(In millions, except per share amounts, unless otherwise stated)
OVERVIEW
ITT Inc. is a diversified manufacturer of highly engineered critical components
and customized technology solutions for the transportation, industrial, and
energy markets. We manufacture components that are integral to the operation of
systems and manufacturing processes in these key markets. Our products enable
functionality for applications where reliability and performance are critically
important to our customers and the users of their products.
Our businesses share a common, repeatable operating model centered on our
engineering capabilities. Each business applies its technology and engineering
expertise to solve our customers’ most pressing challenges. Our applied
engineering provides a valuable business relationship with our customers given
the critical nature of their applications. This in turn provides us with unique
insight to our customers’ requirements and enables us to develop solutions to
assist our customers in achieving their business goals. Our technology and
customer intimacy produce opportunities to capture recurring revenue streams,
aftermarket opportunities and long-lived platforms from original equipment
manufacturers (OEMs).
Our product and service offerings are organized into three reportable segments:
Motion Technologies (MT), Industrial Process (IP), and Connect & Control
Technologies (CCT). See Note 3, Segment Information , in this Report for a
summary description of each segment. Additional information is also available in
our 2021 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
months ended April 3, 2021, unless stated otherwise.
COVID-19 Update:
The Company continues to respond to and recover from the challenges stemming
from the COVID-19 pandemic, including managing significant market headwinds,
supply chain disruptions, shipping delays, and reduced availability of skilled
labor. We continue to be proactive in responding to these challenges, including
working closely with our suppliers to minimize disruptions within our global
supply chain. As a result, we have been able to continue delivering high quality
products to our customers.
Future impacts of COVID-19 on our business and financial results remain
uncertain and will be dependent on the effect and duration of variant strains of
the virus, including Omicron and BA.2. As a result of some of these variants,
certain countries around the world in which we operate, such as China, are
reinstituting previously-lifted restrictive measures that were initially
implemented to curtail the spread of the virus. Continued challenges resulting
from the COVID-19 pandemic have adversely impacted, and may continue to
adversely impact, our business and financial results. For additional discussion
of risks related to COVID-19, see Part I, Item IA, “Risk Factors” in our 2021
Annual Report .
Russia-Ukraine Conflict:
In February 2022, the United States announced targeted economic sanctions on
Russia and certain Russian citizens in response to Russia’s invasion of Ukraine.
As described in Part I, Item IA, “Risk Factors” in our 2021 Annual Report
for the fiscal year ended December 31, 2021, our business may be sensitive to
global economic conditions, which can be negatively impacted by instability in
the geopolitical environment. Our annual sales directly to customers in Russia
and Ukraine were approximately $38 for 2021. Annual sales to customers in Russia
and Ukraine, including sales to customers selling or supplying to Russia or
Ukraine, were expected to be approximately $60 for 2022. In addition, this year
we expect an indirect sales impact of approximately $25 stemming from a
reduction in supply of auto components made in Ukraine.
During the first quarter of 2022, we recorded total charges of $8.8, primarily
related to inventory and account receivable reserves, as a result of suspending
our operations in Russia and to reflect the current macroeconomic conditions
impacting some of our customers that sell or supply into this region. If
circumstances worsen, we may experience a further reduction in demand and could
incur additional charges, including potential fixed asset impairments, severance
and other reserves, which could have a material adverse impact
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on our business and financial results. For additional discussion of the risks
related to the Russia-Ukraine conflict, see Part II, Item 1A, ” Risk Factors ”
herein.
Executive Summary
The following table provides a summary of key performance indicators for the
first quarter of 2022 as compared to the first quarter of 2021.
Summary of Key Performance Indicators for the
First Quarter of 2022
Revenue Segment Operating Income Segment Operating Margin EPS
$726 $106 14.6% $0.88
4% Increase -11% Decrease -240bp Decrease -11% Decrease
Adjusted Segment Operating Adjusted Segment Operating Adjusted
Organic Revenue Income Margin EPS
$746 $116 16.0% $0.97
7% Increase -5% Decrease -150bp Decrease -8% Decrease
Further details related to these results are contained elsewhere in the
Discussion of Financial Results section. Refer to the section titled ” Key
Performance Indicators and Non-GAAP Measures ” for definitions and
reconciliations between GAAP and non-GAAP metrics.
