86.1 | | | $ | 2,329.4 | | | $ | (309.4) | | | $ | 1.8 | | | $ | 2,107.9 | |
Net income | — | | | — | | | 39.0 | | | — | | | 0.2 | | | 39.2 | |
Shares issued and activity from stock incentive plans | — | | | — | | | 4.4 | | | — | | | — | | | 4.4 | |
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Share repurchases from net settlement of employee stock incentive plans | — | | | — | | | (0.4) | | | — | | | — | | | (0.4) | |
Dividends declared ($0.22 per share) | — | | | — | | | (19.3) | | | — | | | — | | | (19.3) | |
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Total other comprehensive income, net of tax | — | | | — | | | — | | | 8.4 | | | — | | | 8.4 | |
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Other | — | | | — | | | — | | | — | | | 0.1 | | | 0.1 | |
July 3, 2021 | 86.1 | | | $ | 86.1 | | | $ | 2,353.1 | | | $ | (301.0) | | | $ | 2.1 | | | $ | 2,140.3 | |
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As of and for the Six Months Ended July 3, 2021 | | | | | | | | |
December 31, 2020 | 86.5 | | | $ | 86.5 | | | $ | 2,319.3 | | | $ | (279.4) | | | $ | 1.5 | | | $ | 2,127.9 | |
Net income | — | | | — | | | 125.2 | | | — | | | 0.5 | | | 125.7 | |
Shares issued and activity from stock incentive plans | 0.3 | | | 0.3 | | | 7.6 | | | — | | | — | | | 7.9 | |
Share repurchases under repurchase plan | (0.6) | | | (0.6) | | | (49.4) | | | — | | | — | | | (50.0) | |
Share repurchases from net settlement of employee stock incentive plans | (0.1) | | | (0.1) | | | (11.3) | | | — | | | — | | | (11.4) | |
Dividends declared ($0.44 per share) | — | | | — | | | (38.3) | | | — | | | — | | | (38.3) | |
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Total other comprehensive loss, net of tax | — | | | — | | | — | | | (21.6) | | | — | | | (21.6) | |
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Other | — | | | — | | | — | | | — | | | 0.1 | | | 0.1 | |
July 3, 2021 | 86.1 | | | $ | 86.1 | | | $ | 2,353.1 | | | $ | (301.0) | | | $ | 2.1 | | | $ | 2,140.3 | |
The accompanying Notes to the Consolidated Condensed Financial Statements are an integral part of the Statements of Changes in Shareholders’ Equity.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS AND SHARES (EXCEPT PER SHARE AMOUNTS) IN MILLIONS, UNLESS OTHERWISE STATED)
NOTE 1
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
ITT Inc. is a diversified manufacturer of highly engineered critical components and customized technology solutions for the transportation, industrial, and energy markets. Unless the context otherwise indicates, references herein to “ITT,” “the Company,” and such words as “we,” “us,” and “our” include ITT Inc. and its subsidiaries. ITT operates through three reportable segments: Motion Technologies (MT), consisting of friction and shock and vibration equipment; Industrial Process (IP), consisting of industrial flow equipment and services; and Connect & Control Technologies (CCT), consisting of electronic connectors, fluid handling, motion control, composite materials and noise and energy absorption products. Financial information for our segments is presented in Note 3, Segment Information. In March 2020,Business Combination
During the World Health Organization declaredsecond quarter of 2022, we completed the outbreakacquisition of 100% of the novel coronavirus (COVID-19)privately held stock of Habonim Industrial Valves and Actuators Ltd. (Habonim), a pandemic, resultingleading provider of industrial valves and actuators for the gas distribution (including liquified natural gas), biotech, and harsh application service sectors, for a purchase price of $139.9. Habonim reported 2021 annual sales of $44. Habonim’s results are reported within the Industrial Process segment beginning in the second quarter of 2022. Refer to Note 19, Acquisitions and Investments for detailed information. Divestiture of InTelCo Management LLC (InTelCo)
Effective July 1, 2021, the Company divested InTelCo, the entity holding asbestos-related assets and liabilities, to a third-party. See Note 17, Commitments and Contingencies, for further information. Russia-Ukraine Conflict
In February 2022, the United States announced targeted economic sanctions on Russia and certain local government-mandated site closures. While mostRussian citizens in response to Russia’s invasion of Ukraine. As described in Part I, Item IA, “Risk Factors” in our 2021 Annual Report for the fiscal year ended December 31, 2021, our business may be sensitive to global economic conditions, which can be negatively impacted by instability in the geopolitical environment. Our annual sales directly to customers in Russia and Ukraine were approximately $38 for 2021. During the six months ended July 2, 2022, we recorded total charges of $8.0, primarily related to inventory and accounts receivable reserves, to reflect the current macroeconomic conditions impacting some of our businesses were deemed essential,customers that sell or supply into this region. If circumstances worsen, we have experiencedmay experience a further reduction in demand and continue to experience disruption inincur additional charges, including potential fixed asset impairments, severance and other reserves. We are currently exploring alternatives for our operations due to supply chain challenges, decreased customer demand, and elevated safety standards to keep our employees safe. The Company continues to face certain risks and uncertainties resulting from the COVID-19 pandemic, including variant strainsin Russia, which could include a sale, disposition or wind down of operations, or a combination of these alternatives, although there cannot be any assurance of the virus, as well as the timing, effectiveness, and availabilitytimeline for or success of and people’s receptivity to, COVID-19 vaccines or other medical remedies and potential impacts from mandatory vaccination requirements. Due to these uncertainties, the severity and extent of future impacts from COVID-19, including from variant strainsalternatives. For additional discussion of the virus, cannot be reasonably estimated at this time.risks related to the Russia-Ukraine conflict, see Part II, Item 1A, “Risk Factors” herein. Basis of Presentation
The unaudited consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the SEC and, in the opinion of management, reflect all known adjustments (which consist primarily of normal, recurring accruals, estimates and assumptions) necessary to state fairly the financial position, results of operations, and cash flows for the periods presented. The Consolidated Condensed Balance Sheet as of December 31, 2020,2021, presented herein, has been derived from our audited balance sheet included in our Annual Report on Form 10-K (20202021 Annual Report) for the year ended December 31, 20202021, but does not include all disclosures required by GAAP.accounting principles generally accepted in the United States (GAAP). We consistently applied the accounting policies described in the 20202021 Annual Report in preparing these unaudited financial statements. These financial statements should be read in conjunction with the financial statements and notes thereto included in our 20202021 Annual Report. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Estimates are revised as additional information becomes available and may be impacted by the duration and severity of the COVID-19 pandemic.available. Estimates and assumptions are used for, but not limited to, revenue recognition, unrecognized tax benefits, deferred tax valuation allowances, projected benefit obligations for postretirement plans, accounting for business combinations, goodwill and other intangible asset impairment testing, environmental liabilities and assets, allowance for credit losses and inventory valuation. Actual results could differ from these estimates.
Effective July 1, 2021, the Company divested the entity holding legacy asbestos-related assets and liabilities to a third-party. As a result of the transaction, all associated asbestos-related assets and liabilities were removed from the Company’s consolidated balance sheet. See Note 19, Commitments and Contingencies, for further information.ITT’s quarterly financial periods end on the Saturday that is closest to the last day of the calendar quarter, except for the last quarterly period of the fiscal year, which ends on December 31st.31st. ITT’s thirdsecond quarter for 20212022 and 20202021 ended on OctoberJuly 2, 2022 and July 3, 2021, and September 26, 2020, respectively, and were both thirteen-week periods.respectively.
Certain prior year amounts have been reclassified to conform to the current year presentation.
NOTE 2
RECENT ACCOUNTING PRONOUNCEMENTS
The Company considers the applicability and impact of all accounting standard updates (ASUs). ASUs not listed below were assessed and determined to be either not applicable or are not expected to not have a material impact on our consolidated financial position or results of operations.
Recent Accounting Pronouncements Not Yet Adopted:
In March 2020 and JanuaryOctober 2021, the FASB issued ASU 2020-04, 2021-08Reference Rate Reform, Business Combinations (Topic 848)805): FacilitationAccounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquiror on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. Under the previous guidance, such assets and liabilities were recognized by the acquiror at fair value as of the Effects of Reference Rate Reformon Financial Reportingacquisition date. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022. Early adoption is permitted. We have adopted and ASU 2021-01, Reference Rate Reform (Topic 848): Scope, respectively. Together, the ASUs provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance was effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. We do not expectapplied this guidance toin connection with the Habonim acquisition. The adoption of this guidance did not have a significant impact on our operating results, financial position, or cash flows; however, we will continue to monitor the potential impact, if adopted.flows.
NOTE 3
SEGMENT INFORMATION
The Company’s segments are reported on the same basis used by our Chief Executive Officer, who is also our chief operating decision maker, for evaluating performance and for allocating resources. Our 3 reportable segments are referred to as Motion Technologies, Industrial Process, and Connect & Control Technologies.
Motion Technologies manufactures brake components and specialized sealing solutions, shock absorbers and damping technologies primarily for the global automotive, truck and trailer, public bus and rail transportation markets.
Industrial Process manufactures engineered fluid process equipment serving a diversified mix of customers in global industries such as chemical, energy, mining, and other industrial process markets and is a provider of plant optimization and efficiency solutions and aftermarket services and parts.
Connect & Control Technologies manufactures harsh-environment connector solutions, critical energy absorption, flow control components, and composite materials for the aerospace and defense, general industrial, medical, and energy markets.
Corporate and Other consists of corporate office expenses including compensation, benefits, occupancy, depreciation, certain acquisition- and investment-related due diligence, and other administrative costs, as well as charges related to certain matters, such as asbestosenvironmental liabilities, and, environmental liabilities,for 2021, asbestos-related impacts, that are managed at a corporate level and are not included in segment results when evaluating performance or allocating resources. Corporate and Other also includes research and development-related expenses associated with a subsidiary that does not constitute a reportable segment. Assets of the segments exclude general corporate assets, which principally consist of cash, investments, asbestos-related receivables, deferred taxes, and certain property, plant and equipment.
The following tables presenttable presents our revenue, operating income, and operating margin for each segment.
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| Revenue | | Operating Income | | Operating Margin |
For the Three Months Ended | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 |
Motion Technologies | $ | 331.3 | | | $ | 343.6 | | | $ | 47.0 | | | $ | 64.7 | | | 14.2 | % | | 18.8 | % |
Industrial Process | 239.6 | | | 213.9 | | | 39.1 | | | 31.5 | | | 16.3 | % | | 14.7 | % |
Connect & Control Technologies | 163.2 | | | 134.5 | | | 28.2 | | | 17.9 | | | 17.3 | % | | 13.3 | % |
Eliminations | (0.8) | | | (0.4) | | | — | | | — | | | — | | | — | |
Total segment results | 733.3 | | | 691.6 | | | 114.3 | | | 114.1 | | | 15.6 | % | | 16.5 | % |
Asbestos-related benefit, net(a) | — | | | — | | | — | | | 76.8 | | | — | | | — | |
Other Corporate costs | — | | | — | | | (13.8) | | | (11.3) | | | — | | | — | |
Total Corporate and other costs | — | | | — | | | (13.8) | | | 65.5 | | | — | | | — | |
Total | $ | 733.3 | | | $ | 691.6 | | | $ | 100.5 | | | $ | 179.6 | | | 13.7 | % | | 26.0 | % |
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| Revenue | | Operating Income | | Operating Margin |
For the Three Months Ended | October 2, 2021 | | September 26, 2020 | | October 2, 2021 | | September 26, 2020 | | October 2, 2021 | | September 26, 2020 |
Motion Technologies | $ | 332.3 | | | $ | 271.8 | | | $ | 53.6 | | | $ | 50.4 | | | 16.1 | % | | 18.5 | % |
Industrial Process | 210.7 | | | 194.1 | | | 32.4 | | | 17.1 | | | 15.4 | % | | 8.8 | % |
Connect & Control Technologies | 147.1 | | | 125.9 | | | 25.2 | | | 16.4 | | | 17.1 | % | | 13.0 | % |
Eliminations | (0.5) | | | (0.6) | | | — | | | — | | | — | | | — | |
Total segment results | 689.6 | | | 591.2 | | | 111.2 | | | 83.9 | | | 16.1 | % | | 14.2 | % |
Asbestos-related costs, net(a) | — | | | — | | | — | | | (141.4) | | | — | | | — | |
Other Corporate costs | — | | | — | | | (9.5) | | | (5.0) | | | — | | | — | |
Total Corporate and other costs | — | | | — | | | (9.5) | | | (146.4) | | | — | | | — | |
Total | $ | 689.6 | | | $ | 591.2 | | | $ | 101.7 | | | $ | (62.5) | | | 14.7 | % | | (10.6) | % |
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| | | Revenue | | Operating Income | | Operating Margin | | Revenue | | Operating Income | | Operating Margin |
For the Nine Months Ended | October 2, 2021 | | September 26, 2020 | | October 2, 2021 | | September 26, 2020 | | October 2, 2021 | | September 26, 2020 | |
For the Six Months Ended | | For the Six Months Ended | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 |
Motion Technologies | Motion Technologies | $ | 1,045.0 | | | $ | 769.0 | | | $ | 194.3 | | | $ | 113.9 | | | 18.6 | % | | 14.8 | % | Motion Technologies | $ | 701.4 | | | $ | 712.7 | | | $ | 106.7 | | | $ | 140.7 | | | 15.2 | % | | 19.7 | % |
Industrial Process | Industrial Process | 626.9 | | | 614.7 | | | 94.9 | | | 44.5 | | | 15.1 | % | | 7.2 | % | Industrial Process | 441.8 | | | 416.2 | | | 59.5 | | | 62.5 | | | 13.5 | % | | 15.0 | % |
Connect & Control Technologies | Connect & Control Technologies | 408.9 | | | 387.5 | | | 54.9 | | | 40.7 | | | 13.4 | % | | 10.5 | % | Connect & Control Technologies | 317.8 | | | 261.8 | | | 53.9 | | | 29.7 | | | 17.0 | % | | 11.3 | % |
Eliminations | Eliminations | (1.2) | | | (2.0) | | | — | | | — | | | — | | | — | | Eliminations | (1.5) | | | (0.7) | | | — | | | — | | | — | | | — | |
Total segment results | Total segment results | 2,079.6 | | | 1,769.2 | | | 344.1 | | | 199.1 | | | 16.5 | % | | 11.3 | % | Total segment results | 1,459.5 | | | 1,390.0 | | | 220.1 | | | 232.9 | | | 15.1 | % | | 16.8 | % |
Asbestos-related benefit (costs), net(a)(b) | — | | | — | | | 74.4 | | | (116.7) | | | — | | | — | | |
Asbestos-related benefit, net(a) | | Asbestos-related benefit, net(a) | — | | | — | | | — | | | 74.4 | | | — | | | — | |
Other Corporate costs | Other Corporate costs | — | | | — | | | (27.3) | | | (15.1) | | | — | | | — | | Other Corporate costs | — | | | — | | | (25.0) | | | (17.8) | | | — | | | — | |
Total Corporate and other benefit (costs) | — | | | — | | | 47.1 | | | (131.8) | | | — | | | — | | |
Total Corporate and other costs | | Total Corporate and other costs | — | | | — | | | (25.0) | | | 56.6 | | | — | | | — | |
Total | Total | $ | 2,079.6 | | | $ | 1,769.2 | | | $ | 391.2 | | | $ | 67.3 | | | 18.8 | % | | 3.8 | % | Total | $ | 1,459.5 | | | $ | 1,390.0 | | | $ | 195.1 | | | $ | 289.5 | | | 13.4 | % | | 20.8 | % |
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(a)The 2020 period includes the impact of extending the net asbestos measurement over the full time period we expected claims to be filed against InTelCo Management LLC (InTelCo), the entity holding legacy asbestos-related assets and liabilities.
(b)The 2021 period includes a pre-tax gain of $88.8 resulting from the divestiture of InTelCo.the entity holding asbestos-related assets and liabilities. See Note 19,17, Commitments and Contingencies, for further information. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of and for the Nine Months Ended | Total Assets | | Capital Expenditures | | Depreciation & Amortization |
October 2, 2021 | | December 31, 2020 | | October 2, 2021 | | September 26, 2020 | | October 2, 2021 | | September 26, 2020 |
Motion Technologies | $ | 1,267.4 | | | $ | 1,202.3 | | | $ | 42.1 | | | $ | 32.0 | | | $ | 47.8 | | | $ | 44.5 | |
Industrial Process | 1,007.9 | | | 1,069.6 | | | 4.1 | | | 6.2 | | | 16.7 | | | 18.0 | |
Connect & Control Technologies | 721.7 | | | 720.5 | | | 5.3 | | | 8.4 | | | 16.6 | | | 17.5 | |
Corporate(c) | 457.2 | | | 1,285.2 | | | 1.1 | | | 1.0 | | | 4.2 | | | 2.0 | |
Total | $ | 3,454.2 | | | $ | 4,277.6 | | | $ | 52.6 | | | $ | 47.6 | | | $ | 85.3 | | | $ | 82.0 | |
(c)The decrease in Corporatefollowing table presents our total assets, as of October 2, 2021 is primarily due to the divestiture of InTelCo, which occurred on July 1, 2021capital expenditures, and included a cash contribution of $398 to fund the entity. See Note 19, Commitments and Contingencies,depreciation & amortization expense for further information.each segment. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of and for the Six Months Ended | Total Assets | | Capital Expenditures | | Depreciation & Amortization |
July 2, 2022 | | December 31, 2021 | | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 |
Motion Technologies | $ | 1,311.3 | | | $ | 1,272.8 | | | $ | 34.7 | | | $ | 27.8 | | | $ | 31.0 | | | $ | 31.8 | |
Industrial Process | 1,215.3 | | | 1,030.0 | | | 4.9 | | | 2.7 | | | 12.6 | | | 11.1 | |
Connect & Control Technologies | 725.2 | | | 719.3 | | | 4.2 | | | 3.9 | | | 9.7 | | | 11.3 | |
Corporate and Other | 448.1 | | | 543.3 | | | 3.7 | | | 0.7 | | | 2.0 | | | 3.0 | |
Total | $ | 3,699.9 | | | $ | 3,565.4 | | | $ | 47.5 | | | $ | 35.1 | | | $ | 55.3 | | | $ | 57.2 | |
NOTE 4
REVENUE
The following tables representpresent our revenue disaggregated by end market.
