UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



þ☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2018~~2019



o☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-05672

ITT INC.



State of Indiana		81-1197930
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

1133 Westchester Avenue, White Plains, NY10604

(Principal Executive Office)

Telephone Number: (914)641-2000

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1 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 and (2) has been subject to such filing requirements for the past 90 days. Yes þ☑ No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes þ☑ No o☐

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):



☑	Large accelerated filerþ	☐	Accelerated filero	☐	Non-accelerated filero	☐	Smaller reporting companyo
☐	Emerging growth companyo		~~(Do not check if a smaller reporting 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. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No þ☑

As of ~~August 1, 2018,~~July 31, 2019, there were ~~87.6~~88.0 million shares of common stock ($1 par value per share) of the registrant outstanding.

TABLE OF CONTENTS


ITEM		PAGE		PAGE
PART I – FINANCIAL INFORMATION
1.	Financial Statements (unaudited)		Financial Statements (unaudited)
	Consolidated Condensed Statements of Operations	1	Consolidated Condensed Statements of Operations	1
	Consolidated Condensed Statements of Comprehensive Income	2	Consolidated Condensed Statements of Comprehensive Income	2
	Consolidated Condensed Balance Sheets	3	Consolidated Condensed Balance Sheets	3
	Consolidated Condensed Statements of Cash Flows	4	Consolidated Condensed Statements of Cash Flows	4
	Consolidated Condensed Statements of Changes in Shareholders' Equity	5	Consolidated Condensed Statements of Changes in Shareholders’ Equity	5
	Notes to Consolidated Condensed Financial Statements:		Notes to Consolidated Condensed Financial Statements:
	Note 1. Description of Business, Basis of Presentation and Updates to Summary of Significant Accounting Policies	6	Note 1. Description of Business and Basis of Presentation	6
	Note 2. Recent Accounting Pronouncements	7	Note 2. Recent Accounting Pronouncements	6
	Note 3. Segment Information	10	Note 3. Segment Information	8
	Note 4. Revenue	11	Note 4. Revenue	9
	Note 5. Restructuring Actions	12	Note 5. Income Taxes	10
	Note 6. Income Taxes	13	Note 6. Earnings Per Share Data	11
	Note 7. Earnings Per Share Data	14	Note 7. Receivables, Net	11
	Note 8. Receivables, Net	15	Note 8. Inventories, Net	11
	Note 9. Inventories, Net	15	Note 9. Other Current and Non-Current Assets	12
	Note 10. Other Current and Non-Current Assets	15	Note 10. Plant, Property and Equipment, Net	12
	Note 11. Plant, Property and Equipment, Net	16	Note 11. Goodwill and Other Intangible Assets, Net	12
	Note 12. Goodwill and Other Intangible Assets, Net	16	Note 12. Accrued Liabilities and Other Non-Current Liabilities	13
	Note 13. Accrued Liabilities and Other Non-Current Liabilities	17	Note 13. Leases	14
	Note 14. Debt	17	Note 14. Debt	15
	Note 15. Postretirement Benefit Plans	18	Note 15. Postretirement Benefit Plans	15
	Note 16. Long-Term Incentive Employee Compensation	18	Note 16. Long-Term Incentive Employee Compensation	16
	Note 17. Capital Stock	19	Note 17. Capital Stock	16
	Note 18. Commitments and Contingencies	20	Note 18. Accumulated Other Comprehensive Loss	17
	Note 19. Acquisitions	22	Note 19. Commitments and Contingencies	17
	Note 20. Subsequent Events	22	Note 20. Acquisitions	20

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Overview	23	Overview	21
	Discussion of Financial Results	23	Discussion of Financial Results	21
	Liquidity	29	Liquidity	27
	Key Performance Indicators and Non-GAAP Measures	32	Key Performance Indicators and Non-GAAP Measures	30
	Recent Accounting Pronouncements	37	Recent Accounting Pronouncements	34
	Critical Accounting Estimates	37	Critical Accounting Estimates	34
3.	Quantitative and Qualitative Disclosures about Market Risk	38	Quantitative and Qualitative Disclosures about Market Risk	34
4.	Controls and Procedures	38	Controls and Procedures	34
PART II – OTHER INFORMATION
1.	Legal Proceedings	39	Legal Proceedings	35
1A.	Risk Factors	40	Risk Factors	35
2.	Unregistered Sales of Equity Securities and Use of Proceeds	40	Unregistered Sales of Equity Securities and Use of Proceeds	36
3.	Defaults Upon Senior Securities	40	Defaults Upon Senior Securities	36
4.	Mine Safety Disclosures	40	Mine Safety Disclosures	36
5.	Other Information	41	Other Information	36
6.	Exhibits	41	Exhibits	37
	Signature	42	Signature	38

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/investors copies of materials we file with, or furnish to, the SEC 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 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 is located at 1133 Westchester Avenue, White Plains, NY 10604 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 are based on current expectations, estimates, assumptions and projections about our business, future financial results and the industry in which we operate, and other legal, regulatory and economic developments. 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 to some extent unpredictable, 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 no assurance that the expectation or belief will occur or that anticipated results will be achieved or accomplished. More information on factors that could cause actual results or events to differ materially from those anticipated is included in our reports filed with the ~~U.S. Securities and Exchange Commission (the SEC),~~SEC, including our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 (particularly under the caption “Risk Factors”), our Quarterly Reports on Form 10-Q (including Part II, Item 1A, ~~“Risk~~“Risk Factors,” of this Quarterly Report on Form 10-Q) and in other documents we file from time to time with the SEC.

The forward-looking statements included in this Quarterly Report on Form 10-Q (this Report) speak only as of the date of this Report. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

~~WHERE YOU CAN FIND MORE INFORMATION~~

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You can inspect, read and copy these reports, proxy statements and other information at the SEC’s Public Reference Room, which is located at 100 F Street, N.E., Washington, D.C. 20549. You can obtain information regarding the operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov where you may access our reports, proxy statements and other information that we file with, or furnish to, the SEC.

We make available free of charge at www.itt.com (in the “Investors” section) copies of materials we file with, or furnish to, the SEC. We also use the Investor Relations page of our website at www.itt.com (in the “Investors” section) to disclose important information to the public.

Information contained on our website, or that can be accessed through our website, does not constitute a part of 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 is located at 1133 Westchester Avenue, White Plains, NY 10604 and the telephone number of this location is (914) 641-2000.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)


	Three Months					Six Months						Three Months					Six Months
For the Periods Ended June 30	2018		2017			2018			2017			2019			2018		2019			2018
Revenue	$	696.8	$	630.9		$	1,386.1		$	1,256.7		$	719.9		$	696.8	$	1,415.4		$	1,386.1
Costs of revenue	470.8		425.9			935.9			848.6			487.9			470.8		964.6			935.9
Gross profit	226.0		205.0			450.2			408.1			232.0			226.0		450.8			450.2
General and administrative expenses	63.0		64.6			128.1			130.3			65.7			63.0		117.6			128.1
Sales and marketing expenses	43.4		43.8			86.9			86.9			42.7			43.4		82.9			86.9
Research and development expenses	25.8		22.6			50.5			45.0			25.8			25.8		49.3			50.5
Asbestos-related costs (benefit), net	13.5		14.9			(6.2		)	29.8			11.8			13.5		24.4			(6.2		)
Operating income	80.3		59.1			190.9			116.1			86.0			80.3		176.6			190.9
Interest and non-operating expenses, net	1.5		0.5			3.3			2.7
Interest and non-operating (income) expenses, net												(0.4		)	1.5		(0.9		)	3.3
Income from continuing operations before income tax expense	78.8		58.6			187.6			113.4			86.4			78.8		177.5			187.6
Income tax expense	8.9		10.6			16.5			19.7			19.3			8.9		39.0			16.5
Income from continuing operations	69.9		48.0			171.1			93.7			67.1			69.9		138.5			171.1
(Loss) income from discontinued operations, including tax benefit of $0.1, $0.1, $0 and $0.2, respectively	—		(0.1		)	0.1			(0.2		)
(Loss) income from discontinued operations, net of tax benefit of $0.0, $0.1, $0.0 and $0.0, respectively												(0.1		)	—		(0.1		)	0.1
Net income	69.9		47.9			171.2			93.5			67.0			69.9		138.4			171.2
Less: Income (loss) attributable to noncontrolling interests	0.2		0.1			0.3			(0.3		)
Less: Income attributable to noncontrolling interests												0.2			0.2		0.3			0.3
Net income attributable to ITT Inc.	$	69.7	$	47.8		$	170.9		$	93.8		$	66.8		$	69.7	$	138.1		$	170.9
Amounts attributable to ITT Inc.:
Income from continuing operations, net of tax	$	69.7	$	47.9		$	170.8		$	94.0		$	66.9		$	69.7	$	138.2		$	170.8
(Loss) income from discontinued operations, net of tax	—		(0.1		)	0.1			(0.2		)	(0.1		)	—		(0.1		)	0.1
Net income attributable to ITT Inc.	$	69.7	$	47.8		$	170.9		$	93.8		$	66.8		$	69.7	$	138.1		$	170.9
Earnings per share attributable to ITT Inc.:
Basic:
Continuing operations	$	0.80	$	0.54		$	1.95		$	1.06		$	0.76		$	0.80	$	1.58		$	1.95
Discontinued operations	—		—			—			—
Net income	$	0.80	$	0.54		$	1.95		$	1.06		$	0.76		$	0.80	$	1.58		$	1.95
Diluted:
Continuing operations	$	0.79	$	0.54		$	1.93		$	1.05		$	0.75		$	0.79	$	1.56		$	1.93
Discontinued operations	—		—			—			—
Net income	$	0.79	$	0.54		$	1.93		$	1.05		$	0.75		$	0.79	$	1.56		$	1.93

Weighted average common shares – basic	87.5		88.5			87.8			88.4			87.8			87.5		87.7			87.8
Weighted average common shares – diluted	88.4		89.0			88.7			89.1			88.7			88.4		88.6			88.7
Cash dividends declared per common share	$	0.134	$	0.128		$	0.268		$	0.256

The accompanying Notes to the Consolidated Condensed Financial Statements are an integral part of the above statements of operations.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(IN MILLIONS)


	Three Months						Six Months						Three Months						Six Months
For the Periods Ended June 30	2018			2017			2018			2017			2019			2018			2019			2018
Net income	$	69.9		$	47.9		$	171.2		$	93.5		$	67.0		$	69.9		$	138.4		$	171.2
Other comprehensive (loss) income:
Other comprehensive income (loss):
Net foreign currency translation adjustment	(47.1		)	42.5			(20.6		)	61.7			5.3			(47.1		)	2.9			(20.6		)
Net change in postretirement benefit plans, net of tax impacts of $0.4, $0.4, $0.8 and $0.9, respectively	1.1			1.2			2.2			2.3
Other comprehensive (loss) income	(46.0		)	43.7			(18.4		)	64.0
Net change in postretirement benefit plans, net of tax benefits of $0.2, $0.4, $0.4 and $0.8, respectively													0.5			1.1			1.1			2.2
Other comprehensive income (loss)													5.8			(46.0		)	4.0			(18.4		)
Comprehensive income	23.9			91.6			152.8			157.5			72.8			23.9			142.4			152.8
Less: Comprehensive income (loss) attributable to noncontrolling interests	0.2			0.1			0.3			(0.3		)
Less: Comprehensive income attributable to noncontrolling interests													0.2			0.2			0.3			0.3
Comprehensive income attributable to ITT Inc.	$	23.7		$	91.5		$	152.5		$	157.8		$	72.6		$	23.7		$	142.1		$	152.5
Disclosure of reclassification adjustments to postretirement benefit plans
Reclassification adjustments (see Note 15):
Amortization of prior service benefit, net of tax expense of $(0.3), $(0.5), $(0.5) and $(1.0), respectively	$	(0.8	)	$	(0.7	)	$	(1.7	)	$	(1.4	)
Amortization of net actuarial loss, net of tax benefits of $0.7, $0.9, $1.3 and $1.9, respectively	1.9			1.9			3.9			3.7
Amortization of prior service benefit, net of tax expense of $(0.2), $(0.3), $(0.5) and $(0.5), respectively													$	(0.9	)	$	(0.8	)	$	(1.7	)	$	(1.7	)
Amortization of net actuarial loss, net of tax benefits of $0.4, $0.7, $0.9 and $1.3, respectively													1.4			1.9			2.8			3.9
Net change in postretirement benefit plans, net of tax	$	1.1		$	1.2		$	2.2		$	2.3		$	0.5		$	1.1		$	1.1		$	2.2

The accompanying Notes to the Consolidated Condensed Financial Statements are an integral part of the above statements of comprehensive income.

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)


	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	449.6		$	389.8		$	531.9		$	561.2
Receivables, net	560.4			629.6			600.0			540.0
Inventories, net	393.5			311.9			421.4			380.5
Other current assets	175.1			147.4			149.1			163.4
Total current assets	1,578.6			1,478.7			1,702.4			1,645.1
Plant, property and equipment, net	506.1			521.7			534.1			518.8
Goodwill	879.9			886.8			931.0			875.9
Other intangible assets, net	145.3			156.2			128.1			136.1
Asbestos-related assets	322.6			304.0			287.5			309.6
Deferred income taxes	164.0			149.9			162.9			164.5
Other non-current assets	203.2			202.9			295.4			196.8
Total non-current assets	2,221.1			2,221.5			2,339.0			2,201.7
Total assets	$	3,799.7		$	3,700.2		$	4,041.4		$	3,846.8
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term loans and current maturities of long-term debt	$	210.7		$	163.6
Commercial paper and current maturities of long-term debt							$	149.4		$	116.2
Accounts payable	331.2			351.4			347.4			339.2
Accrued liabilities	397.7			384.4			395.6			416.7
Total current liabilities	939.6			899.4			892.4			872.1
Asbestos-related liabilities	781.6			800.1			763.2			775.1
Postretirement benefits	223.5			227.3			204.0			208.2
Other non-current liabilities	172.7			175.6			244.4			166.5
Total non-current liabilities	1,177.8			1,203.0			1,211.6			1,149.8
Total liabilities	2,117.4			2,102.4			2,104.0			2,021.9
Shareholders’ equity:
Common stock:
Authorized – 250.0 shares, $1 par value per share
Issued and outstanding – 87.6 shares and 88.2 shares, respectively	87.6			88.2
Issued and outstanding – 87.9 shares and 87.6 shares, respectively							87.9			87.6
Retained earnings	1,959.3			1,856.1			2,218.8			2,110.3
Total accumulated other comprehensive loss	(366.6		)	(348.2		)	(371.5		)	(375.5		)
Total ITT Inc. shareholders’ equity	1,680.3			1,596.1			1,935.2			1,822.4
Noncontrolling interests	2.0			1.7			2.2			2.5
Total shareholders’ equity	1,682.3			1,597.8			1,937.4			1,824.9
Total liabilities and shareholders’ equity	$	3,799.7		$	3,700.2		$	4,041.4		$	3,846.8

The accompanying Notes to the Consolidated Condensed Financial Statements are an integral part of the above balance sheets.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(IN MILLIONS)


For the Six Months Ended June 30	2018			2017			2019			2018
Operating Activities
Net income	$	171.2		$	93.5
Less: Income (loss) from discontinued operations	0.1			(0.2		)
Less: Income (loss) attributable to noncontrolling interests	0.3			(0.3		)
Income from continuing operations attributable to ITT Inc.	170.8			94.0			$	138.2		$	170.8
Adjustments to income from continuing operations:
Depreciation and amortization	55.2			50.4			53.0			55.2
Equity-based compensation	10.2			7.3			8.4			10.2
Asbestos-related (benefit) costs, net	(6.2		)	29.8
Asbestos-related costs (benefit), net							24.4			(6.2		)
Other non-cash charges, net							15.3			4.3
Asbestos-related payments, net	(30.8		)	(30.7		)	(15.8		)	(30.8		)
Changes in assets and liabilities:
Change in receivables	(15.2		)	(35.6		)	(52.9		)	(15.2		)
Change in inventories	(22.8		)	2.3			(27.4		)	(22.8		)
Change in accounts payable	(14.2		)	(7.8		)	11.4			(14.2		)
Change in accrued expenses	(23.0		)	(3.3		)	(28.1		)	(23.0		)
Change in accrued and deferred income taxes	(11.7		)	(3.1		)
Change in income taxes							3.7			(11.7		)
Other, net	7.0			(10.7		)	(29.1		)	2.7
Net Cash – Operating activities	119.3			92.6			101.1			119.3
Investing Activities
Capital expenditures	(46.3		)	(53.3		)	(45.8		)	(46.3		)
Acquisitions, net of cash acquired	—			(113.7		)	(87.3		)	—
Other, net	0.9			2.5			0.8			0.9
Net Cash – Investing activities	(45.4		)	(164.5		)	(132.3		)	(45.4		)
Financing Activities
Commercial paper, net repayments	(162.4		)	9.4
Commercial paper, net borrowings (repayments)							33.7			(162.4		)
Short-term revolving loans, borrowings	246.5			77.3			—			246.5
Short-term revolving loans, repayments	(23.5		)	(100.0		)	—			(23.5		)
Long-term debt, issued	—			3.9			7.1			—
Long-term debt, repayments	(1.9		)	(0.7		)	(2.0		)	(1.9		)
Repurchase of common stock	(55.4		)	(32.8		)	(20.0		)	(55.4		)
Proceeds from issuance of common stock	4.7			6.5			8.3			4.7
Dividends paid	(12.0		)	(11.6		)	(26.1		)	(12.0		)
Other, net	(0.1		)	0.1			(0.6		)	(0.1		)
Net Cash – Financing activities	(4.1		)	(47.9		)	0.4			(4.1		)
Exchange rate effects on cash and cash equivalents	(8.6		)	15.3			0.6			(8.6		)
Net Cash – Operating activities of discontinued operations	(1.4		)	(0.9		)	1.2			(1.4		)
Net change in cash and cash equivalents	59.8			(105.4		)	(29.0		)	59.8
Cash and cash equivalents – beginning of year (includes restricted cash of $1.2 and $1.2, respectively)	391.0			461.9
Cash and cash equivalents – end of period (includes restricted cash of $1.2 and $1.2, respectively)	$	450.8		$	356.5
Cash and cash equivalents – beginning of year (includes restricted cash of $1.0 and $1.2, respectively)							562.2			391.0
Cash and cash equivalents – end of period (includes restricted cash of $1.3 and $1.2, respectively)							$	533.2		$	450.8
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest	$	1.1		$	2.1		$	1.7		$	1.1
Income taxes, net of refunds received	$	23.2		$	21.9		$	33.7		$	23.2

The accompanying Notes to the Consolidated Condensed Financial Statements are an integral part of the above statements of cash flows.