Our first quarter 2022 results include:
•Revenue of $726.2 increased $27.8 due to strong CCT growth in both connectors
and components, as well as strength in MT’s Friction business driven by
aftermarket sales, partially offset by unfavorable foreign exchange of $19.9.
Excluding the impact of foreign currency, organic revenue increased 6.8%.
•Segment operating income of $105.8 decreased $13.0, primarily driven by
significantly higher raw material and overhead costs stemming from supply chain
challenges. In addition, we recorded charges of $8.8 related to the
Russia-Ukraine conflict. This was partially offset by pricing actions,
productivity savings, and higher sales volume.
•Income from continuing operations of $0.88 per diluted share decreased $0.11 as
compared to the prior year of $0.99 per share, mainly due to the decline in
segment operating income. Adjusted income from continuing operations was $0.97
per diluted share, a reduction of $0.09 as compared to the prior year.
During the first quarter of 2022, we repurchased 2.1 shares of common stock on
the open-market for $178. In addition, in the first quarter of 2022 we declared
a dividend of $0.264 per share, which was a 20% increase from the quarterly
dividend in 2021.
DISCUSSION OF FINANCIAL RESULTS
For the Three Months Ended April 2, 2022 April 3, 2021 Change
Revenue $ 726.2 $ 698.4 4.0 %
Gross profit 218.4 229.0 (4.6) %
Gross margin 30.1 % 32.8 % (270) bp
Operating expenses 123.8 119.1 3.9 %
Operating expense to revenue ratio 17.0 % 17.1 % (10) bp
Operating income 94.6 109.9 (13.9) %
Operating margin 13.0 % 15.7 % (270) bp
Interest and non-operating (income) expenses, net (0.2) (1.3) (84.6) %
Income tax expense (benefit) 19.5 24.7 (21.1)%
Effective tax rate 20.6 % 22.2 % (160) bp
Net income attributable to ITT Inc. 74.8 86.2 (13.2) %
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REVENUE
The following table illustrates the revenue derived from each of our segments.
For the Three Months Ended April 2, 2022 April 3, 2021 Change Organic Growth(a)
Motion Technologies $ 370.1 $ 369.1 0.3 % 4.0 %
Industrial Process 202.2 202.3 – % 1.9 %
Connect & Control Technologies 154.6 127.3 21.4 % 23.2 %
Eliminations (0.7) (0.3)
Total Revenue $ 726.2 $ 698.4 4.0 % 6.8 %
(a)See the section titled ” Key Performance Indicators and Non-GAAP Measures ”
for a definition and reconciliation of organic revenue.
Motion Technologies
MT revenue for the three months ended April 2, 2022 increased $1.0. Excluding
the impact of unfavorable foreign currency translation of $13.9, organic revenue
increased $14.9, primarily due to growth in our Friction business of 5% driven
by strength in aftermarket. In addition, our Wolverine business increased 5% due
to growth in sealings.
The automotive industry has been, and continues to be, impacted by a global
semiconductor supply shortage. This shortage has created supply chain
disruptions for our automotive OEM customers, resulting in temporary declines in
production. As a result, demand for our OEM brake pads and parts has been and
may continue to be adversely affected until the shortage is resolved. While this
shortage has had and may continue to have a negative impact on revenue, we
continue to significantly outperform automotive production rates globally.
Industrial Process
IP revenue for the three months ended April 2, 2022 was flat compared to the
prior year. Excluding the impact of unfavorable foreign currency translation of
$3.9, organic revenue increased by $3.8 primarily driven by growth in our short
cycle business of 13% due to strength within the general industrial and chemical
markets. This was partially offset by a decline in pump projects of 30%,
principally within the energy and chemical markets.
The level of order and shipment activity at IP can vary significantly from
period to period due to pump projects which are highly engineered, customized to
customer needs, and have longer lead times. Total orders during the three months
ended April 2, 2022 were $260.1, an increase of 20.7% as compared to the
respective prior year period. Backlog as of April 2, 2022 was $502.2, an
increase of $57.8, or 13.0%, as compared to December 31, 2021. Our backlog
represents firm orders that have been received, acknowledged, and entered into
our production systems.
