FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the quarterly period ended    September 30, 1998
                              --------------------------------------------------
                                       OR
[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the transition period from _________________ to _________________

Commission file number                 0-24900
                      ----------------------------------------------------------

                             ITI Technologies, Inc.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

               Delaware                                  06-1340453
-------------------------------------       ------------------------------------
    (State or other jurisdiction of         (I.R.S. Employer Identification No.)
    incorporation or organization)

               2266 North Second Street, North St. Paul, MN 55109
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                    (Address of principal executive offices)
                                   (Zip Code)

                                 (651) 777-2690
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

                                 Not applicable
--------------------------------------------------------------------------------
     (Former name, former address and former fiscal year, if changed since
                                  last report)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes _X_   No ___

                      APPLICABLE ONLY TO CORPORATE ISSUERS

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

         As of October 31, 1998, there were 8,323,174 shares of common stock
outstanding.

<PAGE>


                             ITI TECHNOLOGIES, INC.

                                    FORM 10-Q

                        QUARTER ENDED SEPTEMBER 30, 1998


                                   INDEX                                    PAGE
                                   -----                                    ----

PART I --    FINANCIAL INFORMATION

             Item 1 --      Consolidated Financial Statements                 3
                                                                             
             Item 2 --      Management's Discussion and Analysis             10
                            of Financial Condition and Results               
                            of Operations                                    
                                                                             
PART II --   OTHER INFORMATION                                               
                                                                             
             Item 1 --      Legal Proceedings                                14
                                                                             
             Item 5 --      Other Information                                15
                                                                             
             Item 6 --      Exhibits and Reports on Form 8-K                 16
                                                                             
             Signatures                                                      17


                                       2

<PAGE>


                                     PART I
                              FINANCIAL INFORMATION

Item 1. Financial Statements.



                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of ITI Technologies, Inc.

We have reviewed the accompanying consolidated balance sheet of ITI
Technologies, Inc. and Subsidiaries as of September 30, 1998, and the related
consolidated statement of operations for the three-month and nine-month periods
ended September 30, 1998 and 1997, and the consolidated statement of cash flows
for the nine-month periods ended September 30, 1998 and 1997. These financial
statements are the responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.

We have audited, in accordance with generally accepted auditing standards, the
consolidated balance sheet of ITI Technologies, Inc. and Subsidiaries as of
December 31, 1997, and the related consolidated statements of operations, cash
flows and stockholders' equity for the year then ended (not presented herein);
and in our report dated March 9, 1998, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information set
forth in the accompanying consolidated financial statements is fairly stated, in
all material respects, in relation to the consolidated financial statements from
which it has been derived.



/s/ PricewaterhouseCoopers LLP

PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
October 29, 1998


                                       3

<PAGE>


                             ITI TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                  FOR THE THREE          FOR THE NINE
                                                   MONTHS ENDED          MONTHS ENDED
                                                  SEPTEMBER 30,          SEPTEMBER 30,
                                              --------------------     -----------------
                                                1998        1997       1998       1997
                                                ----        ----       ----       ----
                                                              (UNAUDITED)
<S>                                           <C>         <C>        <C>        <C>     
Net sales .................................   $ 29,326    $ 26,468   $ 80,379   $ 75,611
Cost of goods sold ........................     16,021      14,516     43,792     40,243
Inventory purchase accounting adjustment ..                                          725
                                              --------    --------   --------   --------
Gross profit ..............................     13,305      11,952     36,587     34,643
Operating expenses:
   Marketing, general and administrative ..      4,917       4,727     14,684     13,433
   Research and development ...............      2,047       1,982      6,041      5,464
   Purchased research and development costs                                        5,200
   Amortization of intangible assets ......        353         352      1,059        876
                                              --------    --------   --------   --------
Operating income ..........................      5,988       4,891     14,803      9,670
Other income (expense):
   Interest, net ..........................        204          75        597        466
   Other, net .............................        (13)          5         50        (19)
                                              --------    --------   --------   --------
Income before income tax expense ..........      6,179       4,971     15,450     10,117
Income tax expense ........................      2,223       1,782      5,562      5,605
                                              --------    --------   --------   --------
Net income ................................   $  3,956    $  3,189   $  9,888   $  4,512
                                              ========    ========   ========   ========
Per share amounts:
Basic .....................................   $    .47    $    .38   $   1.16   $    .54
Weighted average common shares outstanding       8,498       8,409      8,503      8,373
Diluted ...................................   $    .45    $    .36   $   1.11   $    .52
Weighted average common and common
   equivalent shares outstanding ..........      8,880       8,846      8,904      8,649