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(IN ~~MILLIONS)~~MILLIONS, EXCEPT PER SHARE AMOUNTS)

Three Months Six Months
For the Periods Ended June 30 2018 2017 2018 2017
Common Stock
Common stock, beginning balance $ 87.4
$ 88.7
$ 88.2
$ 88.4
Activity from stock incentive plans 0.2
0.1
0.5
0.5
Share repurchases —
(0.8 ) (1.1 ) (0.9 )
Common stock, ending balance 87.6
88.0
87.6
88.0
Retained Earnings

Retained earnings, beginning balance 1,891.8
1,832.6
1,856.1
1,789.2
Cumulative adjustment for accounting change
(See Note 2)
—
—
(4.1 ) 0.5
Net income attributable to ITT Inc. 69.7
47.8
170.9
93.8
Dividends declared (11.8 ) (11.4 ) (23.7 ) (22.8 )
Activity from stock incentive plans 9.7
4.3
14.4
14.8
Share repurchases (0.1 ) (29.7 ) (54.3 ) (31.9 )
Retained earnings, ending balance 1,959.3
1,843.6
1,959.3
1,843.6
Accumulated Other Comprehensive Loss

Postretirement benefit plans, beginning balance (136.5 ) (144.1 ) (137.6 ) (145.2 )
Net change in postretirement benefit plans 1.1
1.2
2.2
2.3
Postretirement benefit plans, ending balance (135.4 ) (142.9 ) (135.4 ) (142.9 )
Cumulative translation adjustment, beginning balance (184.1 ) (286.8 ) (210.6 ) (306.0 )
Net cumulative translation adjustment (47.1 ) 42.5
(20.6 ) 61.7
Cumulative translation adjustment, ending balance (231.2 ) (244.3 ) (231.2 ) (244.3 )
Total accumulated other comprehensive loss (366.6 ) (387.2 ) (366.6 ) (387.2 )
Noncontrolling interests

Noncontrolling interests, beginning balance 1.9
1.6
1.7
2.0
Income (loss) attributable to noncontrolling interests 0.2
0.1
0.3
(0.3 )
Other (0.1 ) (0.1 ) —
(0.1 )
Noncontrolling interests, ending balance 2.0
1.6
2.0
1.6
Total Shareholders’ Equity

Total shareholders’ equity, beginning balance 1,660.5
1,492.0
1,597.8
1,428.4
Net change in common stock 0.2
(0.7 ) (0.6 ) (0.4 )
Net change in retained earnings 67.5
11.0
103.2
54.4
Net change in accumulated other comprehensive loss (46.0 ) 43.7
(18.4 ) 64.0
Net change in noncontrolling interests 0.1
—
0.3
(0.4 )
Total shareholders’ equity, ending balance $ 1,682.3
$ 1,546.0
$ 1,682.3
$ 1,546.0



	Common Stock					Retained Earnings			Accumulated Other Comprehensive Loss			Noncontrolling Interest			Total Shareholders' Equity
	(Shares)		(Dollars)

December 31, 2018	87.6		$	87.6		$	2,110.3		$	(375.5	)	$	2.5		$	1,824.9

Net income	—		—			71.3			—			0.1			71.4
Activity from stock incentive plans	0.6		0.6			8.9			—			—			9.5
Share repurchases	(0.4	)	(0.4		)	(19.5		)	—			—			(19.9		)
Dividends declared ($0.147 per share)	—		—			(12.9		)	—			—			(12.9		)
Total other comprehensive loss, net of tax	—		—			—			(1.8		)	—			(1.8		)
Other	—		—			—			—			0.1			0.1
March 31, 2019	87.8		$	87.8		$	2,158.1		$	(377.3	)	$	2.7		$	1,871.3

Net income	—		—			66.8			—			0.2			67.0
Activity from stock incentive plans	0.1		0.1			7.1			—			—			7.2
Share repurchases	—		—			(0.1		)	—			—			(0.1		)
Dividends declared ($0.147 per share)	—		—			(13.1		)	—			—			(13.1		)
Dividend to noncontrolling interest	—		—			—			—			(0.7		)	(0.7		)
Total other comprehensive income, net of tax	—		—			—			5.8			—			5.8
June 30, 2019	87.9		$	87.9		$	2,218.8		$	(371.5	)	$	2.2		$	1,937.4

	Common Stock					Retained Earnings			Accumulated Other Comprehensive Loss			Noncontrolling Interest			Total Shareholders' Equity
	(Shares)		(Dollars)

December 31, 2017	88.2		$	88.2		$	1,856.1		$	(348.2	)	$	1.7		$	1,597.8

Net income	—		—			101.2			—			0.1			101.3
Activity from stock incentive plans	0.3		0.3			4.7			—			—			5.0
Share repurchases	(1.1	)	(1.1		)	(54.2		)	—			—			(55.3		)
Cumulative adjustment for accounting change	—		—			(4.1		)	—			—			(4.1		)
Dividends declared ($0.134 per share)	—		—			(11.9		)	—			—			(11.9		)
Total other comprehensive income, net of tax	—		—			—			27.6			—			27.6
Other	—		—			—			—			0.1			0.1
March 31, 2018	87.4		$	87.4		$	1,891.8		$	(320.6	)	$	1.9		$	1,660.5

Net income	—		—			69.7			—			0.2			69.9
Activity from stock incentive plans	0.2		0.2			9.7			—			—			9.9
Share repurchases	—		—			(0.1		)	—			—			(0.1		)
Dividends declared ($0.134 per share)	—		—			(11.8		)	—			—			(11.8		)
Total other comprehensive loss, net of tax	—		—			—			(46.0		)	—			(46.0		)
Other	—		—			—			—			(0.1		)	(0.1		)
June 30, 2018	87.6		$	87.6		$	1,959.3		$	(366.6	)	$	2.0		$	1,682.3

The accompanying Notes to the Consolidated Condensed Financial Statements are an integral part of the above statements of changes in shareholders’ equity.

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(DOLLARS AND SHARES (EXCEPT PER SHARE AMOUNTS) IN MILLIONS, UNLESS OTHERWISE STATED)

NOTE 1

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION ~~AND UPDATES TO SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~

Description of Business

ITT Inc. is a diversified manufacturer of highly engineered critical components and customized technology solutions for the transportation, industrial, and oil and gas 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 segments: ~~Industrial Process, consisting of industrial pumping and complementary equipment;~~ Motion Technologies, consisting of friction and shock and vibration equipment; Industrial Process, consisting of industrial flow equipment and services; and Connect & Control Technologies, consisting of electronic connectors, fluid handling, motion control and noise and energy absorption products. Financial information for our segments is presented in Note 3, Segment Information.

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 ~~include~~consist primarily of normal, recurring ~~adjustments)~~accruals, estimates and assumptions) necessary ~~for a fair presentation of~~to present fairly the financial position, results of operations, and cash flows for the periods presented. ~~Certain information and note disclosures normally~~The Consolidated Condensed Balance Sheet as of December 31, 2018, presented herein, has been derived from our audited balance sheet included in ~~financial statements prepared in accordance with accounting principles generally accepted in~~our Annual Report on Form 10-K (the 2018 Annual Report) for the ~~United States of America (GAAP) have been condensed or omitted pursuant to such SEC rules. We believe that the~~year ended December 31, 2018 but does not include all disclosures ~~made are adequate to make the information presented not misleading.~~required by GAAP. We consistently applied the accounting policies described in ~~ITT’s~~the 2018 Annual Report ~~on Form 10-K for the year ended December 31,~~ ~~2017~~ ~~(the~~ ~~2017~~ ~~Annual Report)~~ in preparing these unaudited financial statements, other than those ~~described below.~~related to new accounting standards adopted during the period. Refer to Note 2, Recent Accounting Pronouncements for further information. These financial statements should be read in conjunction with the financial statements and notes thereto included in our ~~2017~~2018 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. Estimates and assumptions are used for, but not limited to, asbestos-related liabilities and recoveries from insurers, 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 doubtful accounts and inventory valuation. Actual results could differ from these estimates.

ITT’s quarterly financial periods end on the Saturday that is ~~generally~~ closest to the last day of the calendar quarter, except for the last quarterly period of the fiscal year, which ends on December 31st. For ease of presentation, the quarterly financial statements included herein are described as ending on the last day of the calendar quarter.

Certain prior year amounts have been reclassified ~~or restated~~ to conform to the current year presentation. ~~For further information, refer to Note 2,~~ ~~Recent Accounting Pronouncements~~.

~~Update to Summary of Significant Accounting Policies~~

~~Revenue Recognition~~

For product sales, we consider practical and contractual limitations in determining whether there is an alternative use for the product. For example, long-term design and build contracts are typically highly customized to a customer’s specifications. For contracts with no alternative use and an enforceable right to payment for work performed to date, including a reasonable profit if the contract were terminated at the customer’s convenience, we recognize revenue over time. All other product sales are recognized at a point in time.

~~For contracts recognized over time, we use the cost-to-total cost method or the units of delivery method, depending on the nature of the contract, including length of production time.~~

For contracts recognized at a point in time, we recognize revenue when control passes to the customer, which is generally based on shipping terms when title and risk and rewards pass to the customer. However, we also consider certain customer acceptance provisions as certain contracts with customers include installation, testing, certification or other acceptance provisions. In instances where contractual terms include a provision for customer acceptance, we consider whether we have previously demonstrated that the product meets the specified criteria based on either seller or customer-specified objective criteria in assessing whether control has passed to the customer.

For service contracts, we recognize revenue as the services are rendered if the customer is benefiting from the service as it is performed, or upon completion of the service. Separately priced extended warranties are recognized as a separate performance obligation over the warranty period.

The transaction price in our contracts consists of fixed consideration and the impact of variable consideration including returns, rebates and allowances and penalties. Variable consideration is generally estimated using a probability-weighted approach based on historical experience, known trends and current factors including market conditions and status of negotiations.

When there is more than one performance obligation, the transaction price is allocated to the performance obligations based on the relative estimated standalone selling prices. If not sold separately, estimated standalone selling prices are determined considering various factors including market and pricing trends, geography, product customization and profit objectives. Revenue is recognized when the appropriate revenue recognition criteria for the individual performance obligations have been satisfied.

Revenue is reported net of any required taxes collected from customers and remitted to government authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority.

Shipping and handling activities are accounted for as activities to fulfill a promise to transfer a product to a customer. As such, shipping and handling activities are not evaluated as a separate performance qualification.

For most contracts, payment is due from the customer within 30 to 90 days after the product is delivered or the service has been performed. For design and build contracts, we generally collect progress payments from the customer throughout the term of the contract, resulting in contract assets or liabilities depending on the timing of the payments. Contract assets consist of unbilled amounts when revenue recognized exceeds customer billings. Contract liabilities consist of advance payments and billings in excess of revenue recognized.

Design and engineering costs for highly complex products to be sold under a long-term production-type contract are capitalized and amortized throughout the life of the related contract or anticipated contract. Other design and development costs are capitalized only if there is a contractual guarantee for reimbursement. Costs to obtain a contract (e.g., commissions) for contracts greater than one year are capitalized and amortized over the life of the related contract.

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 expected to have minimal impact on our consolidated financial position or results of operations.

Accounting Pronouncements Recently Adopted

In May 2014, the FASB issued ASU 2014-09 amending the existing accounting standards for revenue recognition. The new standard was effective for ITT as of January 1, 2018. Most revenue streams are recorded consistently under both the new standard and the previous standard. However, the timing of revenue recognition of certain design and build contracts in our Industrial Process segment, recognized using the percentage of completion method under the previous standard, is now dependent on certain terms within the contract and therefore will vary based on the new guidance. ITT adopted this guidance using a modified retrospective approach. As of the date of adoption, we have recognized approximately $49 of revenue and $5 of operating income on open contracts in our Industrial Process segment using the percentage of completion method that under the new guidance are recognized at a point in time, resulting in a cumulative adjustment to the opening balance in retained earnings of $4, net of tax. The comparative information has not been restated and continues to be reported under the accounting guidance in effect in those periods. Additionally, the new guidance resulted in a change in balance sheet presentation. Certain progress payments, previously presented as a reduction of inventory, are now presented

~~within accrued liabilities. Unbilled receivables, previously presented within receivables, net, are now presented within other current or non-current assets.~~

~~The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet related to the adoption of ASU 2014-09 is as follows:~~

Balance as of December 31, 2017 Cumulative Effect of Adjustments Balance as of January 1, 2018
Assets:
Receivables, net $ 629.6
$ (71.9 ) $ 557.7

Inventories, net 311.9
66.3
378.2

Other current assets 147.4
43.2
190.6

Deferred income taxes 149.9
1.0
150.9

Liabilities:
Accrued liabilities 384.4
43.7
428.1

Other non-current liabilities 175.6
(1.0 ) 174.6

Equity:
Retained earnings 1,856.1
(4.1 ) 1,852.0

The impacts to our Consolidated Statements of Operation for the three and six months ended June 30, 2018, and our Consolidated Balance Sheet as of June 30, 2018 had we not adopted ASU 2014-09 are as follows:

Three Months Six Months
As of or for the Periods Ended June 30, 2018 As Reported Amounts under previous standard Effect of Change As Reported Amounts under previous standard Effect of Change
Statement of Operations
Revenue $ 696.8
$ 699.2
$ 2.4
$ 1,386.1
$ 1,394.3
$ 8.2
Costs of revenue 470.8
472.4
1.6
935.9
943.2
7.3
Income tax expense 8.9
8.7
0.2
16.5
16.7
0.2
Net income 69.9
70.5
0.6
171.2
171.9
0.7

Balance Sheets
Assets:
Receivables, net

560.4
614.9
54.5
Inventories, net

393.5
324.0
(69.5 )
Other current assets

175.1
150.3
(24.8 )
Deferred income taxes

164.0
162.7
(1.3 )
Liabilities:
Accrued liabilities

397.7
350.8
(46.9 )
Other non-current liabilities

172.7
173.7
1.0
Equity:
Retained earnings

1,959.3
1,964.1
4.8

In March 2017, the FASB issued ASU 2017-07 which amends the Statement of Operations presentation for the components of net periodic benefit cost for entities that sponsor defined benefit pension and other postretirement plans. Under the ASU, entities are required to disaggregate the service cost component and present it with other current compensation costs for the related employees. All other components of net periodic benefit cost are no longer classified as an operating expense. In addition, only the service cost component will be eligible for capitalization on the balance sheet. The ASU requires a retrospective transition method to adopt the requirement to present service costs separately from the other components of net periodic benefit cost in the statements of operations, and a prospective transition method to adopt the requirement that prohibits capitalization of all components of net periodic benefit cost on the balance sheet except service costs. ITT adopted the ASU beginning in the first quarter of 2018. Service costs eligible for capitalization on the balance sheet in 2018 are considered immaterial. As a result of the adoption, our Consolidated Statement of Operations for the three and six months ended June 30, 2017 was restated as follows:

For the Three Months Ended June 30, 2017 Previously Reported Effect of Change Restated
Costs of revenue $ 426.5
$ (0.6 ) $ 425.9

General and administrative expenses 65.3
(0.7 ) 64.6

Sales and marketing expenses 43.9
(0.1 ) 43.8

Operating income 57.7
1.4
59.1

Interest and non-operating (income) expenses, net (0.9 ) 1.4
0.5

For the Six Months Ended June 30, 2017 Previously Reported Effect of Change Restated
Costs of revenue $ 850.0
$ (1.4 ) $ 848.6

General and administrative expenses 131.5
(1.2 ) 130.3

Sales and marketing expenses 87.0
(0.1 ) 86.9

Research and development expenses 45.1
(0.1 ) 45.0

Operating income 113.3
2.8
116.1

Interest and non-operating (income) expenses, net (0.1 ) 2.8
2.7

In November 2016, the FASB issued ASU 2016-18 which requires restricted cash to be included with cash and cash equivalents when reconciling the beginning and ending amounts on the of the Statement of Cash Flows. In addition, when cash and restricted cash are presented on separate lines on the Balance Sheet, an entity is required to reconcile the total cash, cash equivalents and restricted cash in the Statement of Cash Flows to the related line items in the Balance Sheet. The ASU requires a retrospective transition method and ITT adopted the ASU beginning in the first quarter of 2018.

In March 2016, the FASB issued ASU 2016-09 to simplify several aspects of the accounting standard for employee share-based payment transactions, including the classification of excess tax benefits and deficiencies and the accounting for employee forfeitures. ITT elected to adopt this guidance as of January 1, 2017 resulting in a cumulative-effect adjustment of $1.0 to increase retained earnings. The increase to retained earnings was driven by previously unrecognized tax benefits due to net operating loss carryforwards of $2.1, offset by a reduction in retained earnings of $1.1, net of tax, due to a change in our accounting policy for the forfeiture of share-based compensation arrangements. For further information on our adoption of the new standard, refer to our 2017 Annual Report.

~~Accounting Pronouncements Not Yet Adopted~~Leases (ASU 2016-02)

In February 2016, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ~~ASU 2016-02 impacting~~new guidance which updated the accounting for leases ~~intending~~in order to increase transparency and comparability of organizations by requiring balance sheet presentation of leased assets and increased financial statement disclosure of leasing arrangements. The ~~revised~~new standard ~~will require~~requires entities to recognize a liability for their lease obligations and a corresponding right-of-use asset, ~~representing the right to use the underlying asset over the lease term. Lease obligations are to be~~initially measured at the present value of the lease ~~payments and accounted for using the effective interest method. The~~payments. Subsequent accounting ~~for the leased asset will differ slightly depending~~depends on whether

the agreement is deemed to be a financing or operating lease. For ~~financing~~operating leases, ~~the leased asset is depreciated on~~ a ~~straight-line basis and recorded separately from the interest~~lessee recognizes its total lease expense ~~in the statements of operations, resulting in higher~~as an operating expense ~~in the earlier part of~~over the lease term. For financing leases, a lessee recognizes amortization of the right-of-use asset as an operating ~~leases, the depreciation~~

~~and interest~~ expense ~~components are combined, recognized evenly~~ over the lease term ofseparately from interest on the lease ~~and presented as a reduction to operating income.~~liability. The ASU requires that assets and liabilities be presented orand disclosed separately and the liabilities must be classified appropriately as current and noncurrent. The ASU further requires additional disclosure of certain qualitative and quantitative information related to lease agreements. The ASU was effective for the Company beginning on January 1, 2019, at which time we adopted the new standard using the modified retrospective approach as of the date of adoption. The Company elected to not reassess certain lease characteristics including whether expired or certain existing contracts contain leases, the lease classification prior to adoption, and initial direct costs. Upon adoption, we recognized a right-of-use asset of $80.0 (net of deferred rent of $3.4 previously included within Accrued liabilities and Other non-current liabilities) and a lease liability of $83.4 related to existing leases of real estate, vehicles, and other equipment that are classified as operating leases, and have terms greater than 12 months. The right-of-use asset is included within Other non-current assets and the lease liabilities are included within Accrued liabilities and Other non-current liabilities on the Consolidated Balance Sheet. A summary of the impact to our Consolidated Balance Sheet on January 1, 2019 is as follows:



	December 31, 2018		Effect of Change		January 1, 2019
Other non-current assets	$	196.8	$	80.0	$	276.8
Accrued liabilities	416.7		18.7		435.4
Other non-current liabilities	166.5		61.3		227.8

Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12)

In August 2017, the FASB issued amended guidance that simplifies the requirements of hedge accounting. The ASU enables companies to more accurately present the economic effects of risk management activities in the financial statements. The guidance requires the presentation of all items that affect earnings in the same income statement line as the hedged item and is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years with early adoption permitted. The Company adopted the provisions of ASU 2017-12 on January 1, 2019. The adoption did not result in an impact to our financial results since the Company did not have any derivatives outstanding at the time of adoption. As of June 30, 2019, the U.S. dollar equivalent notional value of the Company’s outstanding foreign currency forward contracts designated for hedge accounting was $9.1 and the fair value was nominal.

Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income (ASU 2018-02)

In February 2018, the FASB issued guidance related to the U.S. Tax Cuts and Jobs Act of 2017 (the Tax Act), which permits an optional reclassification of residual tax effects that are included within accumulated other comprehensive loss, to retained earnings. The reclassification represents the difference between the amount recorded in other comprehensive loss at the historical U.S. federal tax rate at the time the Tax Act became effective, and the amount that would have been recorded at the newly enacted rate. This guidance became effective during the first quarter of 2019, however we did not elect to make the optional reclassification.

Accounting Pronouncements Not Yet Adopted

Measurement of Credit Losses on Financial Instruments (ASU 2016-13)

In June 2016, the FASB issued updated guidance that requires entities to use a current expected credit loss model to measure credit-related impairments for financial instruments held at amortized cost, including trade receivables. The current expected credit loss model is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect collectability. Current expected credit losses, and subsequent adjustments, represent an estimate of lifetime expected credit losses that are recorded as an allowance deducted from the amortized cost of the financial instrument. The updated guidance also amends the other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments for credit-related losses through an allowance and eliminating the length of time a security has been in an unrealized loss position as a consideration in the determination of whether a credit loss exists. The updated guidance is effective for the Company beginning inon January 1, 2020 and will be adopted using a modified retrospective transition approach for the ~~first quarter 2019, at which time we expect~~provisions related to ~~adopt~~application of the ~~new standard. We are~~current expected credit loss model to financial instruments and using a prospective transition approach for the provisions related to credit losses on available-for-sale debt securities. The Company is currently ~~assessing our existing lease agreements and related financial disclosures to evaluate~~evaluating the ~~impact~~effect of ~~these amendments~~adoption on our financial statements.

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 three reportable segments are referred to as: Motion Technologies, Industrial Process, ~~Motion Technologies,~~ 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, bus and rail transportation markets.

Industrial Process manufactures engineered fluid process equipment serving a diversified mix of customers in global industries such as chemical, oil and gas, mining, and other industrial process markets and is a provider of plant optimization and efficiency solutions and aftermarket services and parts.

~~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.

Connect & Control Technologies manufactures harsh-environment connector solutions and critical energy absorption and flow control components for the aerospace and defense, general industrial, medical, and oil and gas markets.

Corporate and Other consists of corporate office expenses including compensation, benefits, occupancy, depreciation and other administrative costs, as well as charges related to certain matters, such as asbestos and environmental liabilities, that are managed at a corporate level and are not included in segment results when evaluating performance or allocating resources. Assets of the segments exclude general corporate assets, which principally consist of cash, investments, asbestos-related receivables, environmental-related assets, deferred taxes, and certain property, plant and equipment.