Connect & Control Technologies
CCT revenue for the three months ended April 2, 2022 increased $27.3, which
included unfavorable foreign currency translation impacts of $2.2. Organic
revenue increased $29.5, primarily driven by strong performance in connector
sales of 28%, particularly within the industrial market. Additionally, component
sales grew by 16%, with particular strength in the aerospace and defense
markets.
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GROSS PROFIT
Gross profit for the three months ended April 2, 2022 and April 3, 2021 was
$218.4 and $229.0, respectively, reflecting a gross margin of 30.1% and 32.8%,
respectively. The decrease in gross profit was primarily driven by significant
increases in raw material, shipping, and labor costs, as discussed further
below, as well as a $5.4 inventory write-down related to the Russia-Ukraine
conflict. These items were partially offset by pricing actions and productivity
savings.
Since 2020, the cost of raw materials we use in our production processes,
including commodities such as steel, oil, copper, and tin, has significantly
increased. Accordingly, gross profit and operating income within our businesses
have been and may continue to be negatively impacted. The rising prices are
mainly a result of increased demand coupled with reduced supply caused by supply
chain disruptions primarily as a result of the COVID-19 pandemic and the
Russia-Ukraine conflict. Raw materials inflation and supply chain constraints
may continue to unfavorably impact our financial results during the remainder of
2022. We have been able to offset some of this impact through pricing actions
and productivity savings, which we continue to pursue.
During 2021 and 2022, worldwide supply chain challenges exacerbated by the
COVID-19 pandemic and the rising demand for physical goods have created upward
pressure on shipping costs globally. These supply chain disruptions have
contributed to congested shipping ports around the world, causing shipping
delays and, in many cases, additional costs to be incurred in order to meet
customer demand. As a result of these external pressures, our shipping costs,
including for inbound and outbound freight, have increased, which has negatively
impacted our gross profit. Continued supply chain and shipping challenges could
have a material impact on our future financial results.
The manufacturing industry is also currently experiencing a skilled labor
shortage. This shortage has created difficulties for the Company in attracting
and retaining factory employees and in meeting customer demand, resulting in
additional labor costs. Accordingly, our revenue, gross profit, and operating
expenses at each of our businesses have been and may continue to be negatively
impacted as a result of difficulties in fulfilling customer orders and increased
labor costs.
Certain of our businesses have experienced high levels of employee absenteeism
resulting from regional COVID-19 outbreaks and government mandated workplace
safety measures. For example, in Italy and Germany, which comprised 24% and 11%,
respectively, of our consolidated revenue in 2021, the government has mandated
proof of vaccination, a negative rapid swab test, or recent recovery from
COVID-19 to be able to return to the workplace. The majority of government
mandates went into effect during the fourth quarter of 2021 and have remained in
place during the first quarter of 2022. Additionally, some governments around
the world, including China, have instituted COVID-19 lockdowns that are expected
to lead to further absenteeism, global supply chain challenges, and,
potentially, temporary negative impacts on demand in some of our end-markets,
such as passenger vehicles. As a result of these circumstances, our financial
results have been, and may continue to be, negatively impacted. For additional
information regarding risks related to COVID-19, see Part I, Item 1A, “Risk
Factors,” of our 2021 Annual Report .
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OPERATING EXPENSES
The following table summarizes our operating expenses, including by segment.
For the Three Months Ended April 2, 2022 April 3, 2021 Change
General and administrative expenses $ 60.4 $ 58.1 4.0 %
Sales and marketing expenses 38.4 36.7 4.6 %
Research and development expenses 25.0 24.3 2.9 %
Total operating expenses $ 123.8 $ 119.1 3.9 %
Total operating expenses by segment:
Motion Technologies $ 41.2 $ 41.6 (1.0) %
Industrial Process 40.9 36.3 12.7 %
Connect & Control Technologies 30.6 32.3 (5.3) %
Corporate & Other 11.1 8.9 24.7 %
General and administrative (G&A) expenses increased $2.3 for the three months
ended April 2, 2022. This was due to an increase in bad debt expense of $4.0,
primarily related to the Russia-Ukraine conflict, and an increase in strategic
M&A-related costs of $2.3. The increase was partially offset by a decrease in
restructuring expense of $3.3.
