ITT INC. - 10-K - MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Edgar Glimpses |
The following discussion should be read in conjunction with the consolidated
financial statements and the notes related thereto. As we noted earlier in the
Forward-Looking and Cautionary Statements of this Annual Report on Form 10-K,
this Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and Part II, Item 7A, "  Quantitative and
Qualitative Disclosures about Market Risk  " (along with other sections of this
Annual Report), may contain forward-looking statements. The risks discussed in
Part I, Item 1A, "  Risk Factors  ," and other risks identified in this Annual
Report on Form 10-K could cause our actual results to differ materially from
those expressed by such forward-looking statements.
OVERVIEW
ITT Inc., through its worldwide subsidiaries, is a diversified manufacturer of
highly engineered critical components and customized technology solutions for
the energy, transportation and industrial markets. We refer you to Part I, Item
1, "  Description of Business  " for a further overview of our company,
segments, products and services offerings, and other information about our
business.
See the section titled "  Key Performance Indicators and Non-GAAP Measures  "
for a definition and reconciliation of organic revenue, adjusted segment
operating income, and adjusted income from continuing operations.
EXECUTIVE SUMMARY
During 2016, we faced a challenging market environment in many of our key end
markets. Our primary focus was to manage these difficult markets, while
advancing our long-term growth plans. During the year, we continued to gain
market share and expand across geographies in the transportation end market and
we realized the benefits from our on-going Lean transformation and cost actions
across ITT which helped to mitigate the difficult conditions. We continued our
structural reset in our Industrial Process segment to optimize and align the
businesses and their respective cost structures to address the current market
conditions. In relation to capital deployment, we executed $70 of share
repurchases and executed a plan to de-risk certain long-term obligations through
a voluntary pension settlement program. We also reached an agreement to acquire
Axtone Railway Components, a manufacturer of highly engineered and customized
energy absorption solutions for railway and other harsh environment industrial
markets which was completed on .
Our 2016 results include:
•      A decline in revenue of $80.2, or 3.2% (organic decline of $180.5, or 7%),

driven by challenges in the oil & gas, mining and general industrial

markets, which were collectively down 21% on an organic basis. The impact

of these headwinds was partially offset by organic top-line growth of 9%

       in the transportation markets, led by automotive brake pads.


•      Operating income and margin decreased $121.2 and 450 basis points,

respectively, as top-line headwinds noted above were only partially offset

by the benefits from our Lean transformation and past restructuring

actions, automotive brake pad share gains, and incremental operating

income related to our acquisition of Wolverine. Further impacting

operating income was a $100.7 benefit recognized in 2015 from our estimate

of future asbestos-related legal costs.

• Income from continuing operations was $2.02 per diluted share ($2.32 per

diluted share on an adjusted EPS basis).



During 2016, it was important to maintain the proper balance between delivering
solid operating results, as well as advancing our strategic goals. The following
highlights a few examples of strategic actions that occurred during the year
that will help position us well for long-term value creation.
•      We continued optimizing the cost structure of our Industrial Process
       segment to align with current market conditions. To date, we have
       successfully executed a reduction in headcount of approximately 30% in
       addition to reducing the number of operating locations.

• Our Motion Technologies segment continued to drive exceptional operating

       effectiveness thanks to benefits from the World-Class Manufacturing
       Excellence Program implemented nearly two years ago. In addition, we are
       starting to see benefits at our Interconnect Solutions facility in North
       America as we continue to improve operating efficiencies.


•      We successfully formed our new holding company structure and
       reorganization allowing us to better manage our legacy liabilities and
       associated insurance assets.



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During the year, we expanded our geographic reach into new markets and capitalized on relationships with previous customers. • In North America, our Motion Technologies segment was awarded their

largest copper-free platform and also produced other key strategic wins

with the "Detroit 3" OEM's. In Asia, MT won business with a major Korean

OEM for the first time, and two of MT's production facilities were

certified by a major Korean Tier 1, which makes them the first non-Korean

       brake pad production site to receive this qualification. Further, the
       segment delivered an impressive 35% increase in new front-axle brake pad

volumes which will expand our technological reach and accelerate future

aftermarket demand.

• At our Control Technologies segment, we won a $50 multi-year contract with

       a key Aerospace customer and co-developed an innovative technology with
       that customer that reduces noise and vibration, while at the same time
       providing a more comfortable passenger experience and extending the
       lifespan of helicopter components.

We continued to deploy our capital in balanced and effective ways to both position us for long-term success and to return value to shareholders. • In order to meet growing demand in our Friction business in North America,

       we have continued to expand our footprint with the construction of a new
       plant in Mexico in addition to expanding existing facilities in Asia.

• We returned $114 to shareholders in the form of a solid quarterly dividend

and share repurchases.

• We agreed to acquire Axtone Railway Components in the fourth quarter of

2016, which is highly complementary to our KONI business. The acquisition

closed on .



As we enter 2017, we expect that continued uncertainty in global oil markets,
incremental pricing pressures, rising commodity costs, a strengthening U.S.
dollar, and uncertainty from new U.S. Administration policies will provide
challenges in the coming year, but we will continue to focus our attention on
areas that are within our control. We will continue to progress our Lean
transformation, and monitor and reduce our cost structure by taking
approximately $30 in restructuring and realignment actions in 2017. We also
expect to realize significant benefits from our prior restructuring and
productivity actions which will help to mitigate much of the uncertainty in our
key end markets. In addition, we expect strong performances from our Automotive
and Rail businesses to continue into 2017. We believe that the persistent
volatility in the global macroeconomic environment, particularly in the oil and
gas end market, may continue and that these conditions may have an impact on our
businesses and financial results. Demand for our products that serve the oil and
gas market, primarily pumps and connectors that represented approximately 10% of
2016 revenue, depend substantially on the level of expenditures by
the oil and gas industry for development and production. These expenditures are
generally dependent on the industry's view of future demand for oil and
natural gas. Oil and gas prices have been volatile and have remained at low
levels for a sustained period of time, resulting in lower expenditures by
the oil and gas industry. As a result, many of our customers have reduced or
delayed spending, thus reducing the demand for our products and exerting
downward pressure on the prices for our products. In addition, some of our
customers are in regions with significant geopolitical instability, such as
Venezuela. These conditions or worsening of economic conditions related to our
business could result in the cancellation of contracts or impact the
collectability of certain accounts and may have an adverse impact on our results
of operations and financial condition, including but not limited to further
restructuring and impairment charges.
From a capital allocation standpoint, we will continue our track record of
balanced and effective capital deployment by funding major organic investments
that extend our global reach and capabilities and drive future organic growth.
We will continue to build out our pipeline of targets with a focus on
close-to-core opportunities, like our most recent acquisitions of Axtone and
Wolverine. The availability and timing of acquisition targets is of course
unpredictable, so we may choose to return capital to shareholders through
additional share repurchases of up to $65 million during the year if targets are
not actionable. In addition, we have increased our first quarter 2017 dividend
by 3%; our fifth consecutive year of increases.

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DISCUSSION OF FINANCIAL RESULTS
2016 VERSUS 2015
                                                   2016            2015            Change
Revenue                                         $ 2,405.4       $ 2,485.6           (3.2 )%
Gross profit                                        758.2           809.1           (6.3 )%
Gross margin                                         31.5 %          32.6 %         (110 )bp
Operating expenses                                  499.3           429.0           16.4  %
Operating expense to revenue ratio                   20.8 %          17.3 %          350 bp
Operating income                                    258.9           380.1          (31.9 )%
Operating margin                                     10.8 %          15.3 %         (450 )bp
Interest and non-operating expenses (income),
net                                                   0.5            (2.2 )       (122.7 )%
Income tax expense                                   76.0            70.1            8.4  %
Effective tax rate                                   29.4 %          18.3 %        1,110 bp
Income from continuing operations attributable
to ITT Inc.                                         181.9           312.4          (41.8 )%
Income from discontinued operations, net of tax       4.2            39.4          (89.3 )%
Net income attributable to ITT Inc.             $   186.1       $   351.8   

(47.1 )%



All comparisons included with the Discussion of Financial Results 2016 versus
2015 refer to results for the year ended  compared to the year
ended , unless stated otherwise.
REVENUE
The following table illustrates the year-over-year revenue results from each of
our segments for the years ended  and 2015.
                                                               Organic 

Revenue

                            2016          2015     Change            

Growth(a)

Industrial Process     $   830.1     $ 1,113.8      (25.5 )%             (22.9 )%
Motion Technologies        983.4         767.2       28.2  %              12.3  %
Interconnect Solutions     309.6         328.1       (5.6 )%              (6.1 )%
Control Technologies       287.0         281.2        2.1  %                 -  %
Eliminations                (4.7 )        (4.7 )        -  %                 -  %
Total Revenue          $ 2,405.4     $ 2,485.6       (3.2 )%              (7.3 )%

(a) See the section titled " Key Performance Indicators and Non-GAAP

Measures " for a definition and reconciliation of organic revenue and

organic orders.



Industrial Process
Industrial Process revenue for the year ended  was $830.1,
reflecting a decrease of $283.7, or 25.5%, including an unfavorable foreign
currency translation impact of $28.7. Organic revenue decreased 22.9%,
reflecting challenging conditions within oil and gas, mining, and chemical and
industrial markets that have driven lower demand for original equipment and
replacement parts, as well as the postponement of customer maintenance
activities. These challenging conditions resulted in a decline in revenue from
project pumps, baseline pumps and aftermarket of 44%, 18% and 12%, respectively.
Our revenues derived from the oil and gas market declined approximately 36%. Our
revenue in the mining market was down approximately 41%, due to low metal prices
as well as strong prior year bookings in Latin America. Revenue stemming from
the chemical market declined approximately 15% globally, which reflects
significant impacts within North America driven by a decline in large projects.
Orders for the year ended  were $779.1, reflecting a decrease
of $157.6, or 16.8% including unfavorable foreign currency translation impact of
$23.6. Organic orders decreased 14.3%, from the prior year, primarily due to the
challenging market conditions which drove delays and cancellations of capital
projects and customer maintenance and replacement activities. Partially
offsetting these declines was a 27% increase in orders from the chemical market
due to weak orders activity in the prior year.