	Revenue						Operating Income^(a)						Operating Margin				Revenue						Operating Income						Operating Margin
For the Three Months Ended June 30	2018			2017			2018			2017			2018		2017		2019			2018			2019			2018			2019		2018
Motion Technologies																	$	317.7		$	330.3		$	52.0		$	55.5		16.4	%	16.8	%
Industrial Process	$	203.2		$	192.3		$	23.4		$	15.3		11.5	%	8.0	%	232.6			203.2			26.0			23.4			11.2	%	11.5	%
Motion Technologies	330.3			290.1			55.5			52.1			16.8	%	18.0	%
Connect & Control Technologies	164.1			149.6			27.3			14.2			16.6	%	9.5	%	170.2			164.1			29.6			27.3			17.4	%	16.6	%
Total segment results	697.6			632.0			106.2			81.6			15.2	%	12.9	%	720.5			697.6			107.6			106.2			14.9	%	15.2	%
Asbestos-related costs, net	—			—			(13.5		)	(14.9		)	—		—		—			—			(11.8		)	(13.5		)	—		—
Eliminations / Other corporate costs	(0.8		)	(1.1		)	(12.4		)	(7.6		)	—		—		(0.6		)	(0.8		)	(9.8		)	(12.4		)	—		—
Total Eliminations / Corporate and Other costs	(0.8		)	(1.1		)	(25.9		)	(22.5		)	—		—		(0.6		)	(0.8		)	(21.6		)	(25.9		)	—		—
Total	$	696.8		$	630.9		$	80.3		$	59.1		11.5	%	9.4	%	$	719.9		$	696.8		$	86.0		$	80.3		11.9	%	11.5	%


	Revenue						Operating Income^(a)						Operating Margin				Revenue						Operating Income						Operating Margin
For the Six Months Ended June 30	2018			2017			2018			2017			2018		2017		2019			2018			2019			2018			2019		2018
Motion Technologies																	$	632.9		$	672.5		$	112.9		$	117.4		17.8	%	17.5	%
Industrial Process	$	393.0		$	378.4		$	40.3		$	23.4		10.3	%	6.2	%	448.3			393.0			48.2			40.3			10.8	%	10.3	%
Motion Technologies	672.5			577.4			117.4			107.1			17.5	%	18.5	%
Connect & Control Technologies	322.0			302.9			50.3			30.9			15.6	%	10.2	%	335.2			322.0			57.0			50.3			17.0	%	15.6	%
Total segment results	1,387.5			1,258.7			208.0			161.4			15.0	%	12.8	%	1,416.4			1,387.5			218.1			208.0			15.4	%	15.0	%
Asbestos-related benefit (costs), net	—			—			6.2			(29.8		)	—		—
Eliminations / Other corporate costs	(1.4		)	(2.0		)	(23.3		)	(15.5		)	—		—
Asbestos-related (costs) benefit, net																	—			—			(24.4		)	6.2			—		—
Eliminations / Corporate and other costs																	(1.0		)	(1.4		)	(17.1		)	(23.3		)	—		—
Total Eliminations / Corporate and Other costs	(1.4		)	(2.0		)	(17.1		)	(45.3		)	—		—		(1.0		)	(1.4		)	(41.5		)	(17.1		)	—		—
Total	$	1,386.1		$	1,256.7		$	190.9		$	116.1		13.8	%	9.2	%	$	1,415.4		$	1,386.1		$	176.6		$	190.9		12.5	%	13.8	%



	Total Assets				Capital Expenditures				Depreciation & Amortization
For the Six Months Ended June 30	2019		2018^(a)		2019		2018		2019		2018
Motion Technologies	$	1,215.0	$	1,147.2	$	30.1	$	40.0	$	28.5	$	28.7
Industrial Process	1,137.6		1,000.1		5.6		1.8		12.6		13.7
Connect & Control Technologies	741.4		694.0		8.5		4.3		10.3		10.7
Corporate and Other	947.4		1,005.5		1.6		0.2		1.6		2.1
Total	$	4,041.4	$	3,846.8	$	45.8	$	46.3	$	53.0	$	55.2


(a)	~~Operating income and operating margin for the three and six months ended June 30, 2017 has been restated to reflect the adoption of ASU 2017-07. Refer to Note 2,~~ ~~Recent Accounting Pronouncements~~ ~~for further information.~~

Total Assets
Capital
Expenditures

Depreciation &
Amortization
For the Six Months Ended June 30 2018
2017^(b)
2018 2017 2018 2017
Industrial Process $ 1,004.4
$ 1,025.7
$ 1.8
$ 12.4
$ 13.7
$ 13.5
Motion Technologies 1,170.9
1,140.4
40.0
34.3
28.7
22.0
Connect & Control Technologies 705.9
694.8
4.3
6.5
10.7
11.7
Corporate and Other 918.5
839.3
0.2
0.1
2.1
3.2
Total $ 3,799.7
$ 3,700.2
$ 46.3
$ 53.3
$ 55.2
$ 50.4


~~(b)~~	Amounts reflect balances as of December 31, ~~2017.~~2018.

NOTE 4

REVENUE

The following table represents our revenue disaggregated by ~~product category~~end market for the three and six months ended June 30, 2019 and 2018.

For the Three Months Ended June 30, 2018 Industrial Process Motion Technologies Connect & Control Technologies Eliminations Total
Industrial pumps $ 153.2
$ —
$ —
$ —
$ 153.2

Oil & gas pumps and components 50.0
—
10.1
—
60.1

Vehicle components —
284.4
—
(0.1 ) 284.3

Aerospace & defense components —
2.7
96.1
—
98.8

Rail components —
38.1
—
—
38.1

Industrial components and other —
5.1
57.9
(0.7 ) 62.3

Total $ 203.2
$ 330.3
$ 164.1
$ (0.8 ) $ 696.8

For the Six Months Ended June 30, 2018 Industrial Process Motion Technologies Connect & Control Technologies Eliminations Total
Industrial pumps $ 294.7
$ —
$ —
$ —
$ 294.7

Oil & gas pumps and components 98.3
—
19.1
—
117.4

Vehicle components —
584.0
—
(0.1 ) 583.9

Aerospace & defense components —
4.5
183.7
—
188.2

Rail components —
77.1
—
—
77.1

Industrial components and other —
6.9
119.2
(1.3 ) 124.8

Total $ 393.0
$ 672.5
$ 322.0
$ (1.4 ) $ 1,386.1



For the Three Months Ended June 30, 2019	Motion Technologies			Industrial Process			Connect & Control Technologies			Eliminations				Total
Automotive and rail		$	312.1		$	—		$	—		$	(0.1	)		$	312.0
Chemical and industrial pumps		—			168.7			—			—				168.7
Aerospace and defense		2.8			—			105.3			—				108.1
Oil and gas		—			63.9			10.1			—				74.0
General industrial		2.8			—			54.8			(0.5		)		57.1
Total		$	317.7		$	232.6		$	170.2		$	(0.6	)		$	719.9

For the Six Months Ended June 30, 2019
Automotive and rail		$	622.1		$	—		$	—		$	(0.1	)		$	622.0
Chemical and industrial pumps		—			330.2			—			—				330.2
Aerospace and defense		5.1			—			204.8			—				209.9
Oil and gas		—			118.1			18.6			—				136.7
General industrial		5.7			—			111.8			(0.9		)		116.6
Total		$	632.9		$	448.3		$	335.2		$	(1.0	)		$	1,415.4

Revenue recognized related to our Industrial Process segment primarily consists of pumps, valves and plant optimization systems and services which serve the general industrial, oil and gas, chemical and petrochemical, pharmaceutical, mining, pulp and paper, food and beverage, and power generation markets. Many of Industrial Process’s products are highly engineered and customized to our customer needs and therefore do not have an alternative use. For these longer term design and build projects, if the contracts states that we also have an enforceable right to payment, we recognize revenue over time using the cost-to-total-cost method as we satisfy the performance obligations identified in the contract. If no right to payment exists, revenue is recognized at a point in time, generally based on shipping terms. A majority of our design and build project contracts currently do not have a right to payment. For other pumps that do have an alternative use to us, revenue is recognized at a point in time. Revenue on service and repair contracts, representing approximately 3% of consolidated ITT revenue, is recognized after services have been agreed to by the customer and rendered or over the service period.



For the Three Months Ended June 30, 2018	Motion Technologies			Industrial Process			Connect & Control Technologies			Eliminations				Total
Automotive and rail		$	322.5		$	—		$	—		$	(0.1	)		$	322.4
Chemical and industrial pumps		—			153.2			—			—				153.2
Aerospace and defense		2.7			—			96.1			—				98.8
Oil and gas		—			50.0			10.1			—				60.1
General industrial		5.1			—			57.9			(0.7		)		62.3
Total		$	330.3		$	203.2		$	164.1		$	(0.8	)		$	696.8

For the Six Months Ended June 30, 2018
Automotive and rail		$	661.1		$	—		$	—		$	(0.1	)		$	661.0
Chemical and industrial pumps		—			294.7			—			—				294.7
Aerospace and defense		4.5			—			183.7			—				188.2
Oil and gas		—			98.3			19.1			—				117.4
General industrial		6.9			—			119.2			(1.3		)		124.8
Total		$	672.5		$	393.0		$	322.0		$	(1.4	)		$	1,386.1

Our Motion Technologies segment manufactures brake pads, shims, shock absorbers, and damping and sealing technologies primarily for the transportation industry. Our Connect & Control Technologies segment manufactures a range of highly engineered connectors and specialized control components for critical applications. In both of these segments, most products have an alternative use. Therefore, revenue is recognized at a point in time when control passes to the customer. In certain circumstances, we have concluded we do not have an alternative use for the component product. In these cases, due to the short-term nature of the production process we use a units-of-delivery method of revenue recognition which faithfully depicts the transfer of control to the customer.

Contract Assets and Liabilities

Contract assets consist of unbilled amounts where revenue recognized exceeds customer billings. Contract liabilities consist of advance payments and billings in excess of revenue recognized. The following table represents our net contract assets and liabilities as of June 30, 2019 and December 31, 2018.


	June 30, 2018				January 1, 2018				Change			June 30, 2019				December 31, 2018				Change
Current contract assets		$	24.8			$	43.2			(42.6	)%		$	28.3			$	21.8			29.8	%
Noncurrent contract assets		0.7				—				100.0	%
Non-current contract assets													—				0.7				(100.0	)%
Current contract liabilities		(60.6		)		(61.7		)		(1.8	)%		(55.8		)		(61.0		)		(8.5	)%
Net contract liabilities		$	(35.1	)		$	(18.5	)		89.7	%		$	(27.5	)		$	(38.5	)		(28.6	)%

~~During the six months ended June 30, 2018, the increase in our net contract liability of $16.6, or 89.7%, was primarily due to higher customer billings.~~ During the three and six months ended June 30, ~~2018,~~2019, we recognized revenue of ~~$15.2~~$10.6 and ~~$46.1, respectively,~~$32.4, related to contract liabilities ~~at January 1,~~as of December 31, 2018.

Remaining Performance Obligations

For contracts greater than one year, the aggregate amount of the transaction price allocated to unsatisfied or partially satisfied performance obligations as of June 30, ~~2018~~2019 was ~~$44.4.~~$65.0. Of this amount, we expect to recognize approximately ~~$15~~$26 to ~~$20~~$31 of revenue during ~~2018,~~2019, and the remainder in ~~2019.~~

As of June 30, 2018, deferred contract costs were $7.1, primarily related to pre-contract costs. During the three and six months ended June 30, 2018, we amortized $0.2 and $0.4, respectively, of deferred contract costs.2020.

NOTE 5

~~RESTRUCTURING ACTIONS~~

The table below summarizes the restructuring costs presented within general and administrative expenses in our Consolidated Condensed Statements of Operations for the three and six months ended June 30, 2018 and 2017. We have initiated various restructuring activities throughout our businesses during the past two years, however there were no restructuring activities considered to be individually significant.

Three Months Six Months
For the Periods Ended June 30 2018 2017 2018 2017
Severance costs $ 1.0
$ 1.6
$ 1.6
$ 2.7
Other restructuring costs 0.2
0.1
0.5
1.6
Total restructuring costs $ 1.2
$ 1.7
$ 2.1
$ 4.3
By segment:
Industrial Process $ (0.1 ) $ 0.4
$ —
$ 1.7
Motion Technologies 0.9
0.6
1.3
0.8
Connect & Control Technologies 0.4
0.7
0.8
1.2
Corporate and Other —
—
—
0.6

The following table displays a rollforward of the restructuring accruals, presented on our Consolidated Condensed Balance Sheet within accrued liabilities, for the six months ended June 30, 2018 and 2017.

For the Periods Ended June 30 2018 2017
Restructuring accruals - beginning balance $ 8.9
$ 14.6
Restructuring costs 2.1
4.3
Cash payments (4.2 ) (8.9 )
Foreign exchange translation and other 0.9
1.4
Restructuring accrual - ending balance $ 7.7
$ 11.4
By accrual type:
Severance accrual $ 6.8
$ 9.6
Facility carrying and other costs accrual 0.9
1.8

~~NOTE 6~~

INCOME TAXES



	Three Months								Six Months
For the Periods Ended June 30	2019			2018			Change		2019			2018			Change
Income tax expense	$	19.3		$	8.9		116.9	%	$	39.0		$	16.5		136.4	%
Effective tax rate	22.3		%	11.3		%	1100bp		22.0		%	8.8		%	1320bp

~~For the three months ended June 30, 2018 and 2017, the Company recognized income tax expense of $8.9 and $10.6 and had an~~

The higher effective tax rate during the second quarter of ~~11.3% and 18.1%, respectively. For the six months ended June 30,~~2019 was primarily due to an $11.3 reduction of a deferred tax liability in 2018 ~~and 2017, the Company recognized income tax expense of $16.5 and $19.7 and had an~~associated with unremitted foreign earnings. The higher effective tax rate ~~of 8.8% and 17.4%, respectively. The lower effective tax rate in 2018~~during the year to date period is primarily due to tax benefits of $21.6 in 2018 from ~~the reversal of a~~German valuation allowance reversals on ~~German~~ deferred tax assets and a $4.5 ~~from a~~ reduction to the provisional one-time tax charge associated with the ~~2017 U.S. tax reform.~~

Our effective tax rate in 2018 includes the impact of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) that was approved by Congress on December 20, 2017 and signed into law by the U.S. President on December 22, 2017. The Tax Act significantly changes the U.S. corporate income tax rules most of which are effective January 1, 2018. On December 22, 2017 the SEC issued guidance under Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act and therefore records provisional amounts under the Tax Act. The ultimate impact of the Tax Act may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions a company has made, additional regulatory guidance that may be issued, and actions a company may take as a result of the Tax Act.

Quantifying the impact of the Tax Act is subject to guidance and regulations to be issued by the U.S. Treasury and possible changes to state tax laws. The Company is currently unable to compute with certainty the impact of the Tax Act on its financial statements. The Company has performed provisional computations of the impact of the Tax Act and has recorded the provisional amounts in its 2017 financial statements. The Company has updated some of these provisional computations to account for further guidance from the United States Treasury Department. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date.

The Tax Act imposed a one-time tax on accumulated earnings of foreign subsidiaries as of December 31, 2017. In its 2017 financial statements, the Company recognized the provisional tax impacts resulting from the Tax Act. The Company has updated the provisional one-time tax amount to $53.5 as compared to $58 reported in December 31, 2017 financial statements.

The Company intends to distribute most earnings of its foreign subsidiaries to the U.S. in future years, and therefore is no longer asserting permanent reinvestment of these earnings outside the U.S. Further, the Company will provide for any U.S. state and foreign taxes on distributions of future earnings of its foreign subsidiaries as these earnings will not be considered permanently reinvested in the foreign countries.

The Company has performed provisional computations and has not provided deferred taxes on its remaining excess of financial reporting over tax bases of investments in its foreign subsidiaries that it intends to permanently reinvest outside the U.S. The Company anticipates that accumulated foreign earnings of $1.1 billion and future earnings of its foreign subsidiaries that are considered not permanently reinvested will be sufficient to meet its U.S. cash needs. In the event additional foreign funds are needed to support U.S. operations, and if U.S. tax has not already been previously provided, we would be required to accrue and pay additional U.S. and foreign taxes.

The Tax Act limits the deductibility of compensation for certain senior officers. The Company has determined that certain deferred tax assets associated with officer compensation may not be deductible. The Company has therefore written off a provisional amount of $2.8 of deferred tax assets relating to such compensation.

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 ~~Canada,~~the Czech Republic, Germany, Hong Kong, India, Italy, Japan, Mexico, the U.S. and Venezuela. 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 change by approximately ~~$16~~$14 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 for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018.


	Three Months		Six Months		Three Months		Six Months
For the Periods Ended June 30	2018	2017	2018	2017	2019	2018	2019	2018
Basic weighted average common shares outstanding	87.5	88.5	87.8	88.4	87.8	87.5	87.7	87.8
Add: Dilutive impact of outstanding equity awards	0.9	0.5	0.9	0.7	0.9	0.9	0.9	0.9
Diluted weighted average common shares outstanding	88.4	89.0	88.7	89.1	88.7	88.4	88.6	88.7

There were no anti-dilutive shares underlying stock options excluded from the computation of diluted earnings per share for the three and six months ended June 30, ~~2018.~~2019 and 2018. During the three and six months ended June 30, 2017 there were 0.4 anti-dilutive shares underlying stock options excluded from the computation of diluted earnings per share in both periods with a weighted average exercise price per share of $42.30 and $42.41, respectively. Anti-dilutive shares underlying stock options for the three and six months ended June 30, 2017 will expire between 2024 and 2025.

~~In addition,~~2018, 0.1 of outstanding performance stock ~~units (PSU)~~ awards were excluded from the computation of diluted earnings per share ~~for the three and six months ended June 30, 2018, and 0.3 of outstanding PSU awards were excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2017,~~ as the necessary performance conditions had not yet been satisfied.

NOTE 87

RECEIVABLES, NET


	June 30, 2018				December 31, 2017				June 30, 2019				December 31, 2018
Trade accounts receivable (See Note 2)		$	553.6			$	601.4
Trade accounts receivable										$	585.0			$	531.7
Notes receivable		4.9				3.9				6.6				3.7
Other		17.9				40.4				20.5				22.9
Receivables, gross		576.4				645.7				612.1				558.3
Less: Allowance for doubtful accounts		(16.0		)		(16.1		)		(12.1		)		(18.3		)
Receivables, net		$	560.4			$	629.6			$	600.0			$	540.0

NOTE 98

INVENTORIES, NET


	June 30, 2018			December 31, 2017				June 30, 2019			December 31, 2018
Finished goods		$	63.7		$	55.9			$	68.3		$	64.2
Work in process		84.4			54.8				103.2			83.1
Raw materials		208.0			184.4				249.9			233.2
Inventoried costs related to long-term contracts		37.4			38.1
Total inventory before progress payments		393.5			333.2
Less: Progress payments (see Note 2)		—			(21.3		)
Inventories, net		$	393.5		$	311.9			$	421.4		$	380.5

Inventory related to long-term contracts of $45.7 as of December 31, 2018 has been reclassified to the respective inventory categories to conform with the current year presentation.

NOTE 109

OTHER CURRENT AND NON-CURRENT ASSETS


	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
Asbestos-related assets		$	64.7		$	64.7		$	67.1		$	67.1
Advance payments and other prepaid expenses		48.1			50.9			37.9			44.5
Short-term contract asset (see Note 2)		24.8			—
Current contract assets								28.3			21.8
Prepaid income taxes		35.9			30.3			13.5			19.6
Other		1.6			1.5			2.3			10.4
Other current assets		$	175.1		$	147.4		$	149.1		$	163.4
Other employee benefit-related assets		$	114.7		$	111.3		$	109.8		$	104.7
Operating lease right-of-use assets (see Note 2)								93.6			—
Capitalized software costs		37.2			41.9			32.3			35.3
Environmental-related assets		23.3			24.5			23.6			23.4
Equity method investments		7.8			6.7			8.8			7.7
Other		20.2			18.5			27.3			25.7
Other non-current assets		$	203.2		$	202.9		$	295.4		$	196.8

NOTE 1110

PLANT, PROPERTY AND EQUIPMENT, NET


	June 30, 2018				December 31, 2017				Useful life (in years)	June 30, 2019				December 31, 2018
Land and improvements		$	28.2			$	28.7
Machinery and equipment		1,043.5				1,039.9			2 - 10		$	1,096.6			$	1,056.9
Buildings and improvements		260.8				262.5			5 - 40		284.1				265.3
Furniture, fixtures and office equipment		73.7				74.5			3 - 7		81.1				69.1
Construction work in progress		57.7				58.4					65.0				67.9
Land and improvements											29.7				27.8
Other		10.4				10.9					10.3				10.3
Plant, property and equipment, gross		1,474.3				1,474.9					1,566.8				1,497.3
Less: Accumulated depreciation		(968.2		)		(953.2		)			(1,032.7		)		(978.5		)
Plant, property and equipment, net		$	506.1			$	521.7				$	534.1			$	518.8

Depreciation expense of $20.5 and $21.0, and ~~$19.2,~~$40.7 and $41.7 ~~and $37.5~~ was recognized in the three and six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

NOTE 1211

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

The following table provides a rollforward of the carrying amount of goodwill for the six months ended June 30, ~~2018~~2019 by segment.

Industrial
Process

Motion
Technologies

Connect & Control
Technologies
Total
Goodwill - December 31, 2017 $ 324.5
$ 295.6
$ 266.7
$ 886.8
Adjustments to purchase price allocations —
3.3
—
3.3
Foreign exchange translation (6.0 ) (3.5 ) (0.7 ) (10.2 )
Goodwill - June 30, 2018 $ 318.5
$ 295.4
$ 266.0
$ 879.9



	Motion Technologies			Industrial Process			Connect & Control Technologies				Total
Goodwill - December 31, 2018		$	294.5		$	315.8		$	265.6		$	875.9
Acquired		—			54.6			—			54.6
Foreign exchange translation		0.1			0.6			(0.2		)	0.5
Goodwill - June 30, 2019		$	294.6		$	371.0		$	265.4		$	931.0

Goodwill ~~adjustments to purchase price allocations are~~acquired is related to our acquisition of ~~Axtone Railway Components (Axtone)~~Rheinhütte Pumpen Group (Rheinhütte) in the ~~first~~second quarter of ~~2017. The acquired goodwill, representing~~2019, and represents the preliminary calculation of the excess of the purchase price over the net assets acquired, ~~has been~~the valuation of which is pending completion. Upon completion of the valuation, goodwill acquired will be adjusted to reflect the final fair value of the net assets acquired. Refer to Note ~~19,~~20, Acquisitions, for additional information.