Sales and marketing expenses increased $1.7 for the three months ended April 2,
2022, primarily driven by temporary spending controls still in place during the
first quarter of 2021 taken in response to the COVID-19 pandemic.
Research and development expenses increased $0.7 for the three months ended
April 2, 2022, due to continued strategic investments in innovation and new
product development to drive future growth.
OPERATING INCOME
The following table summarizes our operating income and margin by segment.
For the Three Months Ended April 2, 2022 April 3, 2021 Change
Motion Technologies $ 59.7 $ 76.0 (21.4) %
Industrial Process 20.4 31.0 (34.2) %
Connect & Control Technologies 25.7 11.8 117.8 %
Segment operating income 105.8 118.8 (10.9) %
Asbestos-related benefit (costs), net – (2.4) (100.0) %
Other corporate costs (11.2) (6.5) 72.3 %
Total corporate and other costs, net (11.2) (8.9) 25.8 %
Total operating income $ 94.6 $ 109.9 (13.9) %
Operating margin:
Motion Technologies 16.1 % 20.6 % (450) bp
Industrial Process 10.1 % 15.3 % (520) bp
Connect & Control Technologies 16.6 % 9.3 % 730 bp
Segment operating margin 14.6 % 17.0 % (240) bp
Consolidated operating margin 13.0 % 15.7 % (270) bp
MT operating income for the three months ended April 2, 2022 decreased $16.3,
primarily due to significantly higher raw material costs from continued supply
chain challenges, as well as inventory and accounts receivable reserves of $4.2
related to the Russia-Ukraine conflict. The decrease was partially offset by
pricing actions and net productivity savings.
IP operating income for the three months ended April 2, 2022 decreased $10.6,
primarily due to higher raw material and overhead costs. In addition, we
recorded reserves of $4.6 primarily related to inventory and accounts
receivables in connection with the Russia-Ukraine conflict. The decrease was
partially offset by net productivity savings and favorable product mix.
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CCT operating income for the three months ended April 2, 2022 increased $13.9,
driven by increased volume and productivity savings. These were partially offset
by unfavorable raw material costs and sales mix.
Other corporate costs for the three months ended April 2, 2022 increased $4.7,
primarily driven by lower corporate-owned life insurance investment gains of
$1.1, as well as an increase in strategic M&A-related costs.
INTEREST AND NON-OPERATING EXPENSES AND INCOME, NET
The following table summarizes our net interest and non-operating expenses
(income).
For the Three Months Ended April 2, 2022 April 3, 2021 Change
Interest and non-operating income, net $ (0.2)
$ (1.3) (84.6) %
The change during the three months ended April 2, 2022 is primarily due to
higher interest expense of $0.5 associated with greater outstanding commercial
paper borrowings.
INCOME TAX EXPENSE
The following table summarizes our income tax expense (benefit) and effective
tax rate.
For the Three Months Ended April 2, 2022 April 3, 2021
Income tax expense $ 19.5 $ 24.7
Effective tax rate 20.6 % 22.2 %
The effective tax rate for the three months ended April 2, 2022 declined 160
basis points to 20.6% due to an increase in permanent tax benefits, primarily
related to research and development incentives in both foreign and U.S.
jurisdictions.
We are closely monitoring the potential passage of new U.S. tax legislation,
which could result in substantial changes to the current U.S. tax system,
including changes to the statutory corporate tax rate. Further, changes in tax
laws resulting from the Organization for Economic Cooperation and Development’s
(“OECD”) multi-jurisdictional plan of action to address base erosion and profit
shifting could adversely impact our effective tax rate. As the effects of a
change in U.S. tax law must be recognized in the period in which the new
legislation is enacted, should new legislation be signed into law, our financial
results could be materially impacted.
See Note 5, Income Taxes , to the Consolidated Condensed Financial Statements
for further information.
LIQUIDITY
Funding and Liquidity Strategy
We monitor our funding needs and execute strategies to meet overall liquidity
requirements, including the management of our capital structure, on both a
short- and long-term basis. Significant factors that affect our overall
management of liquidity include our cash flow from operations, credit ratings,
the availability of commercial paper, access to bank lines of credit, term
loans, and the ability to attract long-term capital on satisfactory terms. We
assess these factors along with current market conditions on a continuous basis,
and as a result, may alter the mix of our short- and long-term financing when it
is advantageous to do so. We expect to have enough liquidity to fund operations
for at least the next 12 months and beyond.