| For the Three Months Ended October 2, 2021 | Motion Technologies | Industrial Process | Connect & Control Technologies | Eliminations | Total | |
For the Three Months Ended July 2, 2022 | | For the Three Months Ended July 2, 2022 | Motion Technologies | Industrial Process | Connect & Control Technologies | Eliminations | Total |
Auto and rail | Auto and rail | | $ | 323.7 | | | $ | — | | | $ | — | | | $ | (0.1) | | | $ | 323.6 | | | Auto and rail | | $ | 320.3 | | | $ | — | | | $ | — | | | $ | — | | | $ | 320.3 | | |
Chemical and industrial pumps | Chemical and industrial pumps | | — | | | 164.6 | | | — | | | — | | | 164.6 | | | Chemical and industrial pumps | | — | | | 196.6 | | | — | | | — | | | 196.6 | | |
General industrial | | General industrial | | 8.5 | | | — | | | 74.5 | | | (0.8) | | | 82.2 | | |
Aerospace and defense | Aerospace and defense | | 1.5 | | | — | | | 67.3 | | | — | | | 68.8 | | | Aerospace and defense | | 2.5 | | | — | | | 78.3 | | | — | | | 80.8 | | |
Oil and gas | | — | | | 46.1 | | | 10.0 | | | — | | | 56.1 | | | |
General industrial | | 7.1 | | | — | | | 69.8 | | | (0.4) | | | 76.5 | | | |
Energy | | Energy | | — | | | 43.0 | | | 10.4 | | | — | | | 53.4 | | |
Total | Total | | $ | 332.3 | | | $ | 210.7 | | | $ | 147.1 | | | $ | (0.5) | | | $ | 689.6 | | | Total | | $ | 331.3 | | | $ | 239.6 | | | $ | 163.2 | | | $ | (0.8) | | | $ | 733.3 | | |
| | | For the Six Months Ended July 2, 2022 | | For the Six Months Ended July 2, 2022 | |
Auto and rail | | Auto and rail | | $ | 680.7 | | | $ | — | | | $ | — | | | $ | — | | | $ | 680.7 | | |
Chemical and industrial pumps | | Chemical and industrial pumps | | — | | | 363.8 | | | — | | | — | | | 363.8 | | |
General industrial | | General industrial | | 16.7 | | | — | | | 144.2 | | | (1.5) | | | 159.4 | | |
Aerospace and defense | | Aerospace and defense | | 4.0 | | | — | | | 153.2 | | | — | | | 157.2 | | |
Energy | | Energy | | — | | | 78.0 | | | 20.4 | | | — | | | 98.4 | | |
Total | | Total | | $ | 701.4 | | | $ | 441.8 | | | $ | 317.8 | | | $ | (1.5) | | | $ | 1,459.5 | | |
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For the Nine Months Ended October 2, 2021 | Motion Technologies | Industrial Process | Connect & Control Technologies | Eliminations | Total |
Auto and rail | | $ | 1,021.9 | | | | $ | — | | | | $ | — | | | | $ | (0.1) | | | | $ | 1,021.8 | | |
Chemical and industrial pumps | | — | | | | 492.0 | | | | — | | | | — | | | | 492.0 | | |
Aerospace and defense | | 5.7 | | | | — | | | | 191.4 | | | | — | | | | 197.1 | | |
Oil and gas | | — | | | | 134.9 | | | | 27.4 | | | | — | | | | 162.3 | | |
General industrial | | 17.4 | | | | — | | | | 190.1 | | | | (1.1) | | | | 206.4 | | |
Total | | $ | 1,045.0 | | | | $ | 626.9 | | | | $ | 408.9 | | | | $ | (1.2) | | | | $ | 2,079.6 | | |
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For the Three Months Ended September 26, 2020 | Motion Technologies | Industrial Process | Connect & Control Technologies | Eliminations | Total |
Auto and rail | | $ | 268.6 | | | | $ | — | | | | $ | — | | | | $ | — | | | | $ | 268.6 | | |
Chemical and industrial pumps | | — | | | | 154.3 | | | | — | | | | — | | | | 154.3 | | |
Aerospace and defense | | 1.0 | | | | — | | | | 67.1 | | | | — | | | | 68.1 | | |
Oil and gas | | — | | | | 39.8 | | | | 7.4 | | | | — | | | | 47.2 | | |
General industrial | | 2.2 | | | | — | | | | 51.4 | | | | (0.6) | | | | 53.0 | | |
Total | | $ | 271.8 | | | | $ | 194.1 | | | | $ | 125.9 | | | | $ | (0.6) | | | | $ | 591.2 | | |
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| For the Nine Months Ended September 26, 2020 | Motion Technologies | Industrial Process | Connect & Control Technologies | Eliminations | Total | |
| For the Three Months Ended July 3, 2021 | | For the Three Months Ended July 3, 2021 | |
Auto and rail | Auto and rail | | $ | 756.6 | | | $ | — | | | $ | — | | | $ | (0.1) | | | $ | 756.5 | | | Auto and rail | | $ | 334.2 | | | $ | — | | | $ | — | | | $ | — | | | $ | 334.2 | | |
Chemical and industrial pumps | Chemical and industrial pumps | | — | | | 474.4 | | | — | | | — | | | 474.4 | | | Chemical and industrial pumps | | — | | | 167.7 | | | — | | | — | | | 167.7 | | |
General industrial | | General industrial | | 6.8 | | | — | | | 61.7 | | | (0.4) | | | 68.1 | | |
Aerospace and defense | Aerospace and defense | | 5.5 | | | — | | | 217.8 | | | — | | | 223.3 | | | Aerospace and defense | | 2.6 | | | — | | | 63.9 | | | — | | | 66.5 | | |
Oil and gas | | — | | | 140.3 | | | 22.9 | | | — | | | 163.2 | | | |
General industrial | | 6.9 | | | — | | | 146.8 | | | (1.9) | | | 151.8 | | | |
Energy | | Energy | | — | | | 46.2 | | | 8.9 | | | — | | | 55.1 | | |
Total | Total | | $ | 769.0 | | | $ | 614.7 | | | $ | 387.5 | | | $ | (2.0) | | | $ | 1,769.2 | | | Total | | $ | 343.6 | | | $ | 213.9 | | | $ | 134.5 | | | $ | (0.4) | | | $ | 691.6 | | |
| | | For the Six Months Ended July 3, 2021 | | For the Six Months Ended July 3, 2021 | |
Auto and rail | | Auto and rail | | $ | 698.2 | | | $ | — | | | $ | — | | | $ | — | | | $ | 698.2 | | |
Chemical and industrial pumps | | Chemical and industrial pumps | | — | | | 327.4 | | | — | | | — | | | 327.4 | | |
General industrial | | General industrial | | 10.3 | | | — | | | 120.3 | | | (0.7) | | | 129.9 | | |
Aerospace and defense | | Aerospace and defense | | 4.2 | | | — | | | 124.1 | | | — | | | 128.3 | | |
Energy | | Energy | | — | | | 88.8 | | | 17.4 | | | — | | | 106.2 | | |
Total | | Total | | $ | 712.7 | | | $ | 416.2 | | | $ | 261.8 | | | $ | (0.7) | | | $ | 1,390.0 | | |
Contract Assets and Liabilities
Contract assets consist of unbilled amounts where revenue recognized exceeds customer billings, net of allowances for credit losses. Contract assets are included in other current assets and other non-current assets in our Consolidated Condensed Balance Sheet. Contract liabilities consist of advance customer payments and billings in excess of revenue recognized. Contract liabilities are included in accrued liabilities and other non-current liabilities in our Consolidated Condensed Balance Sheet.
The following table represents our net contract assets and liabilities.
| | | October 2, 2021 | December 31, 2020 | | | July 2, 2022 | December 31, 2021 | |
Current contract assets, net | Current contract assets, net | | $ | 17.6 | | | $ | 19.1 | | | | Current contract assets, net | | $ | 30.1 | | | $ | 20.6 | | | |
Non-current contract assets, net | Non-current contract assets, net | | 0.3 | | | — | | | | Non-current contract assets, net | | 0.3 | | | 0.3 | | | |
Current contract liabilities | Current contract liabilities | | (39.9) | | | (56.2) | | | | Current contract liabilities | | (64.5) | | | (46.6) | | | |
Non-current contract liabilities | Non-current contract liabilities | | (4.4) | | | (0.1) | | | | Non-current contract liabilities | | (4.4) | | | (4.4) | | | |
Net contract liabilities | Net contract liabilities | | $ | (26.4) | | | $ | (37.2) | | | | Net contract liabilities | | $ | (38.5) | | | $ | (30.1) | | | |
During the three and ninesix months ended OctoberJuly 2, 2021,2022, we recognized revenue of $8.3$7.3 and $46.0,$20.3, respectively, related to contract liabilities as of December 31, 2020.2021. The aggregate amount of the transaction price allocated to unsatisfied or partially satisfied performance obligations as of OctoberJuly 2, 20212022 was $861.6.$1,055.5. Of this amount, we expect to recognize approximately $400$740 to $420$760 of revenue in the fourth quarter of 2021 and the remainder in 2022 and 2023.
NOTE 5
RESTRUCTURING ACTIONS
We have initiated various restructuring actions throughout our businesses during the past two years, including the 2020 Global Restructuring Plan described below. There are no other restructuring actions that are considered individually significant. The following table summarizes our total restructuring costs, which are presented separately in our Consolidated Condensed Statements of Operations.
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| Three Months Ended | | Nine Months Ended |
| October 2, 2021 | | September 26, 2020 | | October 2, 2021 | | September 26, 2020 |
Severance and other employee-related | $ | 4.3 | | | $ | 10.9 | | | $ | 6.7 | | | $ | 41.8 | |
Asset write-offs | — | | | — | | | 0.6 | | | — | |
Other | 0.2 | | | 0.6 | | | 0.9 | | | 0.7 | |
Total restructuring costs | $ | 4.5 | | | $ | 11.5 | | | $ | 8.2 | | | $ | 42.5 | |
By segment: | | | | | | | |
Motion Technologies | $ | 4.1 | | | $ | — | | | $ | 4.1 | | | $ | 14.0 | |
Industrial Process | 0.5 | | | 10.2 | | | 1.4 | | | 18.1 | |
Connect & Control Technologies | (0.1) | | | 1.3 | | | 2.4 | | | 8.0 | |
Corporate and Other | — | | | — | | | 0.3 | | | 2.4 | |
The following table displays a rollforward of our restructuring liability, which is included within accrued liabilities on our Consolidated Condensed Balance Sheet.
| | | | | | | | | | | |
| October 2, 2021 | | September 26, 2020 |
Beginning balance - January 1 | $ | 19.1 | | | $ | 7.5 | |
Restructuring costs | 9.9 | | | 43.3 | |
Reversal of prior accruals | (1.7) | | | (0.8) | |
Cash payments | (11.3) | | | (24.5) | |
Asset write-offs | (0.6) | | | — | |
Foreign exchange translation and other | (0.7) | | | 0.7 | |
Ending balance | $ | 14.7 | | | $ | 26.2 | |
By accrual type: | | | |
Severance and other employee-related | $ | 14.5 | | | $ | 25.8 | |
Other | 0.2 | | | 0.4 | |
2020 Global Restructuring Plan
During 2020, we initiated an organizational-wide restructuring plan to reduce the overall cost structure of the Company primarily in response to a reduction in demand due to the COVID-19 pandemic. Through October 2, 2021, we have recognized restructuring charges of $45.6, including $43.8 in 2020, which are primarily related to involuntary severance costs. We expect to incur additional restructuring charges of approximately $2 during the remainder of 2021 to complete this action. Cash payments during the nine months ended October 2, 2021 were $10.3. The restructuring liability as of October 2, 2021 was $7.2, which we expect to be substantially paid by 2022.
NOTE 65
INCOME TAXES
The following table summarizes our income tax expense (benefit) and effective tax rate.
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | October 2, 2021 | | September 26, 2020 | | | October 2, 2021 | | September 26, 2020 | | | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 |
Income tax expense (benefit) | $ | 14.1 | | | $ | (16.2) | | | | $ | 182.7 | | | $ | (19.6) | | | |
Income tax expense | | Income tax expense | $ | 24.0 | | | $ | 143.9 | | | $ | 43.5 | | | $ | 168.6 | |
Effective tax rate | Effective tax rate | 13.9 | % | | 25.4 | % | | | 46.2 | % | | (31.0) | % | | Effective tax rate | 24.0 | % | | 78.6 | % | | 22.3 | % | | 57.3 | % |
The income tax expense and effective tax rate (ETR) for the three and six months ended OctoberJuly 2, 2021 reflects a reduction in2022 was lower than the current forecasted full-year effective tax rate primarilyprior year due to earnings mix, as well as a $1.9the tax benefit from a valuation allowance reversal in Brazil.
The income tax expense and effective tax rate forimpact of the nine months ended October 2, 2021 reflects the reversal of previously recorded deferred tax assetsasbestos divestiture of $116.9 related to the Company’s divestiture of InTelCo. See(see Note 19,17, Commitments and Contingencies, for further information.The income tax benefit and effective tax rate for the three and nine months ended September 26, 2020 is primarily due to the tax benefit resulting from the asbestos remeasurement charge of $135.9 in the third quarter.information). Additionally, the effective2022 ETR included higher permanent tax rate during the three-month period in 2020 includes a benefit of $3.2benefits, primarily related to previously unrecognized tax benefits from statute of limitations expirations. The effective tax rate for the nine-month periodresearch and development incentives in 2020 also includes tax benefits of $27.2 resulting from an internal reorganization in Europe. This reorganization resulted in a refined projection of future earnings, which will result in the realization of a portion of our deferred tax assets.
On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (ARPA), a $1.9 trillion COVID-19 stimulus bill to accelerate the United States' recovery from the economicboth foreign and health effects of the COVID-19 pandemic. ARPA builds upon many of the measures in the Coronavirus Aid, Relief, and Economic Security Act from March 2020 (the 2020 CARES Act) and the Consolidated Appropriations Act from December 2020. The Act extends the employee retention credit through the end of 2021 and maintains the credit per employee per quarter initially included in the Consolidated Appropriations Act. During the three and nine months ended October 2, 2021, the Company recognized a benefit of $0.9 and $5.0, respectively, from the employee retention credit. During the three and nine months ended September 26, 2020, the Company recognized a benefit of $1.8 and $8.7, respectively. The benefit was recorded in operating income and related to the employer portion of payroll taxes. Certain non-U.S. jurisdictions have enacted similar stimulus measures. We continue to monitor any effects that may result from the ARPA and 2020 CARES Act or other similar legislation globally.U.S. jurisdictions.
The Company operates in various tax jurisdictions and is subject to examination by tax authorities in these jurisdictions. The Company is currently under examination in several jurisdictions including the Czech Republic,Czechia, Germany, Hong Kong, India, Italy, and the U.S. The estimated tax liability calculation for unrecognized tax benefits considers uncertainties in the application of complex tax laws and regulations in various tax jurisdictions. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the unrecognized tax benefit. Over the next 12 months, the net amount of the tax liability for unrecognized tax benefits in foreign and domestic jurisdictions could decrease by approximately $17$2 due to changes in audit status, expiration of statutes of limitations and other events. In addition, the settlement of any future examinations relating to the 2011 and prior tax years could
result in changes in amounts attributable to the Company under its Tax Matters Agreement with Exelis Inc. and Xylem Inc. relating to the Company’s 2011 spin-off of those businesses.
NOTE 76
EARNINGS PER SHARE DATA
The following table provides a reconciliation of the data used in the calculation of basic and diluted earnings per share from continuing operations attributable to ITT.
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | October 2, 2021 | | September 26, 2020 | | October 2, 2021 | | September 26, 2020 | | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 |
Basic weighted average common shares outstanding | Basic weighted average common shares outstanding | 85.9 | | | 86.4 | | | 86.1 | | | 86.8 | | Basic weighted average common shares outstanding | 83.1 | | | 86.1 | | | 84.0 | | | 86.2 | |
Add: Dilutive impact of outstanding equity awards | Add: Dilutive impact of outstanding equity awards | 0.4 | | | — | | | 0.5 | | | 0.6 | | Add: Dilutive impact of outstanding equity awards | 0.3 | | | 0.4 | | | 0.3 | | | 0.5 | |
Diluted weighted average common shares outstanding | Diluted weighted average common shares outstanding | 86.3 | | | 86.4 | | | 86.6 | | | 87.4 | | Diluted weighted average common shares outstanding | 83.4 | | | 86.5 | | | 84.3 | | | 86.7 | |
| Anti-dilutive shares(a) | | Anti-dilutive shares(a) | 0.2 | | | — | | | — | | | 0.1 | |
The three months ended September 26, 2020, excludes 0.5(a) Anti-dilutive shares related to equity stock unit awards excluded from the computation of outstanding equity awards that, if included, would have an anti-dilutive effect on the diluted earnings per share. There were no anti-dilutive shares in any other periods.
NOTE 87
RECEIVABLES, NET
The following table summarizes our receivables and associated allowance for credit losses.
| | | | | | | | | | | | | | | | | | | | | | | |
| October 2, 2021 | | December 31, 2020 |
Trade accounts receivable | | $ | 536.5 | | | | | $ | 492.5 | | |
Notes receivable | | 20.5 | | | | | 11.0 | | |
Other | | 14.7 | | | | | 19.1 | | |
Receivables, gross | | 571.7 | | | | | 522.6 | | |
Less: Allowance for credit losses - receivables | | (11.5) | | | | | (15.1) | | |
Receivables, net | | $ | 560.2 | | | | | $ | 507.5 | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| July 2, 2022 | | December 31, 2021 |
Trade accounts receivable | | $ | 595.5 | | | | | $ | 530.4 | | |
Notes receivable | | 13.0 | | | | | 19.2 | | |
Other | | 13.6 | | | | | 17.5 | | |
Receivables, gross | | 622.1 | | | | | 567.1 | | |
Less: Allowance for credit losses - receivables(a) | | (16.4) | | | | | (12.0) | | |
Receivables, net | | $ | 605.7 | | | | | $ | 555.1 | | |
The following table displays our allowance for credit losses for receivables and contract assets.
| | | | | | | | | | | | | | | | | | | | | | | |
| October 2, 2021 | | December 31, 2020 |
Allowance for credit losses - receivables | | $ | 11.5 | | | | | $ | 15.1 | | |
Allowance for credit losses - contract assets | | 0.5 | | | | | 0.5 | | |
Total allowance for credit losses | | $ | 12.0 | | | | | $ | 15.6 | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| July 2, 2022 | | December 31, 2021 |
Allowance for credit losses - receivables(a) | | $ | 16.4 | | | | | $ | 12.0 | | |
Allowance for credit losses - contract assets | | 0.5 | | | | | 0.5 | | |
Total allowance for credit losses | | $ | 16.9 | | | | | $ | 12.5 | | |
The following table displays a rollforward of our total allowance for credit losses.
| | | | October 2, 2021 | September 26, 2020 | | July 2, 2022 | July 3, 2021 |
Total allowance for credit losses - January 1 | Total allowance for credit losses - January 1 | | $ | 15.6 | | | $ | 12.8 | | | Total allowance for credit losses - January 1 | | $ | 12.5 | | | $ | 15.6 | | |
Impact of adoption of ASU 2016-13 | | — | | | 1.7 | | | |
(Recoveries) charges to income | | (2.7) | | | 9.2 | | | |
| Charges (recoveries) to income(a) | | Charges (recoveries) to income(a) | | 4.7 | | | (1.7) | | |
Write-offs | Write-offs | | (0.8) | | | (5.1) | | | Write-offs | | (0.4) | | | (0.7) | | |
Foreign currency and other | Foreign currency and other | | (0.1) | | | 0.1 | | | Foreign currency and other | | 0.1 | | | 0.1 | | |
Total allowance for credit losses - ending balance | Total allowance for credit losses - ending balance | | $ | 12.0 | | | $ | 18.7 | | | Total allowance for credit losses - ending balance | | $ | 16.9 | | | $ | 13.3 | | |
(a) During the six months ended July 2, 2022, we recognized bad debt expense of $1.9 to reflect the current macroeconomic conditions impacting some of our customers in light of the Russia-Ukraine conflict. See Note 1, Description of Business and Basis of Presentation, for further information. NOTE 98
INVENTORIES, NET
The following table summarizes our net inventories.
| | | October 2, 2021 | | December 31, 2020 | | July 2, 2022 | | December 31, 2021 |
Finished goods | Finished goods | | $ | 73.5 | | | $ | 63.1 | | | Finished goods | | $ | 93.3 | | | $ | 73.0 | | |
Work in process | Work in process | | 84.9 | | | 77.5 | | | Work in process | | 111.3 | | | 92.3 | | |
Raw materials(a) | Raw materials(a) | | 255.3 | | | 219.9 | | | Raw materials(a) | | 330.6 | | | 265.6 | | |
Inventories, net(b) | Inventories, net(b) | | $ | 413.7 | | | $ | 360.5 | | | Inventories, net(b) | | $ | 535.2 | | | $ | 430.9 | | |
(a) The increase in raw materials inventory from December 31, 2021 to July 2, 2022 was to support sales growth and mitigate continued supply chain disruptions.
(b) During the six months ended July 2, 2022, we recorded inventory reserves of $5.7 related to inventories held by entities impacted by the Russia-Ukraine conflict. See Note 1, Description of Business and Basis of Presentation, for further information.
NOTE 109
OTHER CURRENT AND NON-CURRENT ASSETS
The following table summarizes our other current and non-current assets.
| | | October 2, 2021 | | December 31, 2020 | | July 2, 2022 | | December 31, 2021 |
| Advance payments and other prepaid expenses | Advance payments and other prepaid expenses | | $ | 35.9 | | | $ | 39.6 | | | Advance payments and other prepaid expenses | | $ | 50.3 | | | $ | 44.1 | | |
Current contract assets, net | | Current contract assets, net | | 30.1 | | | 20.6 | | |
Prepaid income taxes | Prepaid income taxes | | 19.7 | | | 29.0 | | | Prepaid income taxes | | 9.2 | | | 10.4 | | |
Current contract assets, net | | 17.6 | | | 19.1 | | | |
Asbestos-related assets (see Note 19) | | — | | | 91.0 | | | |
| Other | Other | | 8.9 | | | 10.8 | | | Other | | 20.2 | | | 13.5 | | |
Other current assets | Other current assets | | $ | 82.1 | | | $ | 189.5 | | | Other current assets | | $ | 109.8 | | | $ | 88.6 | | |
Other employee benefit-related assets | Other employee benefit-related assets | | $ | 117.4 | | | $ | 113.9 | | | Other employee benefit-related assets | | $ | 117.4 | | | $ | 118.4 | | |
Operating lease right-of-use assets | Operating lease right-of-use assets | | 76.4 | | | 87.3 | | | Operating lease right-of-use assets | | 71.2 | | | 78.0 | | |
Deferred income taxes | | Deferred income taxes | | 58.8 | | | 63.4 | | |
Equity-method and other investments(a) | | Equity-method and other investments(a) | | 41.1 | | | 14.5 | | |
Capitalized software costs | Capitalized software costs | | 18.6 | | | 23.9 | | | Capitalized software costs | | 14.1 | | | 16.7 | | |
Equity method and other investments | | 14.2 | | | 11.7 | | | |
Environmental-related assets | Environmental-related assets | | 8.9 | | | 10.6 | | | Environmental-related assets | | 10.5 | | | 8.5 | | |
Other | Other | | 25.4 | | | 24.6 | | | Other | | 23.7 | | | 24.7 | | |
Other non-current assets | Other non-current assets | | $ | 260.9 | | | $ | 272.0 | | | Other non-current assets | | $ | 336.8 | | | $ | 324.2 | | |
(a) During the second quarter of 2022, we purchased minority investments in CRP Technology Srl and CRP USA LLC (collectively "CRP") for $23.0. Refer to Note 19, Acquisitions and Investments, for further information.