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Backlog

The level of order and shipment activity related to engineered pumps can vary
significantly from period to period. Backlog as of  was $347.2,
reflecting a decrease of $63.7, or 15.5%. The decrease reflects lower project
order intake due to global capital project delays and lower oil and gas and
mining activity due to market uncertainty and volatility.
Motion Technologies
Motion Technologies revenue for the year ended  was $983.4,
reflecting an increase of $216.2, or 28.2% including incremental revenue of
$126.4 from the acquisition of Wolverine, which was completed in the beginning
of the fourth quarter of 2015, and unfavorable foreign currency translation
impact of $4.7. Organic revenue increased $94.5, or 12.3%, driven primarily by
strength in automotive brake pads due to OEM share gains in China, Europe, and
North America that increased OEM revenue approximately 21%. Sales grew in OES
approximately 10% while sales in independent aftermarket were flat compared to
the prior year. Sales from our KONI business were also flat as growth in our
automotive FSD (frequency selective damping) shock absorber product line was
offset by a decline in the China rail market.
Orders for the year ended  were $998.4, reflecting an increase
of $218.4, or 28.0%, including incremental orders of $126.8 from the acquisition
of Wolverine and unfavorable foreign currency translation impact of $4.5.
Organic orders grew $96.1, or 12.3%, due to overall strength in Friction
Technologies as recent automotive platform wins began to enter the production
cycle as well as an expanding customer base. KONI orders increased approximately
5% due to strength in the U.S. defense market related to an existing position on
a U.S. military platform as well as continued growth in the automotive FSD
product line. This was slightly offset by a weaker China rail market.
Interconnect Solutions
Interconnect Solutions revenue for the year ended  was $309.6,
reflecting a decrease of $18.5, or 5.6%, which includes favorable foreign
currency translation impact of $1.5. Organic revenue decreased $20.0, or 6.1%,
compared to prior year, reflecting a decline in revenue derived from the oil and
gas market of approximately 34% due to weak demand for upstream connectors as
well as a decline in revenue stemming from the defense market of approximately
10%. This was partially offset by our revenues in the transportation and
industrial markets which grew approximately 3% due to strength in applications
for electric vehicles as well as medical products. Sales of end-of-life
non-strategic connector platforms declined approximately 13%.
Orders for the year ended  were $309.5, reflecting a decrease
of $14.8, or 4.6%, including favorable foreign currency translation impact of
$1.3. Organic orders decreased $16.1, or 5.0%, primarily due to weakness in the
upstream oil and gas market and lower order activity in our defense business. In
addition, orders for end-of-life connector platforms decreased approximately 7%.
Control Technologies
Control Technologies revenue for the year ended  was $287.0,
reflecting an increase of $5.8, or 2.1%. Organic revenue was flat, which
excludes the first quarter 2016 incremental benefit from our 2015 acquisition of
Hartzell Aerospace of $8.8, as well as revenue of $3.4 from the 2015 period
generated by an industrial motors product line that was divested in  and
favorable foreign currency translation impacts of $0.5. Organic revenue for CT
Aerospace increased 1% driven by higher defense program and aerospace
aftermarket shipments, partially offset by difficult prior year comparisons in
commercial aerospace OEM. Organic revenue for CT Industrial declined 1% due to
general softness in process control and actuation products.
Orders received during the year ended  were $292.9, reflecting
a decrease of $1.4, or 0.5%. Organic orders declined $10.6, or 3.6%, which
excludes the incremental benefit from our 2015 acquisition of Hartzell Aerospace
of $13.4, orders from the prior year of $4.6 associated with the industrial
product line sold in  and favorable foreign currency translation of
$0.4. The decline in orders is primarily driven by weakness in CT Industrial as
orders decreased approximately 9% due to weak upstream oil and gas demand, a
difficult prior year comparison related to a large project, and general
industrial weakness.


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OPERATING EXPENSES
The following table provides further information by expense type, as well as a
breakdown of operating expense by segment.
                                         2016        2015     Change

General and administrative expenses $ 274.1 258.3 6.1 % Sales and marketing expenses

            170.0       183.2       (7.2 )%
Research and development expenses        80.8        78.9        2.4  %
Asbestos-related (benefit) costs, net   (25.6 )     (91.4 )    (72.0 )%
Total operating expenses              $ 499.3     $ 429.0       16.4  %
By Segment:
Industrial Process                    $ 212.3     $ 221.6       (4.2 )%
Motion Technologies                     139.0       101.5       36.9  %
Interconnect Solutions                   75.4        93.4      (19.3 )%
Control Technologies                     61.3        69.4      (11.7 )%
Corporate & Other                        11.3       (56.9 )       **


** Resulting percentage not considered meaningful.
G&A expenses were $274.1 for the year ended , reflecting an
increase of $15.8, or 6.1%. The year-over-year increase was primarily impacted
by incremental costs from the 2015 acquisition of Wolverine of $14.6. In
addition, a trade name impairment of $4.1 recorded in 2016 in our Industrial
Process segment as the result of challenging conditions experienced within the
upstream oil and gas market, unfavorable foreign currency impacts of $2.4 and a
favorable prior year warranty resolution of approximately $5 was nearly offset
by lower incentive based compensation of $5.7, as well as lower
acquisition-related costs of $3.3.
Sales and marketing expenses for the year ended  were $170.0,
reflecting a decrease of $13.2, or 7.2%, mainly due to focused cost reductions
and lower headcount from our structural reset at Industrial Process, partially
offset by incremental sales and marketing costs of $3.7, related to our fourth
quarter 2015 acquisition of Wolverine.
R&D expenses for the year ended  were $80.8, reflecting an
increase of $1.9, or 2.4%. The increase was primarily driven by incremental
costs of $3.3 related to our acquisition of Wolverine in 2015. In addition,
increased product development activities at Motion Technologies were offset by
lower R&D spending at Control Technologies during 2016 due to the progress made
on the development of a major aerospace program.
During 2016, we recognized a net asbestos-related benefit of $25.6, compared to
a benefit of $91.4 in the prior year. The change is primarily due to a $100.7
benefit recognized in 2015, reflecting a new single firm defense strategy and
streamlined case management to assist in reducing asbestos related defense
costs. This was partially offset by our annual remeasurement which resulted in a
benefit of $81.8 in 2016 compared to a benefit of $44.8 in the prior year. See
Note 18,   Commitments and Contingencies  , in our Notes to the Consolidated
Financial Statements for further information on our asbestos-related liabilities
and assets.

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OPERATING INCOME
The following table illustrates the 2016 and 2015 operating income and operating
margin by segments and at the consolidated level.
                                                 2016        2015     Change
Industrial Process                            $  33.5     $ 141.2      (76.3 )%
Motion Technologies                             171.4       126.4       35.6  %
Interconnect Solutions                           19.1        12.2       56.6  %
Control Technologies                             46.1        42.4        8.7  %
Segment operating income                        270.1       322.2      (16.2 )%
Asbestos-related benefit (cost), net             25.6        91.4      (72.0 )%
Other corporate costs                           (36.8 )     (33.5 )      9.9  %
Total corporate and other (cost) benefit, net   (11.2 )      57.9     (119.3 )%
Total operating income                        $ 258.9     $ 380.1      (31.9 )%
Operating margin:
Industrial Process                                4.0 %      12.7 %     (870 )bp
Motion Technologies                              17.4 %      16.5 %       90 bp
Interconnect Solutions                            6.2 %       3.7 %      250 bp
Control Technologies                             16.1 %      15.1 %      100 bp
Segment operating margin                         11.2 %      13.0 %     (180 )bp
Consolidated operating margin                    10.8 %      15.3 %     (450 )bp


Industrial Process operating income for the year ended 
decreased $107.7, or 76.3%, to $33.5 and resulted in an operating margin of
4.0%, reflecting a decline of 870 basis points. The decrease in operating income
and margin was primarily the result of lower volume which negatively impacted
operating income and operating margin by approximately $132, or 1,150 bp,
respectively. Further impacting operating income was unfavorable foreign
currency impacts of $9, lower contract profitability of approximately $8, a
trade name impairment of $4.1 recorded during 2016 as the result of challenging
conditions experienced within the upstream oil and gas market, favorable
adjustments made in 2015 to reserves established in purchase accounting for a
prior acquisition of $6.7, and a favorable product warranty resolution during
2015 of approximately $5. In addition, restructuring costs in 2016 increased
$8.3 compared to the prior year and pension settlement charges of $3.4 were
recorded in 2016. These items were partially offset by net savings from
restructuring, Lean, sourcing, and cost control initiatives and lower incentive
compensation of $3.3.
Motion Technologies operating income for the year ended 
increased $45.0, or 35.6%, to $171.4 and resulted in an operating margin of
17.4%, reflecting an increase of 90 basis points. The increase in operating
income was primarily driven by higher sales volumes providing approximately $48,
which was partially offset by unfavorable pricing and mix, as well as a gain of
$3 recorded in 2015 related to an insurance recovery and unfavorable foreign
currency impacts of approximately $3. Net savings from Lean, sourcing, and cost
control initiatives was approximately $26 and the 2015 acquisition of Wolverine
provided a benefit of $13.4.
Interconnect Solutions operating income for the year ended 
increased $6.9, or 56.6%, to $19.1 and resulted in an operating margin of 6.2%,
reflecting an increase of 250 basis points. The result reflects net savings from
restructuring, Lean, sourcing, and cost control initiatives of approximately $13
as operational disruptions from the relocation of certain North American
operations dissipated during 2016. In addition, restructuring costs and foreign
currency impacts were favorable by $6.2 and $3, respectively, compared to the
prior year. This was offset by a negative impact from sales volume, price and
mix of approximately $12 as well as higher postretirement-related costs
primarily due to a $5 benefit recognized in 2015 from a plan curtailment.
Control Technologies operating income for the year ended 
increased $3.7, or 8.7%, to $46.1 and resulted in an operating margin of 16.1%,
reflecting an increase of 100 basis points. The increase in operating income was
driven by net savings from restructuring, Lean, sourcing, and cost control
initiatives of approximately $5 and lower restructuring costs of $3.9. In
addition, an unfavorable legal settlement impact of $2 and an impairment charge
of $2 both associated with a non-core product line were recorded in 2015 which
further contributed to the increase over the prior year. This was partially
offset by incremental costs in 2016 of approximately $5 associated with the
relocation and consolidation of certain operations to an existing lower-cost
facility and higher compensation related costs of approximately $2.