We manage our worldwide cash requirements considering available funds among the
many subsidiaries through which we conduct business and the cost effectiveness
with which those funds can be accessed. We support our growth and expansion in
markets outside of the U.S. through the enhancement of existing products and
development of new products, increased capital spending, and potential foreign
acquisitions. We look for opportunities to access cash balances in excess of
local operating requirements to meet our global liquidity needs in a
cost-efficient manner. We transfer cash between certain international
subsidiaries and the U.S. when it is cost effective to do so. During the year
ended December 31, 2021, we had net cash distributions from foreign countries to
the U.S. of $116.9. We did not have any distributions to the U.S. during the
three months
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ended April 2, 2022. The timing and amount of any additional future
distributions will be evaluated based on our jurisdictional cash needs.
The amount and timing of dividends payable on our common stock are within the
sole discretion of our Board of Directors and will be based on, and affected by,
a number of factors, including our financial position and results of operations,
available cash, expected capital spending plans, prevailing business conditions
and other factors the Board of Directors deems relevant. Therefore, we cannot
provide any assurance as to what level of dividends, if any, will be paid in the
future. In the first quarter of 2022, we declared a dividend of $0.264 per share
for shareholders of record on March 9, 2022, which was a 20% increase from the
quarterly dividends declared in 2021. Dividend payments during the three months
ended April 2, 2022 amounted to $22.4.
During the three months ended April 2, 2022 and April 3, 2021, we repurchased
and retired 2.1 and 0.6 shares of common stock for $177.8 and $50.0,
respectively, under our share repurchase plans. Separate from our share
repurchase plans, the Company repurchased 0.1 shares and 0.1 shares during the
three months ended April 2, 2022 and April 3, 2021, respectively, for an
aggregate price of $8.4 and $11.0, respectively, in settlement of employee tax
withholding obligations due upon the vesting of RSUs and PSUs. All repurchased
shares are retired immediately following the repurchases.
Commercial Paper
When available and economically feasible, we have accessed the commercial paper
market through programs in place in the U.S. and Europe to supplement cash flows
generated internally and to provide additional short-term funding.
The following table presents our outstanding commercial paper borrowings.
April 2, 2022 December 31, 2021
Commercial Paper Outstanding – U.S. Program $ 324.7 $
150.0
Commercial Paper Outstanding – Euro Program 160.2 45.4
Total Commercial Paper Outstanding $ 484.9 195.4
The increase in commercial paper outstanding from December 31, 2021 to April 2,
2022 was primarily related to funding our share repurchase activity as well as
our acquisition of Habonim Industrial Valves and Actuators Ltd. (Habonim), which
occurred on April 4, 2022. See Note 19, Acquisitions , to the Consolidated
Condensed Financial Statements for further information.
All outstanding commercial paper for both periods had maturity terms of less
than three months from the date of issuance.
Revolving Credit Agreement
On August 5, 2021, we entered into a revolving credit facility agreement with a
syndicate of third party lenders including Bank of America, N.A., as
administrative agent (the 2021 Revolving Credit Agreement). The 2021 Revolving
Credit Agreement matures in August 2026 and provides for an aggregate principal
amount of up to $700 of (i) revolving extensions of credit (the revolving loans)
outstanding at any time, and (ii) letters of credit for a face amount of up to
$100 at any time outstanding. Subject to certain conditions, we are permitted to
terminate permanently the total commitments and reduce commitments by a minimum
aggregate amount of $10 or any whole multiple of $1 in excess thereof.
Borrowings under the credit facility are available in U.S. dollars, Euros,
British pound sterling or any other currency that may be requested by us,
subject to the approval of the administrative agent and each lender. We are
permitted to request that lenders increase the commitments under the facility by
up to $350 for a maximum aggregate principal amount of $1,050; however, this is
subject to certain conditions and therefore may not be available to us. As of
April 2, 2022 and December 31, 2021, we had no outstanding borrowings under the
2021 Revolving Credit Agreement. See Note 13, Debt , to the Consolidated
Condensed Financial Statements for further information.