NOTE 1110
PLANT, PROPERTY AND EQUIPMENT, NET
The following table summarizes our property, plant, and equipment, net of accumulated depreciation.
| | | Useful life (in years) | | October 2, 2021 | | December 31, 2020 | | Useful life (in years) | | July 2, 2022 | | December 31, 2021 |
Machinery and equipment | Machinery and equipment | 2 - 10 | | $ | 1,210.1 | | | $ | 1,205.7 | | | Machinery and equipment | 2 - 10 | | $ | 1,171.1 | | | $ | 1,202.0 | | |
Buildings and improvements | Buildings and improvements | 5 - 40 | | 267.5 | | | 273.9 | | | Buildings and improvements | 5 - 40 | | 280.7 | | | 265.5 | | |
Furniture, fixtures and office equipment | Furniture, fixtures and office equipment | 3 - 7 | | 80.7 | | | 82.0 | | | Furniture, fixtures and office equipment | 3 - 7 | | 81.7 | | | 78.3 | | |
Construction work in progress | Construction work in progress | | 40.0 | | | 44.7 | | | Construction work in progress | | 71.2 | | | 62.8 | | |
Land and improvements | Land and improvements | | 32.9 | | | 34.6 | | | Land and improvements | | 30.5 | | | 32.5 | | |
Other | Other | | 4.9 | | | 5.0 | | | Other | | 3.1 | | | 4.3 | | |
Plant, property and equipment, gross | Plant, property and equipment, gross | | 1,636.1 | | | 1,645.9 | | | Plant, property and equipment, gross | | 1,638.3 | | | 1,645.4 | | |
Less: Accumulated depreciation | Less: Accumulated depreciation | | (1,141.4) | | | (1,120.8) | | | Less: Accumulated depreciation | | (1,137.1) | | | (1,136.3) | | |
Plant, property and equipment, net | Plant, property and equipment, net | | $ | 494.7 | | | $ | 525.1 | | | Plant, property and equipment, net | | $ | 501.2 | | | $ | 509.1 | | |
Depreciation expense of $21.0 and $42.0, and $21.5 and $42.9 was $21.3 and $64.2 forrecognized in the three and ninesix months ended OctoberJuly 2, 2021, respectively,2022 and $21.0 and $62.2 for the three and nine months ended September 26, 2020,July 3, 2021, respectively.
During the first quarter of 2020, we recorded an impairment of $4.0 for a business within the IP segment due to challenging economic conditions in the upstream oil and gas market combined with impacts associated with the COVID-19 pandemic. Long-lived assets of the business, with a carrying value of $14.0, primarily building and improvements, machinery and equipment, were reduced to their current estimated fair value of $10.0. The estimate of fair value, categorized within Level 3 of the fair value hierarchy, was determined based on a market approach estimating the net proceeds that would be received for the sale of the assets. Significant additional adverse changes to the economic environment or future cash flows of our businesses could cause us to record additional impairment charges in future periods, which may be material.
NOTE 1211
GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
The following table provides a rollforward of the carrying amount of goodwill by segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Motion Technologies | | Industrial Process | | Connect & Control Technologies | | Total |
Goodwill - December 31, 2020 | | $ | 298.1 | | | | | $ | 365.4 | | | | | $ | 281.3 | | | | $ | 944.8 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Foreign exchange translation | | (4.6) | | | | | (9.7) | | | | | (1.4) | | | | (15.7) | |
Goodwill - October 2, 2021 | | $ | 293.5 | | | | | $ | 355.7 | | | | | $ | 279.9 | | | | $ | 929.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Motion Technologies | | Industrial Process | | Connect & Control Technologies | | Total |
Goodwill - December 31, 2021 | | $ | 292.3 | | | | | $ | 352.4 | | | | | $ | 279.6 | | | | $ | 924.3 | |
Acquired | | — | | | | | 68.7 | | | | | — | | | | 68.7 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Foreign exchange translation | | (6.5) | | | | | (20.7) | | | | | (2.0) | | | | (29.2) | |
Goodwill - July 2, 2022 | | $ | 285.8 | | | | | $ | 400.4 | | | | | $ | 277.6 | | | | $ | 963.8 | |
Goodwill acquired is related to our acquisition of Habonim in the second quarter of 2022 and represents the preliminary calculation of the excess purchase price over the net assets acquired, the valuation of which is pending completion. Upon completion, goodwill acquired will be adjusted to reflect the final fair value of the net assets acquired. Refer to Note 19,
Acquisitions and Investments, for further information.Other Intangible Assets, Net
The following table summarizes our other intangible assets, net of accumulated amortization.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| October 2, 2021 | | December 31, 2020 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Intangibles | | Gross Carrying Amount | | Accumulated Amortization | | Net Intangibles |
Customer relationships | | $ | 162.4 | | | | | $ | (110.7) | | | | | $ | 51.7 | | | | | $ | 163.3 | | | | | $ | (101.7) | | | | | $ | 61.6 | | |
Proprietary technology | | 46.2 | | | | | (26.0) | | | | | 20.2 | | | | | 46.7 | | | | | (23.4) | | | | | 23.3 | | |
Patents and other | | 16.3 | | | | | (13.9) | | | | | 2.4 | | | | | 16.2 | | | | | (11.5) | | | | | 4.7 | | |
Finite-lived intangible total | | 224.9 | | | | | (150.6) | | | | | 74.3 | | | | | 226.2 | | | | | (136.6) | | | | | 89.6 | | |
Indefinite-lived intangibles | | 16.5 | | | | | — | | | | | 16.5 | | | | | 16.8 | | | | | — | | | | | 16.8 | | |
Other intangible assets | | $ | 241.4 | | | | | $ | (150.6) | | | | | $ | 90.8 | | | | | $ | 243.0 | | | | | $ | (136.6) | | | | | $ | 106.4 | | |
As a result of the global COVID-19 pandemic combined with a decline in the upstream oil and gas market, during the first quarter of 2020, we determined that certain intangible assets within the IP segment, including an indefinite-lived trademark, customer relationships and proprietary technology, would not be recoverable, resulting in an impairment of $12.3. Significant additional adverse changes to the economic environment or future cash flows of our businesses could cause us to record additional impairment charges in future periods, which may be material. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| July 2, 2022 | | December 31, 2021 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Intangibles | | Gross Carrying Amount | | Accumulated Amortization | | Net Intangibles |
Customer relationships | | $ | 190.6 | | | | | $ | (120.0) | | | | | $ | 70.6 | | | | | $ | 162.1 | | | | | $ | (113.7) | | | | | $ | 48.4 | | |
Proprietary technology | | 58.9 | | | | | (28.5) | | | | | 30.4 | | | | | 46.1 | | | | | (26.9) | | | | | 19.2 | | |
Patents and other | | 17.3 | | | | | (14.8) | | | | | 2.5 | | | | | 15.7 | | | | | (14.0) | | | | | 1.7 | | |
Finite-lived intangible total | | 266.8 | | | | | (163.3) | | | | | 103.5 | | | | | 223.9 | | | | | (154.6) | | | | | 69.3 | | |
Indefinite-lived intangibles | | 18.2 | | | | | — | | | | | 18.2 | | | | | 16.4 | | | | | — | | | | | 16.4 | | |
Other intangible assets | | $ | 285.0 | | | | | $ | (163.3) | | | | | $ | 121.7 | | | | | $ | 240.3 | | | | | $ | (154.6) | | | | | $ | 85.7 | | |
Amortization expense related to finite-lived intangible assets was $4.7$5.8 and $14.7$10.0, and $4.9 and $10.0 for the three and ninesix months ended OctoberJuly 2, 2021, respectively,2022 and $4.4 and $13.4 for the three and nine months ended September 26, 2020,July 3, 2021, respectively.
The preliminary fair value of intangible assets acquired in connection with the purchase of Habonim mainly includes $33.1 of customer relationships with a useful life of 15 years, $8.1 of developed technology with a useful life of 20 years, $2.1 of customer backlog with a useful life of 9 months, and $2.3 for a trade name with an indefinite life. Refer to Note 19, Acquisitions and Investments, for further information. Separately, during the second quarter of 2022, we acquired proprietary technology with a preliminary value of $6.2 and a useful life of 10 years, in connection with the purchase of a product line within our CCT segment. Refer to Note 19, Acquisitions and Investments, for further information. Estimated amortization expense for each of the five succeeding years and thereafter is as follows:
| | | | | |
Remaining of 2022 | 10.9 | |
2023 | 19.5 | |
2024 | 14.1 | |
2025 | 13.3 | |
2026 | 9.5 | |
2027 | 8.2 | |
Thereafter | 28.0 | |
NOTE 1312
ACCRUED LIABILITIES AND OTHER NON-CURRENT LIABILITIES
The following table summarizes our accrued liabilities and other non-current liabilities.
| | | October 2, 2021 | December 31, 2020 | | July 2, 2022 | December 31, 2021 |
Compensation and other employee-related benefits | Compensation and other employee-related benefits | | $ | 153.0 | | | $ | 137.3 | | | Compensation and other employee-related benefits | | $ | 127.1 | | | $ | 155.2 | | |
Contract liabilities and other customer-related liabilities | Contract liabilities and other customer-related liabilities | | 59.3 | | | 73.7 | | | Contract liabilities and other customer-related liabilities | | 86.8 | | | 69.1 | | |
Accrued income taxes and other tax-related liabilities | Accrued income taxes and other tax-related liabilities | | 37.3 | | | 36.9 | | | Accrued income taxes and other tax-related liabilities | | 32.7 | | | 33.6 | | |
Operating lease liabilities | | Operating lease liabilities | | 18.8 | | | 20.1 | | |
Accrued warranty costs | Accrued warranty costs | | 20.6 | | | 23.1 | | | Accrued warranty costs | | 15.5 | | | 17.7 | | |
Operating lease liabilities | | 19.2 | | | 19.8 | | | |
Environmental liabilities and other legal matters | Environmental liabilities and other legal matters | | 14.5 | | | 19.1 | | | Environmental liabilities and other legal matters | | 9.5 | | | 13.5 | | |
Accrued restructuring costs | Accrued restructuring costs | | 14.7 | | | 19.1 | | | Accrued restructuring costs | | 5.4 | | | 11.0 | | |
Asbestos-related liabilities (See Note 19) | | — | | | 91.4 | | | |
Other | Other | | 40.0 | | | 37.0 | | | Other | | 38.1 | | | 37.1 | | |
Accrued liabilities | Accrued liabilities | | $ | 358.6 | | | $ | 457.4 | | | Accrued liabilities | | $ | 333.9 | | | $ | 357.3 | | |
Operating lease liabilities | Operating lease liabilities | | $ | 62.6 | | | $ | 72.4 | | | Operating lease liabilities | | $ | 56.7 | | | $ | 64.0 | | |
Environmental liabilities | Environmental liabilities | | 47.7 | | | 50.1 | | | Environmental liabilities | | 52.6 | | | 50.1 | | |
Compensation and other employee-related benefits | Compensation and other employee-related benefits | | 29.0 | | | 29.4 | | | Compensation and other employee-related benefits | | 25.7 | | | 29.2 | | |
Deferred income taxes and other tax-related liabilities | Deferred income taxes and other tax-related liabilities | | 12.1 | | | 11.9 | | | Deferred income taxes and other tax-related liabilities | | 20.9 | | | 29.0 | | |
Non-current maturities of long-term debt | Non-current maturities of long-term debt | | 11.3 | | | 13.0 | | | Non-current maturities of long-term debt | | 8.7 | | | 9.9 | | |
Other | Other | | 32.2 | | | 33.8 | | | Other | | 24.4 | | | 24.3 | | |
Other non-current liabilities | Other non-current liabilities | | $ | 194.9 | | | $ | 210.6 | | | Other non-current liabilities | | $ | 189.0 | | | $ | 206.5 | | |
NOTE 1413
DEBT
The following table summarizes our outstanding debt obligations.
| | | October 2, 2021 | | December 31, 2020 | | July 2, 2022 | | December 31, 2021 |
Commercial paper(a) | Commercial paper(a) | | $ | 196.4 | | | $ | 104.3 | | | Commercial paper(a) | | $ | 544.9 | | | $ | 195.4 | | |
| Other short-term notes payable | | Other short-term notes payable | | 4.3 | | | — | | |
Current maturities of long-term debt and finance leases | Current maturities of long-term debt and finance leases | | 2.2 | | | 2.5 | | | Current maturities of long-term debt and finance leases | | 2.2 | | | 2.2 | | |
Commercial paper and current maturities of long-term debt | Commercial paper and current maturities of long-term debt | | 198.6 | | | 106.8 | | | Commercial paper and current maturities of long-term debt | | 551.4 | | | 197.6 | | |
Non-current maturities of long-term debt | Non-current maturities of long-term debt | | 11.3 | | | 13.0 | | | Non-current maturities of long-term debt | | 8.7 | | | 9.9 | | |
Total debt and finance leases | Total debt and finance leases | | $ | 209.9 | | | $ | 119.8 | | | Total debt and finance leases | | $ | 560.1 | | | $ | 207.5 | | |
(a) The increase in commercial paper outstanding from December 31, 2021 to July 2, 2022 was primarily related to funding our share repurchase activity and our acquisition of Habonim. See Note 19, Acquisitions and Investments, for further information.
Commercial Paper
CommercialThe following table presents our outstanding commercial paper outstanding of $196.4 as of October 2, 2021 was issued through both the Company’s U.S.borrowings and Euro programs. Commercial paper outstanding under the U.S. program was $150.0, with aassociated weighted average interest rate of 0.21%. Commercial paper outstanding under the Euro program was $46.4, with a weighted average negative interest rate of (0.43)%. Commercial paper outstanding of $104.3rates as of July 2, 2022 and December 31, 2020 was issued entirely under the Company’s Euro program and had a weighted average negative interest rate of (0.06)%. 2021.
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| July 2, 2022 | | December 31, 2021 |
Commercial Paper Outstanding - U.S. Program | | $ | 399.7 | | | | | $ | 150.0 | | |
Commercial Paper Outstanding - Euro Program | | 145.2 | | | | | 45.4 | | |
Total Commercial Paper Outstanding | | $ | 544.9 | | | | | 195.4 | | |
Weighted Average Interest Rate - U.S. Program | | 2.01 | % | | | | 0.28 | % | |
Weighted Average Interest Rate - Euro Program | | (0.06) | % | | | | (0.47) | % | |
Outstanding commercial paper for both periods had maturity terms less than three months from the date of issuance.
Short-term Loans
On August 5, 2021, we entered into a revolving credit facility agreement with a syndicate of third party lenders including Bank of America, N.A., as administrative agent (the 2021 Revolving Credit Agreement). Upon its effectiveness, this agreement replaced our existing $500 revolving credit facility due November 2022 (the 2014 Revolving Credit Agreement). The 2021 Revolving Credit Agreement matures in August 2026 and provides for an aggregate principal amount of up to $700. The 2021 Revolving Credit Agreement provides for a potential increase of commitment of up to $350 for a possible maximum of $1,050 in aggregate commitments at the request of the Company and with the consent of the institutions providing such increase of commitments.
The interest rate per annum on the 2021 Revolving Credit Agreement is based on the LIBOR rate of the currency we borrow in, plus a margin of 1.1%, with applicable benchmark replacement rates for the currencies available when LIBOR is phased out as a result of the impending reference rate reform. As of OctoberJuly 2, 20212022 and December 31, 2020,2021, we had no outstanding obligationsborrowings under the current or former revolving credit facility.2021 Revolving Credit Agreement. There is a 0.15% fee per annum applicable to the commitments under the 2021 Revolving Credit Agreement. The margin and fees are subject to adjustment should the Company’s credit ratings change.
The 2021 Revolving Credit Agreement contains customary affirmative and negative covenants that, among other things, will limit or restrict our ability to: incur additional debt or issue guarantees; create certain liens; merge or consolidate with another person; sell, transfer, lease or otherwise dispose of assets; liquidate or dissolve; and enter into restrictive covenants. Additionally, the 2021 Revolving Credit Agreement requires us not to permit the ratio of consolidated total indebtedness to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) (leverage ratio) to exceed 3.50 to 1.00, with a qualified acquisition step up immediately following such qualified acquisition of 4.00 to 1.00 for four quarters, 3.75 to 1.00 for two quarters thereafter, and returning to 3.50 to 1.00 thereafter.
As of OctoberJuly 2, 2021, our2022, all financial covenants (e.g., leverage ratioratio) associated with the 2021 Revolving Credit Agreement waswere within the prescribed threshold.thresholds.
On April 29, 2020, we entered into two 364-day term revolving credit agreements totaling $200 (the Incremental Revolving Credit Agreements) which provided the Company with additional liquidity in excess of the 2014 Revolving Credit Agreement. The credit agreements expired in April 2021 and we did not renew the agreements. Borrowings were available in U.S. dollars and the interest rate per annum was based on the LIBOR rate, adjusted for statutory reserve requirements, plus a margin of up to 1.55%. The Incremental Revolving Credit Agreements were subject to fees of up to 0.35% per annum. The fees and margin were subject to adjustment should the Company’s credit ratings change. In addition, the Incremental Revolving Credit Agreements did not violate any negative covenants associated with the 2014 Revolving Credit Agreement.
NOTE 15
POSTRETIREMENT BENEFIT PLANS
In the fourth quarter of 2020, the Company terminated its U.S. qualified pension plan by purchasing a group annuity contract from MassMutual Life Insurance Company (MassMutual), which fully assumed the responsibility for paying and administering pension benefits to approximately five thousand plan participants and their beneficiaries. In connection with the plan termination, the Company settled all future obligations under the plan by providing lump sum payments to eligible participants who elected to receive them, and by transferring the remaining projected benefit obligation to the insurance company. The termination was initially funded with plan assets of approximately $320 and cash of $8.4. During the second quarter of 2021, the funding was finalized, resulting in a gain of $3.4 presented within the interest and non-operating expenses (income) line in the Consolidated Statements of Operations.
The following tables summarize the components of net periodic benefit cost for pension plans and other employee-related benefit plans.