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Other corporate costs for the year ended  increased $3.3, or
9.9%, to $36.8, primarily reflecting pension settlement costs of $9.3 which was
partially offset by lower environmental-related costs of approximately $2 (see
Note 18,   Commitments and Contingencies  , for additional information) as well
as lower employee incentive-based costs of approximately $5.
INTEREST AND NON-OPERATING EXPENSES (INCOME), NET
                                                          2016       2015   

Change

Interest (income) expense, net                          $ (0.8 )   $ (2.5 )    (68.0 )%
Miscellaneous expense (income), net                        1.3        0.3      333.3  %
Total interest and non-operating expenses (income), net $  0.5     $ (2.2 ) 

(122.7 )%



Interest (income) expense, net in 2016 reflects a $1.7 unfavorable change
compared to 2015, primarily due to the prior year reversal of accrued interest
related to unrecognized tax benefits as well as additional interest expense
associated with higher annual average outstanding borrowings from our revolving
credit and commercial paper facilities during 2016. This was partially offset by
an increase in 2016 interest income of $1.7 due to refunds of interest earned by
ITT on prepaid taxes to the Internal Revenue Service that exceeded the interest
on tax deficiencies for prior year tax audits.
Miscellaneous expenses (income), net increased $1.0 during 2016, primarily due
to a $1.6 receivable with Xylem and Exelis recognized in 2015 related to the
settlement of the U.S. income tax audit.
INCOME TAX EXPENSE
For the year ended , the Company recognized income tax expense
of $76.0 representing an effective tax rate of 29.4%, compared to income tax
expense of $70.1, and an effective tax rate of 18.3% for 2015. The higher
effective tax rate in 2016 is primarily driven by an increase in the deferred
tax liability on foreign earnings which are not considered indefinitely
reinvested, whereas the lower effective tax rate in 2015 was primarily driven by
the settlement of a U.S. income tax audit and the release of valuation allowance
on certain net deferred tax assets in China due to positive income in recent
years. The Company continues to benefit from a larger mix of earnings in
non-U.S. jurisdictions with favorable tax rates.
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 Argentina, Canada, Germany, Hong
Kong, Italy, Mexico, the U.S. and Venezuela. The estimated tax liability
calculation for unrecognized tax benefits includes dealing with uncertainties in
the application of complex tax laws and regulations in various tax
jurisdictions. Due to the complexity of some uncertainties, the ultimate
resolution may result in a payment that is materially different from 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 due to changes in audit
status, expiration of statutes of limitations and other events. The settlement
of any future examinations could result in changes in amounts attributable to
the Company under its existing Tax Matters Agreement with Exelis and Xylem.
See Note 5,   Income Taxes  , to the Consolidated Financial Statements for
further information on tax-related matters.
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
Results from discontinued operations reflect a gain of $4.2, net of tax, for the
year ended , primarily related to favorable resolutions of
certain legacy liabilities in 2016. Results from discontinued operations for the
year ended  reflect a gain of $39.4, principally related to the
settlement of the U.S. income tax audit. This includes a tax benefit of $38.3
from the recognition of previously unrecognized tax positions, related net
interest income of $3.2, and a $13.2 receivable due from Exelis and Xylem,
partially offset by net tax expense of $17.4 from unfavorable audit adjustments.

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DISCUSSION OF FINANCIAL RESULTS
2015 VERSUS 2014
                                                     2015            2014         Change
Revenue                                         $ 2,485.6       $ 2,654.6           (6.4 )%
Gross profit                                        809.1           866.4           (6.6 )%
Gross margin                                         32.6 %          32.6 %            -
Operating expenses                                  429.0           600.0          (28.5 )%
Operating expense to revenue ratio                   17.3 %          22.6 %         (530 )bp
Operating income                                    380.1           266.4           42.7  %
Operating margin                                     15.3 %          10.0 %          530 bp
Interest and non-operating (income) expenses,
net                                                  (2.2 )           4.4         (150.0 )%
Income tax expense                                   70.1            71.3           (1.7 )%
Effective tax rate                                   18.3 %          27.2 %         (890 )bp
Income from continuing operations attributable
to ITT Inc.                                         312.4           188.4           65.8  %
Income (loss) from discontinued operations, net
of tax                                               39.4            (3.9 ) 

**

Net income attributable to ITT Inc.             $   351.8       $   184.5   

90.7 %



** Resulting percentage not considered meaningful.
All comparisons included with the Discussion of Financial Results 2015 versus
2014 refer to results for the year ended  compared to the year
ended , unless stated otherwise.
REVENUE
The following table illustrates the year-over-year revenue results from each of
our segments for the years ended  and 2014.
                                                               Organic 

Revenue

                            2015          2014     Change            

Growth(a)

Industrial Process     $ 1,113.8     $ 1,208.3       (7.8 )%              (2.4 )%
Motion Technologies        767.2         769.4       (0.3 )%               9.1  %
Interconnect Solutions     328.1         392.8      (16.5 )%             (11.3 )%
Control Technologies       281.2         290.5       (3.2 )%             (10.4 )%
Eliminations                (4.7 )        (6.4 )    (26.6 )%                 -
Total Revenue          $ 2,485.6     $ 2,654.6       (6.4 )%              (1.2 )%


(a) See the section titled " Key Performance Indicators and Non-GAAP

Measures " for a definition and reconciliation of organic revenue and

organic orders.



Our 2015 revenue was significantly impacted by an unfavorable foreign currency
translation impact of $193.8, primarily due to the strengthening of the U.S.
dollar versus the Euro. The decline in revenue during 2015 also reflects the
impact of reduced capital spending levels from the softness in the global
general industrial markets, which were partially offset by the increased sales
volumes at our Motion Technologies segment from market share gains and
geographical expansion within North America and China. Additional details
regarding revenue and orders are provided by segment below.
Industrial Process
Industrial Process revenue for the year ended  was $1,113.8,
reflecting a decrease of $94.5, or 7.8%. Unfavorable foreign currency
fluctuations negatively impacted revenue growth by $65.0, or 5.4%. Organic
revenue decreased 2.4%, compared to 2014, which reflected the challenging oil
and gas and industrial market conditions which impacted customers' capital
spending levels and led to project delays in 2015. However, a large portion of
the impact was offset by shipments from strong bookings in 2014 despite the
difficult market conditions. These were the primary drivers that impacted our
results within the oil and gas market resulting in a revenue decline of
approximately 2%. Revenue stemming from the chemical market declined
approximately 10% globally, which reflected significant impacts within the Asia
Pacific region driven by a decline in large projects. Revenue from the mining
market was down approximately 3% as strength in Latin America, primarily due to
large project pumps, was more than offset by the impact of soft market
conditions in North America.

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Orders for the year ended  were $936.7, reflecting a decrease
of $277.5, or 22.9%. Unfavorable foreign currency fluctuations negatively
impacted order growth by $57.8, or 4.8%. Organic orders declined 18.1%,
primarily reflecting the impact from lower oil prices which decreased the level
of capital investment in the oil and gas markets and created difficult
comparisons to 2014 which included multiple large-scale highly engineered pump
project wins. Soft market conditions also drove lower orders to both the
chemical and mining markets, primarily within North America and Asia. We
experienced modest order improvement in the other general industrial markets,
primarily the pulp and paper and power markets within North America and Latin
America.
Motion Technologies
Motion Technologies revenue for the year ended  was $767.2,
reflecting a decrease of $2.2, or 0.3%. The decrease was due to an unfavorable
foreign currency translation impact of $106.8, offset by organic revenue growth
of $69.7, or 9.1%, and revenue of $34.9 from the acquisition of Wolverine which
was completed in the beginning of fourth quarter of 2015. Organic revenue growth
reflected strength in global automotive brake pads of approximately 12% in
Friction Technologies reflecting increases in the OEM, OES and independent
aftermarket sales channels due to market share gains and geographical expansion
within North America and China. Sales from our KONI business were flat as growth
in the European automotive and U.S. defense markets were partially offset by a
decline in the global rail market.
Orders for the year ended  were $780.0, reflecting a decrease
of $17.0, or 2.1%. The unfavorable foreign currency translation impact of $110.0
was partially offset by organic order growth of $52.9, or 6.6%, and orders of
$40.1 from the acquisition of Wolverine. Organic orders for 2015 increased due
to overall strength in Friction Technologies as our past automotive platform
wins began to enter the production cycle but were partially offset by a
year-over-year decline in KONI orders related to the rail market.
Interconnect Solutions
Interconnect Solutions revenue for the year ended  was $328.1,
reflecting a decrease of $64.7, or 16.5%, which included unfavorable foreign
currency translation impact of $20.3. Organic revenue decreased $44.4, or 11.3%,
as compared to prior year, reflecting a decline in all market categories.
Organic revenue derived from the transportation and industrial market category
declined approximately 12%, primarily due to weak demand in the heavy vehicle
and industrial markets. Organic revenue stemming from the oil and gas market
decreased approximately 25% due primarily to the decline in oil prices and
related decline in North American rig counts. Organic revenue within the
aerospace and defense market declined approximately 6% primarily due to shipment
delays from operational disruptions related to the relocation of certain North
American operations.
Orders for the year ended  were $324.3, reflecting a decrease
of $64.1, or 16.5%, primarily due to a decline in organic orders driven by
challenging industrial market conditions combined with a decline in market
share, end-of-life connector platforms, and included an unfavorable foreign
currency translation impact of $20.0.
Control Technologies
Control Technologies revenue for the year ended  was $281.2,
reflecting a decrease of $9.3, or 3.2%, which included an unfavorable foreign
currency translation impact of $1.7, as well as revenues of $5.0 from 2014
associated with an industrial product line that was sold in . These
decreases were offset by additional revenues of $27.7 from the Hartzell
Aerospace acquisition in . Organic revenue for 2015 decreased $30.3,
or 10.4%, driven by declines at the CT Aerospace and CT Industrial divisions of
8% and 15%, respectively. At CT Aerospace, the declines were driven by weakness
in our automated seat product line, as well as soft market conditions in the
aerospace aftermarket channel. Weakness in our CT Aerospace division was
partially offset by a 6% increase in revenue related to our Defense products. At
CT Industrial, weakness in energy absorption products in Europe and China as
well as the impact from the oil and gas markets and overall weakness in the
industrial markets caused the decline.
Orders received during the year ended  were $294.3, reflecting
an increase of $5.1, or 1.8%, including unfavorable foreign currency translation
impact of $1.8 and an impact of $4.0 from an industrial product line that was
sold in . These items were offset by orders of $31.2 from the
acquisition of Hartzell Aerospace in . On an organic basis, orders
declined $20.3, or 7.0% for the same reasons as discussed above regarding
revenue, and were partially offset by a 36% increase in orders for Defense
products in the CT Aerospace division.

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OPERATING EXPENSES
Operating expenses for the year ended  decreased $171.0,
primarily due to lower net asbestos-related costs as well as from additional
cost savings generated by restructuring and Lean initiative actions. The
following table provides further information by expense type, as well as a
breakdown of operating expense by segment.
                                         2015        2014    Change
Sales and marketing expenses          $ 183.2     $ 219.4     (16.5 )%
General and administrative expenses     258.3       300.1     (13.9 )%
Research and development expenses        78.9        76.6       3.0  %
Asbestos-related (benefit) costs, net   (91.4 )       3.9        **
Total operating expenses              $ 429.0     $ 600.0     (28.5 )%
By Segment:
Industrial Process                    $ 221.6     $ 261.5     (15.3 )%
Motion Technologies                     101.5        88.6      14.6  %
Interconnect Solutions                   93.4       114.6     (18.5 )%
Control Technologies                     69.4        60.4      14.9  %
Corporate & Other                       (56.9 )      74.9        **


** Resulting percentage not considered meaningful.
Sales and marketing expenses for the year ended  were $183.2,
reflecting a decrease of $36.2, or 16.5%, mainly due to lower commission
expenses and other selling and marketing expenses primarily associated with
lower sale volumes and cost reduction actions.
G&A expenses were $258.3 for the year ended , reflecting a
decrease of $41.8, or 13.9%. The decrease was primarily driven by a decline in
corporate costs of $36.7 (excluding asbestos) reflecting lower
environmental-related costs of $12, and a decline in human resource and
culture-related investment spending of approximately $10. G&A expense also
benefited by favorable foreign currency and year-over-year savings from past
restructuring and Lean initiatives, as well as focused cost control efforts
across the entire company. G&A expenses associated with the operations of our
2015 acquisitions were approximately $12, which includes $4.5 of restructuring
charges.
R&D expenses for the year ended  were $78.9, reflecting an
increase of $2.3, or 3.0%. As a percentage of revenue, R&D expenses increased to
3.2% in 2015 from 2.9% in 2014, as we continued to invest in new product
development activities at Control Technologies and Motion Technologies combined
with consistent levels of investment spending at the other two business
segments.
During 2015, we recognized a net asbestos-related benefit of $91.4, compared to
a net asbestos-related cost of $3.9 in 2014. The decrease of $95.3 was primarily
due to a $100.7 benefit recognized during the second quarter of 2015, reflecting
a change in our asbestos defense strategy to retain a single firm to defend the
Company in asbestos litigation. This new long-term strategy helped streamline
the management of cases and significantly reduced defense costs. See Note 18,

Commitments and Contingencies , in our Notes to the Consolidated Financial Statements for further information on our asbestos-related liabilities and assets.