Other Intangible Assets, Net

Information regarding our other intangible assets is as follows:


	June 30, 2018										December 31, 2017										June 30, 2019										December 31, 2018
	Gross Carrying Amount			Accumulated Amortization				Net Intangibles			Gross Carrying Amount			Accumulated Amortization				Net Intangibles			Gross Carrying Amount			Accumulated Amortization				Net Intangibles			Gross Carrying Amount			Accumulated Amortization				Net Intangibles
Customer relationships		$	164.4		$	(80.0	)		$	84.4		$	166.2		$	(74.4	)		$	91.8		$	164.2		$	(92.8	)		$	71.4		$	164.1		$	(86.2	)		$	77.9
Proprietary technology		53.9			(23.7		)		30.2			54.4			(21.8		)		32.6			53.6			(27.2		)		26.4			53.7			(25.6		)		28.1
Patents and other		12.6			(9.2		)		3.4			13.5			(9.2		)		4.3			12.8			(9.7		)		3.1			12.3			(9.4		)		2.9
Finite-lived intangible total		230.9			(112.9		)		118.0			234.1			(105.4		)		128.7			230.6			(129.7		)		100.9			230.1			(121.2		)		108.9
Indefinite-lived intangibles		27.3			—				27.3			27.5			—				27.5			27.2			—				27.2			27.2			—				27.2
Other intangible assets		$	258.2		$	(112.9	)		$	145.3		$	261.6		$	(105.4	)		$	156.2		$	257.8		$	(129.7	)		$	128.1		$	257.3		$	(121.2	)		$	136.1

Amortization expense related to finite-lived intangible assets was $4.0 and $4.3, and ~~$4.6,~~$8.0 and $8.9 ~~and $9.2~~ for the three and six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

NOTE 1312

ACCRUED LIABILITIES AND OTHER NON-CURRENT LIABILITIES


	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
Compensation and other employee-related benefits		$	129.5		$	147.2		$	136.3		$	152.2
Contract liabilities and other customer-related liabilities (see Note 2)		81.9			45.5
Asbestos-related liabilities		77.2			77.1
Contract liabilities and other customer-related liabilities								76.6			82.2
Asbestos-related liability								72.6			74.2
Accrued income taxes and other tax-related liabilities		34.1			36.1			25.7			33.7
Operating lease liabilities (see Note 2)								19.3			—
Accrued warranty costs								16.2			16.2
Environmental liabilities and other legal matters		22.7			22.8			15.0			24.0
Accrued warranty costs		18.0			17.0
Other accrued liabilities		34.3			38.7
Other								33.9			34.2
Accrued liabilities		$	397.7		$	384.4		$	395.6		$	416.7
Environmental liabilities		$	56.8		$	63.6		$	56.2		$	59.5
Operating lease liabilities (see Note 2)								78.5			—
Compensation and other employee-related benefits		34.8			36.4			35.1			34.2
Deferred income taxes and other tax-related accruals		32.2			19.3			23.8			25.0
Other		48.9			56.3			50.8			47.8
Other non-current liabilities		$	172.7		$	175.6		$	244.4		$	166.5

NOTE 13

LEASES

The Company’s lease portfolio primarily relates to real estate, which may be used for manufacturing or non-manufacturing purposes, and contains lease terms generally ranging between one and 18 years. Our lease portfolio also includes vehicles and other equipment such as forklifts. Substantially all of our leases are classified as operating leases. For leases with terms greater than 12 months, we record a right-of-use asset and lease liability equal to the present value of the lease payments. In determining the discount rate used to measure the right-of-use asset and lease liability, we utilize the Company’s incremental borrowing rate and consider the term of the lease, as well as the geographic location of the leased asset.

Where options to renew a lease are available, they are included in the lease term and capitalized on the balance sheet to the extent there would be a significant economic penalty not to elect the option. Certain real estate leases are subject to periodic changes in an index or market rate. While lease liabilities are not remeasured as a result of changes to an index or rate, these changes are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred. Variable lease expense also includes property tax and property insurance costs.

For the three and six months ended June 30, 2019, operating lease costs were $6.7 and $12.3, respectively. Short-term lease costs, variable lease costs, and sublease income are not considered material.

Future operating lease payments under non-cancellable operating leases with an initial term in excess of 12 months as of June 30, 2019 are shown below.



2019	$	11.6
2020	19.5
2021	15.3
2022	12.6
2023	10.0
2024 and thereafter	60.7
Total lease payments	129.7
Less: amount of lease payments representing interest	(31.9		)
Present value of future lease payments	$	97.8

Short-term lease liability	$	19.3
Long-term lease liability	78.5
Present value of future lease payments	$	97.8

Future minimum operating lease payments under non-cancellable operating leases with an initial term in excess of 12 months as of December 31, 2018 are shown below.



2019	$	22.2
2020	16.8
2021	12.6
2022	10.2
2023	8.1
2024 and thereafter	46.4
Total minimum lease payments	$	116.3

Our lease portfolio has a weighted average remaining lease term of 13.8 years, and the weighted average discount rate is 3.2%. During the six months ended June 30, 2019, we recognized non-cash right-of-use assets of $22.8 for new leases entered into during the period, primarily related to the lease renewal of a key manufacturing site in our Connect & Control segment. Operating cash outflows from operating leases during the six months ended June 30, 2019 were $10.9.

NOTE 14

DEBT

June 30,
2018 December 31,
2017
Commercial paper $ —
$ 162.4

Short-term loans 209.6
—

Current maturities of long-term debt and capital leases 1.1
1.2

Short-term loans and current maturities of long-term debt 210.7
163.6

Long-term debt and capital leases 7.2
8.3

Total debt and capital leases $ 217.9
$ 171.9



	June 30, 2019			December 31, 2018
Commercial paper		$	148.0		$	114.4
Current maturities of long-term debt and finance leases		1.4			1.8
Commercial paper and current maturities of long-term debt		149.4			116.2
Long-term debt and finance leases		14.3			8.8
Total debt and finance leases		$	163.7		$	125.0

Commercial Paper

AsCommercial paper outstanding as of June 30, ~~2018, there was no Commercial paper outstanding. As of~~2019 and December 31, ~~2017, Commercial paper~~2018 was issued entirely through the Company’s euro program and had an associated weighted average interest rate of ~~2.09%~~0.09% and 0.06%, respectively. The outstanding commercial paper for both periods had maturity terms less than ~~one month~~three months from the date of issuance.

~~Short-term Loans~~

Short-term loans consist of outstanding borrowings under our $500 Revolving Credit Agreement (the Revolving Credit Agreement). Outstanding borrowings under our Revolving Credit Agreement as of June 30, 2018 were denominated in Euros with an associated weighted average interest rate of 1.1%. As of December 31, 2017, we had no outstanding obligations under the Revolving Credit Agreement. Refer to the Liquidity section within “Item 2. Management’s Discussion and Analysis,” for additional information on ~~the revolving credit facility as well as~~ our overall funding and liquidity strategy.

NOTE 15

POSTRETIREMENT BENEFIT PLANS

The following table provides the components of net periodic benefit cost for pension plans and other employee-related benefit plans for the three and six months ended June 30, ~~2018~~2019 and ~~2017.~~2018.



	2019												2018
For the Three Months Ended June 30	Pension				Other Benefits				Total				Pension				Other Benefits				Total
Service cost		$	0.3			$	0.1			$	0.4			$	0.4			$	0.2			$	0.6
Interest cost		3.2				1.0				4.2				2.8				1.1				3.9
Expected return on plan assets		(3.4		)		—				(3.4		)		(3.4		)		(0.1		)		(3.5		)
Amortization of prior service cost (benefit)		0.2				(1.3		)		(1.1		)		0.2				(1.3		)		(1.1		)
Amortization of net actuarial loss		1.3				0.5				1.8				1.5				1.1				2.6
Total net periodic benefit cost		$	1.6			$	0.3			$	1.9			$	1.5			$	1.0			$	2.5

	2019												2018
For the Six Months Ended June 30	Pension				Other Benefits				Total				Pension				Other Benefits				Total
Service cost		$	0.7			$	0.3			$	1.0			$	0.8			$	0.4			$	1.2
Interest cost		6.3				2.0				8.3				5.6				2.2				7.8
Expected return on plan assets		(7.2		)		—				(7.2		)		(6.8		)		(0.2		)		(7.0		)
Amortization of prior service cost (benefit)		0.4				(2.6		)		(2.2		)		0.4				(2.6		)		(2.2		)
Amortization of net actuarial loss		2.6				1.1				3.7				3.0				2.2				5.2
Total net periodic benefit cost		$	2.8			$	0.8			$	3.6			$	3.0			$	2.0			$	5.0

2018 2017
For the Three Months Ended June 30 Pension
Other
Benefits
Total Pension
Other
Benefits
Total
Service cost $ 0.4
$ 0.2
$ 0.6
$ 0.6
$ 0.2
$ 0.8

Interest cost 2.8
1.1
3.9
3.0
1.2
4.2

Expected return on plan assets^(a)
(3.4 ) (0.1 ) (3.5 ) (3.7 ) (0.1 ) (3.8 )
Amortization of prior service cost (benefit) 0.2
(1.3 ) (1.1 ) 0.3
(1.5 ) (1.2 )
Amortization of net actuarial loss 1.5
1.1
2.6
1.8
1.0
2.8

Total net periodic benefit cost $ 1.5
$ 1.0
$ 2.5
$ 2.0
$ 0.8
$ 2.8

2018 2017
For the Six Months Ended June 30 Pension Other
Benefits Total Pension Other
Benefits Total
Service cost $ 0.8
$ 0.4
$ 1.2
$ 1.2
$ 0.4
$ 1.6

Interest cost 5.6
2.2
7.8
6.0
2.3
8.3

Expected return on plan assets^(a)
(6.8 ) (0.2 ) (7.0 ) (7.5 ) (0.2 ) (7.7 )
Amortization of prior service cost (benefit) 0.4
(2.6 ) (2.2 ) 0.5
(2.9 ) (2.4 )
Amortization of net actuarial loss 3.0
2.2
5.2
3.5
2.1
5.6

Total net periodic benefit cost $ 3.0
$ 2.0
$ 5.0
$ 3.7
$ 1.7
$ 5.4


~~(a)~~	Includes plan administrative expenses of $0.9 and $0.8, and $1.8 and $1.6 for the three and six months ended June 30, 2018 and 2017, respectively. The prior year plan administrative expenses have been reclassified from the service cost component line to conform to the current year presentation.

We made contributions to our global postretirement plans of ~~$6.8~~$7.1 and ~~$6.4~~$6.8 during the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. We expect to make contributions of approximately $7 to ~~$11~~$9 during the remainder of ~~2018,~~2019, principally related to our other ~~postretirement employee~~employee-related benefit plans.

Amortization from accumulated other comprehensive income into earnings related to prior service cost and net actuarial loss was $0.5 and $1.1, and ~~$1.2,~~$1.1 and $2.2, ~~and $2.3,~~ net of tax, during the three and six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. No other reclassifications from accumulated other comprehensive income into earnings were recognized during any of the presented periods.

NOTE 16

LONG-TERM INCENTIVE EMPLOYEE COMPENSATION

Our long-term incentive plan (LTIP) costs are primarily recorded within general and administrative expenses. The following table provides the components of LTIP costs for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018.


	Three Months				Six Months				Three Months				Six Months
For the Periods Ended June 30	2018		2017		2018		2017		2019		2018		2019		2018
Equity-based awards	$	5.7	$	3.6	$	10.2	$	7.3	$	3.9	$	5.7	$	8.4	$	10.2
Liability-based awards	0.7		0.4		0.8		0.9		0.7		0.7		1.4		0.8
Total share-based compensation expense	$	6.4	$	4.0	$	11.0	$	8.2	$	4.6	$	6.4	$	9.8	$	11.0

At June 30, ~~2018,~~2019, there was ~~$24.5~~$24.4 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 ~~2.2~~2.1 years. Additionally, unrecognized compensation cost related to liability-based awards was ~~$4.0,~~$2.5, which is expected to be recognized ratably over a weighted-average period of ~~2.1~~1.7 years.

Year-to-Date ~~2018~~2019 LTIP Activity

The majority of our LTIP awards are granted during the first quarter of each year and vest on the completion of a three-year service period. During the six months ended June 30, ~~2018,~~2019, 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)	0.3		$	52.94	0.2		$	58.35
Performance stock units (PSUs)	0.1		$	57.15	0.1		$	65.28

During the six months ended June 30, 2019 and 2018, 0.3 and ~~2017,~~ 0.2 ~~and 0.3~~of non-qualified stock options were exercised resulting in proceeds of ~~$4.7~~$8.3 and ~~$6.5, respectively. During both the six months ended June 30, 2018 and 2017, RSUs of 0.2 vested and were issued,~~$4.7, respectively. During the six months ended June 30, 2019 and 2018, RSUs of 0.2 vested and were issued. During the six months ended June 30, 2019 and 2018, PSUs of 0.2 and 0.1 that vested on December 31, 2018 and 2017, respectively, were issued. ~~There were no PSUs that vested on December 31, 2016 because the minimum performance requirements were not met.~~

NOTE 17

CAPITAL STOCK

On October 27, 2006, a three-year $1 billion share repurchase program (the Share Repurchase Program) was approved by the Board of ~~Directors (the Share Repurchase Program).~~Directors. On December 16, 2008, the provisions of the Share Repurchase Program were modified by the Board of Directors to replace the original three-year term with an indefinite term. During the six months ended June 30, ~~2018~~2019 and ~~2017~~2018, we repurchased and retired ~~1.0~~0.2 and ~~0.8~~1.0 shares of common stock for ~~$50.0~~$10.5 and ~~$30.0,~~$50.0, respectively, under this program. To date, the Company has repurchased ~~22.1~~22.4 shares for ~~$909.4~~$919.9 under the Share Repurchase Program.

Separate from the Share Repurchase Program, the Company repurchased 0.2 and 0.1 shares during ~~both~~ the six months ended June 30, ~~2018~~2019 and ~~2017~~2018, respectively, for an aggregate price of ~~$5.4~~$9.5 and ~~$2.8,~~$5.4, respectively, in settlement of employee tax withholding obligations due upon the vesting of RSUs and PSUs.

NOTE 18

ACCUMULATED OTHER COMPREHENSIVE LOSS



	Postretirement Benefit Plans			Cumulative Translation Adjustment			Accumulated Other Comprehensive Loss
December 31, 2018	$	(131.6	)	$	(243.9	)	$	(375.5	)

Net change during period	0.6			(2.4		)	(1.8		)
March 31, 2019	(131.0		)	(246.3		)	(377.3		)

Net change during period	0.5			5.3			5.8
June 30, 2019	$	(130.5	)	$	(241.0	)	$	(371.5	)

	Postretirement Benefit Plans			Cumulative Translation Adjustment			Accumulated Other Comprehensive Loss
December 31, 2017	$	(137.6	)	$	(210.6	)	$	(348.2	)

Net change during period	1.1			26.5			27.6
March 31, 2018	(136.5		)	(184.1		)	(320.6		)

Net change during period	1.1			(47.1		)	(46.0		)
June 30, 2018	$	(135.4	)	$	(231.2	)	$	(366.6	)

NOTE 19

COMMITMENTS AND CONTINGENCIES

From time to time, we are involved in legal proceedings that are incidental to the operation of our businesses. Some of these proceedings allege damages relating to 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 such legal proceedings will have a material adverse impact on our financial statements, unless otherwise noted below.

Asbestos Matters

Subsidiaries of ITT, including ITT LLC and Goulds Pumps LLC, have been sued, along with many other companies in product liability lawsuits alleging personal injury due to asbestos exposure. These claims generally allege that certain products sold by our 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. As of June 30, ~~2018~~,2019, there were approximately 2524 thousand pending claims against ITT subsidiaries, including Goulds Pumps LLC, filed in various state and federal courts alleging injury as a result of exposure to asbestos. Activity related to these asserted asbestos claims during the period was as follows:



~~For the Six Months Ended June 30 (in thousands)~~	~~2018~~
Pending claims – Beginning	2624
New claims	2
Settlements	—(1	)
Dismissals	(31	)
Pending claims – Ending	2524

Frequently, plaintiffs are unable to identify any ITT LLC or Goulds Pumps LLC products as a source of asbestos exposure. Our experience to date is that a majority of resolved claims are dismissed without any payment from ITT subsidiaries. Management believes that a large majority of the pending claims have little or no value. In addition, because claims are sometimes dismissed in large groups, the average cost per resolved claim can fluctuate significantly from period to period. ITT expects more asbestos-related suits will be filed in the future, and ITT will continue to aggressively defend or seek a reasonable resolution, as appropriate.

Asbestos litigation is a unique form of litigation. Frequently, the plaintiff sues a large number of defendants and does not state a specific claim amount. After filing a complaint, the plaintiff engages defendants in settlement negotiations to establish a settlement value based on certain criteria, including the number of defendants in the case. Rarely do the plaintiffs seek to collect all damages from one defendant. Rather, they seek to spread the liability, and thus the payments, among many defendants. As a result of this and other factors, the Company is unable to estimate the maximum potential exposure to pending claims and claims estimated to be filed over the next 10 years.

Estimating our exposure to pending asbestos claims and those that may be filed in the future is subject to significant uncertainty and risk as there are multiple variables that can affect the timing, severity, quality, quantity and resolution of claims. Any predictions with respect to the variables impacting the estimate of the asbestos liability and related asset are subject to even greater uncertainty as the projection period lengthens. In light of the variables and uncertainties inherent in the long-term projection of the Company’s asbestos exposures, ~~although~~while it is probable that the Company will incur additional costs for asbestos claims filed beyond the next 10 years, which additional costs may be material, we do not believe there is a reasonable basis for estimating those costs at this time.

The asbestos liability and related receivables reflect management’s best estimate of future events. However, future events affecting the key factors and other variables for either the asbestos liability or the related receivables could cause actual costs or recoveries to be materially higher or lower than currently estimated. Due to these uncertainties, as well as our inability to reasonably estimate any additional asbestos liability for claims which may be filed beyond the next 10 years, it is difficult to predict the ultimate cost of resolving all pending and unasserted asbestos claims. We believe it is possible that future events affecting the key factors and other variables within the next 10 years, as well as the cost of asbestos claims filed beyond the next 10 years, net of expected recoveries, could have a material adverse effect on our financial statements.

Asbestos-Related Costs, Net

As part of our ongoing review of our net asbestos exposure, each quarter we assess the most recent qualitative and quantitative data available for the key inputs and assumptions, comparing the data to expectations on which the most recent annual liability and asset estimates were calculated. Based on this evaluation, the Company determined that no change in the estimate was warranted for the quarter ended June 30, ~~2018~~2019 other than the incremental accrual to maintain a rolling 10-year forecast period.

During the first quarter of 2018, we entered into a settlement agreement with an insurer to settle responsibility for multiple insurance claims. Under the terms of the coverage-in-place agreement, the insurer agreed to an upfront payment to a Qualified Settlement Fund (QSF) for past costs in addition to providing coverage for certain future asbestos claims on specified terms and conditions. Insurance payments under the coverage-in-place agreement will be made to a QSF as claims are settled or adjudicated.

The following table provides a rollforward of the estimated asbestos liability and related assets for the six months ended June 30, ~~2018~~2019 and ~~2017.~~2018.

2018 2017
For the Six Months Ended June 30 Liability Asset Net Liability Asset Net
Beginning balance $ 877.2

$ 368.7

$ 508.5
$ 954.3
$ 380.6
$ 573.7
Asbestos provision 32.0

6.1

25.9
34.8
5.0
29.8
Insurance settlement agreements —
32.1
(32.1 ) —
—
—
Net cash activity (50.4 )
(19.6 )
(30.8 ) (46.5 ) (15.8 ) (30.7 )
Ending balance $ 858.8

$ 387.3

$ 471.5
$ 942.6
$ 369.8
$ 572.8
Current portion $ 77.2

$ 64.7

$ 76.6
$ 66.0

Noncurrent portion $ 781.6

$ 322.6

$ 866.0
$ 303.8



	2019									2018
For the Six Months Ended June 30	Liability			Asset			Net			Liability			Asset			Net
Beginning balance	$	849.3		$	376.7		$	472.6		$	877.2		$	368.7		$	508.5
Asbestos provision^(a)	30.6			6.2			24.4			32.0			6.1			25.9
Insurance settlement agreement	—			—			—			—			32.1			(32.1		)
Net cash activity^(a)	(44.1		)	(28.3		)	(15.8		)	(50.4		)	(19.6		)	(30.8		)
Ending balance	$	835.8		$	354.6		$	481.2		$	858.8		$	387.3		$	471.5
Current portion	$	72.6		$	67.1					$	77.2		$	64.7
Noncurrent portion	$	763.2		$	287.5					$	781.6		$	322.6


(a)	Includes certain administrative costs such as legal-related costs for insurance asset recoveries.

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 the estimated environmental liability for the six months ended June 30, ~~2018~~2019 and ~~2017.~~2018.


For the Six Months Ended June 30	2018			2017			2019			2018
Environmental liability - beginning balance	$	73.9		$	76.6		$	66.8		$	73.9
Change in estimates for pre-existing accruals	3.3			1.7			0.3			3.3
Accruals added during the period for new matters	2.0			—			—			2.0
Net cash activity	(12.2		)	(5.3		)
Payments ^(a)							(3.6		)	(12.2		)
Foreign currency	0.1			0.1			—			0.1
Environmental liability - ending balance	$	67.1		$	73.1		$	63.5		$	67.1


(a)	Includes cash payments of $7.9 for the six months ended June 30, 2018 related to the sale of a former operating location.

Environmental-related assets, representing estimated recoveries from insurance providers and other third parties, were $23.6 and $23.3 as of June 30, 2019 and 2018, respectively.

We are currently involved with 3330 active environmental investigation and remediation sites. At June 30, ~~2018,~~2019, we have estimated the potential high-end liability range of environmental-related matters to be ~~$116.5.~~$110.5.

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.