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| October 2, 2021 | | September 26, 2020 |
For the Three Months Ended | Pension | | Other Benefits | | Total | | Pension | | Other Benefits | | Total |
Service cost | | $ | 0.4 | | | | | $ | 0.2 | | | | | $ | 0.6 | | | | | $ | 0.4 | | | | | $ | 0.2 | | | | | $ | 0.6 | | |
Interest cost | | 0.3 | | | | | 0.4 | | | | | 0.7 | | | | | 2.2 | | | | | 0.8 | | | | | 3.0 | | |
Expected return on plan assets | | — | | | | | — | | | | | — | | | | | (2.2) | | | | | — | | | | | (2.2) | | |
Amortization of prior service benefit | | — | | | | | (0.9) | | | | | (0.9) | | | | | — | | | | | (1.3) | | | | | (1.3) | | |
Amortization of net actuarial loss | | 0.5 | | | | | 0.5 | | | | | 1.0 | | | | | 1.8 | | | | | 0.6 | | | | | 2.4 | | |
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Total net periodic benefit cost | | $ | 1.2 | | | | | $ | 0.2 | | | | | $ | 1.4 | | | | | $ | 2.2 | | | | | $ | 0.3 | | | | | $ | 2.5 | | |
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| October 2, 2021 | | September 26, 2020 |
For the Nine Months Ended | Pension | | Other Benefits | | Total | | Pension | | Other Benefits | | Total |
Service cost | | $ | 1.1 | | | | | $ | 0.6 | | | | | $ | 1.7 | | | | | $ | 1.0 | | | | | $ | 0.6 | | | | | $ | 1.6 | | |
Interest cost | | 0.8 | | | | | 1.3 | | | | | 2.1 | | | | | 6.8 | | | | | 2.2 | | | | | 9.0 | | |
Expected return on plan assets | | — | | | | | — | | | | | — | | | | | (6.5) | | | | | — | | | | | (6.5) | | |
Amortization of prior service benefit | | — | | | | | (3.4) | | | | | (3.4) | | | | | — | | | | | (3.8) | | | | | (3.8) | | |
Amortization of net actuarial loss | | 1.5 | | | | | 1.8 | | | | | 3.3 | | | | | 5.3 | | | | | 2.0 | | | | | 7.3 | | |
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Total net periodic benefit cost | | $ | 3.4 | | | | | $ | 0.3 | | | | | $ | 3.7 | | | | | $ | 6.6 | | | | | $ | 1.0 | | | | | $ | 7.6 | | |
We made contributions to our global postretirement plans of $8.1 and $7.2 during the nine months ended October 2, 2021 and September 26, 2020, respectively. We expect to make contributions of approximately $3 to $5 during the remainder of 2021, principally related to our other employee-related benefit plans.
Amortization from accumulated other comprehensive income into earnings related to prior service benefit and net actuarial loss, net of tax, was $0.2 and $0.2 during the three and nine months ended October 2, 2021, respectively, and $0.8 and $2.6 during the three and nine months ended September 26, 2020, respectively. No other reclassifications from accumulated other comprehensive income into earnings were recognized during any of the presented periods.
NOTE 1614
LONG-TERM INCENTIVE EMPLOYEE COMPENSATION
Our long-term incentive plan (LTIP) costs are primarily recorded within general and administrative expenses in our Consolidated Condensed Statements of Operations. The following table summarizes our LTIP costs.
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | October 2, 2021 | | September 26, 2020 | | October 2, 2021 | | September 26, 2020 | | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 |
Equity-based awards | Equity-based awards | $ | 4.4 | | | $ | 3.9 | | | $ | 11.8 | | | $ | 9.7 | | Equity-based awards | $ | 5.0 | | | $ | 4.2 | | | $ | 8.7 | | | $ | 7.4 | |
Liability-based awards | Liability-based awards | 0.2 | | | 0.3 | | | 1.3 | | | 0.2 | | Liability-based awards | 0.1 | | | 0.2 | | | 0.7 | | | 1.1 | |
Total share-based compensation expense | Total share-based compensation expense | $ | 4.6 | | | $ | 4.2 | | | $ | 13.1 | | | $ | 9.9 | | Total share-based compensation expense | $ | 5.1 | | | $ | 4.4 | | | $ | 9.4 | | | $ | 8.5 | |
The increase in share-based compensation expense for equity-based awards during the three- and nine-month periods was primarily driven by the likelihood of achieving certain performance targets. The increase in share-based compensation expense for liability-based awards during the nine-month period was driven by the change in ITT’s stock price. At OctoberJuly 2, 2021,2022, there was $23.8$32.4 of total unrecognized compensation cost related to non-vested equity awards. This cost is expected to be recognized ratably over a weighted-average period of 1.92.0 years. Additionally, unrecognized compensation cost related to liability-based awards was $1.8,$1.5, which is expected to
be recognized ratably over a weighted-average period of 2.02.4 years.
Year-to-Date 20212022 LTIP Activity
The majority of our LTIP awards are granted during the first quarter of each year and have three-year service periods. These awards either vest onequally each year or at the completion of athe three-year service period. During the ninesix months ended OctoberJuly 2, 2021,2022, we granted the following LTIP awards as provided in the table below:
| | | # of Awards Granted | Weighted Average Grant Date Fair Value Per Share | | # of Awards Granted | Weighted Average Grant Date Fair Value Per Share |
| Restricted stock units (RSUs) | Restricted stock units (RSUs) | 0.2 | | $ | 85.84 | | | Restricted stock units (RSUs) | 0.2 | | $ | 78.54 | | |
Performance stock units (PSUs) | Performance stock units (PSUs) | 0.1 | | $ | 84.48 | | | Performance stock units (PSUs) | 0.1 | | $ | 79.72 | | |
During the ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020,July 3, 2021, a nominal amount of non-qualified stock options were exercised resulting in proceeds of $1.1$0.7 and $1.7,$0.5, respectively. During the ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020,July 3, 2021, RSUs of 0.1 and 0.3,0.1, respectively, vested and were issued. During the ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020,July 3, 2021, PSUs of 0.1 and 0.2 that vested on December 31, 20202021 and 2019,2020, respectively, were issued.
NOTE 1715
CAPITAL STOCK
On October 27, 2006, our Board of Directors approved a three-year, $1,000 open-market share repurchase program (the 2006 Plan), which it modified in 2008 to make the term indefinite. On October 30, 2019, the Board of Directors approved a newan indefinite term $500 open-market share repurchase program (the 2019 Plan). During the first quarter of 2020, we completed the 2006 Plan and commenced repurchases under the 2019 Plan. During the three and ninesix months ended OctoberJuly 2, 2022 and July 3, 2021, wethe Company repurchased and retired 0.53.0 and 1.10.6 shares of common stock for $240.9 and $50.0, and $100.0, respectively. Duringrespectively, under the nine months ended September 26, 2020, we repurchased and retired 1.7 shares of common stock for $73.2. There were no open-market share repurchases in the third quarter of 2020.2019 Plan.
Separate from the open-market share repurchase program, the Company repurchases shares of common stock in settlement of employee tax withholding obligations due upon the vesting of equity-based compensation awards. During the three and ninesix months ended OctoberJuly 2, 2022 and July 3, 2021, the Company repurchased 0.1 shares and 0.20.1 shares of common stock for $0.3$8.5 and $11.7, respectively. During$11.4, respectively, in connection with the three and nine months ended September 26, 2020, the Company repurchased a nominal numbernet settlement of shares and 0.2 shares of common stock for $0.2 and $10.7, respectively.employee LTIP awards.
NOTE 1816
ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables summarize the changes within each component of accumulated other comprehensive loss.
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As of and for the Three Months Ended October 2, 2021 | Postretirement Benefit Plans | | Cumulative Translation Adjustment | | | | Accumulated Other Comprehensive Loss |
July 3, 2021 | $ | (55.9) | | | $ | (245.1) | | | | | $ | (301.0) | |
Net change in postretirement benefit plans, net of tax | 3.1 | | | — | | | | | 3.1 | |
Net foreign currency translation adjustment | — | | | (21.5) | | | | | (21.5) | |
October 2, 2021 | $ | (52.8) | | | $ | (266.6) | | | | | $ | (319.4) | |
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As of and for the Three Months Ended July 2, 2022 | Postretirement Benefit Plans | | Cumulative Translation Adjustment | | | | Accumulated Other Comprehensive Loss |
April 2, 2022 | $ | (41.1) | | | $ | (292.2) | | | | | $ | (333.3) | |
Net change in postretirement benefit plans, net of tax | (0.2) | | | — | | | | | (0.2) | |
Net foreign currency translation adjustment | — | | | (70.8) | | | | | (70.8) | |
July 2, 2022 | $ | (41.3) | | | $ | (363.0) | | | | | $ | (404.3) | |
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December 31, 2020 | $ | (55.9) | | | $ | (223.5) | | | | | $ | (279.4) | |
Net change in postretirement benefit plans, net of tax | 3.1 | | | — | | | | | 3.1 | |
Net foreign currency translation adjustment | — | | | (43.1) | | | | | (43.1) | |
October 2, 2021 | $ | (52.8) | | | $ | (266.6) | | | | | $ | (319.4) | |
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December 31, 2021 | $ | (40.8) | | | $ | (280.5) | | | | | $ | (321.3) | |
Net change in postretirement benefit plans, net of tax | (0.5) | | | — | | | | | (0.5) | |
Net foreign currency translation adjustment | — | | | (82.5) | | | | | (82.5) | |
July 2, 2022 | $ | (41.3) | | | $ | (363.0) | | | | | $ | (404.3) | |
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June 27, 2020 | $ | (131.5) | | | $ | (301.2) | | | $ | (432.7) | |
Net change in postretirement benefit plans, net of tax | 1.8 | | | — | | | 1.8 | |
Net foreign currency translation adjustment | — | | | 23.5 | | | 23.5 | |
September 26, 2020 | $ | (129.7) | | | $ | (277.7) | | | $ | (407.4) | |
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December 31, 2019 | $ | (133.3) | | | $ | (252.0) | | | | | $ | (385.3) | |
Net change in postretirement benefit plans, net of tax | 3.6 | | | — | | | | | 3.6 | |
Net foreign currency translation adjustment | — | | | (25.7) | | | | | (25.7) | |
September 26, 2020 | $ | (129.7) | | | $ | (277.7) | | | | | $ | (407.4) | |
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April 3, 2021 | $ | (55.9) | | | $ | (253.5) | | | | | $ | (309.4) | |
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Net foreign currency translation adjustment | — | | | 8.4 | | | | | 8.4 | |
July 3, 2021 | $ | (55.9) | | | $ | (245.1) | | | | | $ | (301.0) | |
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As of and for the Six Months Ended July 3, 2021 | Postretirement Benefit Plans | | Cumulative Translation Adjustment | | | | Accumulated Other Comprehensive Loss |
December 31, 2020 | $ | (55.9) | | | $ | (223.5) | | | | | $ | (279.4) | |
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Net foreign currency translation adjustment | — | | | (21.6) | | | | | (21.6) | |
July 3, 2021 | $ | (55.9) | | | $ | (245.1) | | | | | $ | (301.0) | |
NOTE 1917
COMMITMENTS AND CONTINGENCIES
From time to time, we are involved in legal proceedings that are incidental to the operation of our business. Historically, these proceedings have alleged damages relating to asbestos and environmental exposures, intellectual property matters, copyright infringement, personal injury claims, employment and employee benefit matters, government contract issues and commercial or contractual disputes and acquisitions or divestitures. We will continue to defend vigorously against all claims. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including our assessment of the merits of the particular claim, as well as our current reserves and insurance coverage, we do not expect that existing legal proceedings will have a material adverse impact on our financial statements, unless otherwise noted below.
Asbestos Matters
Prior to the divestiture described below, former subsidiaries of ITT, including ITT LLC and Goulds Pumps LLC, havewhich are wholly owned subsidiaries of InTelCo Management LLC (InTelCo), had been sued along with many other companies in product liability lawsuits alleging personal injury due to purported asbestos exposure. These claims generally allege that certain products sold by these entities or their subsidiaries 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. ITT LLC and Goulds Pumps LLC are wholly owned subsidiaries of InTelCo Management LLC (InTelCo), a former subsidiary of ITT.
On June 30, 2021, the Company entered into a Membership Interest Purchase Agreement (the Purchase Agreement) with Sapphire TopCo, Inc. (Buyer), a wholly owned subsidiary of Delticus HoldCo, L.P., which is a portfolio company of the private equity firm, Warburg Pincus LLC. Under the Purchase Agreement, the Company transferred 100% of the equity interests of InTelCo to the Buyer, effective as of July 1, 2021, along with a cash contribution from the Company to InTelCo of $398 to InTelCo.$398. As InTelCo was the obligor for the Company's asbestos-related liabilities and policyholder of the related insurance assets through its subsidiaries ITT LLC and Goulds Pumps LLC, the rights and obligations related to these items transferred upon the sale. In addition, pursuant to the Purchase Agreement, the Buyer and InTelCo have indemnified the Company and its affiliates for legacy asbestos-related liabilities and other product liabilities, and the Company has indemnified InTelCo and its affiliates for all other historical liabilities of InTelCo. This indemnification is not subject to any cap or time limitation. In connection with the sale, the Company and its Board of Directors received a solvency opinion from an independent advisory firm that InTelCo was solvent and adequately capitalized after giving effect to the transaction.
Following the completion of the transfer, the Company no longer has any obligation with respect to pending and future asbestos claims relating to these matters.claims. As such, InTelCo has been deconsolidated from our 2021 financial results, as we no longer maintain control of the entity. Therefore, all associated asbestos-related assets and liabilities are no longer reported on the Company’s consolidated balance sheet. The transaction resulted in a pre-tax gain of $88.8. Additionally, the Company recorded tax expense as a result of the reversal of previously recorded deferred tax assets of $116.9, resulting in an after-tax loss of $28.1 recorded in the second quarter of 2021.
The following is a summary of the impacts of the divestiture of InTelCo:
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Cash and cash equivalents | $ | (398.0) | | | |
Current asbestos-related assets | (91.0) | | | |
Long-term asbestos-related assets | (310.4) | | | |
Accrued liabilities | 91.2 | | | |
Long-term asbestos-related liabilities | 797.0 | | | |
Gain on divestiture of legacy asbestos-related assets and liabilities before income tax | $ | 88.8 | | | |
Less: income tax expense | 116.9 | | | |
Loss on divestiture of legacy asbestos-related assets and liabilities, net of tax | $ | (28.1) | | | |
Asbestos-Related Costs (Benefit), Net
Prior to the divestiture of the entity holding legacy asbestos-related assets and liabilities, the Company recognized an estimated asbestos liability for pending claims and claims expected to be filed in the future, including legal fees. In the third quarter of 2020, we extended the measurement period over which we estimate the legacy asbestos liability to include pending claims and claims estimated to be filed through 2052, including legal fees, reflecting the full time period over which we expected claims to be filed against InTelCo. Previous estimates included pending claims and claims expected to be filed over the next 10 years. Additionally, prior to the divestiture of the entity holding legacy asbestos-related assets and liabilities, the Company recorded an asbestos-related asset composed of probable insurance recoveries.
The following table summarizes our total pre-tax net asbestos-related costs (benefit).
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| Three Months Ended | | Nine Months Ended |
| October 2, 2021 | | September 26, 2020 | | October 2, 2021 | | September 26, 2020 |
Asbestos provision(a) | $ | — | | | $ | 5.5 | | | $ | 14.4 | | | $ | 29.1 | |
Gain on divestiture before income tax | — | | | — | | | (88.8) | | | — | |
Net asbestos remeasurement cost(b) | — | | | 135.9 | | | — | | | 135.9 | |
Insurance settlement agreements(c) | — | | | — | | | — | | | (48.3) | |
Asbestos-related costs (benefit), net | $ | — | | | $ | 141.4 | | | $ | (74.4) | | | $ | 116.7 | |
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| Three Months Ended | | Six Months Ended |
| July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 |
Asbestos provision(a) | $ | — | | | $ | 12.0 | | | $ | — | | | $ | 14.4 | |
Gain on divestiture before income tax | — | | | (88.8) | | | — | | | (88.8) | |
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Asbestos-related benefit, net | $ | — | | | $ | (76.8) | | | $ | — | | | $ | (74.4) | |
(a)Includes certain administrative costs such as legal-related costs for insurance asset recoveries and transaction costs related to the divestiture of the entity holding legacy asbestos-related assets and liabilities. The asbestos provision for the three and nine months ended September 26, 2020 includes amounts to maintain a rolling 10-year provision prior to the transition to a full horizon estimate.
(b)In the third quarter of 2020, we extended our projection to include pending claims and claims expected to be filed through 2052, reflecting the full time period over which we expected asbestos claims to be filed against InTelCo.
(c)In March 2020, we finalized a settlement agreement with a group of insurers to settle responsibility for claims under certain insurance policies for a lump sum payment of $66.4, resulting in a benefit of $52.5. During June 2020, we entered into a settlement agreement with an insurer accelerating payments previously included in a buyout agreement, resulting in a loss of $4.2.
The following table provides a rollforward of the estimated legacy asbestos liability and related assets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| October 2, 2021 | | September 26, 2020 |
For the Nine Months Ended | Liability | | Asset | | Net | | Liability | | Asset | | Net |
Beginning balance | $ | 932.0 | | | $ | 444.7 | | | $ | 487.3 | | | $ | 817.6 | | | $ | 386.8 | | | $ | 430.8 | |
Asbestos provision(a) | 13.4 | | | (1.0) | | | 14.4 | | | 35.4 | | | 6.3 | | | 29.1 | |
Asbestos remeasurement(b) | — | | | — | | | — | | | 155.7 | | | 19.8 | | | 135.9 | |
| | | | | | | | | | | |
Insurance settlement agreements | — | | | — | | | — | | | — | | | 48.3 | | | (48.3) | |
Net cash activity(a) | (57.2) | | | (42.3) | | | (14.9) | | | (60.7) | | | (51.8) | | | (8.9) | |
Divestiture of legacy asbestos-related assets and liabilities | (888.2) | | | (401.4) | | | (486.8) | | | — | | | — | | | — | |
Ending balance | $ | — | | | $ | — | | | $ | — | | | $ | 948.0 | | | $ | 409.4 | | | $ | 538.6 | |
Current portion | $ | — | | | $ | — | | | | | $ | 91.3 | | | $ | 91.0 | | | |
Noncurrent portion | $ | — | | | $ | — | | | | | $ | 856.7 | | | $ | 318.4 | | | |
Environmental Matters
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 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 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 or remediation. These sites include instances where we have been identified as a potentially responsible party under federal and state environmental laws and regulations.
The following table provides a rollforward of our estimated environmental liability.
| For the Nine Months Ended | October 2, 2021 | | September 26, 2020 | |
For the Six Months Ended | | For the Six Months Ended | July 2, 2022 | | July 3, 2021 |
Environmental liability - beginning balance | Environmental liability - beginning balance | $ | 58.3 | | | $ | 61.9 | | Environmental liability - beginning balance | $ | 54.1 | | | $ | 58.3 | |
Change in estimates for pre-existing accruals: | Change in estimates for pre-existing accruals: | | Change in estimates for pre-existing accruals: | |
Continuing operations | Continuing operations | — | | | 1.2 | | Continuing operations | — | | | 0.1 | |
Discontinued operations(a) | Discontinued operations(a) | (0.1) | | | (1.6) | | Discontinued operations(a) | 5.4 | | | (0.1) | |
Accruals added during the period for new matters | Accruals added during the period for new matters | 1.0 | | | — | | Accruals added during the period for new matters | 0.1 | | | 1.0 | |
Payments | Payments | (7.2) | | | (2.9) | | Payments | (2.7) | | | (6.7) | |
Foreign currency | Foreign currency | (0.2) | | | — | | Foreign currency | (0.3) | | | (0.1) | |
Environmental liability - ending balance | Environmental liability - ending balance | $ | 51.8 | | | $ | 58.6 | | Environmental liability - ending balance | $ | 56.6 | | | $ | 52.5 | |
(a) During the six months ended July 2, 2022, we increased the estimated environmental liability for a former site of ITT by $5.4 and recognized an insurance-related asset of $4.3. The resulting net pre-tax expense of $1.1 has been presented as a loss from discontinued operations within the Consolidated Condensed Statements of Operations.
Environmental-related assets, including a Qualified Settlement Fund and estimated recoveries from insurance providers and other third parties, were $12.9$14.5 and $19.6$12.1 as of OctoberJuly 2, 20212022 and September 26, 2020,July 3, 2021, respectively.
We are currently involved with 27 active environmental investigation and remediation sites. As of OctoberJuly 2, 2021,2022, we have estimated the potential high-end liability range of environmental-related matters to be $90.3.$100.
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.
NOTE 2018
DERIVATIVE FINANCIAL INSTRUMENTS
From time to time, the Company may use derivative financial instruments, primarily foreign currency forward and option contracts, to mitigate exposure from foreign currency exchange rate fluctuations as it pertains to receipts from customers, payments to suppliers and intercompany transactions, as well as from commodity price fluctuations. We record derivatives at their fair value as either an asset or liability. For derivatives not designated as hedges, adjustments to reflect changes in the fair value of our derivatives are included in earnings. For cash flow hedges that qualify and are designated for hedge accounting, the effective portion of the change in fair value of the derivative is recorded in accumulated other comprehensive loss and subsequently recognized in earnings when the hedged transaction affects earnings. Any ineffective portion is recognized immediately in earnings. As of OctoberJuly 2, 2021 and December 31, 2020, no derivatives were designated as hedges. Derivative contracts involve the risk of non-performance by the counterparty. The fair value of our foreign currency contracts are determined using the net position of the contracts and the applicable spot rates and forward rates as of the reporting date.