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OPERATING INCOME
Operating income for 2015 was $380.1, reflecting an increase of $113.7, or
42.7%. The change was primarily driven by a $100.7 benefit recognized in the
second quarter of 2015 resulting in a net asbestos-related benefit of $91.4 in
2015. The following table illustrates the 2015 and 2014 operating income and
operating margin by segments and at the consolidated level.
                                                  2015        2014     Change
Industrial Process                             $ 141.2     $ 123.9       14.0  %
Motion Technologies                              126.4       130.9       (3.4 )%
Interconnect Solutions                            12.2        22.2      (45.0 )%
Control Technologies                              42.4        63.5      (33.2 )%
Segment operating income                         322.2       340.5       (5.4 )%
Asbestos-related benefit (cost), net              91.4        (3.9 )       

**

Other corporate costs                            (33.5 )     (70.2 )    (52.3 )%
Total corporate and other benefit (costs), net    57.9       (74.1 )   (178.1 )%
Total operating income                         $ 380.1     $ 266.4       42.7  %
Operating margin:
Industrial Process                                12.7 %      10.3 %      240 bp
Motion Technologies                               16.5 %      17.0 %      (50 )bp
Interconnect Solutions                             3.7 %       5.7 %     (200 )bp
Control Technologies                              15.1 %      21.9 %     (680 )bp
Segment operating margin                          13.0 %      12.8 %       20 bp
Consolidated operating margin                     15.3 %      10.0 %      530 bp


** Resulting percentage not considered meaningful.
Industrial Process operating income for the year ended 
increased $17.3, or 14.0%, to $141.2 and resulted in an operating margin of
12.7%, reflecting growth of 240 basis points. The increase in operating income
and margin was primarily the result of net savings from restructuring, Lean,
sourcing, and cost control initiatives of approximately $29, an adjustment to
reserves established in purchase accounting for a prior acquisition, and a
favorable product warranty resolution during 2015, as well as lower commission
and postretirement costs. The favorability of these items was partially offset
by negative pricing and sales mix impacts of approximately $25 and higher
restructuring costs of $8.
Motion Technologies operating income for the year ended 
decreased $4.5, or 3.4%, to $126.4 and resulted in an operating margin of 16.5%,
reflecting a decline of 50 basis points. The operating income result was
primarily driven by costs of $13.1 related to the acquisition of Wolverine.
Excluding these acquisition costs, operating income increased $8.6, or 6.6%,
driven by higher sales volume growth, coupled with continued press efficiency
improvements and net savings from Lean, sourcing, and cost control initiatives
resulting in a benefit of approximately $48. Also included in the 2015 operating
income is a $3 gain from an insurance recovery. These items were partially
offset by unfavorable foreign currency impacts of approximately $24, as well as
unfavorable pricing and sales mix impacts, higher strategic investment costs,
and legal settlement favorability in 2014 that totaled an unfavorable impact of
approximately $20.
Interconnect Solutions operating income for the year ended 
decreased $10.0, or 45.0%, to $12.2 and resulted in an operating margin of 3.7%,
reflecting a decline of 200 basis points. The result reflected declines in sales
volume of approximately $18 and incremental costs of approximately $25 related
to operational disruptions from the relocation of certain North American
operations. Foreign currency unfavorably impacted operating income results by
approximately $3. The decline in operating income was partially offset by lower
restructuring costs of $14, incremental savings from past restructuring
initiatives that provided a benefit of approximately $14, and lower
postretirement-related costs of $5 primarily due to a benefit from a plan
curtailment.
Control Technologies operating income for the year ended 
decreased $21.1, or 33.2%, to $42.4 and resulted in an operating margin of
15.1%, reflecting a decline of 680 basis points. The decrease in operating
income and margin was primarily related to an unfavorable impact of
approximately $19 due to lower sales volume and mix. In addition, 2015 included
higher restructuring costs of $5 and R&D expenses of $3, as well as an
unfavorable legal settlement impact of $2 and an impairment charge of $2 both
associated with a non-core product line. These

                                       34
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expenses were partially offset by the 2015 operating income generated by the
Hartzell Aerospace acquisition. These items were further offset by net savings
from Lean and sourcing initiatives and cost control management actions of
approximately $9 and lower compensation costs.
Other corporate costs for the year ended  decreased $36.7, or
52.3%, to $33.5, primarily reflecting lower environmental-related costs of $12
(see Note 18,   Commitments and Contingencies  , for additional information) and
a decline in human resource and culture related investment spending of
approximately $10 and generally lower departmental spending due to a focus on
cost control. Other corporate costs also reflected lower insurance-related costs
of approximately $6 and employee incentive costs of approximately $4.
INTEREST AND NON-OPERATING (INCOME) EXPENSES, NET
                                                          2015      2014    

Change

Interest (income) expense, net                          $ (2.5 )   $ 1.5    (266.7 )%
Miscellaneous expense (income), net                        0.3       2.9    

(89.7 )% Total interest and non-operating (income) expenses, net $ (2.2 ) $ 4.4 (150.0 )%



Interest (income) expense, net reflected a $4.0 favorable change for 2015,
primarily due to the reversal of accrued interest in the third quarter of 2015
related to unrecognized tax benefits, partially offset by additional interest
expense associated with higher annual average outstanding borrowings from our
revolving credit and commercial paper facilities during 2015. In addition,
earned interest income declined $1.0 due to lower average interest rates
primarily in Europe and a lower average balance of short-term investments during
2015.
Miscellaneous expenses (income), net decreased $2.6 during 2015, primarily due
to a $1.6 receivable with Xylem and Exelis related to the settlement of the U.S.
income tax audit in the third quarter of 2015, as well as higher income from
equity method investments.
INCOME TAX EXPENSE
For the year ended , the Company recognized income tax expense
of $70.1 representing an effective tax rate of 18.3%, compared to income tax
expense of $71.3, and an effective tax rate of 27.2% for 2014. Our effective tax
rate in 2015 was lower than the statutory tax rate primarily resulting from a
larger mix of foreign income taxed more favorably than the U.S., including a tax
holiday in South Korea, the recognition of previously unrecognized tax benefits
upon the completion of tax examinations and lapses in the statute of
limitations.
After considering all available evidence, including cumulative income and the
absence of any significant negative evidence, the Company released the valuation
allowance against certain foreign net deferred tax assets in China. The Company
continues to maintain a valuation allowance against certain deferred tax assets
attributable to state net operating losses and tax credits, and certain foreign
net deferred tax assets primarily in Luxembourg, Germany and India which were
not expected to be realized. Overall, the 2015 decrease in the valuation
allowance of $11.4 was primarily attributable to the release of valuation
allowance in China.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX
During 2015, the Company recognized income from discontinued operations of
$39.4, principally related to the settlement of the U.S. income tax audit during
the third quarter of 2015. This included a tax benefit of $38.3 from the
recognition of previously unrecognized tax positions, related net interest
income of $3.2, and a $13.2 receivable due from Exelis and Xylem, partially
offset by net tax expense of $17.4 from unfavorable audit adjustments. During
2014, the Company incurred a loss from discontinued operations of $3.9, net of
tax, primarily related to a settlement payment to a former ITT entity.

                                       35
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LIQUIDITY AND CAPITAL RESOURCES
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 commercial paper
market. 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 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. Our intent is generally to indefinitely reinvest these funds
outside of the U.S., consistent with our overall intention to support growth and
expand in markets outside of the U.S. through the development of products,
increased non-U.S. capital spending, and potentially the acquisition of foreign
businesses. However, we have determined that certain undistributed foreign
earnings generated in Luxembourg, Japan, Hong Kong and South Korea should not be
considered permanently reinvested outside of the U.S. Net cash distributions
from foreign countries amounted to $100.0 and $235.0 during 2016 and 2015,
respectively. The timing and amount of future remittances, if any, 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 deems relevant. Therefore, there can be no assurance
as to what level of dividends, if any, will be paid in the future. Aggregate
dividends paid in 2016 were $44.6, compared to $42.8 in 2015 and $40.7 in 2014,
reflecting per share amounts of $0.496, $0.4732, and $0.44, respectively. In the
first quarter of 2017, we declared a quarterly dividend of $0.128 per share for
shareholders of record on .
We repurchased 2.0 shares of ITT common stock in both 2016 and 2015 at a cost of
$70.0 and $80.0, respectively, through our share repurchase program. To date,
under the program the Company has repurchased 20.4 shares for $829.4.
Significant factors that affect our overall management of liquidity include our
credit ratings, the adequacy of commercial paper and supporting 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 access the commercial paper market to supplement the cash flows generated
internally 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 when it is
cost effective to do so. We had $113.5 and $94.5 of commercial paper outstanding
as of  and 2015, respectively. Our average daily outstanding
commercial paper balance for the years ended 2016 and 2015 was $127.5 and $73.1,
respectively, and the maximum outstanding commercial paper during each of those
respective years was $183.0 and $180.0, respectively.
Credit Facilities
Our 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. Two borrowing options are available under
the Credit Agreement: (i) a competitive advance option and (ii) a revolving
credit option. The interest rates for the competitive advance option will be
obtained from bids in accordance with competitive auction procedures. The
interest rates under the revolving credit option will be based either on LIBOR
plus spreads reflecting the Company's credit ratings, or on the Administrative
Agent's Alternate Base Rate. The provisions of the Revolving Credit Agreement
require that we maintain an interest coverage ratio, as defined, of at least
3.0 times and a leverage ratio, as defined, of not more than 3.0 times. At
, we had $100 outstanding under the Revolving Credit Agreement.
Our interest coverage ratio and leverage ratio were within the

                                       36
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prescribed thresholds as of . In the event of certain ratings
downgrades 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 credit facility. On , we
amended the Revolving Credit Agreement to extend the maturity date from  to . The interest rate and fees associated with drawn
amounts are unchanged.
Our credit ratings as of  were as follows:
                          Short-Term   Long-Term
Rating Agency              Ratings      Ratings
Standard & Poor's            A-2          BBB
Moody's Investors Service    P-3         Baa3
Fitch Ratings                 F2         BBB+