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Sources and Uses of Liquidity
Our principal source of liquidity is our cash flow generated from operating
activities, which provides us with the ability to meet the majority of our
short-term funding requirements. The following table summarizes net cash derived
from or used in operating, investing, and financing activities from continuing
operations, as well as net cash from discontinued operations.
For the Three Months Ended April 2, 2022 April 3, 2021
Operating activities $ (2.7) $ 70.8
Investing activities (29.4) (17.1)
Financing activities 96.6 (122.8)
Foreign exchange (1.5) (10.4)
Total net cash (used in) provided by continuing operations 63.0 (79.5)
Net cash (used in) provided by discontinued operations (0.1) (0.1)
Net change in cash and cash equivalents $ 62.9 $ (79.6)
Operating Activities
The decrease in net cash from operating activities of $73.5 was primarily due to
increased working capital investments to support sales growth and mitigate
continued supply chain disruptions, and the timing of accounts receivable
collections. In addition, incentive compensation payments increased in the
current year due to ITT’s financial performance in 2021 versus prior year, which
was significantly impacted by the COVID-19 pandemic. Additionally, segment
operating income decreased from the prior year.
Investing Activities
The increase in net cash used in investing activities was driven by an increase
in capital expenditures of $12.8.
Financing Activities
The increase in net cash from financing activities of $219.4 was due to an
increase in net commercial paper borrowings of $333.3, partially offset by an
increase in repurchases of ITT common stock of $113.9.
KEY PERFORMANCE INDICATORS AND NON-GAAP MEASURES
Management reviews a variety of key performance indicators including revenue,
segment operating income and margins, and earnings per share, some of which are
calculated with accounting principles other than those generally accepted in the
United States of America (GAAP). In addition, we consider certain measures to be
useful to management and investors when evaluating our operating performance for
the periods presented. These measures provide a tool for evaluating our ongoing
operations and management of assets from period to period. This information can
assist investors in assessing our financial performance and measures our ability
to generate capital for deployment among competing strategic alternatives and
initiatives, including, but not limited to, acquisitions, dividends, and share
repurchases. Some of these metrics, however, are not measures of financial
performance under GAAP and should not be considered a substitute for measures
determined in accordance with GAAP. We consider the following non-GAAP measures
to be key performance indicators. These measures may not be comparable to
similarly titled measures reported by other companies.
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•”Organic revenue” is defined as revenue, excluding the impacts of foreign
currency fluctuations and acquisitions. The period-over-period change resulting
from foreign currency fluctuations is estimated using a fixed exchange rate for
both the current and prior periods. We believe that reporting organic revenue
provides useful information to investors by facilitating comparisons of our
revenue performance with prior and future periods and to our peers.
The following tables include a reconciliation of revenue to organic revenue by
segment.
Three Months Ended April 2, Industrial Connect & Control Total
2022 Motion Technologies Process Technologies Eliminations ITT
2022 Revenue $ 370.1 $ 202.2 $ 154.6 $ (0.7) $ 726.2
Foreign currency translation 13.9 3.9 2.2 (0.1) 19.9
2022 Organic revenue $ 384.0 $ 206.1 $ 156.8 $ (0.8) $ 746.1
2021 Revenue $ 369.1 $ 202.3 $ 127.3 $ (0.3) $ 698.4
Organic growth (decline) 14.9 3.8 29.5 (0.5) 47.7
Percentage change 4.0 % 1.9 % 23.2 % 6.8 %
•”Adjusted operating income” and “Adjusted segment operating income” are defined
as operating income, adjusted to exclude special items that include, but are not
limited to, restructuring, severance, certain asset impairment charges, certain
acquisition-related impacts, unusual or infrequent operating items and, for
2021, asbestos-related impacts. Special items represent charges or credits that
impact current results, which management views as unrelated to the Company’s
ongoing operations and performance. “Adjusted operating margin” and “Adjusted
segment operating margin” are defined as adjusted operating income or adjusted
segment operating income divided by revenue. We believe that these financial
measures are useful to investors and other users of our financial statements in
evaluating ongoing operating profitability, as well as evaluating operating
performance in relation to our competitors.