As of October 2, 2021,2022, the U.S. dollar equivalent notional value of our outstanding foreign currency forward and option contracts, which are denominated in euros, was $60.3$107.1 and the fair value was $2.6,$7.8, recorded within other current assets. There were no derivative contracts outstanding asAs of December 31, 2020.2021, the U.S. dollar equivalent notional value of our outstanding foreign currency forward and option contracts was $24.2 and the fair value was $1.9. During the three and ninesix months ended OctoberJuly 2, 2021,2022, we recognized lossesgains related to foreign currency derivatives not designated as hedges of $1.1$3.3 and $3.3,$5.6, respectively, within general and administrative expenses. During the three and ninesix months ended September 26, 2020,July 3, 2021, we recognized a gain of $0.1 and a loss of $3.7,$0.8 and $2.2, respectively.
From time to time, we enter into call option contracts to mitigate exposure to commodity price fluctuations. As of OctoberJuly 2, 2021,2022, call option contracts were nominal. There were no call option contracts outstanding as of December 31, 2020.2021.
We utilize market approaches to estimate the fair value of our derivative instruments by discounting anticipated future cash flows derived from the derivative’s contractual terms and observable foreign exchange
rates. The fair values of the derivatives summarized above are determined based on Level 2 inputs in the fair value hierarchy.
NOTE 19
ACQUISITIONS AND INVESTMENTS
Acquisition of Habonim Industrial Valves and Actuators Ltd (Habonim)
On April 4, 2022, we completed the acquisition of 100% of the privately held stock of Habonim for a purchase price of $139.9. Habonim is a designer and manufacturer of valves, valve automation and actuation for the gas distribution (including liquified natural gas), biotech and harsh application service sectors. Habonim sells directly to original equipment manufacturers and integrators for customized solutions. Habonim has operations in Israel, the U.S., and the Netherlands, reported annual sales of $44 in 2021, and has a workforce of approximately 200 employees. Habonim’s results are reported within the Industrial Process segment beginning in the second quarter of 2022.
The primary areas of the purchase price allocations that are not yet finalized relate to the valuation of certain tangible and intangible assets, liabilities, income tax, and residual goodwill, which represents the excess of the purchase price over the fair value of the net tangible and other intangible assets acquired. We expect to obtain the information necessary to finalize the fair value of the net assets and liabilities during the measurement period, not to exceed one year from the acquisition date. Changes to the preliminary estimates of the fair value during the measurement period will be recorded as adjustments to those assets and liabilities with a corresponding adjustment to goodwill in the period they occur. The goodwill arising from these acquisitions is not expected to be deductible for income tax purposes.
| | | | | |
Preliminary Allocation of Purchase Price | Habonim |
Receivables | $ | 10.2 | |
Inventory | 18.2 | |
Plant, property and equipment | 16.1 | |
Goodwill | 68.7 | |
Other intangible assets | 45.7 | |
Other assets | 4.2 | |
Accounts payable and accrued liabilities | (8.7) | |
Other liabilities | (11.8) | |
Noncontrolling interest | (2.7) | |
Net assets acquired | $ | 139.9 | |
Pro forma results of operations have not been presented because the acquisition was not deemed significant as of the acquisition date.
Investments in CRP Technology and CRP USA (CRP)
During the second quarter of 2022, we purchased a minority investment of 46% in CRP Technology Srl and 33% in CRP USA LLC (collectively "CRP") for $23.0. CRP is a manufacturer of reinforced composite materials for 3D printing for the aerospace, defense, premium automotive, and motorsports industries. CRP's Windform® high-performance materials enable engineers to develop complex, customized designs while providing lightweight and exceptionally durable products. The CRP investments are accounted for as equity method investments.
Other
During the second quarter of 2022, we purchased all production assets and proprietary technology related to an energy absorption product line for high-cycle applications in industrial automation. The product line was acquired for $7.0 from Clippard Instrument Laboratory, Inc., which is a U.S. manufacturer of electronic and pneumatic components. These assets are included within the CCT segment.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In millions, except per share amounts, unless otherwise stated)
OVERVIEW
ITT Inc. is a diversified manufacturer of highly engineered critical components and customized technology solutions for the transportation, industrial, and energy markets. We manufacture components that are integral to the operation of systems and manufacturing processes in these key markets. Our products enable functionality for applications where reliability and performance are critically important to our customers and the users of their products.
Our businesses share a common, repeatable operating model centered on our engineering capabilities. Each business applies its technology and engineering expertise to solve our customers’ most pressing challenges. Our applied engineering provides a valuable business relationship with our customers given the critical nature of their applications. This in turn provides us with unique insight to our customers’ requirements and enables us to develop solutions to assist our customers in achieving their business goals. Our technology and customer intimacy together produce opportunities to capture recurring revenue streams, aftermarket opportunities and long-lived platforms from original equipment manufacturers (OEMs).
Our product and service offerings are organized into three reportable segments: Motion Technologies (MT), Industrial Process (IP), and Connect & Control Technologies (CCT). See Note 3, Segment Information, in this Report for a summary description of each segment. Additional information is also available in our 20202021 Annual Report within Part I, Item 1, “Description of Business”.Business.” All comparisons included within Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to the comparable three and ninesix months ended September 26, 2020,July 3, 2021, unless stated otherwise.
COVID-19 Update:Russia-Ukraine Conflict:
The Company continuesIn February 2022, the United States announced targeted economic sanctions on Russia and certain Russian citizens in response to respondRussia’s invasion of Ukraine. As described in Part I, Item IA, “Risk Factors” in our 2021 Annual Report for the fiscal year ended December 31, 2021, our business may be sensitive to global economic conditions, which can be negatively impacted by instability in the geopolitical environment. Our annual sales directly to customers in Russia and recover fromUkraine were approximately $38 for 2021. At the challengesstart of the conflict, annual sales to customers in Russia and Ukraine, including sales to customers selling or supplying to Russia or Ukraine, were expected to be approximately $60 for 2022. In addition, this year we expect an indirect sales impact of approximately $25 stemming from the COVID-19 pandemic, including managing significant market headwinds,a reduction in supply chain disruptions, shipping delays, and reduced availability of skilled labor. We continue to be proactiveauto components made in responding to these challenges, including working closely with our suppliers to minimize disruptions within our global supply chain. As a result, we’ve been able to continue delivering high quality products to our customers.Ukraine.Future impactsDuring the six months ended July 2, 2022, we recorded total charges of COVID-19 on$8.0, primarily related to inventory and account receivable reserves to reflect the current macroeconomic conditions impacting some of our businesscustomers that sell or supply into this region. If circumstances worsen, we may experience a further reduction in demand and financials remain uncertaincould incur additional charges, including potential fixed asset impairments, severance and willother expenses. We are currently exploring alternatives for our operations in Russia, which could include a sale, disposition or wind down of operations, or a combination of these alternatives, although there cannot be dependent on the durationany assurance of the COVID-19 pandemic, including variant strainstimeline for or success of the virus, the timing, effectiveness and availability of, and people’s receptivity to, vaccines or other medical remedies, potential impacts from mandatory vaccination requirements, and our ability to respond to future challenges posed by the COVID-19 pandemic.these alternatives. For additional discussion of the risks related to COVID-19,the Russia-Ukraine conflict, see Part II, Item 1A, “Risk Factors” herein,herein.COVID-19 Update:
The Company continues to be proactive in responding to the challenges stemming from the COVID-19 pandemic. As a result, we have been able to continue delivering to our customers. Future impacts of COVID-19 on our business and financial results remain uncertain and will be dependent on the effect and duration of variant strains of the virus. As a result of these variants, certain countries around the world in which we operate, such as well asChina, have reinstituted restrictive measures that were previously implemented to curtail the spread of the virus. Continued challenges resulting from the COVID-19 pandemic have adversely impacted, and may continue to adversely impact, our business and financial results. For additional discussion of risks related to COVID-19, see Part I, Item IA, “Risk Factors” in our 20202021 Annual Report.
Executive Summary
During the third quarter of 2021, we delivered strong results, growing our revenue across all three segments and expanding our operating margin. The following table provides a summary of key performance indicators for the thirdsecond quarter of 20212022 as compared to the thirdsecond quarter of 2020.2021.
| | | | | | | | | | | |
Summary of Key Performance Indicators for the Third Quarter of 2021 |
Revenue | Segment Operating Income | Segment Operating Margin | EPS |
$690 | $111 | 16.1% | $1.00 |
17% Increase | 33% Increase | 190bp Increase | 282% Increase |
Organic Revenue | Adjusted Segment Operating Income | Adjusted Segment Operating Margin | Adjusted EPS |
$684 | $116 | 16.8% | $0.99 |
16% Increase | 21% Increase | 60bp Increase | 21% Increase |
| | | | | | | | | | | |
Summary of Key Performance Indicators for the Second Quarter of 2022 |
Revenue | Segment Operating Income | Segment Operating Margin | EPS |
$733 | $114 | 15.6% | $0.91 |
6% Increase | Flat | -90bp Decrease | 102% Increase |
Organic Revenue | Adjusted Segment Operating Income | Adjusted Segment Operating Margin | Adjusted EPS |
$758 | $117 | 15.9% | $0.98 |
10% Increase | 2% Increase | -60bp Decrease | 4% Increase |
Further details related to these results are contained elsewhere in the Discussion of Financial Results section. Refer to the section titled “Key Performance Indicators and Non-GAAP Measures” for definitions and reconciliations between GAAP and non-GAAP metrics. Our thirdsecond quarter 20212022 results include:
•Revenue of $689.6$733.3 increased $98.4, including favorable foreign exchange of $5.9. Organic revenue improved 15.6%, as a result of strong top line growth across all our segments. In particular, our MT segment sawby $41.7 due to strong growth in CCT’s connectors and components, IP’s short-cycle business, and MT’s Friction aftermarketbusiness. In addition, revenue from the acquisition of Habonim contributed growth of 2.2%. The increase was partially offset by unfavorable foreign currency impacts of $40.5 and continued to significantly outperformreduced volumes stemming from the global OE automotive market. Additionally, we experienced significant growth in our CCT segment due to continued strength in connector sales, and our IP segment grew thanks to short cycle products, including pump parts and valves, as a result of strong performance in the industrial and biopharmaceutical markets.Russia-Ukraine conflict.
•Segment operating income of $111.2 increased $27.3, primarily driven by higher sales volume, strategic commercial actions, and savings from productivity. These items were partially offset by supply chain disruptions resulting in increased$114.3, including favorable foreign currency impacts of $2.6, was flat. Higher raw material and shippingoverhead costs strategic growth investmentsstemming from continued supply chain challenges and a reversal of temporary cost reductions thatinflation were executed in 2020.offset by pricing actions, productivity savings, and higher sales volume.
•Income from continuing operations of $1.00$0.91 per diluted share increased $1.55$0.46 as compared to the prior year of $0.45 per share, due to an asbestos-related after-tax loss of $0.55 per share, mainly due$37.2 primarily related to the negative impactdivestiture of asbestos charges of $135.9 in the prior year period and higher segment operating income. The prior year asbestos costs relate to extending the projection period over which we expect asbestos claims to be filed against InTelCo Management, LLC (InTelCo), the entity holding legacy asbestos-related assets and liabilities. Since then, we have divested our entire net asbestos liability.liabilities in 2021. Adjusted income from continuing operations was $0.99$0.98 per diluted share, an improvementincrease of $0.17.$0.04 as compared to the prior year.
In terms of capital deployment, during the thirdsecond quarter of 20212022, we completed the acquisition of Habonim for a purchase price of $139.9. Also during the second quarter, we repurchased 0.50.9 shares of common stock on the open-market for $50, bringing our total year-to-date open-market share repurchases to $100. In addition, in the third quarter of 2021 we$63.0 and declared a dividend of $0.22$0.264 per share, which was a 30%20% increase from the quarterly dividends declareddividend of $0.22 in 2020, bringing our total year-to-date dividend payments to $57.2021.
DISCUSSION OF FINANCIAL RESULTS
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| October 2, 2021 | September 26, 2020 | Change | | October 2, 2021 | September 26, 2020 | Change |
Revenue | $ | 689.6 | | $ | 591.2 | | 16.6 | % | | $ | 2,079.6 | | $ | 1,769.2 | | 17.5 | % |
Gross profit | 222.0 | | 190.6 | | 16.5 | % | | 675.6 | | 563.6 | | 19.9 | % |
Gross margin | 32.2 | % | 32.2 | % | — | bp | | 32.5 | % | 31.9 | % | 60 | bp |
Operating expenses(a)(b) | 120.3 | | 253.1 | | (52.5) | % | | 284.4 | | 496.3 | | (42.7) | % |
Operating expense to revenue ratio | 17.4 | % | 42.8 | % | (2,540) | bp | | 13.7 | % | 28.1 | % | (1,440) | bp |
Operating income (loss)(a)(b) | 101.7 | | (62.5) | | 262.7 | % | | 391.2 | | 67.3 | | 481.3 | % |
Operating margin | 14.7 | % | (10.6) | % | 2,530 | bp | | 18.8 | % | 3.8 | % | 1,500 | bp |
Interest and non-operating expenses (income), net | 0.5 | | 1.2 | | (58.3) | % | | (4.3) | | 4.0 | | 207.5 | % |
Income tax expense (benefit) | 14.1 | | (16.2) | | (187.0) | % | | 182.7 | | (19.6) | | ** |
Effective tax rate | 13.9 | % | 25.4 | % | (1,150) | bp | | 46.2 | % | (31.0) | % | ** |
Income (loss) from continuing operations attributable to ITT Inc. | 86.6 | | (48.0) | | 280.4 | % | | 211.8 | | 82.1 | | 158.0 | % |
Net income (loss) attributable to ITT Inc. | 87.5 | | (46.8) | | 287.0 | % | | 212.7 | | 86.0 | | 147.3 | % |
** Resulting percentage or basis point change not considered meaningful. | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 2, 2022 | July 3, 2021 | Change | | July 2, 2022 | July 3, 2021 | Change |
Revenue | $ | 733.3 | | $ | 691.6 | | 6.0 | % | | $ | 1,459.5 | | $ | 1,390.0 | | 5.0 | % |
Gross profit | 222.2 | | 224.6 | | (1.1) | % | | 440.6 | | 453.6 | | (2.9) | % |
Gross margin | 30.3 | % | 32.5 | % | (220) | bp | | 30.2 | % | 32.6 | % | (240) | bp |
Operating expenses(a) | 121.7 | | 45.0 | | 170.4 | % | | 245.5 | | 164.1 | | 49.6 | % |
Operating expense to revenue ratio | 16.6 | % | 6.5 | % | 1,010 | bp | | 16.8 | % | 11.8 | % | 500 | bp |
Operating income(a) | 100.5 | | 179.6 | | (44.0) | % | | 195.1 | | 289.5 | | (32.6) | % |
Operating margin | 13.7 | % | 26.0 | % | (1,230) | bp | | 13.4 | % | 20.8 | % | (740) | bp |
Interest and non-operating expenses (income), net | 0.5 | | (3.5) | | (114.3) | % | | 0.3 | | (4.8) | | (106.3) | % |
Income tax expense | 24.0 | | 143.9 | | (83.3) | % | | 43.5 | | 168.6 | | (74.2)% |
Effective tax rate | 24.0 | % | 78.6 | % | (5,460) | bp | | 22.3 | % | 57.3 | % | (3,500) | bp |
Income from continuing operations attributable to ITT Inc. | 75.8 | | 39.0 | | 94.4 | % | | 150.6 | | 125.2 | | 20.3 | % |
Net income attributable to ITT Inc. | 74.6 | | 39.0 | | 91.3 | % | | 149.4 | | 125.2 | | 19.3 | % |
(a) Operating expenses and operating income for the ninethree and six months ended October 2,July 3, 2021 include the impact of the divestiture of InTelCo. See Operating Expenses section below for further information. (b) Operating expensesthe entity holding asbestos-related assets and operating income for the three and nine months ended September 26, 2020 include the impact of extending the projection period over which we expect asbestos claims to be filed against InTelCo.liabilities. See Operating Expenses section below for further information.
REVENUE
The following table illustrates the revenue derived from each of our segments.
| For the Three Months Ended | For the Three Months Ended | October 2, 2021 | | September 26, 2020 | | Change | | Organic Growth (Decline)(a) | For the Three Months Ended | July 2, 2022 | | July 3, 2021 | | Change | | Organic Growth(a) |
Motion Technologies | Motion Technologies | $ | 332.3 | | | $ | 271.8 | | | 22.3 | % | | 20.3 | % | Motion Technologies | $ | 331.3 | | | $ | 343.6 | | | (3.6) | % | | 4.7 | % |
Industrial Process | Industrial Process | 210.7 | | | 194.1 | | | 8.6 | % | | 8.1 | % | Industrial Process | 239.6 | | | 213.9 | | | 12.0 | % | | 8.1 | % |
Connect & Control Technologies | Connect & Control Technologies | 147.1 | | | 125.9 | | | 16.8 | % | | 17.0 | % | Connect & Control Technologies | 163.2 | | | 134.5 | | | 21.3 | % | | 24.8 | % |
Eliminations | Eliminations | (0.5) | | | (0.6) | | | Eliminations | (0.8) | | | (0.4) | | |
Total Revenue | Total Revenue | $ | 689.6 | | | $ | 591.2 | | | 16.6 | % | | 15.6 | % | Total Revenue | $ | 733.3 | | | $ | 691.6 | | | 6.0 | % | | 9.6 | % |
| For the Nine Months Ended | October 2, 2021 | | September 26, 2020 | | Change | | Organic Growth (Decline)(a) | |
For the Six Months Ended | | For the Six Months Ended | July 2, 2022 | | July 3, 2021 | | Change | | Organic Growth(a) |
Motion Technologies | Motion Technologies | $ | 1,045.0 | | | $ | 769.0 | | | 35.9 | % | | 30.3 | % | Motion Technologies | $ | 701.4 | | | $ | 712.7 | | | (1.6) | % | | 4.4 | % |
Industrial Process | Industrial Process | 626.9 | | | 614.7 | | | 2.0 | % | | 0.5 | % | Industrial Process | 441.8 | | | 416.2 | | | 6.2 | % | | 5.1 | % |
Connect & Control Technologies | Connect & Control Technologies | 408.9 | | | 387.5 | | | 5.5 | % | | 4.6 | % | Connect & Control Technologies | 317.8 | | | 261.8 | | | 21.4 | % | | 24.0 | % |
Eliminations | Eliminations | (1.2) | | | (2.0) | | | Eliminations | (1.5) | | | (0.7) | | |
Total Revenue | Total Revenue | $ | 2,079.6 | | | $ | 1,769.2 | | | 17.5 | % | | 14.4 | % | Total Revenue | $ | 1,459.5 | | | $ | 1,390.0 | | | 5.0 | % | | 8.2 | % |
Motion Technologies
MT revenue for the three and ninesix months ended OctoberJuly 2, 2021 increased $60.52022 decreased $12.3 and $276.0,$11.3, respectively. Excluding the impact of favorableunfavorable foreign currency translation of $5.3$28.6 and $43.1 for the three and nine months ended October 2, 2021,$42.5, organic revenue increased $55.2$16.3 and $232.9,$31.2, respectively. Sales from our Friction business grew 21% and 35%, respectively, duringThe increase for the three- and nine-monthsix-month periods was primarily due to growth in Friction of 6% and 5%, respectively, driven by strength in aftermarketaftermarket. In addition, Wolverine increased 20% and continued OE outperformance versus automotive production rates. Wolverine sales improved 33% and 30%12%, respectively, during the three- and nine-month periods due to growth in sealings and shims. KONI & Axtonehigher sales increased 5% for both the three- and nine-month periods, primarily from strength in automotive aftermarket equipment, partially offset by a decline in rail.of sealing materials.
The automotive industry is currently experiencinghas been, and continues to be, impacted by a global semiconductor supply shortage. This shortage has created supply chain disruptions for our automotive OEM customers, resulting in
temporary declines in production. As a result, demand for our OEM brake pads and parts has been and may continue to be adversely affected until the shortage is resolved. While this shortage has had and may continue to have a negative impact on revenue, we continue to significantly outperform automotive production rates globally.