Please refer to the rating agency websites and press releases for more
information.
Sources and Uses of Liquidity
Our principal source of liquidity is our cash flow generated from operating
activities, which provides us with the ability to meet the majority of our
short-term funding requirements. The following table summarizes net cash derived
from operating, investing, and financing activities for the three years ended
, 2015, and 2014.
                                                        2016           2015          2014
Operating activities                                 $ 240.7       $  229.7       $ 244.7
Investing activities                                   (54.4 )       (485.5 )       (14.5 )
Financing activities                                  (141.9 )        120.4        (116.6 )
Foreign exchange                                       (11.4 )        (31.6

) (31.2 ) Total net cash flow provided by (used in) continuing operations

                                           $  33.0       $ (167.0 )     $  82.4
Net cash provided by (used in) discontinued
operations                                              12.0           (1.3 )        (5.7 )
Net change in cash and cash equivalents              $  45.0       $ (168.3 

) $ 76.7





Net cash provided by operating activities was $240.7 for the year ended
, representing an increase of $11.0, or 4.8%, from 2015. The
change in net cash provided by operating activities is primarily driven by
improvements in the working capital balance, especially as it relates to
collections of past due accounts receivables. This was partially offset by lower
segment operating income of approximately $41, after adjustments for non-cash
charges, such as depreciation and amortization as well as higher net income
taxes paid of $7.6, higher asbestos-related payments of $6.9, and higher
restructuring cash payments of $5.9.
Net cash provided by operating activities was $229.7 for the year ended
, representing a decrease of $15.0, or 6.1%, from 2014. This
decline was primarily driven by higher asbestos-related payments of $20.7,
higher postretirement benefit contributions of $6.0, and additional
restructuring-related payments of $5.8, and payments associated with the
completion and related integration of acquisitions. In addition, cash provided
by segment operating income declined by $17.1, after adjustments for non-cash
items such as depreciation and amortization. The decrease in net cash provided
by operating activities was partially offset by lower income tax payments, net
of refunds, of $21.5 and fluctuations in working capital, primarily related to
inventory, that resulted in a favorable year-over-year impact of $24.5.
Net cash used in investing activities decreased from $485.5 in 2015 to $54.4 in
2016. The decrease is primarily due to our acquisitions of Wolverine for $298.1
and Hartzell Aerospace for $52.9 during 2015 as well as higher maturities of
short-term investments (net of purchases) of $124.5. This was offset by higher
year-over-year capital expenditure spending of $24.7 due to the construction of
our Motion Technologies North American plant. In addition, the sale of an
industrial product line in 2015 within our Control Technologies segment resulted
in proceeds of $8.9.
Net cash used in investing activities increased from $14.5 in 2014 to $485.5 in
2015, primarily due to our acquisitions of Wolverine for $298.1 and Hartzell
Aerospace for $52.9 during 2015. In addition, net purchases of short-term
investments (net of maturities) exceeded the 2014 amount by $165.2. Capital
expenditure spending decreased $32.1 year-over-year with spending for both years
focused on capacity expansion projects and system upgrades. In addition, during
the second quarter of 2015 we sold an industrial product line within our Control
Technologies segment resulting in proceeds of $8.9.
Net cash used for financing activities was $141.9 for the year ended , compared to net cash provided by financing activity in 2015 of $120.4.
The change reflects lower net borrowings from our revolving credit

                                       37
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facility and commercial paper program of $200.6 and $75.5, respectively.
Partially offsetting this was a $6.2 decrease in repurchases of ITT common stock
and a $6.1 increase in proceeds from the issuance of common stock.
Net cash provided by financing activities was $120.4 for the year ended , reflecting an increase of $237.0 as compared to 2014. The increase
reflects 2015 net borrowings of $150 from our revolving credit facility and
commercial paper issuances of $94.5, partially offset by a $23.8 increase in
repurchases of ITT common stock.
Net cash provided by discontinued operations for the year ended  of $12.0 is primarily related to net receipts during 2016 of $14.8 related
to the settlement of the U.S. income tax audit in 2015 that was reimbursed by
Xylem and Exelis in accordance with the Tax Matters Agreement. Net cash used
related to discontinued operations for the year ended  of $1.3
is primarily related to environmental-related payments for sites formerly owned
by ITT. Net cash used related to discontinued operations for the year ended
 is primarily related to a settlement payment to a former ITT
entity.
Asbestos
Based on the estimated undiscounted asbestos liability as of 
for claims filed or estimated to be filed over the next 10 years, we have
estimated that we will be able to recover approximately 40% 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 tenth year of our
estimate, our insurance recoveries are currently projected to be approximately
15%. 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.
The Company has negotiated with certain of its excess insurers to reimburse the
Company for a portion of its settlement and/or defense costs as incurred,
frequently referred to as "coverage-in-place" agreements. Under
coverage-in-place agreements, an insurer's policies remain in force and the
insurer undertakes to provide coverage for the Company's present and future
asbestos claims on specified terms and conditions that address, among other
things, the share of asbestos claims costs to be paid by the insurer, payment
terms, claims handling procedures and the expiration of the insurer's
obligations. The Company has entered into policy buyout agreements with certain
insurers confirming the aggregate amount of available coverage under the subject
policies and setting forth a schedule for future payments to a Qualified
Settlement Fund, to be disbursed for future asbestos costs. Collectively, these
agreements are designed to facilitate an orderly resolution and collection of
ITT's insurance and to mitigate issues that insurers may raise regarding their
responsibility to respond to claims.
As of , the Company has entered into coverage-in-place
agreements and policy buyout agreements representing approximately 46% of our
recorded asset. Certain of our primary coverage-in-place agreements are
exhausted which may result in higher net cash outflows until excess carriers
begin accepting claims for reimbursement. 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 .
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 2030.
Although asbestos cash outflows can vary significantly from year to year, our
current net cash outflows, net of tax benefits, averaged $13 over the past three
annual periods and are projected to average $15 to $25 over the next five years,
increasing to an average of approximately $30 to $40 per year over the remainder
of the projection period.
In light of the uncertainties and variables inherent in the long-term projection
of the Company's asbestos exposures and potential recoveries, although it is
probable that the Company will incur additional costs for asbestos claims filed
beyond the next 10 years, we do not believe that there is a reasonable basis for
estimating 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 2026.
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

                                       38
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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.
Funding of Postretirement Plans
The following table provides a summary of the funded status of our
postretirement benefit plans as of  and 2015.
                                                  2016                                                         2015
                                            Non-U.S.         Other                                       Non-U.S.         Other
                        U.S. Pension         Pension      Benefits       
Total      U.S. Pension         Pension      Benefits        Total
Fair value of plan
assets                 $       262.2     $       0.9     $     6.1     $  269.2     $       278.1     $       0.9     $     7.9     $  286.9
Projected benefit
obligation                     312.3            79.9         138.8        531.0             339.9            78.0         143.4        561.3
Funded status          $       (50.1 )   $     (79.0 )   $  (132.7 )   $ (261.8 )   $       (61.8 )   $     (77.1 )   $  (135.5 )   $ (274.4 )


The funded status of our U.S. pension plans improved by $11.7 during 2016
primarily due to discretionary company contributions. Our non-U.S. pension
plans, which are typically not funded due to local regulations, had a decrease
in funded status of $1.9 during 2016 due to the decrease in the discount rate
used to measure the benefit obligation.
While the Company has significant discretion in making voluntary contributions,
the Employee Retirement Income Security Act of 1974, and applicable Internal
Revenue Code regulations mandate minimum funding thresholds. Failure to satisfy
the minimum funding thresholds could result in restrictions on our ability to
amend a plan or make benefit payments. In general, certain benefit restrictions
apply when the Adjusted Funding Target Attainment Percentage (AFTAP) of a plan
is less than 80%. When the AFTAP is between 80% and 60%, there is a restriction
on plan amendments and a partial restriction on accelerated benefit payments
(i.e., lump sum payments cannot exceed 50% of the value of the participants
total benefit). Full benefit restrictions apply if the plan's AFTAP falls below
60%. As of , the funding percentages of all ITT U.S. Qualified
pension plans exceeded 80% as calculated using the AFTAP approach.
While we make contributions to our postretirement benefit plans when considered
necessary or advantageous to do so, the minimum funding requirements established
by local government funding or taxing authorities, or established by other
agreements, may influence future contributions. Funding requirements under IRS
rules are a major consideration in making contributions to our U.S. pension
plans. Future minimum funding requirements will depend primarily on the return
on plan assets and discount rate, both determined using AFTAP guidelines.
Depending on these factors, and the resulting funded status of our U.S. pension
plans, the level of future minimum contributions could be material. During 2016
and 2015, we contributed $12.8 and $12.4 to our global pension plans,
respectively. During 2016 and 2015 we made discretionary contributions to our
U.S. pension plans of $7.8 and $7.5, respectively. We anticipate making
contributions to our global pension plans of $4.0 during 2017.
The funded status of our other employee-related defined benefit plans improved
$2.8 during 2016 primarily due to lower than expected benefit payments and
mortality improvements. We contributed $6.2 to our other employee-related
defined benefit plans during both 2016 and 2015. We currently estimate that the
2017 contributions to our other employee-related defined benefit plans will be
approximately $9.0. See Note 15,   Postretirement Benefit Plans  , for
additional financial information related to our postretirement obligations.

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Capital Resources
Long-term debt is generally defined as any debt with an original maturity
greater than 12 months. As of , we have sources of long- and
short-term funding including access to the capital markets through a commercial
paper program and available unused credit lines of $400, as well as general
market access to longer-term markets. Our commercial paper program is supported
by the Revolving Credit Agreement and our policy is to maintain unused committed
bank lines of credit in an amount greater than outstanding commercial paper
balances.
The table below provides long-term debt outstanding and capital lease
obligations at  and 2015.
                                                          2016     2015

Current portion of long-term debt and capital leases $ 0.8 $ 1.2 Non-current portion of long-term debt and capital leases 2.0 2.8 Total long-term debt and capital leases

                  $ 2.8    $ 4.0


Contractual Obligations
ITT's commitment to make future payments under long-term contractual obligations
was as follows, as of :
                                                           Payments Due By 

Period

                                              Less Than                                             More Than
Contractual Obligations         Total          1 Year           1-3 Years         3-5 Years          5 Years
Long-term debt, including
interest and capital leases   $   3.0       $       1.0       $       1.1       $       0.7       $       0.2
Operating leases                156.7              22.8              39.4              31.5              63.0
Purchase obligations(a)          85.3              74.3              10.9               0.1                 -
Other long-term
obligations(b)                  110.1              16.1              30.7              30.5              32.8
Total                         $ 355.1       $     114.2       $      82.1       $      62.8       $      96.0


In addition to the amounts presented in the table above, we have recorded
liabilities for pending asbestos claims and asbestos claims estimated to be
filed over the next 10 years and uncertain tax positions of $954.3 and $36.9,
respectively, in our Consolidated Balance Sheet at . These
amounts have been excluded from the contractual obligations table due to an
inability to reasonably estimate the timing of payments in individual years. In
addition, while we make contributions to our postretirement benefit plans when
considered necessary or advantageous to do so, the minimum funding requirements
established by local government funding or taxing authorities, or established by
other agreements, may influence future contributions. As such, expected
contributions to our postretirement benefit plans have been excluded from the
table above.
(a)  Represents unconditional purchase agreements that are enforceable and

legally binding and that specify all significant terms to purchase goods or

services, including fixed or minimum quantities to be purchased; fixed,

minimum or variable price provisions; and the approximate timing of the

transaction. Purchase agreements that are cancellable without penalty have

been excluded.