Other Matters

~~The Company received a civil subpoena from the Department of Defense, Office of the Inspector General, in~~In the second quarter of ~~2015 as part of an investigation being led by~~2019, the ~~Civil Division of~~Company settled a civil matter with the U.S. Department of Justice (DOJ)~~. The subpoena and~~ related to an investigation ~~involve~~that began in 2015 involving certain connector products manufactured by the Company’s Connect & Control Technologies segment that are purchased or used by the U.S. government. ~~In addition, in the third quarter of 2017, the Company learned that the Criminal Division of DOJ is also investigating this matter.~~ The Company ~~is cooperating with the government and has produced documents responsive~~paid $11 to ~~the subpoena to the Civil Division. Based~~DOJ, acting on ~~its current analysis following discussions with DOJ to resolve the civil matter, the Company has accrued $5 as its current best estimate~~behalf of the ~~minimum amount of probable loss. It is reasonably possible that any actual loss related~~U.S. government, to settle this matter ~~may be higher than this amount, but at this time management is unable to estimate~~and avoid the expense and uncertainty of litigation. The Company also received a ~~range~~related insurance recovery of ~~potential loss in excess of the amount accrued.~~$1.

NOTE 1920

ACQUISITIONS

~~Axtone Railway Components~~Rheinhütte Pumpen Group (Rheinhütte)

On ~~January 26, 2017~~April 30, 2019, we ~~acquired~~completed the acquisition of 100% of the privately held stock of ~~Axtone Railway Components (Axtone)~~Rheinhütte for a purchase price of ~~$123.1,~~€81 euros, net of cash acquired. ~~Axtone, which had 2016~~The transaction was funded from the Company’s cash and European commercial paper program. The purchase price is subject to change based on customary net working capital adjustments. Rheinhütte, with 2018 revenue of approximately ~~$72,~~€61.5 euros and approximately 430 employees, has manufacturing locations in Germany and Brazil. Rheinhütte is a designer and manufacturer of highly engineered pumps suited for harsh and ~~customized energy absorption solutions, including springs, buffers, and coupler components~~corrosive environments for the ~~railway and~~ industrial ~~markets.~~market. Rheinhütte is reported within the Industrial Process segment.

The ~~final~~ purchase price for ~~Axtone is based on the~~Rheinhütte was allocated to net tangible assets acquired and liabilities assumed based on their preliminary fair values as of ~~January 26, 2017,~~April 30, 2019, with the excess of the purchase price of ~~$86~~$54.6 recorded as goodwill. The primary areas of the purchase price allocation that are not yet finalized relate to the valuation of certain tangible and intangible assets, liabilities, income tax, and residual goodwill. 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 this acquisition ~~which~~ is not expected to be deductible for income tax ~~purposes, has been assigned to the Motion Technologies segment.~~purposes.

Preliminary Allocation of Purchase Price for ~~Axtone~~Rheinhütte

Cash $ 9.4
Receivables 11.5
Inventory 13.6
Plant, property and equipment 13.1
Goodwill 86.0
Other intangible assets 9.9
Other assets 5.5
Accounts payable and accrued liabilities (15.2 )
Postretirement liabilities (4.2 )
Other liabilities (6.5 )
Net assets acquired $ 123.1



Cash	$	4.7
Receivables	9.7
Inventory	13.3
Plant, property and equipment	21.5
Goodwill	54.6
Other assets	3.2
Accounts payable and accrued liabilities	(6.7		)
Other liabilities	(5.3		)
Net assets acquired	$	95.0

Pro forma results of operations have not been presented because the acquisition was not deemed material at the acquisition date.

~~NOTE 20~~Matrix Composites, Inc.

~~SUBSEQUENT EVENTS~~ (Matrix)

On July ~~27, 2018~~3, 2019, ~~the Company~~we completed the ~~sale~~acquisition of ~~excess property~~100% of the privately held stock of Matrix for a ~~cash~~ purchase price of ~~$41.0~~$29 funded from the Company’s cash. The purchase price includes an earn-out of $3 and ~~recorded~~is subject to change based on customary net working capital adjustments. Matrix, a ~~pre-tax gain~~manufacturer of precision composite components within the aerospace and defense market, had 2018 revenue of approximately ~~$40.~~$12 with growth expected due to a ramp up in production on several next-generation aircraft engine platforms. Matrix has approximately 115 employees and will be reported within the Connect & Control Technologies 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 oil and gas markets. ~~Building on our heritage of engineering, we partner with our customers to deliver enduring solutions to the key industries that underpin our modern way of life.~~ We manufacture components that are integral to the operation of equipment systems and manufacturing processes in our key markets. Our products provide enabling 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.~~model centered on our engineering capabilities. Each business applies its technology and engineering expertise to solve our customers’ most pressing challenges. Our applied engineering ~~aptitude enables~~provides a ~~tight~~special business fit with our customers given the critical nature of their applications. This in turn provides us with unique insight to our ~~customer’s~~customers’ requirements and enables us to develop solutions to assist our customers ~~in achieving~~to achieve their business goals. Our technology and customer intimacy ~~work in tandem to~~together produce opportunities to capture recurring revenue streams, aftermarket opportunities and long-lived platforms from original equipment ~~manufacturer (OEM) platforms and aftermarket opportunities.~~manufacturers (OEMs).

Our product and service offerings are organized into three segments: Motion Technologies, Industrial Process, ~~Motion Technologies,~~ and Connect & Control Technologies. See Note 3, Segment Information, in this Report for a summary description of each segment. Additional information is also available in our ~~2017~~2018 Annual Report within Part I, Item 1, “Description of Business”.

All comparisons included within Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to the comparable three and six months ended June 30, ~~2017,~~2018, unless stated otherwise.

DISCUSSION OF FINANCIAL RESULTS

Three and Six Months Ended June 30


	Three Months								Six Months								Three Months								Six Months
For the Periods Ended June 30	2018			2017			Change		2018			2017			Change
																	2019			2018			Change		2019			2018			Change
Revenue	$	696.8		$	630.9		10.4	%	$	1,386.1		$	1,256.7		10.3	%	$	719.9		$	696.8		3.3	%	$	1,415.4		$	1,386.1		2.1	%
Gross profit	226.0			205.0			10.2	%	450.2			408.1			10.3	%	232.0			226.0			2.7	%	450.8			450.2			0.1	%
Gross margin	32.4		%	32.5		%	(10	)bp	32.5		%	32.5		%	—		32.2		%	32.4		%	(20	)bp	31.8		%	32.5		%	(70	)bp
Operating expenses	145.7			145.9			(0.1	%)	259.3			292.0			(11.2	%)	146.0			145.7			0.2	%	274.2			259.3			5.7	%
Expense to revenue ratio	20.9		%	23.1		%	(220	)bp	18.7		%	23.2		%	(450	)bp
Operating expense to revenue ratio																	20.3		%	20.9		%	(60	)bp	19.4		%	18.7		%	70	bp
Operating income	80.3			59.1			35.9	%	190.9			116.1			64.4	%	86.0			80.3			7.1	%	176.6			190.9			(7.5	%)
Operating margin	11.5		%	9.4		%	210	bp	13.8		%	9.2		%	460	bp	11.9		%	11.5		%	40	bp	12.5		%	13.8		%	(130	)bp
Interest and non-operating expenses, net	1.5			0.5			200.0	%	3.3			2.7			22.2	%
Interest and non-operating (income) expenses, net																	(0.4		)	1.5			(126.7	%)	(0.9		)	3.3			(127.3	%)
Income tax expense	8.9			10.6			(16.0	%)	16.5			19.7			(16.2	%)	19.3			8.9			116.9	%	39.0			16.5			136.4	%
Effective tax rate	11.3		%	18.1		%	(680	)bp	8.8		%	17.4		%	(860	)bp	22.3		%	11.3		%	1,100	bp	22.0		%	8.8		%	1,320	bp
Income from continuing operations attributable to ITT Inc.	69.7			47.9			45.5	%	170.8			94.0			81.7	%	66.9			69.7			(4.0	%)	138.2			170.8			(19.1	%)
(Loss) income from discontinued operations, net of tax	—			(0.1		)	(100.0	%)	0.1			(0.2		)	150.0	%
Net income attributable to ITT Inc.	69.7			47.8			45.8	%	170.9			93.8			82.2	%	66.8			69.7			(4.2	%)	138.1			170.9			(19.2	%)

Executive Summary

~~During~~In the second quarter of ~~2018, our strong~~2019, ITT delivered top-line growth and increased operating margin despite an increasingly challenging economic environment. Our results reflect ~~broad-based strength~~our continued focus on operational excellence and cost reduction actions, which will help us win share in ~~end-markets~~key global end markets and the progress we have made to improve operational execution across the organization. Sales volume growth, productivity gains and improved project performance drove a 230 basis point increase in segment operating margin and helped offset pressure from rising commodity costs. At Motion Technologies, we had several new automotive platform wins in the global OEM frictioncombat future market ~~in addition to share gains in other key end-markets such as rotorcraft aftermarket and electric vehicle charging.~~uncertainty.

We also continue to deploy our capital in ways that fuel innovation and future growth. During the quarter, we ramped up production at our North American brake pad facility and continue to make investments in the development of the ITT Smart Pad. In addition, we are investing in a LEAN transformation of one of our key manufacturing facilities at our Industrial Process segment.

~~Our second quarter 2018 results include:~~



Summary of Key Performance Indicators for the Second Quarter of 2019
Revenue	Orders	Segment Operating Income	Segment Operating Margin	EPS	Operating Cash Flow
$720	$693	$108	14.9%	$0.75	$101
3% Increase	7% Decrease	1% Increase	30bp Decrease	5% Decrease	15% Decrease
Organic Revenue	Organic Orders	Adjusted Segment Operating Income	Adjusted Segment Operating Margin	Adjusted EPS	Adjusted Free Cash Flow
$735	$706	$116	16.1%	$0.93	$82
5% Increase	5% Decrease	7% Increase	60bp Increase	13% Increase	10% Decrease

Revenue of $696.8 increased $65.9, or 10.4%, driven by the transportation end-markets on continued strength in OEM automotive brake pads, as well as solid growth in the aerospace and defense market. In addition, in the industrial end-market, strength in pumps used in the chemical market were partially offset by a decline in pumps from the oil and gas market due to difficult comparisons to prior year projects. Organic revenue increased 6.9% compared to the prior year.

Orders of $741.7 reflect a year-over-year increase of $115.4, or 18.4%, due to projects in the oil and gas and chemical markets, as well as stronger activity for commercial aerospace components and connectors in the industrial and defense markets. In addition, continued share gains in global OEM automotive brake pads and electric vehicle connectors further contributed to the increase. Organic orders increased 14.7% compared to the prior year.

Operating income of $80.3 increased $21.2, or 35.9%, reflecting a 210 basis point increase to operating margin, due to an increase in segment operating income of $24.6, or 30.1%. The increase in segment operating income was driven by higher sales volume at all segments, productivity improvements, and favorable impacts from foreign exchange impacts, partially offset by higher commodity costs and growth investments. Adjusted segment operating income increased $19.0, or 21.3%. As a result of our operational improvements, coupled with higher sales volume, we were able to deliver a segment operating margin of 15.2%, which is a 230 basis point improvement compared to the previous year.

Income from continuing operations of $0.79 per diluted share, increased $0.25 over the prior year. Adjusted income from continuing operations was $0.82 per diluted share, reflecting a $0.17, or 26.2%, increase compared to the prior year.

Further details related to these results are contained elsewhere in the Discussion of Financial Results section. Refer to the section titled ~~“Key~~“Key Performance Indicators and Non-GAAP ~~Measures”~~Measures” for a definition and reconciliations between GAAP and non-GAAP metrics.

Our second quarter 2019 results include:

Revenue of $719.9 increased $23.1, or 3.3%. Excluding an unfavorable foreign currency impact of $22.7 and revenue of $7.9 from our second quarter acquisition of Rheinhütte, organic revenue increased 5.4% driven by share gains and growth across all three segments. The strength of our diversified portfolio powered our growth as oil and gas grew 29%, industrial grew 5%, and transportation grew 3%.

Orders of $692.8 decreased $48.9, or 6.6%. Excluding unfavorable foreign currency of $23.0, and orders of $10.2 from the Rheinhütte acquisition, organic orders decreased 4.9% driven mainly by a 27% decline in oil and gas due to project delays and a large prior year upstream oil and gas pump project. Industrial orders declined 6% on project and short-cycle demand weakness. Transportation orders were flat as 39% growth in rail was offset by global automotive.

Operating income of $86.0 increased $5.7, or 7.1%, driven by a reduction in corporate costs of $4.3 as well as segment operating income growth of $1.4, or 1.3%. The increase in segment operating income was driven by sales volume leverage, continued productivity and supply chain initiatives, and cost containment actions. These were partially offset by higher commodity costs and tariffs, as well as strategic investments, unfavorable product mix and $7 of foreign currency impacts. Segment operating income was additionally impacted by $6 of acquisition, restructuring, and legal costs.

Income from continuing operations of $0.75 per diluted share decreased $0.04, primarily due to favorable prior year tax items, partially offset by improvements in operating income and a reduction in interest and non-operating expense. Adjusted income from continuing operations was $0.93 per diluted share, reflecting a $0.11, or 13.4% increase from the prior year.

In terms of capital deployment, in July we completed the acquisition of Matrix Composites Inc. (Matrix), a manufacturer of precision composites in the aerospace and defense market, with growth expected from a ramp up in production on several next-generation aircraft engine platforms. This recent acquisition coupled with Rheinhütte in April, illustrate the disciplined, close-to-core, and strategic acquisitions that we will continue to make going forward. Additionally, we are investing in a new plating line at CCT that will improve lead times and reduce input costs, and we continue to make progress in the development of the ITT Smart Pad.

REVENUE

For the Three Months Ended June 30 2018 2017 Change
Organic Revenue Growth^(a)
Industrial Process $ 203.2
$ 192.3
5.7 % 5.3 %
Motion Technologies 330.3
290.1
13.9 % 7.1 %
Connect & Control Technologies 164.1
149.6
9.7 % 8.2 %
Eliminations (0.8 ) (1.1 ) (27.3 )% —
Revenue $ 696.8
$ 630.9
10.4 % 6.9 %

For the Six Months Ended June 30 2018 2017 Change
Organic Revenue Growth^(a)
Industrial Process $ 393.0
$ 378.4
3.9 % 2.6 %
Motion Technologies 672.5
577.4
16.5 % 5.8 %
Connect & Control Technologies 322.0
302.9
6.3 % 4.2 %
Eliminations (1.4 ) (2.0 ) (30.0 )% —
Revenue $ 1,386.1
$ 1,256.7
10.3 % 4.5 %


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

~~Industrial Process~~

~~Revenue~~The following tables illustrate our revenue derived from each of our segments for the three and six months ended June 30, ~~2018 increased $10.9, or 5.7%,~~2019 and ~~$14.6, or 3.9%, respectively, which includes favorable foreign currency impacts~~2018.



For the Three Months Ended June 30	2019			2018			Change		Organic Growth^(a)
Motion Technologies	$	317.7		$	330.3		(3.8	)%	1.3	%
Industrial Process	232.6			203.2			14.5	%	12.6	%
Connect & Control Technologies	170.2			164.1			3.7	%	4.8	%
Eliminations	(0.6		)	(0.8		)
Total Revenue	$	719.9		$	696.8		3.3	%	5.4	%


For the Six Months Ended June 30
Motion Technologies	$	632.9		$	672.5		(5.9	)%	—	%
Industrial Process	448.3			393.0			14.1	%	14.1	%
Connect & Control Technologies	335.2			322.0			4.1	%	5.4	%
Eliminations	(1.0		)	(1.4		)
Total Revenue	$	1,415.4		$	1,386.1		2.1	%	5.2	%

ORDERS

The following tables illustrate our orders derived from each of ~~$0.8 and $4.8. Organic revenue during~~our segments for the three and six months ended June 30, ~~2018 increased $10.1, or 5.3%,~~2019 and ~~$9.8, or 2.6%, respectively. During~~2018.



For the Three Months Ended June 30	2019			2018			Change		Organic Growth (Decline)^(a)
Motion Technologies	$	311.9		$	327.6		(4.8	)%	0.3	%
Industrial Process	212.7			237.4			(10.4	)%	(12.8	)%
Connect & Control Technologies	169.5			177.2			(4.3	)%	(3.3	)%
Eliminations	(1.3		)	(0.5		)
Total Orders	$	692.8		$	741.7		(6.6	)%	(4.9	)%


For the Six Months Ended June 30
Motion Technologies	$	643.4		$	697.5		(7.8	)%	(1.7	)%
Industrial Process	431.7			447.5			(3.5	)%	(3.8	)%
Connect & Control Technologies	358.6			359.0			(0.1	)%	1.2	%
Eliminations	(2.0		)	(1.1		)
Total Orders	$	1,431.7		$	1,502.9		(4.7	)%	(1.7	)%


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

Motion Technologies (MT)

MT revenue for the ~~second quarter of 2018, the increase in organic revenue was driven primarily by a 14% increase in revenue from short-cycle baseline pumps due to stronger demand in the general industrial, chemical,~~three and mining markets, as well as a 16% increase in industrial valves due to strength in the bio-pharmaceutical and chemical markets. In addition, aftermarket parts and service revenue increased 2%. These increases were partially offset by lower project pump revenue in the North American oil and gas market due to difficult comparisons in the prior year. During the six months ended June 30, ~~2018,~~2019 decreased $12.6, or 3.8%, and $39.6, or 5.9%, respectively. Excluding the ~~increase in~~impact of foreign currency translation of $16.8 and $39.3 for the three and six months ended June 30, 2019, respectively, organic revenue increased $4.2 during the second quarter and was ~~primarily~~flat for the year to date period. The performance was driven by ~~a 4% increase in aftermarket parts and service, an 8% increase in industrial valves stemming from~~ strength in global rail as well as Friction OEM share gains which significantly outpaced the ~~general industrial and chemical markets, and a 2% increase in short-cycle baseline pumps. Growth was partially~~global auto market, offset by a 2% decline in ~~project pump revenue resulting from~~our Wolverine business. KONI & Axtone sales grew 16% and 13%, for the three and six month periods, respectively, on strength in rail in Europe. Friction sales increased 1% in both periods due to market share gains in North America, Europe and China which helped offset contraction in the global auto market and lower aftermarket activity. Wolverine sales decreased 16% in both periods due to weakness in ~~prior year orders in the North American oil~~global auto markets and ~~gas market, partially offset by growth from global petrochemical projects.~~customer share loss.

Orders for the three and six months ended June 30, ~~2018 were $237.4 and $447.5, respectively, reflecting an increase of $47.1,~~2019 decreased $15.7, or ~~24.8%~~4.8%, and ~~$35.3,~~$54.1, or ~~8.6%, which includes favorable~~7.8%. Excluding unfavorable foreign currency translation impacts of ~~$0.7~~$16.6 and ~~$5.2. Organic~~$42.1, respectively, organic orders increased $0.9, or 0.3%, during the second quarter of 2019, but decreased $12.0, or 1.7%, during the six months ended June 30, 2019. Excluding a prior year Russian rail order of $14, MT year-to-date organic orders increased $2.0, or 0.3%. In 2019, global rail market share gains were partially offset by weakness in our Wolverine business.

Industrial Process (IP)

IP revenue for the three and six months ended June 30, ~~2018~~2019 increased ~~$46.4,~~$29.4, or ~~24.4%~~14.5%, and ~~$30.1,~~$55.3, or ~~7.3%~~14.1%, respectively, which included incremental revenue of $7.9 from our second quarter acquisition of Rheinhütte, and an unfavorable foreign currency translation impact of $4.2 and $8.0, respectively. Organic revenue for the three and six months ended June 30, 2019 increased $25.7, or 12.6%, and $55.4, or 14.1%, respectively, driven by growth in ~~each of our product categories. Organic orders for~~pump projects and aftermarket parts and service.

During the three and six months ended June 30, 2019, revenue from pump projects increased ~~approximately 70%~~51% and ~~19%~~49%, ~~for the quarter and year-to-date periods,~~ respectively, driven by strength in the chemical and oil and gas markets primarily within North America and Asia. Within our short-cycle business, revenue from aftermarket parts and service increased 11% and 10% for the three and six month periods ended June 30, 2019, respectively, due to higher demand in the Middle East within the oil and gas and chemical markets. ~~Short-cycle~~During the second quarter of 2019, growth in aftermarket was partially offset by an 8% decline in revenue from baseline ~~pump organic~~pumps.

Orders for the three and six months ended June 30, 2019 decreased $24.7, or 10.4%, and $15.8, or 3.5%, which included incremental orders ~~increased approximately 10%~~of $10.2 from our second quarter acquisition of Rheinhütte, and 5%an unfavorable foreign currency translation impact of $4.5 and $9.2, respectively. Organic orders decreased $30.4, or 12.8%, and $16.8, or 3.8%, respectively, for the three and six months ended June 30, 2019 due to ~~higher activity in Asia. Organic orders for valves increased approximately 28%~~pump project declines of 35% and ~~17%~~14%, respectively, driven by project delays and difficult comparisons to the prior year in the oil and gas and petrochemical markets. Orders from our short-cycle business during the second quarter decreased 5% due mainly to ~~strength~~weakness in valves. For the year-to-date period orders from our short-cycle business were flat as softness in valve orders was offset by aftermarket parts and service in North America and ~~Asia. Aftermarket parts and service also contributed to~~ the ~~growth in orders during the second quarter increasing 9% compared to the prior year, but declined 1% during the six month period.~~Middle East.