Industrial Process
IP revenue for the three and ninesix months ended OctoberJuly 2, 20212022 increased $16.6$25.7 and $12.2,$25.6, respectively. Both periods included favorableExcluding revenue of $15.5 from the acquisition of Habonim and unfavorable foreign currency translation impacts of $0.8$7.1 and $9.4, respectively. Organic$11.0, respectively, organic revenue increased by $15.8 during$17.3 and $21.1. The increase for the three-month period,three- and six-month periods was primarily driven by growth in our short cyclethe short-cycle business of 10%19% and 16%, respectively, due to strength inwithin the general industrial and miningchemical markets. Organic revenue for the nine-month period increased $2.8, primarily driven by growthThe increase in pump projects of 12% due to strength in the oil and gas and general industrial markets. Thisboth periods was partially offset by a decline in our short-cycle businesspump project sales of 2%27% and 29%, attributable torespectively, primarily within the first half of the year.energy and chemical markets.
The level of order and shipment activity at IP can vary significantly from period to period due to pump projects which are highly engineered, customized to customer needs, and have longer lead times. Total orders during the three and nine months ended OctoberJuly 2, 20212022 were $242.5 and $689.2, respectively,$298.8, an increase of 25.5% and 12.2%29% as compared to July 3, 2021. Backlog as of July 2, 2022 was $576.4, an increase of $132.0, or 30%, as compared to the respective prior year periods. Backlog as of October 2, 2021 was $412.0, an increase of $44.6, or 12.1%, as compared to December 31, 2020.period. Our backlog represents firm orders that have been received, acknowledged, and entered into our production systems.
Connect & Control Technologies
CCT revenue for the three and ninesix months ended OctoberJuly 2, 20212022 increased $21.2$28.7 and $21.4,$56.0, respectively, which included unfavorable foreign currency translation impacts of $(0.2)$4.7 and $3.6, respectively.$6.9. Organic revenue increased $21.4$33.4 and $17.8 during the three- and nine-month periods, respectively. The increase in both periods was$62.9, respectively, primarily driven by a strong performancegrowth in connector sales whichof 31% and 30%, respectively, particularly within the general industrial and aerospace and defense markets. Additionally, component sales grew 29%by 14% and 18%16%, respectively. The nine-month period was negatively impacted by a 10% revenue decline withinrespectively, with strength in the aerospace and defense markets. Although we have seen an increase in commercial air travel, as airframers work through high levels of inventory, we do not expect to see a significant improvement in sales until 2022.
GROSS PROFIT
Gross profit for the three months ended OctoberJuly 2, 2022 and July 3, 2021 was $222.2 and September 26, 2020 was $222.0 and $190.6,$224.6, respectively, reflecting a gross margin of 32.2% in both periods.30.3% and 32.5%. Gross profit for the ninesix months ended OctoberJuly 2, 2022 and July 3, 2021 was $440.6 and September 26, 2020 was $675.6 and $563.6,$453.6, respectively, reflecting a gross margin of 32.5%30.2% and 31.9%, respectively.32.6%. The increasedecrease in gross profit for the three- and nine-month periods was primarily driven by higher sales volume, productivity savings and strategic commercial actions. These items were partially offset bysignificant increases in raw material, shipping, and labor costs, as discussed further below. These items were partially offset by pricing actions, productivity savings, and higher sales volume.
Since 2020, the cost of raw materials we use in our production processes, including commodities such as steel, used in our production processesoil, copper, and tin, has significantly increased. Accordingly, gross profit and operating income within our businesses have been and may continue to be negatively impacted. The rising prices are mainly a result of increased demand fueledcoupled with reduced supply caused by economic recovery fromsupply chain disruptions primarily as a result of the COVID-19 pandemic as well as lowerand the Russia-Ukraine conflict. Raw materials inflation and supply since global production capacity was cut in 2020. Thechain constraints may continue to unfavorably impact of higher commodity prices on our financial results during the third quarterremainder of 2021 was partially mitigated by fixed-price supply contracts with suppliers, especially in the first half of 2021. The expiration of these fixed-price contracts, continued raw materials inflation, and supply constraints had a negative impact on our third quarter financial results and are expected to have an unfavorable impact on our fourth quarter financial results.2022. We have been able to offset some of this impact through price increasespricing actions and productivity savings, andwhich we expectcontinue to be able to do so in the fourth quarter and in 2022.pursue.
During 2021 and 2022, worldwide supply chain challenges exacerbated by the COVID-19 pandemic and the rising demand for raw materials, as discussed above,physical goods have created upward pressure on shipping costs globally. These supply chain disruptions have contributed to congested shipping ports around the world, causing shipping delays and, in many cases, additional costs to be incurred in order to meet customer demand. As a result of these external pressures, our shipping costs, including for inbound and outbound freight, have increased, as compared to the prior year, which has negatively impacted our gross profit. At this time, we are unable to predict when these issues will be resolved. Continued supply chain challenges resulting in incrementaland shipping costschallenges could have a material impact on our future financial results.
The manufacturing industry is also currently experiencing a skilled labor shortage. This shortage has created difficulties for the Company in attracting and retaining factory employees and in meeting customer demand, resulting in additional labor costs. Additionally, in September 2021 the current U.S. administration issued a mandate on COVID-19 vaccinations as well as requirements for unvaccinated employeesAccordingly, our revenue, gross profit, and operating expenses at each of our businesses have been and may continue to be tested weekly for COVID-19. Such requirements couldnegatively impacted as a result of difficulties in fulfilling customer orders and increased labor costs.
Certain of our businesses have experienced high levels of employee attritionabsenteeism resulting from regional COVID-19 outbreaks and government mandated workplace safety measures. Some governments around the world, including China, have instituted COVID-19 lockdowns that are expected to lead to further difficultyabsenteeism, global supply chain challenges, and, potentially, temporary negative impacts on demand in securing future labor needs.some of our end-markets, such as passenger vehicles. As a result of these circumstances, our financial results have been, and may continue to be, negatively impacted. For additional information regarding the government-mandate onrisks related to COVID-19, vaccination, see Part II,I, Item 1A, ““Risk Factors,” of our Risk Factors2021 Annual Report”. OPERATING EXPENSES
The following table summarizes our operating expenses, including by segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| October 2, 2021 | | September 26, 2020 | | Change | | October 2, 2021 | | September 26, 2020 | | Change |
General and administrative expenses | $ | 55.9 | | | $ | 47.1 | | | 18.7 | % | | $ | 168.2 | | | $ | 148.8 | | | 13.0 | % |
Sales and marketing expenses | 37.4 | | | 33.4 | | | 12.0 | % | | 112.4 | | | 110.7 | | | 1.5 | % |
Research and development expenses | 22.5 | | | 19.7 | | | 14.2 | % | | 70.0 | | | 61.3 | | | 14.2 | % |
Asbestos-related costs (benefit), net | — | | | 141.4 | | | (100.0) | % | | (74.4) | | | 116.7 | | | 163.8 | % |
Restructuring costs | 4.5 | | | 11.5 | | | (60.9) | % | | 8.2 | | | 42.5 | | | (80.7) | % |
Asset impairment charges | — | | | — | | | — | % | | — | | | 16.3 | | | (100.0) | % |
Total operating expenses | $ | 120.3 | | | $ | 253.1 | | | (52.5) | % | | $ | 284.4 | | | $ | 496.3 | | | (42.7) | % |
Total Operating Expenses By Segment: | | | | | | | | | | | |
Motion Technologies | $ | 43.5 | | | $ | 31.8 | | | 36.8 | % | | $ | 126.5 | | | $ | 111.7 | | | 13.2 | % |
Industrial Process | 38.7 | | | 47.9 | | | (19.2) | % | | 114.7 | | | 161.5 | | | (29.0) | % |
Connect & Control Technologies | 28.6 | | | 27.0 | | | 5.9 | % | | 90.3 | | | 91.3 | | | (1.1) | % |
Corporate & Other | 9.5 | | | 146.4 | | | (93.5) | % | | (47.1) | | | 131.8 | | | (135.7) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 2, 2022 | | July 3, 2021 | | Change | | July 2, 2022 | | July 3, 2021 | | Change |
General and administrative expenses | $ | 57.0 | | | $ | 60.3 | | | (5.5) | % | | $ | 117.4 | | | $ | 116.0 | | | 1.2 | % |
Sales and marketing expenses | 40.4 | | | 38.3 | | | 5.5 | % | | 78.8 | | | 75.0 | | | 5.1 | % |
Research and development expenses | 24.3 | | | 23.2 | | | 4.7 | % | | 49.3 | | | 47.5 | | | 3.8 | % |
Asbestos-related (benefit), net | — | | | (76.8) | | | (100.0) | % | | — | | | (74.4) | | | (100.0) | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total operating expenses | $ | 121.7 | | | $ | 45.0 | | | 170.4 | % | | $ | 245.5 | | | $ | 164.1 | | | 49.6 | % |
Total operating expenses by segment: | | | | | | | | | | | |
Motion Technologies | $ | 32.7 | | | $ | 41.4 | | | (21.0) | % | | $ | 73.9 | | | $ | 83.0 | | | (11.0) | % |
Industrial Process | 46.0 | | | 39.7 | | | 15.9 | % | | 86.9 | | | 76.0 | | | 14.3 | % |
Connect & Control Technologies | 29.2 | | | 29.4 | | | (0.7) | % | | 59.8 | | | 61.7 | | | (3.1) | % |
Corporate & Other | 13.8 | | | (65.5) | | | (121.1) | % | | 24.9 | | | (56.6) | | | (144.0) | % |
General and administrative (G&A) expenses decreased $3.3 and increased $1.4 for the three and ninesix months ended OctoberJuly 2, 2021 increased $8.8 and $19.4,2022, respectively. The increasedecrease in the three-month period was primarily due todriven by favorable foreign currency impacts, partially offset by higher incentive-based compensation as well as lower prior year personnel costs from proactive actions taken in response to the COVID-19 pandemic, which included a temporary reduction in executive compensation and suspension of select 401(k) benefits for certain U.S. employees that have since been reinstated. Last year, we also benefited from higher employee retention credits for the three- and nine-month periods, in connection with the 2020 CARES Act.bad debt. The increase in both periodsthe six-month period was driven by higher bad debt and strategic investment-related costs and lower corporate-owned life insurance investment gains, partially offset by a decline in bad debt expense. In addition, environmental costs were higher for the nine-month period by $4.5, primarily due to prior year insurance-related recoveries.favorable foreign currency impacts.
Sales and marketing expenses increased $4.0$2.1 and $1.7$3.8 respectively for the three and ninesix months ended OctoberJuly 2, 2021, respectively,2022, primarily driven by benefitstemporary spending controls in place during the prior year period from discretionary spending reductions and temporary personnel cost actionssix months ended July 3, 2021 taken in response to the COVID-19 pandemic.
Research and development expenses increased $1.1 and $1.8 respectively for the three and ninesix months ended OctoberJuly 2, 2021 increased $2.8 and $8.7, respectively,2022, due to continued strategic investments in innovation and new product development to drive future growth.
Asbestos-related matters during 2021 resulted in a net benefit of $76.8 and $74.4 for the ninethree and six months ended, October 2, 2021,respectively, due to the recognition of a pre-tax gain of $88.8 from the divestiture of InTelCo, which was executed on July 1,the entity holding asbestos-related assets and liabilities in the second quarter of 2021. During the three and nine months ended September 26, 2020, we recognized costs of $135.9 as a result of extending our projection period to include pending claims and claims expected to be filed through 2052, reflecting the full time period over which we expected asbestos claims to be filed against InTelCo. The nine months ended September 26, 2020 benefited from insurance settlements resulting in a net gain of $48.3. See Note 19,17, Commitments and Contingencies, to the Consolidated Condensed Financial Statements for further information.
Restructuring costs decreased $7.0 and $34.3, respectively, during the three and nine months ended October 2, 2021. Restructuring costs recorded during the prior year were primarily related to cost actions taken as part of our 2020 Global Restructuring Plan, which is an organizational-wide restructuring plan to reduce the overall cost structure of the Company in response to challenges caused by the COVID-19 pandemic. See Note 5, Restructuring Actions, to the Consolidated Condensed Financial Statements for further information.
OPERATING INCOME
The following table summarizes our operating income and margin by segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| October 2, 2021 | | September 26, 2020 | | Change | | October 2, 2021 | | September 26, 2020 | | Change |
Motion Technologies | $ | 53.6 | | | $ | 50.4 | | | 6.3 | % | | $ | 194.3 | | | $ | 113.9 | | | 70.6 | % |
Industrial Process | 32.4 | | | 17.1 | | | 89.5 | % | | 94.9 | | | 44.5 | | | 113.3 | % |
Connect & Control Technologies | 25.2 | | | 16.4 | | | 53.7 | % | | 54.9 | | | 40.7 | | | 34.9 | % |
Segment operating income | 111.2 | | | 83.9 | | | 32.5 | % | | 344.1 | | | 199.1 | | | 72.8 | % |
Asbestos-related (costs) benefit, net | — | | | (141.4) | | | (100.0) | % | | 74.4 | | | (116.7) | | | (163.8) | % |
Other corporate costs | (9.5) | | | (5.0) | | | 90.0 | % | | (27.3) | | | (15.1) | | | 80.8 | % |
Total corporate and other (costs) benefit, net | (9.5) | | | (146.4) | | | (93.5) | % | | 47.1 | | | (131.8) | | | (135.7) | % |
Total operating income (loss) | $ | 101.7 | | | $ | (62.5) | | | 262.7 | % | | $ | 391.2 | | | $ | 67.3 | | | 481.3 | % |
Operating margin: | | | | | | | | | | | |
Motion Technologies | 16.1 | % | | 18.5 | % | | (240) | bp | | 18.6 | % | | 14.8 | % | | 380 | bp |
Industrial Process | 15.4 | % | | 8.8 | % | | 660 | bp | | 15.1 | % | | 7.2 | % | | 790 | bp |
Connect & Control Technologies | 17.1 | % | | 13.0 | % | | 410 | bp | | 13.4 | % | | 10.5 | % | | 290 | bp |
Segment operating margin | 16.1 | % | | 14.2 | % | | 190 | bp | | 16.5 | % | | 11.3 | % | | 520 | bp |
Consolidated operating margin | 14.7 | % | | (10.6) | % | | 2,530 | bp | | 18.8 | % | | 3.8 | % | | 1,500 | bp |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 2, 2022 | | July 3, 2021 | | Change | | July 2, 2022 | | July 3, 2021 | | Change |
Motion Technologies | $ | 47.0 | | | $ | 64.7 | | | (27.4) | % | | $ | 106.7 | | | $ | 140.7 | | | (24.2) | % |
Industrial Process | 39.1 | | | 31.5 | | | 24.1 | % | | 59.5 | | | 62.5 | | | (4.8) | % |
Connect & Control Technologies | 28.2 | | | 17.9 | | | 57.5 | % | | 53.9 | | | 29.7 | | | 81.5 | % |
Segment operating income | 114.3 | | | 114.1 | | | 0.2 | % | | 220.1 | | | 232.9 | | | (5.5) | % |
Asbestos-related benefit, net | — | | | 76.8 | | | (100.0) | % | | — | | | 74.4 | | | (100.0) | % |
Other corporate costs | (13.8) | | | (11.3) | | | 22.1 | % | | (25.0) | | | (17.8) | | | 40.4 | % |
Total corporate and other costs, net | (13.8) | | | 65.5 | | | (121.1) | % | | (25.0) | | | 56.6 | | | (144.2) | % |
Total operating income | $ | 100.5 | | | $ | 179.6 | | | (44.0) | % | | $ | 195.1 | | | $ | 289.5 | | | (32.6) | % |
Operating margin: | | | | | | | | | | | |
Motion Technologies | 14.2 | % | | 18.8 | % | | (460) | bp | | 15.2 | % | | 19.7 | % | | (450) | bp |
Industrial Process | 16.3 | % | | 14.7 | % | | 160 | bp | | 13.5 | % | | 15.0 | % | | (150) | bp |
Connect & Control Technologies | 17.3 | % | | 13.3 | % | | 400 | bp | | 17.0 | % | | 11.3 | % | | 570 | bp |
Segment operating margin | 15.6 | % | | 16.5 | % | | (90) | bp | | 15.1 | % | | 16.8 | % | | (170) | bp |
Consolidated operating margin | 13.7 | % | | 26.0 | % | | (1,230) | bp | | 13.4 | % | | 20.8 | % | | (740) | bp |
MT operating income for the three and ninesix months ended OctoberJuly 2, 2021 increased $3.22022 decreased $17.7 and $80.4, respectively,$34.0, respectively. The decrease for both periods was primarily due to significantly higher sales volume, strategic commercial actionsraw material costs. The six-month period also included inventory and savings from net productivity. These items wereaccounts receivable reserves of $3.7 related to the Russia-Ukraine conflict. The decline in both periods was partially offset by higher raw materialpricing actions and shipping costs due to supply chain challenges and strategic growth investments.productivity savings.
IP operating income for the three and ninesix months ended OctoberJuly 2, 20212022 increased $15.3$7.6 and $50.4,decreased $3.0, respectively. The increase for the three-month period benefited from netwas mainly driven by productivity savings, higher sales volume,pricing actions, and favorable mix. The nine-month period benefited from net productivity savings, prior year cost actions, a decline in bad debt expense and prior period asset impairments of $16.3.
The increases for both periods weresales mix, partially offset by unfavorablehigher raw material prices, shipping, and labor costs. The nine-monthdecrease for the six-month period also experienced unfavorable product mix duewas mainly driven by significantly higher raw material costs, as well as reserves of $4.3 related to higher pump project sales.inventory and accounts receivable in connection with the Russia-Ukraine conflict, which was partially offset by productivity savings, pricing actions, and favorable sales mix.
CCT operating income for the three and ninesix months ended OctoberJuly 2, 20212022 increased $8.8$10.3 and $14.2, respectively,$24.2, respectively. The increase for both periods was driven by higher salesproductivity savings, volume and savings from net productivity. These werepricing actions, partially offset by unfavorable raw material costs and labor costs.sales mix.
Other corporate costs for the three and ninesix months ended OctoberJuly 2, 20212022 increased $4.5$2.5 and $12.2, respectively. The increase for both periods was$7.2, primarily driven by higher incentive-based compensation,lower corporate-owned life insurance investment gains, a $1.7 asset impairment related to the relocation of the Company’s corporate headquarters, as well as lower prior year personnel costs from proactive actions taken in response to the COVID-19 pandemic. Thean increase in other corporate costs for the nine-month period also reflected higher environmental-related costs of $4.5 due to insurance-related recoveries in the prior year.strategic investment-related costs.
INTEREST AND NON-OPERATING EXPENSES AND INCOME, NET
The following table summarizes our net interest and non-operating expenses (income).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| October 2, 2021 | | September 26, 2020 | | Change | | October 2, 2021 | | September 26, 2020 | | Change |
Interest and non-operating expenses (income), net | $ | 0.5 | | | $ | 1.2 | | | (58.3) | % | | $ | (4.3) | | | $ | 4.0 | | | 207.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 2, 2022 | | July 3, 2021 | | Change | | July 2, 2022 | | July 3, 2021 | | Change |
Interest and non-operating expense (income), net | $ | 0.5 | | | $ | (3.5) | | | (114.3) | % | | $ | 0.3 | | | $ | (4.8) | | | (106.3) | % |
The change duringincrease in interest and non-operating expenses for the three and ninesix months ended OctoberJuly 2, 2021 was2022 is primarily due to a decline in postretirement-related costs mainly resultingprior year gain of $3.4 from the final pricing adjustment related to the termination of our U.S. qualified pension plan, which occurred in the fourth quarter of 2020. The nine-month period also benefited fromas well as higher interest expense associated with greater outstanding commercial paper borrowings and a $3.4 gain from the final pricing adjustment in the second quarter of 2021 related to the plan termination.higher average interest rate.
INCOME TAX EXPENSE
The following table summarizes our income tax expense (benefit) and effective tax rate.
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | October 2, 2021 | | September 26, 2020 | | | October 2, 2021 | | September 26, 2020 | | | July 2, 2022 | | July 3, 2021 | | Change | | July 2, 2022 | | July 3, 2021 | | Change |
Income tax expense (benefit) | $ | 14.1 | | | $ | (16.2) | | | | $ | 182.7 | | | $ | (19.6) | | | |
Income tax expense | | Income tax expense | $ | 24.0 | | | $ | 143.9 | | | (83.3)% | | $ | 43.5 | | | $ | 168.6 | | | (74.2)% |
Effective tax rate | Effective tax rate | 13.9 | % | | 25.4 | % | | | 46.2 | % | | (31.0) | % | | Effective tax rate | 24.0 | % | | 78.6 | % | | (5,460) | bp | | 22.3 | % | | 57.3 | % | | (3,500) | bp |
The income tax expense and effective tax rateETR for the three and six months ended OctoberJuly 2, 2021 reflects a reduction in2022 was lower than the current forecasted full-year effective tax rate primarilyprior year due to earnings mix, as well as a $1.9the tax benefit from a valuation allowance reversal in Brazil.