(b) Other long-term obligations include amounts recorded on our ,

2016 Consolidated Balance Sheet, including estimated environmental payments

and employee compensation agreements. We estimate based on historical

experience that we will spend between $10 and $15 per year on environmental

investigation and remediation, a portion of which we are legally mandated to

     perform through various orders and agreements with state and federal
     oversight agencies. At , our recorded environmental
     liability was $76.6.



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Off-Balance Sheet Arrangements
Off-balance sheet arrangements represent transactions, agreements or other
contractual arrangements with unconsolidated entities, where an obligation or
contingent interest exists. Our off-balance sheet arrangements, as of
, consist of indemnities related to acquisition and disposition
agreements and certain third-party guarantees.
Indemnities
Since our founding in 1920, we have acquired and disposed of numerous entities.
The related acquisition and disposition agreements contain various
representation and warranty clauses and may provide indemnities for a
misrepresentation or breach of the representations and warranties by either
party. The indemnities address a variety of subjects; the term and monetary
amounts of each such indemnity are defined in the specific agreements and may be
affected by various conditions and external factors. Many of the indemnities
have expired either by operation of law or as a result of the terms of the
agreement. We do not have a liability recorded for these expired
indemnifications and are not aware of any claims or other information that would
give rise to material payments under such indemnities.
As part of the 2011 spin-off, ITT LLC agreed to provide certain indemnifications
and cross-indemnifications among ITT LLC, Exelis and Xylem, subject to limited
exceptions with respect to employee claims. The indemnifications address a
variety of subjects, including asserted and unasserted product liability matters
(e.g., asbestos claims, product warranties) which relate to products
manufactured, repaired and/or sold prior to the date of the 2011 spin-off. These
indemnifications last indefinitely and are not affected by Harris' acquisition
of Exelis. In addition, ITT LLC, Exelis and Xylem agreed to certain
cross-indemnifications with respect to other liabilities and obligations. ITT
LLC expects Exelis and Xylem to fully perform under the terms of the
Distribution Agreement and therefore has not recorded a liability for matters
for which we have been indemnified. In addition, both Exelis and Xylem have made
asbestos indemnity claims that could give rise to material payments under the
indemnity provided by ITT LLC; such claims are included in our estimate of
asbestos liabilities.
Guarantees
We have $146.5 of guarantees, letters of credit and similar arrangements
outstanding at , primarily pertaining to commercial or
performance guarantees and insurance matters. We have not recorded any material
loss contingencies under these guarantees, letters of credit and similar
arrangements as of  as the likelihood of nonperformance by the
underlying obligors is considered remote. From time to time, we may provide
certain third-party guarantees that may be affected by various conditions and
external factors, some of which could require that payments be made under such
guarantees. We do not consider the maximum exposure or current recorded
liabilities under our third-party guarantees to be material either individually
or in the aggregate. We do not believe such payments would have a material
adverse impact on our financial statements.
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. 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. These 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:

                                       41
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• "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 for the years ended  and
2015 are provided below.
                                     Industrial         Motion        Interconnect       Control                            Total
                                       Process       Technologies      Solutions       Technologies     Eliminations         ITT
2016 Revenue                        $    830.1      $      983.4     $    

309.6 $ 287.0 $ (4.7 ) $ 2,405.4 (Acquisitions)/divestitures, net

             -            (126.4 )             -             (5.4 )              -          (131.8 )
Foreign currency translation              28.7               4.7            (1.5 )           (0.5 )            0.1            31.5
2016 Organic revenue                $    858.8      $      861.7     $     308.1      $     281.1      $      (4.6 )    $  2,305.1

2015 Revenue                           1,113.8             767.2           328.1            281.2             (4.7 )       2,485.6
Organic (decline)/growth                 (22.9 )%           12.3 %          (6.1 )%             -  %                          (7.3 )%

2015 Revenue                        $  1,113.8      $      767.2     $    

328.1 $ 281.2 $ (4.7 ) $ 2,485.6 (Acquisitions)/divestitures, net (0.1 )

           (34.9 )             -            (22.7 )              -           (57.7 )
Foreign currency translation              65.0             106.8            20.3              1.7                -           193.8
2015 Organic revenue                $  1,178.7      $      839.1     $     348.4      $     260.2      $      (4.7 )    $  2,621.7

2014 Revenue                           1,208.3             769.4           392.8            290.5             (6.4 )       2,654.6
Organic growth/(decline)                  (2.4 )%            9.1 %         (11.3 )%         (10.4 )%                          (1.2 )%


Reconciliations of organic orders for the years ended  and 2015
are provided below.
                                      Industrial         Motion        Interconnect       Control                            Total
                                       Process        Technologies      Solutions       Technologies     Eliminations         ITT
2016 Orders                         $     779.1      $      998.4     $    

309.5 $ 292.9 $ (5.1 ) $ 2,374.8 (Acquisitions)/divestitures, net

              -            (126.8 )             -             (8.8 )              -          (135.6 )
Foreign currency translation               23.6               4.5            (1.3 )           (0.4 )            0.1            26.5
2016 Organic orders                 $     802.7      $      876.1     $     308.2      $     283.7      $      (5.0 )    $  2,265.7

2015 Orders                               936.7             780.0           324.3            294.3             (4.7 )       2,330.6
Organic (decline)/growth                  (14.3 )%           12.3 %          (5.0 )%          (3.6 )%                          (2.8 )%

2015 Orders                         $     936.7      $      780.0     $    

324.3 $ 294.3 $ (4.7 ) $ 2,330.6 (Acquisitions)/divestitures, net

           (0.1 )           (40.1 )             -            (27.2 )              -           (67.4 )
Foreign currency translation               57.8             110.0            20.0              1.8                -           189.6
2015 Organic orders                 $     994.4      $      849.9     $     344.3      $     268.9      $      (4.7 )    $  2,452.8

2014 Orders                             1,214.2             797.0           388.4            289.2             (5.8 )       2,683.0
Organic growth/(decline)                  (18.1 )%            6.6 %         (11.4 )%          (7.0 )%                          (8.6 )%



                                       42
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• "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 other 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


Reconciliations of segment operating income to adjusted segment operating income
for the years ended , 2015 and 2014 are provided in the tables
below.
                                           Industrial        Motion        Interconnect       Control         Total
Year Ended December 31, 2016                 Process      Technologies      Solutions       Technologies     Segment
Segment operating income                     $   33.5      $     171.4      $      19.1      $      46.1     $ 270.1
Restructuring costs                              20.5              2.5              0.1              1.4        24.5
Acquisition-related expenses                        -              4.3                -              1.5         5.8
Other unusual or infrequent items(a)              7.5             (0.1 )              -              4.5        11.9
Adjusted segment operating income            $   61.5      $     178.1      $      19.2      $      53.5     $ 312.3

Year Ended 
Segment operating income                     $  141.2      $     126.4      $      12.2      $      42.4     $ 322.2
Restructuring costs                              12.2                -              6.3              5.3        23.8
Acquisition-related expenses                     (6.7 )           13.1                -              1.4         7.8
Other unusual or infrequent items                (0.8 )              -              0.4              0.8         0.4
Adjusted segment operating income            $  145.9      $     139.5      $      18.9      $      49.9     $ 354.2

Year Ended 
Segment operating income                     $  123.9      $     130.9      $      22.2      $      63.5     $ 340.5
Restructuring costs                               4.2              2.1             20.5                -        26.8
Other unusual or infrequent items(b)              2.3                -              9.5                -        11.8
Adjusted segment operating income            $  130.4      $     133.0      

$ 52.2 $ 63.5 $ 379.1

(a) The adjustments for other unusual or infrequent items during 2016 include

a $4.1 impairment of intangible assets and pension settlement costs of

$3.4 at Industrial Process, and $4.5 of realignment costs at Control

Technologies associated with an action to move certain production lines.

(b) The adjustments for other unusual or infrequent items during 2014 include

realignment costs at Interconnect Solutions associated with an action to

       move certain production lines and enterprise resource planning (ERP)
       global template design costs and foreign exchange-related impacts at
       Industrial Process associated with our operations in Venezuela.



                                       43
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• "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 other 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. We believe that adjusted income from continuing operations 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.

A reconciliation of adjusted income from continuing operations, including adjusted earnings per diluted share, to income from continuing operations and income from continuing operations per diluted share for the years ended , 2015 and 2014 are provided in the table below.

                                                          2016          

2015 2014 Income from continuing operations attributable to ITT Inc.

                                                   $ 181.9       $ 

312.4 $ 188.4 Restructuring costs, net of tax benefit of $7.1, $5.5, and $8.6, respectively

                                    19.2          18.5          19.5
Asbestos-related (benefit) costs, net of tax (expense)
benefit of $(9.5), $(33.8), and $1.4, respectively       (16.1 )       (57.6 )         2.5
Pension settlement, net of tax benefit of $4.7, $0.0,
and $0.0, respectively                                     8.0             -             -
Tax-related special items(a)                               5.9         

(37.1 ) 3.8 Realignment costs, net of tax benefit of $2.4, $0.9, and $3.2, respectively(b)

                                  4.8           1.4           6.2

Acquisition-related costs, net of tax benefit of $2.2, $5.3, and $0.0, respectively

                               3.6           2.5             -
Other unusual or infrequent items, net of tax of
(expense) benefit of $(0.1), $2.0, and $3.2,
respectively(c)                                            0.8          (8.4 )         8.4
Adjusted income from continuing operations             $ 208.1       $ 

231.7 $ 228.8 Income from continuing operations attributable to ITT Inc. per diluted share

                                 $  2.02       $  

3.44 $ 2.03 Adjusted income from continuing operations per diluted share

                                                  $  2.32       $  

2.55 $ 2.47

(a) The following table details significant components of the tax-related

special items. See Note 5, Income Taxes , to our Consolidated Financial

Statements for further information.



                                                   2016        2015      

2014

Charge on undistributed foreign earnings $ 24.7 $ (7.4 ) $ 0.8 Change in uncertain tax positions

                 (14.5 )     (15.1 )     

0.4

Change in deferred tax asset valuation allowance (0.2 ) (7.3 ) 2.5 Impacts of tax audit closure

                        0.1        (7.0 )     

0.7

Other                                              (4.2 )      (0.3 )    (0.6 )
Net tax-related special items                    $  5.9     $ (37.1 )   $ 

3.8

(b) Realignment costs include expenses to relocate certain production lines and

     enterprise resource planning (ERP) global template design costs.