The level of order and shipment activity related to project pumps can vary significantly from period to period, which may impact year-over-year comparisons. ~~Backlog~~IP’s backlog as of June 30, ~~2018~~2019 was ~~$427.8, reflecting an increase~~$425.3, a decrease of ~~$91.3,~~$18.9, or ~~27.1%~~4.3%, ~~from the~~compared to December 31, ~~2017 level.~~2018.

~~Motion~~Connect & Control Technologies (CCT)

Revenue for the three months ended June 30, 2018 increased $40.2, or 13.9%, which includes favorable foreign currency translation impacts of $19.5. Revenue for the six months ended June 30, 2018 increased $95.1, or 16.5%, which includes incrementalCCT revenue of $5.5 from our January 2017 acquisition of Axtone and favorable foreign currency translation impacts of $56.2. During the three and six months ended June 30, 2018, organic revenue increased $20.7, or 7.1%, and $33.4, or 5.8%, respectively, reflecting growth in automotive Friction of approximately

8% and 6%, respectively, due to share gains in OEM brake pads in China and North America. Organic revenue from our Wolverine business grew approximately 3% and 2%, respectively, due to stronger sales from brake shims. Organic revenue from our KONI-Axtone business increased approximately 5% and 4%, respectively, during the three and six months ended June 30, 2018 driven by the high-speed rail market in China and rail in Europe. Growth was partially offset by a decline in aftermarket brake pads of approximately 4% and 3% for the three and six months ended June 30, ~~2018,~~2019 increased $6.1, or 3.7%, and $13.2, or 4.1%, respectively, which included an unfavorable foreign currency translation impact of $1.7 and $4.1, respectively. Organic revenue for the three and six months ended June 30, 2019 increased $7.8, or 4.8%, and $17.3, or 5.4%, respectively, driven by increases of 21% and 15%, respectively, in commercial aerospace from strength in components and connectors. This was partially offset by a decline in revenue from defense components due to ~~phasing and destocking~~prior year programs. In addition, revenue grew 1% in ~~Europe.~~both periods in the industrial market.

Orders for the three months ended June 30, ~~2018 were $327.6, reflecting~~2019, decreased $7.7, or 4.3%, which included an ~~increase of $38.7, or 13.4%, including favorable~~unfavorable foreign currency translation ~~impacts~~impact of ~~$20.7.~~ $1.9. Organic orders decreased $5.8, or 3.3%, due to a 6% decline in orders from the industrial market on weak components and electric vehicle connectors, as well as an 18% decline in the oil and gas market due to a difficult prior year comparison reflecting lower 2019 oil prices. Aerospace and defense orders decreased 1% during the second quarter of 2019 due to timing of rotorcraft and commercial aerospace components, offset by higher environmental control systems and aftermarket.

Orders for the six months ended June 30, ~~2018~~2019 were ~~$697.5, reflecting~~relatively flat compared to the prior year, which included an ~~increase of $121.3, or 21.1%, including incremental orders of $17.7 from our January 2017 acquisition of Axtone and favorable~~unfavorable foreign currency translation ~~impacts~~impact of ~~$57.8. During the three and six months ended June 30, 2018, organic~~$4.7. Organic orders ~~grew $18.0,~~increased $4.3, or ~~6.2%~~1.2%, ~~and $45.8, or 7.9%, respectively, reflecting continued strength in automotive OEM Friction brake pads. Orders to our Wolverine business increased approximately 3% in both periods~~ due to strong order activity for aftermarket brake shims in Asia. In addition, KONI-Axtone orders in the second quarter of 2018 decreased approximately 3%, and increased approximately 13% during the first six months of 2018 due to timing for orders in the Eastern European rail market and the defense market in U.S. and Europe.

~~Connect & Control Technologies~~

Revenue for the three and six months ended June 30, 2018 increased $14.5, or 9.7%, and $19.1, or 6.3%, respectively, including favorable foreign currency translation impacts of $2.3 and $6.3. During the three and six months ended June 30, 2018, organic revenue increased $12.2, or 8.2%, and $12.8, or 4.2%, respectively. Thea 5% increase ~~in organic revenue in both periods was driven by sales growth~~ in the aerospace and defense market ~~of approximately 13% and 7%, respectively, stemming from commercial aerospace components,~~driven by several project wins in North America for defense connectors and ~~rotorcraft. In addition, continued strength~~components. This growth was partially offset by order declines in industrial and oil and gas ~~connectors in the Middle East~~markets of 4% and U.S. drove revenue growth of 25% and 13% during the three and six months ended June 30, 2018, respectively. Revenue from the general industrial markets declined approximately 1% during the second quarter and was flat during the six month period as revenue growth from industrial connectors was offset by weaker process control components for the power and nuclear markets. Revenue in both prior year periods included unfavorable impacts from restrictions on the sales of certain military-specification connectors.

Orders for the three and six months ended June 30, 2018 were $177.2 and $359.0, respectively, reflecting an increase of $29.4, or 19.9%, and $48.8, or 15.7% versus the prior year, including favorable foreign currency translation impacts of $2.1 and $6.3. During the three and six months ended June 30, 2018, organic orders increased $27.3, or 18.5%, and $42.5, or 13.7%9%, respectively. The increase in both periods was driven by strong order activity in the aerospace and defense market which increased approximately 22% and 17%, respectively, compared to the prior year led by commercial aerospace components, platform wins in rotorcraft, and connectors used in defense applications. In addition, orders for oil and gas connectors increased 73% and 44%, respectively, due to strength in the Middle East and U.S. In the general industrial market, order activity increased 7% and 5%, respectively, due to continued momentum in the electric vehicle market and industrial connectors.

On July 11, 2017, the U.S. Defense Logistics Agency, Land and Maritime (DLA) issued a notice that it had removed certain of our ~~connectors business~~military-specification connector products from the Qualified Products List (QPL) with respect to six military-specification connector products. At the time of this notice, these products had been subject to a previously-disclosed stop shipment/stop production order issued by DLA in the first quarter of 2017.. Annual sales of these military-specification connectors ~~are~~were estimated to range from $8 to ~~$10.~~$10 prior to the removal of these products from the QPL. The Company is making progress ~~and seeking to restore its~~as the status of certain of these products has been restored on the QPL ~~as expeditiously as possible, but is unable to estimate how long this process will take. At this time, there is uncertainty whether there~~and we expect that the majority of these products will be ~~any further negative impacts~~restored by the end of 2019.

GROSS PROFIT

Gross profit for the three months ended June 30, 2019 and 2018 was $232.0 and $226.0, reflecting a gross margin of 32.2% and 32.4%, respectively. Gross profit for the six months ended June 30, 2019 and 2018 was $450.8 and $450.2, reflecting a gross margin of 31.8% and 32.5%, respectively. The declines in gross margin were primarily due to ~~our revenue~~higher commodity costs and ~~results of operations related to the QPL removal.~~tariffs, unfavorable foreign currency and product mix. These were partially offset by sales volume leverage and price, as well as manufacturing and supply chain productivity improvements across all segments.

OTHER

Tariffs

~~Recently,~~In 2018, the U.S. government announced tariffs on ~~manufactured~~certain imported goods, ~~imported from~~and began renegotiating existing trade terms with China, ~~related to Section 301 of~~Europe and other countries. These tariffs have negatively impacted the ~~Trade Act of 1974 which may negatively impact certain products we sell in the U.S., including increasing the cost~~price of certain parts and materials we ~~purchase from China~~utilize to ~~include in our~~manufacture finished ~~products. In addition, other countries have recently imposed tariffs or announced potential tariffs, which may impact our results and certain customers, markets or suppliers.~~products we sell. Since announced, we have been managing the ~~known~~ impacts ~~from~~of these tariffs and will attempt to mitigate the ~~potential tariff impacts and the impacts~~impact of higher input costs ~~in 2018~~ through pricing and supply chain actions, efficient utilization of our global manufacturing footprint, and supplier negotiations

and diversification strategies. Tariffs and related impacts remain highly uncertain due to the current dynamic ~~landscape.~~landscape and ongoing negotiations. Therefore, we are unable to estimate the ultimate outcome tariffs will have on our results of operations, financial position and cash flows.

~~Russia Sanctions~~

The Department of Treasury recently implemented U.S. sanctions targeting certain Russian individuals and businesses. The impact of these sanctions on ITT’s backlog has been minimal to date; however, we are unable to predict what impact these sanctions will have on any future business. The Company estimates its annual revenue which could be potentially impacted by these sanctions is up to $15.

~~GROSS PROFIT~~OPERATING EXPENSES

~~Gross profit~~



	Three Months						Six Months
For the Periods Ended June 30	2019		2018		Change		2019		2018			Change
General and administrative expenses	$	65.7	$	63.0	4.3	%	$	117.6	$	128.1		(8.2	)%
Sales and marketing expenses	42.7		43.4		(1.6	)%	82.9		86.9			(4.6	)%
Research and development expenses	25.8		25.8		—	%	49.3		50.5			(2.4	)%
Asbestos-related costs (benefit), net	11.8		13.5		(12.6	)%	24.4		(6.2		)	493.5	%
Total operating expenses	$	146.0	$	145.7	0.2	%	$	274.2	$	259.3		5.7	%
Total Operating Expenses By Segment:
Motion Technologies	$	44.2	$	45.7	(3.3	)%	$	80.0	$	91.3		(12.4	)%
Industrial Process	46.7		40.4		15.6	%	86.4		83.2			3.8	%
Connect & Control Technologies	33.5		33.6		(0.3	)%	66.3		67.6			(1.9	)%
Corporate & Other	21.6		26.0		(16.9	)%	41.5		17.2			141.3	%

General and administrative expenses for the three months ended June 30, ~~2018~~2019 increased $2.7. The increase during the period was from higher restructuring costs of $2 as well as an increase in acquisition-related costs of $2.8 primarily from the acquisition of Rheinhütte which was partially offset by benefits from cost reduction actions. General and ~~2017 was $226.0 and $205.0, reflecting a gross margin of 32.4% and 32.5%, respectively. Gross profit~~administrative expenses for the six months ended June 30, ~~2018~~2019 decreased $10.5. In addition to the items mentioned above, the six month period includes additional European investment incentives of $5 and ~~2017 was $450.2~~a reduction in legal and ~~$408.1, respectively, reflecting a gross margin of 32.5% during both periods. Productivity gains across all segments in 2018 were offset by unfavorable automotive pricing pressure~~environmental costs.

Sales and ~~aftermarket sales mix as well as increased direct material costs due to higher commodity prices impacting our Motion Technologies and Connect & Control Technologies segments.~~

~~OPERATING EXPENSES~~

Three Months Six Months
For the Periods Ended June 30 2018 2017 Change 2018 2017 Change
General and administrative expenses $ 63.0
$ 64.6
(2.5 )% $ 128.1
$ 130.3
(1.7 )%
Sales and marketing expenses 43.4
43.8
(0.9 )% 86.9
86.9
— %
Research and development expenses 25.8
22.6
14.2 % 50.5
45.0
12.2 %
Asbestos-related costs (benefit), net 13.5
14.9
(9.4 )% (6.2 ) 29.8
(120.8 )%
Total operating expenses $ 145.7
$ 145.9
(0.1 )% $ 259.3
$ 292.0
(11.2 )%
Total Operating Expenses By Segment:
Industrial Process $ 40.4
$ 41.4
(2.4 )% $ 83.2
$ 86.9
(4.3 )%
Motion Technologies 45.7
41.0
11.5 % 91.3
81.7
11.8 %
Connect & Control Technologies 33.6
40.9
(17.8 )% 67.6
78.0
(13.3 )%
Corporate & Other 26.0
22.6
15.0 % 17.2
45.4
(62.1 )%

~~General and administrative (G&A)~~marketing expenses for the three and six months ended June 30, ~~2018~~2019 decreased ~~$1.6, or 2.5%,~~$0.7 and ~~$2.2, or 1.7%, respectively. The decrease~~$4.0, respectively, due to a reduction in ~~G&A expenses in both periods was primarily driven by a legal accrual~~marketing costs of ~~$5 in the prior year, as well as~~$2.3 and $4.7 and favorable foreign currency ~~impacts~~impact of ~~$4.1 and 3.4, and lower restructuring costs of $0.5~~$0.9 and $2.2, respectively. These ~~benefits~~items were partially offset by ~~a $3.8 environmental-related gain in the second quarter of 2017~~higher commission costs.

Research and ~~higher 2018 employee incentive compensation costs.~~

~~Sales and marketing~~development expenses for the three months ended June 30, ~~2018~~2019 were flat ~~compared to prior year. Higher overall selling~~ and ~~marketing~~decreased $1.2, during the six months ended June 30, 2019.

Asbestos-related costs ~~of $1.1~~decreased $1.7, and ~~$2.8~~increased $30.6, during the three and six months ended June 30, 2018 at Motion Technologies associated with higher sales were offset by lower personnel costs at Industrial Process and lower commissions at Connect & Control Technologies. In addition, incremental costs of $0.3 related to our acquisition of Axtone are included in2019, respectively. The change for the six months ended June 30, ~~2018.~~

Research and development expenses for the three and six months ended June 30, 2018 increased $3.2, or 14.2%, and $5.5, or 12.2%, primarily due to increased product development activities at our Motion Technologies operating segment.

Asbestos-related costs, net decreased $1.4, or 9.4%, to $13.5 during the three months ended June 30, 2018. During the six months ended June 30, 2018, we recorded an asbestos-related benefit of $6.2 compared to asbestos-related costs of $29.8 during the same period in 2017. The change during the six months ended June 30, 20182019 was primarily due to a $32.1 benefit from an insurance settlement recorded in the first quarter of 2018. See Note ~~18,~~19, Commitments and Contingencies, to the Consolidated Condensed Financial Statements for further information.

OPERATING INCOME


	Three Months								Six Months								Three Months								Six Months
For the Periods Ended June 30	2018			2017			Change		2018			2017			Change		2019			2018			Change		2019			2018			Change
Motion Technologies																	$	52.0		$	55.5		(6.3	)%	$	112.9		$	117.4		(3.8	)%
Industrial Process	$	23.4		$	15.3		52.9	%	$	40.3		$	23.4		72.2	%	26.0			23.4			11.1	%	48.2			40.3			19.6	%
Motion Technologies	55.5			52.1			6.5	%	117.4			107.1			9.6	%
Connect & Control Technologies	27.3			14.2			92.3	%	50.3			30.9			62.8	%	29.6			27.3			8.4	%	57.0			50.3			13.3	%
Segment operating income	106.2			81.6			30.1	%	208.0			161.4			28.9	%	107.6			106.2			1.3	%	218.1			208.0			4.9	%
Asbestos-related (costs) benefit, net	(13.5		)	(14.9		)	9.4	%	6.2			(29.8		)	120.8	%	(11.8		)	(13.5		)	12.6	%	(24.4		)	6.2			(493.5	)%
Other corporate costs	(12.4		)	(7.6		)	(63.2	)%	(23.3		)	(15.5		)	(50.3	)%	(9.8		)	(12.4		)	21.0	%	(17.1		)	(23.3		)	26.6	%
Total corporate and asbestos-related (costs) benefit	(25.9		)	(22.5		)	(15.1	)%	(17.1		)	(45.3		)	62.3	%
Total corporate and asbestos-related costs																	(21.6		)	(25.9		)	16.6	%	(41.5		)	(17.1		)	(142.7	)%
Total operating income	$	80.3		$	59.1		35.9	%	$	190.9		$	116.1		64.4	%	$	86.0		$	80.3		7.1	%	$	176.6		$	190.9		(7.5	)%
Operating margin:
Motion Technologies																	16.4		%	16.8		%	(40	)bp	17.8		%	17.5		%	30	bp
Industrial Process	11.5		%	8.0		%	350	bp	10.3		%	6.2		%	410	bp	11.2		%	11.5		%	(30	)bp	10.8		%	10.3		%	50	bp
Motion Technologies	16.8		%	18.0		%	(120	)bp	17.5		%	18.5		%	(100	)bp
Connect & Control Technologies	16.6		%	9.5		%	710	bp	15.6		%	10.2		%	540	bp	17.4		%	16.6		%	80	bp	17.0		%	15.6		%	140	bp
Segment operating margin	15.2		%	12.9		%	230	bp	15.0		%	12.8		%	220	bp	14.9		%	15.2		%	(30	)bp	15.4		%	15.0		%	40	bp
Consolidated operating margin	11.5		%	9.4		%	210	bp	13.8		%	9.2		%	460	bp	11.9		%	11.5		%	40	bp	12.5		%	13.8		%	(130	)bp

~~Industrial Process~~MT operating income ~~increased $8.1,~~for the three months ended June 30, 2019 decreased $3.5, or ~~52.9%~~6.3%, and ~~$16.9, or 72.2%, during~~had a margin decline of 40 basis points. Operating income for the ~~three and~~ six months ended June 30, ~~2018, respectively. Operating~~2019 decreased $4.5, or 3.8%, and had a margin ~~increased 350~~improvement of 30 basis ~~points to 11.5% and 410 basis points to 10.3%~~points. The decrease in operating income for ~~the three and six months ended June 30, 2018, respectively. The increase during~~ both periods was primarily driven by ~~benefits of approximately $5~~higher commodity costs and ~~$7, respectively, from favorable volume, sales mix and pricing,~~tariffs as well as improved project execution. In addition, net savings of $3 and $6, respectively, from past restructuring, productivity and sourcing initiatives, and lower restructuring costs of $0.5 and $1.7, respectively, wereunfavorable foreign currency impact. This was partially offset by ~~higher incentive compensation costs~~improvements in operating and ~~higher strategic investment costs in lean initiatives. During~~supply chain productivity which provided a benefit of $9 and $19, respectively, for the quarter and year-to-date periods. In addition, the six months ended June 30, ~~2018, favorable foreign currency impacts were approximately $1.~~2019 benefited from European investment incentives of $5.

~~Motion Technologies~~IP operating income ~~increased $3.4, or 6.5% and $10.3, or 9.6%~~ for the three months ended June 30, 2019 increased $2.6, or 11.1%, and had a margin decline of 30 basis points. Operating income for the six months ended June 30, ~~2018, respectively. Operating~~2019 increased $7.9, or 19.6%, and had a margin ~~for the three and six months ended June 30, 2018 decreased 120~~improvement of 50 basis ~~points to 16.8% and 100 basis points to 17.5%, respectively.~~points. The increase in operating income in both periods ~~reflects~~was primarily driven by a benefit of $12 and $23, respectively, from favorable volume, benefits ~~from higher sales volumes of approximately $7 and $12, respectively, favorable foreign currency impacts of approximately $9 and $18, respectively, and savings~~ from productivity and ~~sourcing initiatives. Partially offsetting the increase were~~supply chain actions, and pricing. This was partially offset by tariffs, higher ~~commodity~~acquisition costs ~~price pressures,~~and unfavorable ~~aftermarket~~ sales ~~mix, and incremental investments to support new product developments and recent long-term global automotive platform wins.~~mix.

~~Connect & Control Technologies~~CCT operating income ~~increased $13.1, or 92.3%, and $19.4, or 62.8%~~ for the three months ended June 30, 2019 increased $2.3, or 8.4%, and had a margin improvement of 80 basis points. CCT operating income for the six months ended June 30, ~~2018, respectively. Operating~~2019 increased $6.7, or 13.3%, and had a margin ~~increased 710~~improvement of 140 basis ~~points to 16.6% and 540 basis points to 15.6% for the three and six months ended June 30, 2018, respectively.~~points. The increase was driven by sales volume leverage which provided a benefit of $2 and $7, respectively, and improvements in operating ~~income for both periods reflects net operating productivity benefits of approximately $4~~ and ~~$8, respectively, benefits from higher sales volume of approximately $2 for both periods,~~supply chain productivity. This was partially offset by ~~material cost headwinds~~unfavorable commodity costs, strategic investments and ~~higher incentive compensation costs. In addition, prior year results include unfavorable impacts from certain military-specification connectors of approximately $4 and a legal reserve of $5.~~mix.

Other corporate costs for the three and six months ended June 30, ~~2018 increased $4.8~~2019 decreased $2.6, or 21.0%, and ~~$7.8,~~$6.2, or 26.6%, respectively, compared to the prior year. The decrease was primarily driven by ~~a $3.8 environmental-related gain in 2017~~cost reduction actions, as well as ~~higher incentive compensation~~lower legal and environmental costs. ~~These items were partially offset by favorable foreign currency impacts in both periods. In addition, during the six months ended June 30, 2018, restructuring costs decreased $0.6.~~

INTEREST AND NON-OPERATING INCOME AND EXPENSES, NET

~~During~~



	Three Months							Six Months
For the Periods Ended June 30	2019			2018		Change		2019			2018		Change
Interest and non-operating (income) expenses, net	$	(0.4	)	$	1.5	(126.7	)%	$	(0.9	)	$	3.3	(127.3	)%

The change during the three ~~months ended June 30, 2018~~ and ~~2017, we recognized net interest and non-operating expenses of $1.5 and $0.5, respectively. During the~~ six months ended June 30, ~~2018 and 2017, we recognized net~~2019 was due to favorable interest ~~and non-operating expenses of $3.3 and $2.7, respectively. The increase in both periods was driven by~~rates on commercial paper borrowings, additional interest income in the prior year associated with uncertain tax positions. During the six month period, the increase was partially offset by higher earnings in the current year from our ownership of companies accounted for under the equity method.earned on time deposits, and lower pension-related expense.