The income tax expense and effective tax rate forimpact of the nine months ended October 2, 2021 reflects the reversal of previously recorded deferred tax assetsasbestos divestiture of $116.9 related to the Company’s divestiture of InTelCo. See(see Note 19,17, Commitments and Contingencies, for further information.The income tax benefit and effective tax rate for the three and nine months ended September 26, 2020 is primarily due to the tax benefit resulting from the asbestos remeasurement charge of $135.9 in the third quarter.information). Additionally, the effective2022 ETR included higher permanent tax rate during the three-month period in 2020 includes a benefit of $3.2benefits, primarily related to previously unrecognized tax benefits from statute of limitations expirations. The effective tax rate for the nine-month periodresearch and development incentives in 2020 also includes tax benefits of $27.2 resulting from an internal reorganization in Europe.
both foreign and U.S. jurisdictions.
This reorganization resulted in a refined projection of future earnings, which will result in the realization of a portion of our deferred tax assets.
We are closely monitoring the potential passage of new U.S. tax legislation, which could result in substantial changes to the current U.S. tax system, including changes to the statutory corporate tax rate. Further, changes in tax laws resulting from the Organization for Economic Cooperation and Development’s (“OECD”) multi-jurisdictional plan of action to address base erosion and profit shifting could adversely impact our effective tax rate. As the effects of a change in U.S. tax law must be recognized in the period in which the new legislation is enacted, should new legislation be signed into law, our financial results could be materially impacted.
See Note 6,5, Income Taxes, to the Consolidated Condensed Financial Statements for further information.
LIQUIDITY AND CAPITAL RESOURCES
Funding and Liquidity Strategy
We monitor our funding needs and execute strategies to meet overall liquidity requirements, including the management of our capital structure, on both a short- and long-term basis. Significant factors that affect our overall management of liquidity include our cash flow from operations, credit ratings, the availability of commercial paper, access to bank lines of credit, term loans, and the ability to attract long-term capital on satisfactory terms. We assess these factors along with current market conditions on a continuous basis, and as a result, may alter the mix of our short- and long-term financing when it is advantageous to do so. We expect to have enough liquidity to fund operations for at least the next 12 months and beyond.
We manage our worldwide cash requirements considering available funds among the many subsidiaries through which we conduct business and the cost effectiveness with which those funds can be accessed. We have identified and continue to look for opportunities to access cash balances in excess of local operating requirements to meetsupport our global liquidity needs in a cost-efficient manner. We plan to continue to transfer cash between certain international subsidiaries and the U.S. when it is cost effective to do so. We will also continue to support growth and expansion in markets outside of the U.S. through the enhancement of existing products and development of new products, increased capital spending, and potential foreign acquisitions. We look for opportunities to access cash balances in excess of local operating requirements to meet our global liquidity needs in a cost-efficient manner. We transfer cash between certain international subsidiaries and the U.S. when it is cost effective to do so. During the nine monthsyear ended October 2,December 31, 2021, we had net cash distributions from foreign countries to the U.S. of $48.3.$116.9. During the yearsix months ended December 31, 2020,July 2, 2022, we had net cash distributions from foreign countries to the U.S. of $498.2.$3.5. The timing and amount of any additional future distributions remains under evaluationwill be evaluated based on our jurisdictional cash needs.
The Company also continues to evaluate the various global governmental programs instituted in response to COVID-19, including the American Rescue Plan Act of 2021 (ARPA). ARPA builds upon many of the measures in the CARES Act from March 2020 and the Consolidated Appropriations Act from December 2020. ARPA and various global programs in the jurisdictions in which we operate generally provide for employee retention credits, workforce incentives, and incentive financing programs backed by governmental agencies. During the three and nine months ended October 2, 2021, the Company recognized a benefit of $0.9 and $5.0, respectively, from the employee retention credit. During the three and nine months ended September 26, 2020, the Company recognized a benefit of $1.8 and $8.7, respectively. The benefit was recorded in operating income and related to the employer portion of payroll taxes. Certain non-U.S. jurisdictions have enacted similar stimulus measures. As of October 2, 2021, we have not incurred any borrowings under governmental loan programs. We continue to monitor any effects that may result from the ARPA and 2020 CARES Act or other similar legislation globally.
The amount and timing of dividends payable on our common stock are within the sole discretion of our Board of Directors and will be based on, and affected by, a number of factors, including our financial position and results of operations, available cash, expected capital spending plans, prevailing business conditions and other factors the Board of Directors deems relevant. Therefore, there can be nowe cannot provide any assurance as to what level of dividends, if any, will be paid in the future. In the thirdsecond quarter of 2021,2022, we declared a dividend of $0.22$0.264 per share for shareholders of record on September 13, 2021,June 17, 2022, which was a 30%20% increase from the quarterly dividends declared of $0.22 in 2020.2021. Dividend payments during the ninesix months ended OctoberJuly 2, 20212022 amounted to $57.0.$44.3.
During the ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020,July 3, 2021, we repurchased and retired 1.13.0 and 1.70.6 shares of common stock for $100.0$240.9 and $73.2,$50.0, respectively, under our share repurchase plans.
Separate from our share repurchase plans, the Company repurchased 0.2 and 0.2 shares during the nine months ended October 2, 2021 and September 26, 2020, respectively, for an aggregate price of $11.7 and $10.7, respectively, In addition, in settlement of employee tax withholding obligations due upon the vesting of RSUs and PSUs.PSUs, the Company repurchased 0.1 shares and 0.1 shares for an aggregate price of $8.5 and $11.4, respectively, during the six
months ended July 2, 2022 and July 3, 2021. All repurchased shares are canceledretired immediately following the repurchases.
Commercial Paper
When available and economically feasible, we have accessed the commercial paper market through programs in place in the U.S. and Europe to supplement cash flows generated internally and to provide additional short-term funding. Commercial
The following table presents our outstanding commercial paper borrowings.
| | | | | | | | |
| July 2, 2022 | December 31, 2021 |
Commercial Paper Outstanding - U.S. Program | $ | 399.7 | | $ | 150.0 | |
Commercial Paper Outstanding - Euro Program | 145.2 | | 45.4 | |
Total Commercial Paper Outstanding | $ | 544.9 | | 195.4 | |
The increase in commercial paper outstanding from December 31, 2021 to July 2, 2022 was primarily related to funding our share repurchase activity and acquisition of $196.4 as of October 2, 2021 was issued through both the Company’s U.S. and Euro programs. Commercial paper outstanding under the U.S. program was $150.0, and was used to partially fund the divestiture of the entity holding legacy asbestos-related assets and liabilities (seeHabonim. See Note 19, CommitmentsAcquisitions and ContingenciesInvestments). Commercial paper outstanding under, to the Euro program was $46.4. As of December 31, 2020, we had commercial paper outstanding of $104.3, issued entirely under the Company’s Euro program. Consolidated Condensed Financial Statements for further information. All outstanding commercial paper for both periods had maturity terms of less than three months from the date of issuance.
Revolving Credit AgreementsAgreement
On August 5, 2021, we entered into a revolving credit facility agreement with a syndicate of third party lenders including Bank of America, N.A., as administrative agent (the 2021 Revolving Credit Agreement). Upon its effectiveness, this agreement replaced our existing $500 revolving credit facility due November 2022 (the 2014 Revolving Credit Agreement). The 2021 Revolving Credit Agreement matures in August 2026 and provides for an aggregate principal amount of up to $700 of (i) revolving extensions of credit (the revolving loans) outstanding at any time, and (ii) letters of credit for a face amount of up to $100 at any time outstanding. Subject to certain conditions, we are permitted to terminate permanently the total commitments and reduce commitments by a minimum aggregate amount of $10 or any whole multiple of $1 in excess thereof. Borrowings under the credit facility are available in U.S. dollars, Euros, British pound sterling or any other currency that may be requested by us, subject to the approval of the administrative agent and each lender. We are permitted to request that lenders increase the commitments under the facility by up to $350 for a maximum aggregate principal amount of $1,050; however, this is subject to certain conditions and therefore may not be available to us. As of OctoberJuly 2, 20212022 and December 31, 2020,2021, we had no outstanding borrowings under the current or former revolving credit facility.2021 Revolving Credit Agreement. See Note 14,13, Debt, to the Consolidated Condensed Financial Statements for further information. Sources and Uses of Liquidity
Our principal source of liquidity is our cash flow generated from operating activities, which provides us with the ability to meet the majority of our short-term funding requirements. The following table summarizes net cash derived from or used in operating, investing, and financing activities from continuing operations, as well as net cash from discontinued operations.
| For the Nine Months Ended | October 2, 2021 | | September 26, 2020 | |
For the Six Months Ended | | For the Six Months Ended | July 2, 2022 | | July 3, 2021 |
Operating activities | Operating activities | $ | (127.9) | | | $ | 318.1 | | Operating activities | $ | 54.2 | | | $ | (231.6) | |
Investing activities | Investing activities | (53.9) | | | (50.4) | | Investing activities | (218.4) | | | (34.7) | |
Financing activities | Financing activities | (74.2) | | | (109.9) | | Financing activities | 70.5 | | | (5.1) | |
Foreign exchange | Foreign exchange | (18.5) | | | 12.2 | | Foreign exchange | (28.1) | | | (9.2) | |
Total net cash (used in) provided by continuing operations | (274.5) | | | 170.0 | | |
Net cash (used in) provided by discontinued operations | 0.7 | | | 0.2 | | |
Net change in cash and cash equivalents | $ | (273.8) | | | $ | 170.2 | | |
Total net cash used in continuing operations | | Total net cash used in continuing operations | (121.8) | | | (280.6) | |
|
Operating Activities
The decreaseincrease in net cash from operating activities of $446$285.8 was primarily due to a one-time cashthe prior year payment of $398.0 duringto fund the second quarter of 2021 related to the divestiture of the entity holding legacy asbestos-related assets and liabilities. In addition, we madedivestiture. This was partially offset by increased working capital investments in our business to support sales growth. These items were partially offset by an increase in segment operating income.growth and mitigate continued supply chain disruptions, and the timing of accounts receivable collections.
Investing Activities
The increase in net cash used in investing activities was driven by an increaseour acquisition of Habonim for a purchase price of $139.9 and investment in CRP for $23.0. Refer to Note 19, Acquisitions and Investments, for further information. In addition, capital expenditures which were $52.6 and $47.6 duringincreased by $12.4 over the nine months ended 2021 and 2020, respectively.prior year. Financing Activities
The decreaseincrease in net cash used infrom financing activities of $35.7$75.6 was primarily driven bydue to an increase in net commercial paper borrowings of $64.7 and prior year revolver repayments, net of borrowings, of $28.9. These items were$269.2, partially offset by an increase in open-market repurchases of ITT common stock and dividends paid.of $190.5.
KEY PERFORMANCE INDICATORS AND NON-GAAP MEASURES
Management reviews a variety of key performance indicators including revenue, segment operating income and margins, and earnings per share, some of which are calculated with accounting principles other than those generally accepted in the United States of America (GAAP). In addition, we consider certain measures to be useful to management and investors when evaluating our operating performance for the periods presented. These measures provide a tool for evaluating our ongoing operations and management of assets from period to period. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment among competing strategic alternatives and initiatives, including, but not limited to, acquisitions, dividends, and share repurchases. Some of these metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for measures determined in accordance with GAAP. We consider the following non-GAAP measures to be key performance indicators. These measures may not be comparable to similarly titled measures reported by other companies.
•“Organic revenue” is defined as revenue, excluding the impacts of foreign currency fluctuations and acquisitions. The period-over-period change resulting from foreign currency fluctuations is estimated using a fixed exchange rate for both the current and prior periods. We believe that reporting organic revenue provides useful information to investors by facilitating comparisons of our revenue performance with prior and future periods and to our peers.
The following tables include a reconciliation of revenue to organic revenue by segment.
| Three Months Ended October 2, 2021 | Motion Technologies | Industrial Process | Connect & Control Technologies | Eliminations | Total ITT | |
Three Months Ended July 2, 2022 | | Three Months Ended July 2, 2022 | Motion Technologies | Industrial Process | Connect & Control Technologies | Eliminations | Total ITT |
2022 Revenue | | 2022 Revenue | | $ | 331.3 | | | $ | 239.6 | | | $ | 163.2 | | | $ | (0.8) | | | $ | 733.3 | |
Acquisitions | | Acquisitions | | — | | | (15.5) | | | — | | | — | | | (15.5) | |
Foreign currency translation | | Foreign currency translation | | 28.6 | | | 7.1 | | | 4.7 | | | 0.1 | | | 40.5 | |
2022 Organic revenue | | 2022 Organic revenue | | $ | 359.9 | | | $ | 231.2 | | | $ | 167.9 | | | $ | (0.7) | | | $ | 758.3 | |
2021 Revenue | 2021 Revenue | | $ | 332.3 | | | $ | 210.7 | | | $ | 147.1 | | | $ | (0.5) | | | $ | 689.6 | | 2021 Revenue | | $ | 343.6 | | | $ | 213.9 | | | $ | 134.5 | | | $ | (0.4) | | | $ | 691.6 | |
| Foreign currency translation | | (5.3) | | | (0.8) | | | 0.2 | | | — | | | (5.9) | | |
2021 Organic revenue | | $ | 327.0 | | | $ | 209.9 | | | $ | 147.3 | | | $ | (0.5) | | | $ | 683.7 | | |
2020 Revenue | | $ | 271.8 | | | $ | 194.1 | | | $ | 125.9 | | | $ | (0.6) | | | $ | 591.2 | | |
Organic growth | Organic growth | | 55.2 | | | 15.8 | | | 21.4 | | | 0.1 | | | 92.5 | | Organic growth | | 16.3 | | | 17.3 | | | 33.4 | | | (0.3) | | | 66.7 | |
Percentage change | Percentage change | | 20.3 | % | | 8.1 | % | | 17.0 | % | | 15.6 | % | Percentage change | | 4.7 | % | | 8.1 | % | | 24.8 | % | | 9.6 | % |
| Nine Months Ended October 2, 2021 | |
Six Months Ended July 2, 2022 | | Six Months Ended July 2, 2022 |
2022 Revenue | | 2022 Revenue | | $ | 701.4 | | | $ | 441.8 | | | $ | 317.8 | | | $ | (1.5) | | | $ | 1,459.5 | |
Acquisitions | | Acquisitions | | — | | | (15.5) | | | — | | | — | | | (15.5) | |
Foreign currency translation | | Foreign currency translation | | 42.5 | | | 11.0 | | | 6.9 | | | — | | | 60.4 | |
2022 Organic revenue | | 2022 Organic revenue | | $ | 743.9 | | | $ | 437.3 | | | $ | 324.7 | | | $ | (1.5) | | | $ | 1,504.4 | |
2021 Revenue | 2021 Revenue | | $ | 1,045.0 | | | $ | 626.9 | | | $ | 408.9 | | | $ | (1.2) | | | $ | 2,079.6 | | 2021 Revenue | | $ | 712.7 | | | $ | 416.2 | | | $ | 261.8 | | | $ | (0.7) | | | $ | 1,390.0 | |
| Foreign currency translation | | (43.1) | | | (9.4) | | | (3.6) | | | — | | | (56.1) | | |
2021 Organic revenue | | $ | 1,001.9 | | | $ | 617.5 | | | $ | 405.3 | | | $ | (1.2) | | | $ | 2,023.5 | | |
2020 Revenue | | $ | 769.0 | | | $ | 614.7 | | | $ | 387.5 | | | $ | (2.0) | | | $ | 1,769.2 | | |
Organic growth (decline) | | 232.9 | | | 2.8 | | | 17.8 | | | 0.8 | | | 254.3 | | |
Organic growth | | Organic growth | | 31.2 | | | 21.1 | | | 62.9 | | | (0.8) | | | 114.4 | |
Percentage change | Percentage change | | 30.3 | % | | 0.5 | % | | 4.6 | % | | 14.4 | % | Percentage change | | 4.4 | % | | 5.1 | % | | 24.0 | % | | 8.2 | % |
•“Adjusted operating income” and “Adjusted segment operating income” are defined as operating income, adjusted to exclude special items that include, but are not limited to, asbestos-related impacts, restructuring, severance, certain asset impairment charges, certain acquisition-related impacts, and unusual or infrequent operating items.items and, for 2021, asbestos-related impacts. Special items represent charges or credits that impact current results, which management views as unrelated to the Company’s ongoing operations and performance. “Adjusted operating margin” and “Adjusted segment operating margin” are defined as adjusted operating income or adjusted segment operating income, respectively, divided by revenue. We believe that these financial measures are useful to investors and other users of our financial statements in evaluating ongoing operating profitability, as well as evaluating operating performance in relation to our competitors.