(c)  Other unusual or infrequent items, net of tax, for 2016 include an
     impairment of a trade name and a reversal of accrued interest related to
     uncertain tax positions.


Other unusual or infrequent items, net of tax, for 2015 primarily reflect the
reversal of accrued interest related to uncertain tax positions and a gain from
an environmental insurance settlement.
Other unusual or infrequent items, net of tax, for 2014 include costs associated
with the Venezuela currency devaluation and IT infrastructure
modification-related expenses following the 2011 spin-offs of Xylem and Exelis.

                                       44
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• "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, 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.

• "adjusted free cash flow conversion" is defined as adjusted free cash flow

divided by adjusted income from continuing operations.



                                              2016        2015        2014
Net cash from continuing operations        $ 240.7     $ 229.7     $ 244.7
Capital expenditures                        (111.4 )     (86.7 )    (118.8 )
Restructuring cash payments                   30.3        24.4        18.6
Net asbestos cash flows                       31.5        24.6         3.9
Other cash payments(a)                         9.4         7.6        24.6
Adjusted free cash flow                    $ 200.5     $ 199.6     $ 173.0

Adjusted income from continuing operations 208.1 231.7 228.8 Adjusted free cash flow conversion

            96.3 %      86.1 %      75.6 %


(a) Other cash payments during 2016 and 2015 include discretionary pension

contributions, net of tax and realignment-related cash payments. Other cash

payments during 2014 include realignment-related cash payments associated

with an action to move certain production lines and develop an ERP global

     template.



                                       45
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CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements and related disclosures in accordance
with GAAP requires us to make judgments, estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes.
Significant accounting policies used in the preparation of the financial
statements are discussed in Note 1, "Description of Business, Basis of
Presentation and Summary of Significant Accounting Policies," to the
Consolidated Financial Statements. An accounting policy is deemed critical if it
requires an accounting estimate to be made based on assumptions about matters
that are highly uncertain at the time the estimate is made, if different
estimates reasonably could have been used, or if changes to the estimate that
are reasonably possible could materially affect the financial statements. Senior
management has discussed the development, selection and disclosure of these
estimates with the Audit Committee of ITT's Board of Directors.
The accounting estimates and assumptions discussed below are those that we
consider most critical to fully understanding our financial statements and
evaluating our results as they are inherently uncertain, involve the most
subjective or complex judgments, include areas where different estimates
reasonably could have been used, and the use of an alternative estimate that is
reasonably possible could materially affect the financial statements. We base
our estimates on historical experience and other data and assumptions believed
to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Management believes that the
accounting estimates employed and the resulting balances reported in the
Consolidated Financial Statements are reasonable; however, actual results could
differ materially from our estimates and assumptions.
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 allege that certain products sold
by our subsidiaries prior to 1985 contained a part manufactured by a third party
(e.g., a gasket) that contained asbestos. To the extent that these third-party
parts may have contained asbestos, it was encapsulated in the gasket (or other)
material and was non-friable. In certain other cases, it is alleged that former
ITT subsidiaries were distributors for other manufacturers' products that may
have contained asbestos.
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. The methodology used to project future asbestos costs is
based largely on the Company's experience in a reference period, including the
last few years, for claims filed, settled and dismissed, and is supplemented by
management's expectations of the future. This experience is compared to the
results of previously conducted epidemiological studies by estimating the number
of individuals likely to develop asbestos-related diseases. Those studies were
undertaken in connection with an independent analysis of the population of
U.S. workers across 11 different industry and occupation categories believed to
have been exposed to asbestos. Using information for the industry and occupation
categories relevant to the Company, an estimate is developed of the number of
claims estimated to be filed against the Company over the next 10 years, as well
as the aggregate settlement costs that would be incurred to resolve both pending
and estimated future claims based on the average settlement costs by disease
during the reference period. In addition, the estimate is augmented for the
costs of defending asbestos claims in the tort system using a forecast based on
recent experience, as well as agreements with the Company's external defense
counsel. The asbestos liability has not been discounted to present value due to
the inability to reliably forecast the timing of future cash flows. The Company
retains a consulting firm to assist management in estimating our potential
exposure to pending asbestos claims and for claims estimated to be filed over
the next 10 years. The methodology to project future asbestos costs is one in
which the underlying assumptions are separately assessed for their
reasonableness and then each is used as an input to the liability estimate. Our
assessment of the underlying assumptions concludes on one value for each
assumption.
The liability estimate is most sensitive to assumptions surrounding mesothelioma
and lung cancer claims, as together, the estimated costs to resolve pending and
estimated future mesothelioma and lung cancer claims represent approximately 95%
of the estimated asbestos exposure, but only 25% of pending claims. The
assumptions related to mesothelioma and lung cancer that are most significant
include the number of new claims forecast to be filed against the Company in the
future, the projected average settlement costs (including the rate of inflation
assumed), the percentage of claims against the Company that are dismissed
without a settlement payment, and the cost to defend against filed claims.

                                       46
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These assumptions are interdependent, and no one factor predominates in
estimating the asbestos liability. While there are other potential inputs to the
model used to estimate our asbestos exposures for pending and estimated future
claims, our methodology relies on the best input available in the circumstances
for each individual assumption and, due to the interdependencies, does not
create a range of reasonably possible outcomes. Projecting future asbestos costs
is subject to numerous variables and uncertainties that are inherently difficult
to predict. In addition to the uncertainties surrounding the key assumptions,
additional uncertainty related to asbestos claims arises from the long latency
period prior to the manifestation of an asbestos-related disease, changes in
available medical treatments and changes in medical costs, changes in plaintiff
behavior resulting from bankruptcies of other companies that are potential
defendants or co-defendants, uncertainties surrounding the litigation process
from jurisdiction to jurisdiction and from case to case, and the impact of
potential legislative or judicial changes.
The forecast period used to estimate our potential exposure to pending and
projected asbestos claims is a judgment based on a number of factors, including
the number and type of claims filed, recent experience with pending claims
activity and whether that experience is expected to continue into the future,
the jurisdictions where claims are filed, the effect of any legislative or
judicial developments, and the likelihood of any comprehensive asbestos
legislation at the federal level. These factors have both positive and negative
effects on the dynamics of asbestos litigation and, accordingly, on our estimate
of the asbestos exposure. Developments related to asbestos tend to be
long-cycle, changing over multi-year periods. We closely monitor these and other
factors and periodically assess whether an alternative forecast period is
appropriate.
We record a corresponding asbestos-related asset that represents our best
estimate of probable recoveries related to the recorded asbestos liability. In
developing this estimate, the Company considers coverage-in-place and other
settlement agreements with its insurers, as well as a number of additional
factors, including expected levels of future cost recovery, the financial
viability of the insurance companies, the method by which losses will be
allocated to the various insurance policies and the years covered by those
policies, the extent to which settlement and defense costs will be reimbursed by
the insurance policies, and interpretation of the various policy and contract
terms and limits and their interrelationships. The asbestos-related asset has
not been discounted to present value, consistent with the asbestos liability as
the timing of the insurance recoveries, including those under coverage-in-place
and other settlement agreements, is dependent on the timing of payments of the
asbestos liability.
The Company retains a consulting firm to assist management in estimating
probable recoveries for pending asbestos claims and for claims estimated to be
filed over the next 10 years based on the analysis of policy terms, the
likelihood of recovery provided by external legal counsel assuming the continued
viability of those insurance carriers that are currently solvent, incorporating
risk mitigation judgments where policy terms or other factors are not certain,
and allocating asbestos settlement and defense costs between our insurers.
Based on the estimated undiscounted asbestos liability as of 
(for claims filed or estimated to be filed over the next 10 years), we have
estimated that we will be able to recover approximately 40% of asbestos
indemnity and defense costs from our insurers. However, 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 lag time between the date a claim is
filed and when it is resolved. Actual insurance reimbursements may vary
significantly from period to period and the anticipated recovery rate is
expected to decline over time due to exhaustion of policies and the insolvency
of certain insurers. In the 10th year of our estimate, our insurance recoveries
are currently projected to be approximately 15%. Future recovery rates may be
impacted (positively and negatively) by other factors, such as future insurance
settlements, unforeseen insolvencies and judicial determinations relevant to our
coverage program, which are difficult to predict and subject to a high degree of
uncertainty.
Our estimated asbestos liability and related receivables are based on
management's best estimate of future events largely based on past experience;
however, past experience may not prove a reliable predictor of the future.
Future events affecting the key assumptions and other variables for either the
asbestos liability or the related receivables could cause actual costs and
recoveries to be materially higher or lower than currently estimated. For
example, a significant upward or downward trend in the number of claims filed,
depending on the nature of the alleged injury, the jurisdiction where filed and
the quality of the product identification could change the estimated liability,
as would substantial adverse verdicts at trial that withstand appeal. A
legislative solution, structured settlement transaction, or significant change
in relevant case law could also change the estimated liability. Further, the
bankruptcy of an insurer or settlements with our insurers, whether through
coverage-in-place agreements or policy buyouts, could change the estimated
amount of recoveries.

                                       47
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Furthermore, any predictions with respect to the variables impacting our
estimate of the asbestos liability and related asset are subject to even greater
uncertainty as the projection period lengthens. In light of the uncertainties
and variables inherent in the long-term projection of the Company's asbestos
exposures and potential recoveries, although it is probable that the Company
will incur additional costs for asbestos claims filed beyond the next 10 years,
we do not believe 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 accrual or
receivable has been recorded for any costs which may be incurred for claims
asserted subsequent to 2026.
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 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.
Revenue Recognition
Revenue is derived from the sale of products and services to customers. We
recognize revenue when persuasive evidence of an arrangement exists, the sales
price is fixed or determinable, collectability is reasonably assured and
delivery has occurred. For product sales, other than long-term construction and
production-type contracts (referred to as design and build arrangements), we
recognize revenue at the time title and risks and rewards of ownership pass to
the customer, which is generally when products are shipped, and the contractual
terms have been fulfilled. Certain contracts with customers require delivery,
installation, testing, certification or other acceptance provisions to be
satisfied before revenue is recognized. In instances where contractual terms
include a provision for customer acceptance, revenue is recognized when either
(i) we have previously demonstrated that the product meets the specified
criteria based on either seller or customer-specified objective criteria or
(ii) on formal acceptance received from the customer where the product has not
been previously demonstrated to meet customer-specified objective criteria.
We generally recognize revenue for certain long-term design and build projects
using the percentage-of-completion method, based upon the percentage of costs
incurred to total projected costs. Revenue and profit recognized under the
percentage-of-completion 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.
We recognize revenue on smaller design and build projects, including those of
short-term duration, using the completed contract method. Provisions for
estimated losses, if any, on uncompleted design and build arrangements, are
recognized in the period in which such losses are determined. Due to the
long-term nature of the contracts, 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.
In , the FASB issued ASU 2014-09 amending the existing accounting
standards for revenue recognition, which is effective for the Company beginning
in its first quarter of 2018. Based on our initial assessment, we have not
identified any material changes to the timing of revenue recognition under the
new standard. See Note 2,   Recent Accounting Pronouncements  , to the
Consolidated Financial Statements for additional information regarding the ASU.
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