INCOME TAX EXPENSE

~~For the three months ended June 30, 2018 and 2017, the Company recognized income tax expense of $8.9 and $10.6 and had an~~



	Three Months								Six Months
For the Periods Ended June 30	2019			2018			Change		2019			2018			Change
Income tax expense	$	19.3		$	8.9		116.9	%	$	39.0		$	16.5		136.4	%
Effective tax rate	22.3		%	11.3		%	1,100	bp	22.0		%	8.8		%	1,320	bp

The Company operates in various tax ~~reform.~~

~~Our effective~~jurisdictions and is subject to examination by tax ~~rate~~authorities in ~~2018 includes~~these jurisdictions. The Company is currently under examination in several jurisdictions including the ~~impact of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) that was approved by Congress on December 20, 2017 and signed into law by~~Czech Republic, Germany, Hong Kong, India, Italy, Japan, Mexico, the U.S. ~~President on December 22, 2017.~~and Venezuela. The ~~Tax Act significantly changes the U.S. corporate income~~estimated tax ~~rules most of which are effective January 1, 2018. On December 22, 2017 the SEC issued guidance under Staff Accounting Bulletin No. 118 (“SAB 118”) to address~~liability calculation for unrecognized tax benefits considers uncertainties in the application of ~~U.S. GAAP~~complex tax laws and regulations in ~~situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail~~various tax jurisdictions. Due to complete the accounting for certain income tax effects of the Tax Act and therefore records provisional amounts under the Tax Act. The ultimate impact of the Tax Act may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions a company has made, additional regulatory guidance that may be issued, and actions a company may take as a result of the Tax Act.

The Tax Act adopts a new rule “Global Intangible Low Taxed Income” (GILTI) that requires certain income of controlled foreign corporations to be subject to U.S. taxation. We are allowed under ASC 740 to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred or (2) factoring such amounts into the Company’s measurement of its deferred taxes. Because of the complexity of some of these ~~rules,~~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 ~~anticipated guidance from U.S. Treasury, we will continue~~domestic jurisdictions could change by approximately $14 due to ~~evaluate~~changes in audit status, expiration of statutes of limitations and other events. In addition, the ~~impact on~~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 ~~financial statements. Therefore, we have not recorded any deferred taxes related to GILTI and have not made a policy decision regarding whether to record deferred taxes on GILTI.~~2011 spin-off of those businesses.

LIQUIDITY

Funding and Liquidity Strategy

We monitor our funding needs and design and execute strategies to meet overall liquidity requirements, including the management of our capital structure, on both a short- and long-term basis. We expect to fund our ongoing working capital, capital expenditures, dividends and financing requirements through cash flows from operations and cash on hand, or by accessing the U.S. or European commercial paper ~~market~~markets or our Revolving Credit Agreement. If our access to the commercial paper market were adversely affected, we believe that alternative sources of liquidity, including our Revolving Credit Agreement, described below, would be sufficient to meet our short-term funding requirements.

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 meet our global liquidity needs in a cost-efficient manner. ~~A majority of our cash and cash equivalents is held by our international subsidiaries.~~ We plan to transfer cash between certain international subsidiaries and the U.S. and

other international subsidiaries when it is cost effective to do so. The passage of the ~~U.S.~~ Tax Act ~~will allow us~~provides greater flexibility around our global cash management strategy related to the amount and timing of transfers, and we will continue to support growth and ~~expand~~expansion in markets outside of the U.S. through the development of products, increased capital spending, and ~~potentially~~potential foreign acquisitions. During the ~~acquisition of foreign businesses. In connection with the Tax Act,~~year ended December 31, 2018 we have estimated and updated a one-time U.S. provisional tax expense of $53.5 on existing post-1986 foreign earnings and potential future distributions of such earnings to the U.S., however we expect that existing foreign tax credits, research and development tax credits, andhad net ~~operating losses will offset most of this tax liability. Accordingly, we expect the net cash outflow resulting from this tax liability will be approximately $15. Net~~ cash distributions from foreign countries ~~amounted~~ to ~~$304.1 for~~the U.S. of $318.1. We did not have any distributions from foreign countries to the U.S. during the six months ended June 30, ~~2018 and $111.8 for the year ended December 31, 2017.~~2019. The timing and amount of any additional future distributions remains under evaluation.

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 no assurance as to what level of dividends, if any, will be paid in the future. InThrough the second quarter of ~~2018,~~2019, we declared ~~a dividend~~dividends of ~~$0.134~~$0.147 per share for shareholders of record on March 11, 2019 and June ~~11, 2018,~~10, 2019, which ~~was~~were paid on ~~July 2, 2018.~~March 29, 2019 and June 28, 2019. The ~~dividend~~dividends declared in the first and second quarter of ~~2018 is~~2019 were a ~~4.7%~~9.7% increase from the first and second quarter of ~~2017.~~2018.

During the six months ended June 30, ~~2018~~2019 and ~~2017~~2018, we repurchased and retired ~~1.0~~0.2 and ~~0.8~~1.0 shares of common stock for ~~$50~~$10.5 and ~~$30,~~$50.0, respectively, under our $1 billion share repurchase program. To date, under the program, the Company has repurchased ~~22.1~~22.4 shares for ~~$909.4.~~$919.9.

Significant factors that affect our overall management of liquidity include our credit ratings, the ~~adequacy~~availability of commercial paper, ~~and supporting~~access to bank lines of credit, 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.

Commercial Paper

We have access to the commercial paper market through programs in place in the U.S. and ~~beginning in the second quarter of 2018,~~ Europe to supplement ~~the~~ cash flows generated internally and to provide additional short-term funding for strategic investments and other funding requirements. We manage our short-term liquidity through the use of our commercial paper program by adjusting the level of commercial paper borrowings as opportunities to deploy additional capital arise and it is cost effective to do so. As of June 30, ~~2018,~~2019, we had no outstanding commercial ~~paper.~~paper of $148.0 through our European program, a portion of which was used to acquire Rheinhütte. The average outstanding commercial paper balance during the six months ended June 30, ~~2018~~2019 was ~~$78.5.~~$129.2. There have been no other material changes that have impacted our funding and liquidity capabilities since December 31, ~~2017.~~2018.

Revolving Credit ~~Facilities~~Agreement

Our $500 revolving ~~$500~~ credit agreement (the Revolving Credit Agreement) provides for increases of up to $200 for a possible maximum total of $700 in aggregate principal amount, at the request of the Company and with the consent of the institutions providing such increased commitments. The Revolving Credit Agreement is intended to provide access to additional liquidity and be a source of alternate funding to the commercial paper program, if needed. Our policy is to maintain unused committed bank lines of credit in an amount greater than outstanding commercial paper balances. The provisions of the Revolving Credit Agreement require that we maintain an interest coverage ratio, as defined therein, of at least 3.0 and a leverage ratio, as defined therein, of not more than 3.0. ~~Outstanding borrowings of $209.6 under our Revolving Credit Agreement as of June 30, 2018 were denominated in Euros, and our~~Our interest coverage ratio and leverage ratio were within the prescribed ~~thresholds.~~thresholds as of June 30, 2019, and there were no outstanding borrowings under our Revolving Credit Agreement. In the event of ~~certain~~a ratings ~~downgrades~~downgrade of the Company to a level below investment grade, the direct and indirect significant U.S. subsidiaries of the Company would be required to guarantee the obligations under the Revolving Credit Agreement. The Revolving Credit Agreement matures in November 2021. ~~In the second quarter of 2018, we revised our existing Revolving Credit Agreement to allow additional access to commercial paper markets in Europe.~~

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 operating, investing, and financing activities from continuing operations, as well as net cash from discontinued operations, for the six months ended June 30, ~~2018~~2019 and ~~2017.~~2018.


For the Six Months Ended June 30	2018			2017			2019			2018
Operating activities	$	119.3		$	92.6		$	101.1		$	119.3
Investing activities	(45.4		)	(164.5		)	(132.3		)	(45.4		)
Financing activities	(4.1		)	(47.9		)	0.4			(4.1		)
Foreign exchange	(8.6		)	15.3			0.6			(8.6		)
Total net cash flow provided by (used in) continuing operations	61.2			(104.5		)
Net cash used in discontinued operations	(1.4		)	(0.9		)
Total net cash flow (used in) provided by continuing operations							(30.2		)	61.2
Net cash provided by (used) in discontinued operations							1.2			(1.4		)
Net change in cash and cash equivalents	$	59.8		$	(105.4	)	$	(29.0	)	$	59.8

~~Net cash provided by operating activities was $119.3 for the six months ended June 30, 2018 compared to $92.6 for the six months ended June 30, 2017.~~ Operating Activities

The ~~change~~decrease in net cash provided by operating activities ~~primarily reflects~~was due to $19.0 in proceeds received in 2018 from an ~~increase in segment~~environmental insurance-related settlement. Excluding the settlement proceeds, net cash from operating activities was flat. Segment operating income of approximately $51, after adjustments for non-cash charges, such as depreciation and amortization. In addition, net proceeds of $16.9 from an insurance-related settlement during the six months ended June 30, 2018 were partially offset by higher incentive compensation and environmental payments in 2018, as well as unfavorable changes in working capital.

Net cash used by investing activities was $45.4 for the six months ended June 30, 2018, compared to $164.5 of cash used by investing activities during the same prior year period. The year-over-year decrease reflects the 2017 purchase of Axtone for $113.7 (net of cash acquired),improvements as well as lower ~~capital expenditures which decreased $7.0 primarily due to capacity expansion projects~~asbestos and environmental payments were offset by higher income tax payments of $10.5 and timing of trade receivable collections. In addition, the Company’s settlement of $11 for a civil matter with the DOJ in the ~~prior year.~~second quarter of 2019 was partially offset by proceeds of $9 received during the first quarter of 2019 from an intellectual property settlement.

~~Net~~Investing Activities

The increase in net cash used in investing activities was driven by our acquisition of Rheinhütte for $87.3 in the second quarter of 2019.

Financing Activities

The change in net cash from financing activities was ~~$4.1 for the six months ended June 30, 2018 compared to $47.9 for the six months ended June 30, 2017. The change was primarily~~ driven by ~~an increase in net borrowings of $68.8, partially offset by an increase of $20~~a decline in repurchases of ITT common stock ~~as part~~ of ~~our Share Repurchase Plan. In addition, proceeds from employee stock option exercises declined~~$35.4, partially offset by ~~$1.8.~~a decrease in net borrowings of $19.9 and an increase in dividends paid of $14.1.

~~Net cash used by discontinued operations was $1.4 for the six months ended June 30, 2018 compared to~~Discontinued Operations

The change in net cash used byin discontinued ~~operation for the six months ended June 30, 2017 of $0.9. The increase~~operations was primarily driven by ~~higher~~a tax-related reimbursement of $1.8 from a former subsidiary and lower payments for environmental remediation activities.

Asbestos

Based on the estimated undiscounted asbestos liability as of June 30, ~~2018~~2019 for claims filed or estimated to be filed over the next 10 years, we have estimated that we will be able to recover approximately ~~45%~~42% of the asbestos indemnity and defense costs from our insurers. Actual insurance reimbursements may vary significantly from period to period and the anticipated recovery rate is expected to decline over time due to gaps in our insurance coverage, reflecting uninsured periods, the insolvency of certain insurers, prior settlements with our insurers and our expectation that certain insurance policies will exhaust within the next 10 years. In the 10th year of our estimate, our insurance recoveries are currently projected to be approximately ~~18%~~21%. Additionally, future recovery rates may be impacted by other factors, such as future insurance settlements, insolvencies and judicial determinations relevant to our coverage program, which are difficult to predict and subject to a high degree of uncertainty.

While there are overall limits on the aggregate amount of insurance available to the Company with respect to asbestos claims, with respect to certain coverage, those overall limits were not reached by the estimated liability recorded by the Company at June 30, ~~2018.~~2019.

Further, there is uncertainty in estimating when cash payments related to the recorded asbestos liability will be fully expended and such cash payments will continue for a number of years beyond the next 10 years due to the significant proportion of future claims included in the estimated asbestos liability and the delay between the date a claim is filed and when it is resolved. Subject to these inherent uncertainties, it is expected that cash payments related to pending claims and claims to be filed in the next 10 years will extend through approximately ~~2031.~~2032.

Although asbestos cash outflows can vary significantly from year to year, our current net cash outflows for defense and indemnity, net of tax benefits, are projected to average $20 to $30 over the next five years and increase to an average of approximately $35 to $45 per year over the remainder of the projection ~~period.~~period as certain insurance coverage is exhausted. Net cash outflows for defense and indemnity, net of tax, averaged ~~$16~~$21 over the past three annual periods. Total net asbestos cash outflows also include certain administrative costs, such as ~~legal related~~legal-related costs for insurance ~~asset recoveries.~~recovery strategies not included in the defense and indemnity projections.

In light of the variables and uncertainties inherent in the long-term projection of the Company’s asbestos exposures and potential recoveries, ~~although~~while it is probable that the Company will incur additional costs for asbestos claims filed beyond the next 10 years, we do not believe that there is a reasonable basis for estimating the number of future claims, the nature of future claims, or the cost to resolve future claims for years beyond the next 10 years at this time. Accordingly, no liability or related asset has been recorded for any costs that may be incurred for claims asserted subsequent to ~~2028.~~2029.

Due to these uncertainties, as well as our inability to reasonably estimate any additional asbestos liability for claims that may be filed beyond the next 10 years, it is difficult to predict the ultimate outcome of the cost of resolving the pending and estimated unasserted asbestos claims. We believe it is possible that the future events affecting the key factors and other variables within the next 10 years, as well as the cost of asbestos claims filed beyond the next 10 years, net of expected recoveries, could have a material adverse effect on our financial statements.

KEY PERFORMANCE INDICATORS AND NON-GAAP MEASURES

Management reviews a variety of key performance indicators including revenue, segment operating income and margins, earnings per share, order growth, and backlog, some of which are non-GAAP financial measures. In addition, we consider certain other 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. These other metrics, however, are not measures of financial performance under accounting principles generally accepted in the United States of America (GAAP) and should not be considered a substitute for measures determined in accordance with GAAP.

We consider the following non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators:

~~”organic~~

“Organic revenue” and “organic orders” are defined as revenue and orders, excluding the impacts of foreign currency fluctuations, acquisitions, and divestitures. Divestitures include sales of portions of our business that did not meet the criteria for presentation as a discontinued operation. The period-over-period change resulting from foreign currency fluctuations is estimated using a fixed exchange rate for both the current and prior periods. Management believes that reporting organic revenue and organic orders provides useful information to investors by helping identify underlying trends in our business and facilitating easier comparisons of our revenue performance with prior and future periods and to our peers. Reconciliations of organic revenue and organic orders provides useful information to investors by helping identify underlying trends in our business and facilitating easier comparisons of our revenue performance with prior and future periods and to our peers. Reconciliations of organic revenue for the three and six months ended June 30, 2018 are provided below.

Three Months Ended June 30
Industrial
Process
Motion
Technologies
Connect & Control
Technologies
Eliminations
Total
ITT
2018 Revenue $ 203.2
$ 330.3
$ 164.1
$ (0.8 ) $ 696.8
Foreign currency translation (0.8 ) (19.5 ) (2.3 ) 0.1
(22.5 )
2018 Organic revenue $ 202.4
$ 310.8
$ 161.8
$ (0.7 ) $ 674.3
2017 Revenue $ 192.3
$ 290.1
$ 149.6
$ (1.1 ) $ 630.9
Organic growth 10.1
20.7
12.2
0.4
43.4
Percentage change 5.3 % 7.1 % 8.2 % 6.9 %

Six Months Ended June 30
2018 Revenue $ 393.0
$ 672.5
$ 322.0
$ (1.4 ) $ 1,386.1
(Acquisitions)/divestitures, net —
(5.5 ) —
—
(5.5 )
Foreign currency translation (4.8 ) (56.2 ) (6.3 ) 0.1
(67.2 )
2018 Organic revenue $ 388.2
$ 610.8
$ 315.7
$ (1.3 ) $ 1,313.4
2017 Revenue $ 378.4
$ 577.4
$ 302.9
$ (2.0 ) $ 1,256.7
Organic growth 9.8
33.4
12.8
0.7
56.7
Percentage change 2.6 % 5.8 % 4.2 % 4.5 %

~~Reconciliations of organic~~ orders for the three and six months ended June 30, ~~2018~~2019 are provided ~~below:~~below.


Three Months Ended June 30	Industrial Process				Motion Technologies				Connect & Control Technologies				Eliminations				Total ITT				Motion Technologies				Industrial Process				Connect & Control Technologies				Eliminations				Total ITT
2018 Orders		$	237.4			$	327.6			$	177.2			$	(0.5	)		$	741.7
2019 Revenue																						$	317.7			$	232.6			$	170.2			$	(0.6	)		$	719.9
Acquisitions																						—				(7.9		)		—				—				(7.9		)
Foreign currency translation		(0.7		)		(20.7		)		(2.1		)		0.1				(23.4		)		16.8				4.2				1.7				—				22.7
2018 Organic orders		$	236.7			$	306.9			$	175.1			$	(0.4	)		$	718.3
2017 Orders		$	190.3			$	288.9			$	147.8			$	(0.7	)		$	626.3
2019 Organic revenue																						$	334.5			$	228.9			$	171.9			$	(0.6	)		$	734.7
2018 Revenue																						$	330.3			$	203.2			$	164.1			$	(0.8	)		$	696.8
Organic growth		46.4				18.0				27.3				0.3				92.0				4.2				25.7				7.8				0.2				37.9
Percentage change		24.4		%		6.2		%		18.5		%						14.7		%		1.3		%		12.6		%		4.8		%						5.4		%


Six Months Ended June 30
2018 Orders		$	447.5			$	697.5			$	359.0			$	(1.1	)		$	1,502.9
(Acquisitions)/divestitures, net		—				(17.7		)		—				—				(17.7		)
2019 Revenue																						$	632.9			$	448.3			$	335.2			$	(1.0	)		$	1,415.4
Acquisitions																						—				(7.9		)		—				—				(7.9		)
Foreign currency translation		(5.2		)		(57.8		)		(6.3		)		—				(69.3		)		39.3				8.0				4.1				(0.1		)		51.3
2018 Organic orders		$	442.3			$	622.0			$	352.7			$	(1.1	)		$	1,415.9
2017 Orders		$	412.2			$	576.2			$	310.2			$	(1.7	)		$	1,296.9
2019 Organic revenue																						$	672.2			$	448.4			$	339.3			$	(1.1	)		$	1,458.8
2018 Revenue																						$	672.5			$	393.0			$	322.0			$	(1.4	)		$	1,386.1
Organic growth		30.1				45.8				42.5				0.6				119.0				(0.3		)		55.4				17.3				0.3				72.7
Percentage change		7.3		%		7.9		%		13.7		%						9.2		%		—		%		14.1		%		5.4		%						5.2		%

”adjusted segment operating income” is defined as operating income, adjusted to exclude special items that include, but are not limited to, restructuring costs, realignment costs, certain asset impairment charges, certain acquisition-related expenses, and unusual or infrequent operating items. Special items represent significant charges or credits that impact current results, which management views as unrelated to the Company’s ongoing operations and performance. We believe that adjusted segment operating income is 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.



Three Months Ended June 30	Motion Technologies				Industrial Process				Connect & Control Technologies				Eliminations				Total ITT
2019 Orders		$	311.9			$	212.7			$	169.5			$	(1.3	)		$	692.8
Acquisitions		—				(10.2		)		—				—				(10.2		)
Foreign currency translation		16.6				4.5				1.9				—				23.0
2019 Organic orders		$	328.5			$	207.0			$	171.4			$	(1.3	)		$	705.6
2018 Orders		$	327.6			$	237.4			$	177.2			$	(0.5	)		$	741.7
Organic growth		0.9				(30.4		)		(5.8		)		(0.8		)		(36.1		)
Percentage change		0.3		%		(12.8		)%		(3.3		)%						(4.9		)%


Six Months Ended June 30
2019 Orders		$	643.4			$	431.7			$	358.6			$	(2.0	)		$	1,431.7
Acquisitions		—				(10.2		)		—				—				(10.2		)
Foreign currency translation		42.1				9.2				4.7				—				56.0
2019 Organic orders		$	685.5			$	430.7			$	363.3			$	(2.0	)		$	1,477.5
2018 Orders		$	697.5			$	447.5			$	359.0			$	(1.1	)		$	1,502.9
Organic growth		(12.0		)		(16.8		)		4.3				(0.9		)		(25.4		)
Percentage change		(1.7		)%		(3.8		)%		1.2		%						(1.7		)%

“Adjusted segment operating income” is defined as operating income, adjusted to exclude special items that include, but are not limited to, restructuring costs, realignment costs, certain asset impairment charges, certain acquisition-related expenses, and unusual or infrequent items. Special items represent significant charges or credits that impact current results, which management views as unrelated to the Company’s ongoing operations and performance. “Adjusted segment operating margin” is defined as adjusted segment operating income divided by revenue. We believe that adjusted segment operating income and margin are useful to investors and other users of our financial statements in evaluating ongoing operating profitability, as well as in evaluating operating performance in relation to our competitors.

Reconciliations of segment operating income to adjusted segment operating income for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 are provided below.