The following tables include a reconciliation of operating income to adjusted
operating income by segment.
Motion Industrial Connect & Control Total
Three Months Ended April 2, 2022 Technologies Process Technologies Segment Corporate Total ITT
Operating income $ 59.7 $ 20.4 $ 25.7 $ 105.8 $ (11.2) $ 94.6
Impacts related to Russia-Ukraine
conflict 4.2 4.6 – 8.8 – 8.8
Restructuring costs – 0.2 0.1 0.3 – 0.3
Other(a) 0.9 0.6 – 1.5 0.9 2.4
Adjusted operating income $ 64.8 $ 25.8 $ 25.8 $ 116.4 $ (10.3) $ 106.1
Adjusted operating margin 17.5 % 12.8 % 16.7 % 16.0 % 14.6 %
Motion Industrial Connect & Control Total
Three Months Ended April 3, 2021 Technologies Process Technologies Segment Corporate Total ITT
Operating income $ 76.0 $ 31.0 $ 11.8 $ 118.8 $ (8.9) $ 109.9
Restructuring costs – 0.9 2.4 3.3 0.3 3.6
Asbestos-related costs, net – – – – 2.4 2.4
Other(a) – – – – 1.1 1.1
Adjusted operating income $ 76.0 $ 31.9 $ 14.2 $ 122.1 $ (5.1) $ 117.0
Adjusted operating margin 20.6 % 15.8 % 11.2 % 17.5 % 16.8 %
(a)Includes accelerated amortization of an intangible asset and severance
charges.
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•”Adjusted income from continuing operations” is defined as income from
continuing operations attributable to ITT Inc. adjusted to exclude special items
that include, but are not limited to, restructuring, severance, certain asset
impairment charges, certain acquisition-related impacts, income tax settlements
or adjustments, unusual or infrequent items and, for 2021, asbestos-related
impacts. Special items represent charges or credits, on an after-tax basis, that
impact current results, which management views as unrelated to the Company’s
ongoing operations and performance. The after-tax basis of each special item is
determined using the jurisdictional tax rate of where the expense or benefit
occurred. “Adjusted income from continuing operations per diluted share”
(Adjusted EPS) is defined as adjusted income from continuing operations divided
by diluted weighted average common shares outstanding. We believe that adjusted
income from continuing operations and adjusted EPS are useful to investors and
other users of our financial statements in evaluating ongoing operating
profitability, as well as in evaluating operating performance in relation to our
competitors.
The following table includes reconciliations of income from continuing
operations to adjusted income from continuing operations.
For the Three Months Ended April 2, 2022 April 3, 2021
Income from continuing operations attributable to ITT Inc.
$ 74.8 $ 86.2
Impacts related to Russia-Ukraine conflict, net of tax benefit of
$(1.7) and $0.0, respectively
7.1 –
Net asbestos-related costs, net of tax benefit of $0.0 and $(0.5),
respectively(a)
– 1.9
Tax-related special items (1.2) –
Restructuring costs, net of tax benefit of $(0.1) and $(0.5),
respectively
0.2 3.1
Other special items, net of tax benefit of $(0.4) and $(0.3),
respectively
2.0 0.8
Adjusted income from continuing operations $ 82.9 $ 92.0
Income from continuing operations attributable to ITT Inc. per diluted
share (EPS) $ 0.88 $ 0.99
Adjusted EPS $ 0.97 $ 1.06
(a)See Note 17, Commitments and Contingencies , for further information.
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RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2, Recent Accounting Pronouncements , to the Consolidated Condensed
Financial Statements for information on recent accounting pronouncements.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the Company’s financial statements, in conformity with
accounting principles generally accepted in the United States of America,
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities. The Company believes the most complex and
sensitive judgments, because of their significance to the Consolidated Condensed
Financial Statements, result primarily from the need to make estimates about the
effects of matters that are inherently uncertain. Management’s Discussion and
Analysis of Financial Condition and Results of Operations in the 2021 Annual
Report describes the critical accounting estimates that are used in the
preparation of the Consolidated Condensed Financial Statements. Actual results
in these areas could differ from management’s estimates. There have been no
material changes concerning the Company’s critical accounting estimates as
described in our 2021 Annual Report .
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