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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.
Income Taxes
Deferred income tax assets and liabilities are determined based on the estimated
future tax effects of differences between the financial reporting and tax bases
of assets and liabilities, applying currently enacted tax rates in effect for
the year in which we expect the differences will reverse. We periodically assess
the likelihood that we will be able to recover our deferred tax assets and
reflect any changes to our estimate of the amount we are more likely than not to
realize as a valuation allowance, with a corresponding adjustment to earnings or
other comprehensive income (loss), as appropriate. The ultimate realization of
deferred tax assets depends on the generation of future taxable income
(including the reversals of deferred tax liabilities) during the periods in
which those deferred tax assets will become deductible.
The Company assesses all available positive and negative evidence regarding the
realizability of its deferred tax assets. Significant judgment is required in
assessing the need for any valuation allowance recorded against deferred tax
assets. In assessing the need for a valuation allowance, we consider all
available evidence, both positive and negative, including the future reversal of
existing taxable temporary differences, taxable income in carryback periods,
prudent and feasible tax planning strategies, estimated future taxable income,
and whether we have a recent history of losses. The valuation allowance can be
affected by changes to tax regulations, interpretations and rulings, changes to
enacted statutory tax rates, and changes to future taxable income estimates.
Our effective tax rate reflects the impact of certain undistributed foreign
earnings for which we have not provided U.S. taxes because we plan to reinvest
such earnings indefinitely outside of the U.S. We plan foreign earnings
remittance amounts based on projected cash flow needs, as well as the working
capital and long-term investment requirements of our foreign subsidiaries and
our domestic operations. Based on these assumptions, we estimate the amount we
will distribute to the U.S. and accrue U.S. federal taxes on these planned
foreign remittance amounts. Material changes in our estimates of cash, working
capital and long-term investment requirements in the various jurisdictions in
which we do business could impact our effective tax rate. Our provision for
income taxes could be adversely impacted by changes in our geographic mix of
earnings or changes in the enacted tax rates in the jurisdictions in which we
conduct our business.
The calculation of our deferred and other tax balances involves significant
management judgment when dealing with uncertainties in the application of
complex tax regulations and rulings in a multitude of taxing jurisdictions
across our global operations. The Company is routinely audited by U.S. federal,
state and foreign tax authorities, the results of which could result in proposed
assessments against the Company. We recognize potential liabilities and record
tax liabilities for anticipated tax audit issues based on our estimate of
whether, and to the extent to which, additional taxes will be due. Furthermore,
we recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position in
consideration of applicable tax statutes and related interpretations and
precedents and the expected outcome of the proceedings (or negotiations) with
the taxing authorities. Tax benefits recognized in the financial statements from
such a position are measured based on the largest benefit that has a greater
than 50% likelihood of being realized on ultimate settlement.
We adjust our liability for uncertain tax positions in light of changing facts
and circumstances; however, the ultimate resolution of a tax examination may
differ from the amounts recorded in the financial statements for a number of
reasons, including the Company's decision to settle rather than litigate a
matter, relevant legal precedent related to similar matters, and the Company's
success in supporting its filing positions with the tax authorities. If our
estimate of tax liabilities proves different than the ultimate outcome, such
differences will affect the provision for income taxes in the period in which
such determination is made.

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Postretirement Plans
ITT sponsors numerous defined benefit pension and other postretirement benefit
plans for employees around the world (collectively, postretirement benefit
plans). Postretirement benefit obligations for domestic plans are generally
determined on a flat dollar benefit formula based on years of service.
International plan benefit obligations are primarily determined based on
participant years of service, future compensation, and age at retirement or
termination. The determination of projected benefit obligations and the
recognition of expenses related to postretirement benefit plans are dependent on
various assumptions that are judgmental and developed in consultation with our
actuaries and other advisors. The assumptions involved in the measurement of our
postretirement benefit plan obligations and net periodic postretirement costs
primarily relate to discount rates, long-term expected rates of return on plan
assets, and mortality and termination rates. Actual results that differ from our
assumptions are accumulated and are amortized over the estimated future working
life, or remaining lifetime, of the plan participants depending on the nature of
the retirement plan. See Note 15,   Postretirement Benefit Plans  , to the
Consolidated Financial Statements for detailed information regarding our
postretirement plan assumptions.
Assumption Sensitivity
We estimate that every 25 basis point change in the discount rate impacts net
periodic postretirement costs by approximately $0.4 and the funded status of our
postretirement benefit plans by approximately $13.8. We estimate that every 25
basis point change in the expected rate of return on plan assets impacts net
periodic postretirement costs by approximately $0.7.
Goodwill and Other Intangible Assets
We review goodwill and indefinite-lived intangible assets for impairment
annually and whenever events or changes in circumstances indicate the carrying
value of an asset may not be recoverable. We also review the carrying value of
our finite-lived intangible assets for potential impairment when impairment
indicators arise. We conduct our annual impairment tests as of the first day of
the fourth quarter. When reviewing for impairment, we may opt to make an initial
qualitative evaluation, which considers present events and circumstances, to
determine the likelihood of impairment. Our decision to perform a qualitative
impairment assessment for an individual reporting unit in a given year is
influenced by a number of factors, including the significance of the excess of
the reporting unit's estimated fair value over carrying value at the last
quantitative assessment date, changes in macroeconomic, industry and
reporting-unit specific conditions and the amount of time in between
quantitative fair value measurements. If the likelihood of impairment is not
considered to be more likely than not, then no further testing is performed.
In cases when we opt not to perform a qualitative evaluation or the qualitative
evaluation indicates that the likelihood of impairment is more likely than not,
we then perform a two-step impairment test for goodwill. In the first step, we
compare the estimated fair value of each reporting unit to its carrying value.
If the estimated fair value of the reporting unit exceeds the carrying value of
the net assets assigned to that reporting unit, goodwill is not impaired and we
are not required to perform further testing. If the carrying value of the net
assets assigned to the reporting unit exceeds its fair value, then we must
perform the second step of the impairment test in order to measure the
impairment loss to be recorded, if any. If the carrying value of a reporting
unit's goodwill exceeds its implied fair value, then we record an impairment
loss equal to the difference. In our annual impairment test for indefinite-lived
intangible assets, we compare the fair value of those assets to their carrying
value. We recognize an impairment loss when the estimated fair value of the
indefinite-lived intangible asset is less than its carrying value.
We estimate the fair value of our reporting units using an income approach.
Under the income approach, we calculate fair value based on the present value of
estimated future cash flows. We estimate the fair value of our indefinite-lived
intangible assets using the relief from royalty method. The relief from royalty
method estimates the portion of a company's earnings attributable to an
intellectual property asset based on an assumed royalty rate that the company
would have paid had the asset not been owned.
Determining the fair value of a reporting unit or an indefinite-lived intangible
asset is judgmental in nature and involves the use of significant estimates and
assumptions, particularly related to future operating results and cash flows.
These estimates and assumptions include, but are not limited to, revenue growth
rates and operating margins used to calculate projected future cash flows,
risk-adjusted discount rates, assumed royalty rates, future economic and market
conditions and the identification of appropriate market comparable data. In
addition, the identification of reporting units and the allocation of assets and
liabilities to the reporting units when determining the carrying value of each
reporting unit also requires judgment. Goodwill is tested for impairment at the
reporting unit level, which, based on the applicable accounting guidance, is
either the operating segment or one level below (e.g., the divisions of our
Control Technology segment). The fair value of our reporting units and
indefinite-lived intangible assets are based on estimates and assumptions that
are believed to be reasonable. Significant changes to these estimates and
assumptions could adversely impact our conclusions. Actual future results may
differ from those estimates. Further, had different

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reporting units been identified or had different valuation techniques or
assumptions been utilized, the results of our impairment tests could have
resulted in an impairment loss, which could have been material.
In 2016, a qualitative assessment was performed for all reporting units and it
was determined that it was not more likely than not that the fair value of each
reporting unit was less than its carrying amount. See Note 11,   Goodwill and
Other Intangible Assets, net  , for more information.
Environmental Liabilities
We are subject to various federal, state, local and foreign environmental laws
and regulations that require environmental assessment or remediation efforts.
Accruals for environmental exposures are recorded on a site-by-site basis when
it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated, based on current law and existing
technologies. Significant judgment is required to determine both the likelihood
of a loss and the estimated amount of loss. Engineering studies, probability
techniques, historical experience and other factors are used to identify and
evaluate remediation alternatives and their related costs in estimating our
reserve for environmental liabilities. Our environmental reserve of $76.6 at
, represents management's estimate of undiscounted costs
expected to be incurred related to environmental assessment or remediation
efforts, as well as related legal fees, without regard to potential recoveries
from insurance companies or other third parties. Our estimated liability is
reduced to reflect the participation of other potentially responsible parties in
those instances where it is probable that such parties are legally responsible
and financially capable of paying their respective share of the relevant costs
and that share can be reasonably estimated. Our environmental accruals are
reviewed and adjusted for progress of investigation and remediation efforts and
as additional technical or legal information become available, such as the
impact of negotiations with regulators and other potentially responsible
parties, settlements, rulings, advice of legal counsel, and other current
information.
We closely monitor our environmental responsibilities, together with trends in
the environmental laws. Environmental remediation reserves are subject to
numerous inherent uncertainties that affect our ability to estimate our share of
the costs. Such uncertainties involve incomplete information regarding
particular sites and other potentially responsible parties, uncertainty
regarding the nature and extent of contamination at each site, the extent of
remediation required under existing regulations, our share of any remediation
liability, if any, widely varying cost estimates associated with potential
alternative remedial approaches, the length of time required to remediate a
particular site, the potential effects of continuing improvements in remediation
technology, and changes in environmental standards and regulatory requirements.
While environmental laws and regulations are subject to change, the nature of
such change is inherently unpredictable and the timing of potential changes is
uncertain. The effect of legislative or regulatory changes on environmental
standards could be material to the Company's financial statements. Additionally,
violations by us of such laws and regulations, discovery of previously unknown
or more extensive contamination, litigation involving environmental impacts, our
inability to recover costs associated with any such developments, or financial
insolvency of other potentially responsible parties could have a material
adverse effect on our financial statements.
Although it is not possible to predict with certainty the ultimate costs of
environmental remediation, the reasonably possible high-end range of our
estimated environmental liability at  was $127.6.
Recent Accounting Pronouncements
See Note 2,   Recent Accounting Pronouncements  , in the Notes to the
Consolidated Financial Statements for a complete discussion of recent accounting
pronouncements.

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