Three Months Ended June 30, 2018
Industrial
Process
Motion
Technologies
Connect & Control
Technologies
Total
Segment
Segment operating income
$ 23.4

$ 55.5

$ 27.3

$ 106.2
Restructuring costs
(0.1 ) 0.9
0.4

1.2
Acquisition-related expenses —
0.9
—
0.9
Adjusted segment operating income
$ 23.3

$ 57.3

$ 27.7

$ 108.3

Six Months Ended June 30, 2018
Segment operating income $ 40.3
$ 117.4
$ 50.3
$ 208.0
Restructuring costs —
1.3
0.8
2.1
Acquisition-related expenses —
1.5
—
1.5
Adjusted segment operating income $ 40.3
$ 120.2
$ 51.1
$ 211.6


Three Months Ended June 30, 2017	Industrial Process				Motion Technologies			Connect & Control Technologies			Total Segment
Three Months Ended June 30, 2019														Motion Technologies				Industrial Process				Connect & Control Technologies				Total Segment
Segment operating income		$	15.3			$	52.1		$	14.2		$	81.6		$	52.0			$	26.0			$	29.6			$	107.6
Restructuring costs		0.4				0.6			0.7			1.7			3.1				0.1				(0.2		)		3.0
Acquisition-related expenses		—				0.1			—			0.1			—				2.9				0.8				3.7
Realignment costs and other^(a)		(0.3		)		—			6.2			5.9			1.3				—				—				1.3
Adjusted segment operating income		$	15.4			$	52.8		$	21.1		$	89.3		$	56.4			$	29.0			$	30.2			$	115.6
Six Months Ended June 30, 2017
Adjusted segment operating margin															17.8		%		12.5		%		17.7		%		16.1		%

Six Months Ended June 30, 2019														Six Months Ended June 30, 2019
Segment operating income		$	23.4			$	107.1		$	30.9		$	161.4		$	112.9			$	48.2			$	57.0			$	218.1
Restructuring costs		1.7				0.8			1.2			3.7			3.8				0.4				(0.1		)		4.1
Acquisition-related expenses		—				0.8			—			0.8			—				2.9				0.8				3.7
Realignment costs and other^(a)		1.1				—			7.3			8.4			1.3				0.5				0.3				2.1
Adjusted segment operating income		$	26.2			$	108.7		$	39.4		$	174.3		$	118.0			$	52.0			$	58.0			$	228.0
Adjusted segment operating margin															18.6		%		11.6		%		17.3		%		16.1		%

(a)

Realignment costs and other ~~in 2017 primarily reflect a legal accrual of $5 and costs associated with an action to move certain production lines in our Connect & Control Technologies segment, and~~includes costs associated with a legal matter at MT, a management reorganization at ~~our Industrial Process segment in the first quarter of 2017.~~IP, as well as costs associated with a resolved DOJ civil matter at CCT.

”adjusted income from continuing operations” and “adjusted income from continuing operations per diluted share” are defined as income from continuing operations attributable to ITT Inc. and income from continuing operations attributable to ITT Inc. per diluted share, adjusted to exclude special items that include, but are not limited to, asbestos-related costs, restructuring costs, realignment costs, certain asset impairment charges, certain acquisition-related expenses, income tax settlements or adjustments, and unusual or infrequent non-operating items. Special items represent significant 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.



Three Months Ended June 30, 2018	Motion Technologies				Industrial Process				Connect & Control Technologies				Total Segment
Segment operating income		$	55.5			$	23.4			$	27.3			$	106.2
Restructuring costs		0.9				(0.1		)		0.4				1.2
Acquisition-related expenses		0.9				—				—				0.9
Adjusted segment operating income		$	57.3			$	23.3			$	27.7			$	108.3
Adjusted segment operating margin		17.3		%		11.5		%		16.9		%		15.5		%

Six Months Ended June 30, 2018
Segment operating income		$	117.4			$	40.3			$	50.3			$	208.0
Restructuring costs		1.3				—				0.8				2.1
Acquisition-related expenses		1.5				—				—				1.5
Adjusted segment operating income		$	120.2			$	40.3			$	51.1			$	211.6
Adjusted segment operating margin		17.9		%		10.3		%		15.9		%		15.3		%

“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 costs, restructuring costs, realignment costs, certain asset impairment charges, certain acquisition-related expenses, income tax settlements or adjustments, and unusual or infrequent items. Special items represent significant 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” is defined as adjusted income from continuing operations divided by diluted weighted average common shares outstanding. We believe that adjusted income from continuing operations isand adjusted income from continuing operations per diluted share 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.

A reconciliation of adjusted income from continuing operations, including adjusted income from continuing operations per diluted share, for the three and six months ended June 30, 2019 and 2018 is provided below.

Three Months Six Months
For the Periods Ended June 30 2018 2017 2018 2017
Income from continuing operations attributable to ITT Inc. $ 69.7
$ 47.9
$ 170.8
$ 94.0
Net asbestos-related costs (benefit), net of tax (benefit) expense of ($3.1), ($5.5), $1.5 and ($11.0), respectively 10.4
9.4
(4.7 ) 18.8
Restructuring costs, net of tax benefit of $0.2, $0.4, $0.4 and $1.3, respectively 1.0
1.3
1.7
3.0
Realignment (benefit) costs, net of tax expense (benefit) of $0.1, ($1.0), $0.1 and ($2.7), respectively^(a)
(0.2 ) 1.9
(0.4 ) 4.8
Tax-related special items^(b)
(9.0 ) (3.2 ) (27.2 ) (6.3 )
Acquisition-related costs, net of tax benefit of $0.3, $0.0, $0.4 and $0.3, respectively 0.6
0.1
1.1
0.5
Other unusual or infrequent items, net of tax expense of $0.0 $1.4, $0.0 and $1.4, respectively^(c)
(0.1 ) 0.5
(0.1 ) 0.5
Adjusted income from continuing operations attributable to ITT Inc. $ 72.4
$ 57.9
$ 141.2
$ 115.3
Income from continuing operations attributable to ITT Inc. per diluted share $ 0.79
$ 0.54
$ 1.93
$ 1.05
Adjusted income from continuing operations attributable to ITT Inc. per diluted share $ 0.82
$ 0.65
$ 1.59
$ 1.29



	Three Months					Six Months
For the Periods Ended June 30	2019		2018			2019			2018
Income from continuing operations attributable to ITT Inc.	$	66.9	$	69.7		$	138.2		$	170.8
Net asbestos-related costs (benefit) net of tax (benefit) expense of $(2.7),($3.1), $(5.7) and $1.5, respectively	9.1		10.4			18.7			(4.7		)
Tax-related special items^(a)	0.6		(9.0		)	(0.5		)	(27.2		)
Restructuring costs, net of tax benefit of $0.9, $0.2 $1.2, and $0.4, respectively	2.2		1.0			3.0			1.7
Realignment (benefit) costs, net of tax expense (benefit) of $0.0, $0.1, ($0.1), and $0.1, respectively	—		(0.2		)	0.5			(0.2		)
Expense (income) related to sale of a former operating location, net of tax expense of $0.1, $0.0, $0.1, and $0.0, respectively	0.1		—			(0.3		)	(0.2		)
Acquisition-related costs, net of tax benefit of $0.9, $0.3, $0.9 and $0.4, respectively	2.8		0.6			2.8			1.1
Other unusual or infrequent items, net of tax benefit of $0.3, $0.0, $0.3 and $0.0, respectively^(b)	1.0		(0.1		)	1.3			(0.1		)
Adjusted income from continuing operations	$	82.7	$	72.4		$	163.7		$	141.2
Income from continuing operations attributable to ITT Inc. per diluted share	$	0.75	$	0.79		$	1.56		$	1.93
Adjusted income from continuing operations per diluted share	$	0.93	$	0.82		$	1.85		$	1.59

(a)

~~Realignment cost (benefit) for all periods~~Tax-related special items during the three and six months ended June 30, 2019 primarily relate to ~~our sale of excess property. Realignment costs in 2017 also include costs associated with a management reorganization at our Industrial Process segment in~~ the ~~first quarter of 2017, and costs associated with an action to move certain production lines in our Connect & Control Technologies segment.~~

~~(b)~~

favorable valuation allowance impacts, partially offset by tax expense on undistributed foreign earnings. Tax-related special items during the second quarter of 2018 primarily relate to a tax benefit on undistributed foreign earnings. Tax-related special items during the six months ended June 30, 2018 are due to ~~the release of a~~favorable valuation allowance impacts on deferred tax assets in Germany and adjustments to our provisional tax estimate associated with the Tax Act. Tax-related special items for the three and six months ended June 30, 2017 primarily relate to a tax benefit on undistributed foreign earnings and tax benefits on uncertain tax positions, offset by tax expense related to the distribution of foreign earnings.


~~(c)~~	Other unusual or infrequent items in 2017 primarily consist of a legal accrual of $5, income of $3.8 related to an amendment to the environmental QSF and interest income from the reversal of uncertain tax position taken in prior years.

n(b)

~~”adjusted free cash flow” is defined as net cash provided by operating activities less capital expenditures, adjusted for cash payments for restructuring~~Other unusual or infrequent items in 2019 include a legal matter at MT and costs realignment actions, net asbestos cash flows and other significant items that impact current results which management views as unrelated to the Company’s ongoing operations and performance. Due to other financial obligations and commitments, including asbestos expenses, the entire free cash flow may not be available for discretionary purposes. We believe that adjusted free cash flow provides useful information to investors as it provides insight into the primary cash flow metric used by management to monitor and evaluate cash flows generated by our operations. A reconciliation of adjusted free cash flow is provided below.associated with a resolved DOJ civil matter.

“Adjusted free cash flow” is defined as net cash provided by operating activities less capital expenditures, adjusted for cash payments for restructuring costs, realignment actions, net asbestos cash flows and other significant items that impact current results which management views as unrelated to the Company’s ongoing operations and performance. Due to other financial obligations and commitments, including asbestos expenses, the entire adjusted free cash flow may not be available for discretionary purposes. “Adjusted free cash flow conversion” is defined as adjusted free cash flow divided by adjusted income from continuing operations. We believe that adjusted free cash flow and adjusted free cash flow conversion provide useful information to investors because they are the additional cash flow metrics used by management to monitor and evaluate cash flows generated by our operations.

A reconciliation of adjusted free cash flow, including adjusted free cash flow conversion for the six months ended June 30, 2019 and 2018 is provided below.


For the Six Months Ended June 30	2018			2017			2019			2018
Net cash provided by operating activities	$	119.3		$	92.6		$	101.1		$	119.3
Capital expenditures	(46.3		)	(53.3		)	(45.8		)	(46.3		)
Insurance settlement agreement, net	(16.9		)	—
Net asbestos cash flows	30.8			30.7			15.8			30.8
Insurance settlement agreement							—			(16.9		)
Restructuring cash payments	4.2			8.8			5.5			4.2
Other^(a)	(0.1		)	6.2
Legal settlements, net							4.0			—
Acquisition and other							1.5			(0.1		)
Adjusted free cash flow	$	91.0		$	85.0		$	82.1		$	91.0
Adjusted free cash flow conversion							50.2		%	64.4		%


~~(a)~~	~~Other primarily relates to the sale of excess property in both periods.~~

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to the Consolidated Condensed Financial Statements for information on recent accounting pronouncements.

CRITICAL ACCOUNTING ESTIMATES

The preparation of ITT’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. ITT 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 ~~2017~~2018 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 significant changes ~~other than those described below,~~ concerning ITT’s critical accounting estimates as described in our ~~2017~~2018 Annual Report.

~~Revenue Recognition~~

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

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

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

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

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

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



~~ITEM 3.~~	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Effective July 1, 2018, Argentina was determined to be a highly inflationary economy and we have changed the functional currency of our operations in Argentina to the U.S. dollar as a result. The impact of revaluing our monetary assets and liabilities is not expected to be material.

There has been no ~~other~~ material change in the information concerning market risk as stated in our ~~2017~~2018 Annual ~~Report.~~Report.



~~ITEM 4.~~	ITEM 4. 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 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.

There have been no changes in our internal control over financial reporting during the last fiscal quarter 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.~~	ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in legal proceedings that are incidental to the operation of our businesses. Some of these proceedings allege damages relating to 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. Descriptions of certain legal proceedings to which the Company is a party are contained in Note ~~18,~~19, Commitments and Contingencies to the Consolidated Condensed Financial Statements included in Part I, Item 1 of this Report and are incorporated by reference herein. Such descriptions include the following recent developments:

Asbestos Proceedings

Subsidiaries of ITT, ITT LLC and Goulds Pumps LLC, are joined as a defendant with numerous other companies in product liability lawsuits alleging personal injury due to asbestos exposure. These claims allege that certain of their products sold prior to 1985 contained a part manufactured by a third party (e.g., a gasket) which contained asbestos. To the extent these third-party parts may have contained asbestos, it was encapsulated in the gasket (or other) material and was non-friable. Frequently, the plaintiffs are unable to identify any ITT LLC or Goulds Pumps LLC products as a source of asbestos exposure. In addition, a large majority of claims pending against the ~~Company~~Company’s subsidiaries have been placed on inactive dockets because the plaintiff cannot demonstrate a significant compensable loss. Our experience to date is that a substantial portion of resolved claims have been dismissed without payment by the Company’s subsidiaries.

We record a liability for pending asbestos claims and asbestos claims estimated to be filed over the next 10 years. While it is probable that we will incur additional costs for future claims to be filed against the Company, a liability for potential future claims beyond the next 10 years is not reasonably estimable due to the variables and uncertainties inherent in the long-term projection of the Company’s asbestos exposures and potential recoveries. As of June 30, ~~2018,~~2019, we have recorded an undiscounted asbestos-related liability for pending claims and unasserted claims estimated to be filed over the next 10 years of ~~$858.8,~~$835.8, including expected legal fees, and an associated asset of ~~$387.3~~$354.6 which represents estimated recoveries from insurers, resulting in a net asbestos exposure of ~~$471.5.~~$481.2.

Environmental

Other Matters

The Company received a civil subpoena from the Department of Defense, Office of the Inspector General, in the second quarter of 2015 as part of an investigation ~~being~~ led by the Civil Division of the U.S. Department of Justice (DOJ). The subpoena and related investigation ~~involve~~involved certain connector products manufactured by the Company’s Connect & Control Technologies segment that are purchased or used by the U.S. government. In ~~addition, in~~ the ~~third~~second quarter of ~~2017,~~2019, the Company ~~learned that the Criminal Division of DOJ is also investigating~~settled this ~~matter. The Company is cooperating~~matter with the DOJ, acting on behalf of the U.S. government, and ~~has produced documents responsive~~paid $11 to avoid the ~~subpoena to~~expense and uncertainty of litigation. As part of the ~~Civil Division. Based on its current analysis following discussions with DOJ to resolve the civil matter,~~settlement, the Company ~~has accrued $5 as its current best estimate~~made no admission of wrongdoing. During the ~~minimum amount~~second quarter of ~~probable loss. It is reasonably possible that any actual loss~~2019, the Company also received an insurance recovery of $1 related to this ~~matter may be higher than this amount, but at this time management is unable to estimate a range of potential loss in excess of the amount accrued.~~matter.



~~ITEM 1A.~~	ITEM 1A. RISK FACTORS

Reference is made to the risk factors set forth in Part I, Item 1A, “Risk Factors,” of our ~~2017~~2018 Annual Report, which are incorporated by reference herein. There have been no material changes with regard to the risk factors disclosed in such report.



~~ITEM 2.~~	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of equity securities by the issuer and affiliated purchasers

We did not make any open-market share repurchases of our common stock during the quarter ended June 30, 2019. We routinely receive shares of our common stock as payment for the withholding of taxes due on vested restricted stock awards from stock-based compensation program participants.

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

PERIOD
TOTAL
NUMBER
OF SHARES
PURCHASED
AVERAGE
PRICE
PAID
PER SHARE⁽¹⁾
TOTAL NUMBER OF SHARES PURCHASED AS PART OF PUBLICLY ANNOUNCED PLANS OR PROGRAMS⁽²⁾
MAXIMUM DOLLAR VALUE OF SHARES THAT MAY YET BE PURCHASED UNDER THE PLANS OR PROGRAMS⁽²⁾
4/1/2018 - 4/30/2018 —
$ —
—
$ 90.6

5/1/2018 - 5/31/2018 —
$ —
—
$ 90.6

6/1/2018 - 6/30/2018 —
$ —
—
$ 90.6


~~(1)~~	~~Average price paid per share is calculated on a settlement basis and includes commissions.~~

~~(2)~~

On October 27, 2006, our Board of Directors approved a three-year $1 billion Share Repurchase Program. On December 16, 2008, our Board of Directors modified the provisions of the Share Repurchase Program to replace the original three-year term with an indefinite term. As of June 30, 2018, we had repurchased 22.1 shares for $909.4, including commissions, under the Share Repurchase Program. The program is consistent with our capital allocation process, which has centered on those investments necessary to grow our businesses organically and through acquisitions, while also providing cash returns to shareholders. Our strategy for cash flow utilization is to invest in our business, execute strategic acquisitions, pay dividends and repurchase common stock.



~~ITEM 3.~~	ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.



~~ITEM 4.~~	ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.



~~ITEM 5.~~	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 ~~(the General License)~~ by the Office of Foreign Assets ~~Control.~~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 ~~Euros 2.2 million~~€2.2 euros and ~~Euros 1.5 million,~~€1.5 euros, respectively. Prior to its acquisition by ITT, Bornemann issued a performance bond to its Iranian customer in the amount of ~~Euros 1.3 million~~€1.3 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 June 30, ~~2018,~~2019, however, Bornemann did pay fees of approximately ~~Euros 5~~€5 thousand euros during the six months ended June 30, ~~2018~~2019 and approximately ~~Euros 11~~€11 thousand euros during ~~2017~~2018 to the German financial institution which is maintaining the Bond.



~~ITEM 6.~~	ITEM 6. EXHIBITS



EXHIBIT NUMBER		DESCRIPTION

(10.1)*		~~Second Amendment to Five-Year Competitive Advance~~ITT Inc. Board of Directors Annual Board of Directors Compensation

(10.2)*		ITT Senior Executive Severance Plan, amended and ~~Revolving Credit Facility Agreement, dated~~restated as of June ~~1, 2018, among~~ 17, 2019

(10.3)*		ITT ~~Inc.~~Senior Executive Change in Control Severance Plan, amended and ~~the lenders party thereto~~restated as of June 17, 2019

(31.1)		Certification pursuant to Rule 13a-14(a)/15d-14 (a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(31.2)		Certification pursuant to Rule 13a-14(a)/15d-14 (a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(32.1)		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(32.2)		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(101)		The following materials from ITT Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2018,~~2019, formatted in ~~XBRL (Extensible~~iXBRL (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, and (vi) Notes to Consolidated Condensed Financial Statements

* 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.




		ITT Inc.

		(Registrant)

By:		/S~~/ STEVEN~~ ~~C. GIULIANO~~ s/ John Capela
		~~Steven C. Giuliano~~John Capela
		~~Vice President and~~ Chief Accounting Officer
		(Principal accounting officer)

August ~~3, 2018~~2, 2019

4238



	Balance as of December 31, 2017			Cumulative Effect of Adjustments				Balance as of January 1, 2018
Assets:
Receivables, net		$	629.6		$	(71.9	)		$	557.7
Inventories, net		311.9			66.3				378.2
Other current assets		147.4			43.2				190.6
Deferred income taxes		149.9			1.0				150.9
Liabilities:
Accrued liabilities		384.4			43.7				428.1
Other non-current liabilities		175.6			(1.0		)		174.6
Equity:
Retained earnings		1,856.1			(4.1		)		1,852.0



	Three Months							Six Months
As of or for the Periods Ended June 30, 2018	As Reported		Amounts under previous standard			Effect of Change		As Reported		Amounts under previous standard			Effect of Change
Statement of Operations
Revenue	$	696.8		$	699.2	$	2.4	$	1,386.1		$	1,394.3	$	8.2
Costs of revenue	470.8			472.4		1.6		935.9			943.2		7.3
Income tax expense	8.9			8.7		0.2		16.5			16.7		0.2
Net income	69.9			70.5		0.6		171.2			171.9		0.7

Balance Sheets
Assets:
Receivables, net								560.4			614.9		54.5
Inventories, net								393.5			324.0		(69.5		)
Other current assets								175.1			150.3		(24.8		)
Deferred income taxes								164.0			162.7		(1.3		)
Liabilities:
Accrued liabilities								397.7			350.8		(46.9		)
Other non-current liabilities								172.7			173.7		1.0
Equity:
Retained earnings								1,959.3			1,964.1		4.8



For the Three Months Ended June 30, 2017	Previously Reported				Effect of Change				Restated
Costs of revenue		$	426.5			$	(0.6	)		$	425.9
General and administrative expenses		65.3				(0.7		)		64.6
Sales and marketing expenses		43.9				(0.1		)		43.8
Operating income		57.7				1.4				59.1
Interest and non-operating (income) expenses, net		(0.9		)		1.4				0.5


For the Six Months Ended June 30, 2017	Previously Reported				Effect of Change				Restated
Costs of revenue		$	850.0			$	(1.4	)		$	848.6
General and administrative expenses		131.5				(1.2		)		130.3
Sales and marketing expenses		87.0				(0.1		)		86.9
Research and development expenses		45.1				(0.1		)		45.0
Operating income		113.3				2.8				116.1
Interest and non-operating (income) expenses, net		(0.1		)		2.8				2.7



(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) PERIOD	TOTAL NUMBER OF SHARES PURCHASED	AVERAGE PRICE PAID PER SHARE⁽¹⁾			TOTAL NUMBER OF SHARES PURCHASED AS PART OF PUBLICLY ANNOUNCED PLANS OR PROGRAMS⁽²⁾		MAXIMUM DOLLAR VALUE OF SHARES THAT MAY YET BE PURCHASED UNDER THE PLANS OR PROGRAMS⁽²⁾
4/1/2018 - 4/30/2018	—		$	—		—		$	90.6
5/1/2018 - 5/31/2018	—		$	—		—		$	90.6
6/1/2018 - 6/30/2018	—		$	—		—		$	90.6