The following tables include a reconciliation of operating income to adjusted operating income by segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended October 2, 2021 | Motion Technologies | Industrial Process | Connect & Control Technologies | Total Segment | Corporate | Total ITT |
Operating income (loss) | | $ | 53.6 | | | $ | 32.4 | | | $ | 25.2 | | | $ | 111.2 | | | $ | (9.5) | | | $ | 101.7 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Restructuring costs | | 4.1 | | | 0.5 | | | (0.1) | | | 4.5 | | | — | | | 4.5 | |
| | | | | | | | | | | | |
Other(b) | | — | | | — | | | — | | | — | | | 0.6 | | | 0.6 | |
Adjusted operating income (loss) | | $ | 57.7 | | | $ | 32.9 | | | $ | 25.1 | | | $ | 115.7 | | | $ | (8.9) | | | $ | 106.8 | |
| | | | | | | | | | | | |
Adjusted operating margin | | 17.4 | % | | 15.6 | % | | 17.1 | % | | 16.8 | % | | | | 15.5 | % |
| | | | | | | | | | | | |
Nine Months Ended October 2, 2021 |
Operating income | | $ | 194.3 | | | $ | 94.9 | | | $ | 54.9 | | | $ | 344.1 | | | $ | 47.1 | | | $ | 391.2 | |
| | | | | | | | | | | | |
Asbestos-related benefit, net(a) | | — | | | — | | | — | | | — | | | (74.4) | | | (74.4) | |
Restructuring costs | | 4.1 | | | 1.4 | | | 2.4 | | | 7.9 | | | 0.3 | | | 8.2 | |
Other(b) | | — | | | — | | | — | | | — | | | 2.3 | | | 2.3 | |
Adjusted operating income (loss) | | $ | 198.4 | | | $ | 96.3 | | | $ | 57.3 | | | $ | 352.0 | | | $ | (24.7) | | | $ | 327.3 | |
| | | | | | | | | | | | |
Adjusted operating margin | | 19.0 | % | | 15.4 | % | | 14.0 | % | | 16.9 | % | | | | 15.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended July 2, 2022 | Motion Technologies | Industrial Process | Connect & Control Technologies | Total Segment | Corporate | Total ITT |
Operating income | | $ | 47.0 | | | $ | 39.1 | | | $ | 28.2 | | | $ | 114.3 | | | $ | (13.8) | | | $ | 100.5 | |
Restructuring costs | | 1.5 | | | 0.8 | | | (0.1) | | | 2.2 | | | — | | | 2.2 | |
Asset impairment | | — | | | — | | | — | | | — | | | 1.7 | | | 1.7 | |
Impacts related to Russia-Ukraine conflict | | (0.5) | | | (0.3) | | | — | | | (0.8) | | | — | | | (0.8) | |
| | | | | | | | | | | | |
Other(a) | | 0.2 | | | 0.6 | | | — | | | 0.8 | | | 0.3 | | | 1.1 | |
Adjusted operating income | | $ | 48.2 | | | $ | 40.2 | | | $ | 28.1 | | | $ | 116.5 | | | $ | (11.8) | | | $ | 104.7 | |
| | | | | | | | | | | | |
Adjusted operating margin | | 14.5 | % | | 16.8 | % | | 17.2 | % | | 15.9 | % | | | | 14.3 | % |
| | | | | | | | | | | | |
Six Months Ended July 2, 2022 |
Operating income | | $ | 106.7 | | | $ | 59.5 | | | $ | 53.9 | | | $ | 220.1 | | | $ | (25.0) | | | $ | 195.1 | |
Restructuring costs | | 1.5 | | | 1.0 | | | — | | | 2.5 | | | — | | | 2.5 | |
Asset impairment | | — | | | — | | | — | | | — | | | 1.7 | | | 1.7 | |
Impacts related to Russia-Ukraine conflict | | 3.7 | | | 4.3 | | | — | | | 8.0 | | | — | | | 8.0 | |
| | | | | | | | | | | | |
Other(a) | | 1.1 | | | 1.2 | | | — | | | 2.3 | | | 1.2 | | | 3.5 | |
Adjusted operating income | | $ | 113.0 | | | $ | 66.0 | | | $ | 53.9 | | | $ | 232.9 | | | $ | (22.1) | | | $ | 210.8 | |
| | | | | | | | | | | | |
Adjusted operating margin | | 16.1 | % | | 14.9 | % | | 17.0 | % | | 16.0 | % | | | | 14.4 | % |
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Three Months Ended September 26, 2020 | Motion Technologies | Industrial Process | Connect & Control Technologies | Total Segment | Corporate | Total ITT |
Operating income (loss) | | $ | 50.4 | | | $ | 17.1 | | | $ | 16.4 | | | $ | 83.9 | | | $ | (146.4) | | | $ | (62.5) | |
Restructuring costs | | — | | | 10.2 | | | 1.3 | | | 11.5 | | | — | | | 11.5 | |
Asbestos-related costs, net(a) | | — | | | — | | | — | | | — | | | 141.4 | | | 141.4 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Other(c) | | — | | | 0.1 | | | — | | | 0.1 | | | 0.3 | | | 0.4 | |
Adjusted operating income (loss) | | $ | 50.4 | | | $ | 27.4 | | | $ | 17.7 | | | $ | 95.5 | | | $ | (4.7) | | | $ | 90.8 | |
| | | | | | | | | | | | |
Adjusted operating margin | | 18.5 | % | | 14.1 | % | | 14.1 | % | | 16.2 | % | | | | 15.4 | % |
| | | | | | | | | | | | |
Nine Months Ended September 26, 2020 | | | | |
Operating income (loss) | | $ | 113.9 | | | $ | 44.5 | | | $ | 40.7 | | | $ | 199.1 | | | $ | (131.8) | | | $ | 67.3 | |
Restructuring costs | | 14.0 | | | 18.1 | | | 8.0 | | | 40.1 | | | 2.4 | | | 42.5 | |
Asbestos-related costs, net(a) | | — | | | — | | | — | | | — | | | 116.7 | | | 116.7 | |
Asset impairment charges(d) | | — | | | 16.3 | | | — | | | 16.3 | | | — | | | 16.3 | |
| | | | | | | | | | | | |
Other(c) | | — | | | 0.6 | | | 0.2 | | | 0.8 | | | — | | | 0.8 | |
Adjusted operating income (loss) | | $ | 127.9 | | | $ | 79.5 | | | $ | 48.9 | | | $ | 256.3 | | | $ | (12.7) | | | $ | 243.6 | |
| | | | | | | | | | | | |
Adjusted operating margin | | 16.6 | % | | 12.9 | % | | 12.6 | % | | 14.5 | % | | | | 13.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended July 3, 2021 | | | | | | |
Operating income | | $ | 64.7 | | | $ | 31.5 | | | $ | 17.9 | | | $ | 114.1 | | | $ | 65.5 | | | $ | 179.6 | |
Asbestos-related costs, net(b) | | — | | | — | | | — | | | — | | | (76.8) | | | (76.8) | |
Restructuring costs | | — | | | — | | | 0.1 | | | 0.1 | | | — | | | 0.1 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Other(a) | | — | | | — | | | — | | | — | | | 0.6 | | | 0.6 | |
Adjusted operating income | | $ | 64.7 | | | $ | 31.5 | | | $ | 18.0 | | | $ | 114.2 | | | $ | (10.7) | | | $ | 103.5 | |
| | | | | | | | | | | | |
Adjusted operating margin | | 18.8 | % | | 14.7 | % | | 13.4 | % | | 16.5 | % | | | | 15.0 | % |
| | | | | | | | | | | | |
Six Months Ended July 3, 2021 | | | | |
Operating income | | $ | 140.7 | | | $ | 62.5 | | | $ | 29.7 | | | $ | 232.9 | | | $ | 56.6 | | | $ | 289.5 | |
Asbestos-related costs, net(b) | | — | | | — | | | — | | | — | | | (74.4) | | | (74.4) | |
Restructuring costs | | — | | | 0.9 | | | 2.5 | | | 3.4 | | | 0.3 | | | 3.7 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Other(a) | | — | | | — | | | — | | | — | | | 1.7 | | | 1.7 | |
Adjusted operating income | | $ | 140.7 | | | $ | 63.4 | | | $ | 32.2 | | | $ | 236.3 | | | $ | (15.8) | | | $ | 220.5 | |
| | | | | | | | | | | | |
Adjusted operating margin | | 19.7 | % | | 15.2 | % | | 12.3 | % | | 17.0 | % | | | | 15.9 | % |
(a)Includes severance charges, accelerated amortization of an intangible asset, and integration-related costs.
(b)Includes a gain resulting from the divestiture of the entity holding asbestos-related assets and liabilities. See Note 19,17, Commitments and Contingencies, for further information. (b)Includes accelerated amortization of an intangible asset.
(c)Primarily includes acquisition-related costs and a gain on sale of excess property.
(d)Asset impairment charges are related to a business within IP that primarily serves the global upstream oil and gas market.
•“Adjusted income from continuing operations” is defined as income from continuing operations attributable to ITT Inc. adjusted to exclude special items that include, but are not limited to, asbestos-related impacts, restructuring, severance, certain asset impairment charges, pension termination and settlement impacts, certain acquisition-related impacts, income tax settlements or adjustments, and unusual or infrequent items.items and, for 2021, asbestos-related impacts. Special items represent charges or credits, on an after-tax basis, that impact current results, which management views as unrelated to the Company’s ongoing operations and performance. The after-tax basis of each special item is determined using the jurisdictional tax rate of where the expense or benefit occurred. “Adjusted income from continuing operations per diluted share” (Adjusted EPS) is defined as adjusted income from continuing operations divided by diluted weighted average common shares outstanding. We believe that adjusted income from continuing operations and adjusted EPS are useful to investors and other users of our financial statements in evaluating ongoing operating profitability, as well as in evaluating operating performance in relation to our competitors.
The following table includes reconciliations of income from continuing operations to adjusted income from continuing operations.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| October 2, 2021 | | September 26, 2020 | | October 2, 2021 | | September 26, 2020 |
Income (loss) from continuing operations attributable to ITT Inc. | $ | 86.6 | | | $ | (48.0) | | | $ | 211.8 | | | $ | 82.1 | |
Net asbestos-related costs, net of tax expense (benefit) of $0.0, ($33.8), $113.5 and ($28.4), respectively(a) | — | | | 107.6 | | | 39.1 | | | 88.3 | |
Tax-related special items(b) | (4.7) | | | (0.1) | | | 2.9 | | | (33.3) | |
Restructuring costs, net of tax benefit of $1.5, $0.9, $2.1 and $8.5, respectively | 3.0 | | | 10.6 | | | 6.1 | | | 34.0 | |
| | | | | | | |
Asset impairment charges, net of tax benefit of $0.0, $0.0, $0.0 and $0.1, respectively(c) | — | | | — | | | — | | | 16.2 | |
Other, net of tax (benefit) expense of ($0.1), ($0.4), $0.3 and ($1.0), respectively(d) | 0.5 | | | 1.4 | | | (0.8) | | | 4.0 | |
Adjusted income from continuing operations | $ | 85.4 | | | $ | 71.5 | | | $ | 259.1 | | | $ | 191.3 | |
Income (loss) from continuing operations attributable to ITT Inc. per diluted share (EPS) | $ | 1.00 | | | $ | (0.55) | | | $ | 2.45 | | | $ | 0.94 | |
Adjusted EPS | $ | 0.99 | | | $ | 0.82 | | | $ | 2.99 | | | $ | 2.19 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 |
Income from continuing operations attributable to ITT Inc. | $ | 75.8 | | | $ | 39.0 | | | $ | 150.6 | | | $ | 125.2 | |
Tax-related special items(a) | 3.1 | | | 7.6 | | | 1.9 | | | 7.6 | |
Restructuring costs, net of tax benefit of $(0.6), $(0.1), $(0.7) and $(0.6) respectively | 1.6 | | | — | | | 1.8 | | | 3.1 | |
Asset impairment charges, net of tax benefit of $(0.4), $0.0, $(0.4) and $0.0, respectively | 1.3 | | | — | | | 1.3 | | | — | |
Impacts related to Russia-Ukraine conflict, net of tax benefit of $0.0, $0.0, $(1.7) and $0.0, respectively | (0.8) | | | — | | | 6.3 | | | — | |
Net asbestos-related costs, net of tax expense of $0.0, $114.0, $0.0 and $113.5 respectively(b) | — | | | 37.2 | | | — | | | 39.1 | |
| | | | | | | |
| | | | | | | |
Other special items, net of tax benefit of $(0.5), $0.7, $(0.9) and $0.4 respectively(c) | 0.6 | | | (2.1) | | | 2.6 | | | (1.3) | |
Adjusted income from continuing operations | $ | 81.6 | | | $ | 81.7 | | | $ | 164.5 | | | $ | 173.7 | |
Income from continuing operations attributable to ITT Inc. per diluted share (EPS) | $ | 0.91 | | | $ | 0.45 | | | $ | 1.79 | | | $ | 1.44 | |
Adjusted EPS | $ | 0.98 | | | $ | 0.94 | | | $ | 1.95 | | | $ | 2.00 | |
(a)Tax-related special items primarily reflect tax on future distribution of foreign earnings, impacts from valuation allowances, and the write-down of a tax receivable.
(b)Tax-related special items primarily reflect the impacts of valuation allowances.
(c)Asset impairment charges are related to a business within IP that primarily serves the global upstream oil and gas market.
(d)Other special items for the three-quarterly and nine-monthyear-to-date periods of 2022 primarily reflect employee severance expense and integration-related costs. Other special items for the quarterly and year-to-date periods of 2021 include a benefit from finalization of the U.S. Qualified pension plan termination funding and accelerated amortization of an intangible asset. The nine-month period also includes a benefit from the finalization of the U.S. qualified pension plan termination. Other special items for the three- and nine-month periods of 2020 primarily include costs associated with the termination of U.S. qualified pension plan.
RECENT ACCOUNTING PRONOUNCEMENTS
CRITICAL ACCOUNTING ESTIMATES
The preparation of the Company’s financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. The Company believes the most complex and sensitive judgments, because of their significance to the Consolidated Condensed Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 20202021 Annual Report describes the critical accounting estimates that are used in the preparation of the Consolidated Condensed Financial Statements. Actual results in these areas could differ from management’s estimates. There have been no material changes concerning the Company’s critical accounting estimates as described in our 20202021 Annual Report. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the information concerning market risk as stated in our 20202021 Annual Report. See Note 20,18, Derivative Financial Instruments, to the Consolidated Condensed Financial Statements for information on the Company’s use of derivative financial instruments to mitigate exposure from foreign currency exchange rate fluctuations and commodity price fluctuations. ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Chief Executive Officer and Chief Financial Officer of the Company have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act) as of the end of the period covered by this Report. Based on such evaluation, such officers have concluded that, as of the end of the period covered by this Report, the Company’s disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the period covered by this Report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in legal proceedings that are incidental to the operation of our business. For a discussion of legal proceedings, see Note 19,17, Commitments and Contingencies to the Consolidated Condensed Financial Statements. As described in Note 19, Commitments and Contingencies, on July 1, 2021, we completed the divestiture of InTelCo Management LLC (InTelCo), a former subsidiary which held our legacy asbestos-related assets and liabilities. In connection with the divestiture, we contributed approximately $398 to InTelCo. Pursuant to the purchase agreement, the buyer and InTelCo agreed to indemnify the Company and its affiliates for all legacy asbestos-related and other product liabilities, while the Company agreed to indemnify InTelCo and its affiliates for all other historical liabilities of InTelCo, which includes any losses with respect to release of, or exposure to, hazardous materials. These indemnification obligations are not subject to any cap or time limitation. As a result of the divestiture, we believe we have resolved our involvement in material legal proceedings related to asbestos exposure.ITEM 1A. RISK FACTORS
Reference is made to the risk factors set forth in Part I, Item 1A, “Risk Factors”, of our 20202021 Annual Report, which are incorporated by reference herein. There have been no material changes with regard to the risk factors disclosed in such report, other than as noted below and our risk factor regarding exposure to legacy asbestos claims and related assets, liabilities and cash flows that no longer applies to the Company after the divestiture of the entity holding asbestos-related assets and liabilities, as discussed in Note 19, Commitments and Contingencies to the Consolidated Condensed Financial Statements, other than as noted below. The U.S. presidential executive order concerning mandatory COVID-19 vaccinationRussia’s invasion of U.S.-based employees of certain companies that are suppliersUkraine, and the global response to it, could adversely impact our financial results.
Beginning in February 2022, the U.S. government and other nations imposed significant restrictions on most companies’ ability to do business in Russia as a result of Russia’s invasion of Ukraine. It is not possible to predict the broader or longer-term consequences of this conflict, which could include further sanctions, embargoes, regional instability and geopolitical shifts which could have further adverse effects on macroeconomic conditions, security conditions, currency exchange rates and financial markets. Furthermore, such events have the potential to adversely impact the availability of commodities and energy, increase commodity prices, and exacerbate global inflationary pressures. Such geopolitical instability and uncertainty has had and could continue to have a material adversenegative impact on our businessability to sell to, ship products to, collect payments from, and resultssupport customers in certain regions based on trade restrictions, embargoes and export control law restrictions. Logistics restrictions, including closures of operations.
On September 9, 2021, U.S. President Biden issued an executive order requiring all employers with U.S. government contractsair space, could increase the costs, risks, and adverse impacts from these new challenges. Conflict-related inflationary pressures could further reduce our gross margins as a result of rising input costs. We may also be the subject of increased cyber-attacks as a result of the Russia-Ukraine conflict. During the six months ended July 2, 2022, we suspended our operations in Russia and recorded charges of $8.0 primarily related to ensure that their U.S.-based employees, contractors,inventory and subcontractors, that work onbad debt reserves. Annual sales to customers selling or supplying products to Russia or Ukraine, and reduced production of auto components made in supportUkraine, were expected to be approximately $60 to $85 during 2022.A significant escalation or expansion of U.S. government contracts, are fully vaccinated by December 8, 2021, and it only permits limited exceptions for medical and religious reasons. In addition, on September 9, 2021, U.S. President Biden announced that he has directed the U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) to develop an Emergency Temporary Standard (ETS) mandating either full vaccination or at least weekly testing of employees for employers with 100 or more employees. Although OSHA has not yet issued the ETS, it sent a proposed ETS to the U.S. White House’s Office of Management and Budget for review on October 12, 2021.
We cannot currently predict the impact that the executive ordereconomic disruption or the OSHA ETS will have on our workforce or business operations. Certain of our businesses, including CCT, are U.S. government contractors with U.S.-based employees, contractors and/or subcontractors that service or support U.S. government contracts. Furthermore, employees not subject to the executive order requirement and who are not fully vaccinated may be subject to the ETS that will require them to get a COVID-19 test at least once a week. Additional vaccine mandates may be announced in jurisdictions in which our businesses operate. Our implementation of these requirements may result in attrition, including attrition of critically skilled labor, and difficulty securing future labor needs. In addition, if we are not able to meet the requirements for government contractors we may lose these orders. These requirementsconflict’s current scope could have a material adverse effect on our business, financial condition, and results of operations.
We are currently exploring alternatives for our operations in Russia, which could include a sale, disposition or wind down, or a combination of these alternatives, although we cannot provide any assurance of the timeline for or success of these alternatives.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On October 30, 2019, the Board of Directors approved an indefinite term $500 share repurchase program (the 2019 Plan). We intend to utilize the 2019 Plan in a manner that is consistent with our capital allocation process, which has centered on those investments necessary to grow our businesses organically and through acquisition, while also providing cash returns to shareholders.
Purchases of equity securities by the issuer and affiliated purchasers
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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 | APPROXIMATE DOLLAR VALUE OF SHARES THAT MAY YET BE PURCHASED UNDER THE PLANS OR PROGRAMS |
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7/4/2021 - 7/31/2021 | — | | $ | — | | | | — | | | $ | 438.7 | | |
8/1/2021 - 9/4/2021 | 0.2 | | $ | 98.93 | | | | 0.2 | | | $ | 413.7 | | |
9/5/2021 - 10/2/2021 | 0.3 | | $ | 89.57 | | | | 0.3 | | | $ | 388.7 | | |
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(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
PERIOD | TOTAL NUMBER OF SHARES PURCHASED(1) | AVERAGE PRICE PAID PER SHARE(2) | TOTAL NUMBER OF SHARES PURCHASED AS PART OF PUBLICLY ANNOUNCED PLANS OR PROGRAMS | APPROXIMATE DOLLAR VALUE OF SHARES THAT MAY YET BE PURCHASED UNDER THE PLANS OR PROGRAMS |
4/3/2022 - 4/30/2022 | 0.1 | | | $ | 76.73 | | | | 0.1 | | | | $ | 195.0 | | |
5/1/2022 - 5/28/2022 | 0.7 | | | $ | 70.88 | | | | 0.7 | | | | $ | 145.0 | | |
5/29/2022 - 7/2/2022 | 0.1 | | | $ | 64.57 | | | | 0.1 | | | | $ | 143.2 | | |
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(1)Includes shares purchased in settlement of employee tax withholding obligations due upon the vesting of RSUs and PSUs.
(2)Average price paid per share is calculated on a settlement basis and includes commissions.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Disclosure pursuant to Section 219 of the Iran Threat Reduction & Syria Human Rights Act (ITRA)
This disclosure is made pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 which added subsection (r) to Section 13 of the Exchange Act (Section 13(r)). Section 13(r) requires an issuer to disclose in its annual or quarterly reports whether it or any of its affiliates have knowingly engaged in certain activities, transactions or dealings relating to Iran. Disclosure of such activities, transactions or dealings is required even when conducted outside the United States by non-U.S. persons in compliance with applicable law, and whether or not such activities are sanctionable under U.S. law.
In its 2012 Annual Report, ITT described its acquisition of all the shares of Joh. Heinr. Bornemann GmbH (Bornemann) in November 2012, as well as certain activities of Bornemann in Iran and the wind down of those activities in accordance with a General License issued on December 26, 2012 by the Office of Foreign Assets Control (the General License). As permitted by the General License, on or before March 8, 2013, Bornemann completed the wind-down activities and ceased all activities in Iran. As required to be disclosed by Section 13(r), the gross revenues and operating income to Bornemann from its Iranian activities subsequent to its acquisition by ITT were €2.2 million euros and €1.5 million euros, respectively. Prior to its acquisition by ITT, Bornemann issued a performance bond to its Iranian customer in the amount of €1.3 million euros (the Bond). Bornemann requested that the Bond be canceled prior to March 8, 2013; however, the former customer refused this request and as a result the Bond remains outstanding. Bornemann did not receive gross revenues or operating income, or pay interest, with respect to the Bond in any subsequent periods through OctoberJuly 2, 2021,2022, however, Bornemann did pay fees of approximately €8€3 thousand euros during the ninesix months ended OctoberJuly 2, 20212022 and approximately €11€10 thousand euros during 20202021 to the German financial institution which is maintaining the Bond.
ITEM 6. EXHIBITS
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EXHIBIT NUMBER | | DESCRIPTION |
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(10.1) | | |
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(31.1) | | |
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(31.2) | | |
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(32.1) | | |
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(32.2) | | |
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(101) | | The following materials from ITT Inc.’s Quarterly Report on Form 10-Q for the quarter ended OctoberJuly 2, 2021,2022, formatted in Inline XBRL (Inline Extensible Business Reporting Language): (i) Consolidated Condensed Statements of Operations, (ii) Consolidated Condensed Statements of Comprehensive Income, (iii) Consolidated Condensed Balance Sheets, (iv) Consolidated Condensed Statements of Cash Flows, (v) Consolidated Condensed Statements of Changes in Shareholders’ Equity, (vi) Notes to Consolidated Condensed Financial Statements, and (vii) Cover Page |
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(104) | | The cover page from the Quarterly Report on Form 10-Q for the quarter ended OctoberJuly 2, 2021,2022, formatted in Inline XBRL (included in Exhibit 101). |
*Management compensatory plan
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | ITT Inc. |
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| | (Registrant) |
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By: | | /s/ John Capela |
| | John Capela |
| | Chief Accounting Officer |
| | (Principal Accounting Officer) |
NovemberAugust 4, 20212022