</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.
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                                        4

<PAGE>


                            ITI TECHNOLOGIES, INC.
                           CONSOLIDATED BALANCE SHEET
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>

                                                              SEPTEMBER 30, DECEMBER 31,
                                                                  1998          1997
                                                              ------------  ------------
                                                              (UNAUDITED)
                                     ASSETS
<S>                                                            <C>          <C>      
Current assets:
   Cash and cash equivalents ...............................   $   5,502    $   5,838
   Accounts receivable .....................................      17,088       14,510
   Inventories .............................................      23,609       21,962
   Deferred income taxes ...................................       1,300        1,300
   Other current assets ....................................       1,922        1,721
                                                               ---------    ---------
      Total current assets .................................      49,421       45,331

Property and equipment .....................................      10,421        9,825
   Excess of cost over net assets acquired .................      27,777       28,380
   Other intangible assets .................................      19,911       18,834
   Notes receivable, net of current portion ................       2,538        1,589
                                                               ---------    ---------
       Total assets ........................................   $ 110,068    $ 103,959
                                                               =========    =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable ........................................   $   5,296    $   5,108
   Accrued wages ...........................................       2,713        1,880
   Other accrued expenses ..................................       2,606        2,007
                                                               ---------    ---------
      Total current liabilities ............................      10,615        8,995
Income taxes ...............................................       7,263        7,263
                                                               ---------    ---------
      Total liabilities ....................................      17,878       16,258
                                                               ---------    ---------

Commitments and contingencies

Stockholders' equity:
   Common stock ($.01 par value; 30,000 shares authorized;
      9,280 shares issued, 8,323 shares outstanding at
      September 30, 1998; 9,190 shares issued, 8,478 shares
      outstanding at December 31, 1997) ....................          93           92
   Additional paid-in capital ..............................      75,493       74,575
   Retained earnings .......................................      31,983       22,095
   Treasury stock, at cost (957 shares at September 30, 1998
      and 712 shares at December 31, 1997) .................     (15,379)      (9,061)
                                                               ---------    ---------
      Total stockholders' equity ...........................      92,190       87,701
                                                               ---------    ---------
      Total liabilities and stockholders' equity ...........   $ 110,068    $ 103,959
                                                               =========    =========

</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.
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                                        5

<PAGE>


                             ITI TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                  FOR THE NINE
                                                                  MONTHS ENDED
                                                                  SEPTEMBER 30,
                                                            -------------------------
                                                               1998           1997
                                                               ----           ----
<S>                                                         <C>            <C>       
OPERATING ACTIVITIES:                                              (UNAUDITED)
Net income .............................................    $    9,888     $    4,512
Adjustments to reconcile net income to net cash
   provided by operating activities:
   Depreciation and amortization .......................         2,791          2,236
   Provision for doubtful accounts .....................           282            209
   Inventory purchase accounting adjustment ............                          725
   Purchased in-process research and development costs .                        5,200
   Changes in operating assets and liabilities:
      Accounts receivable ..............................        (2,860)         1,581
      Inventories ......................................        (1,647)           146
      Other assets .....................................        (1,150)          (647)
      Accounts payable .................................           188          1,011
      Income taxes payable .............................           469          1,440
      Accrued expenses .................................           963            847
                                                            ----------     ----------
Net cash provided by operating activities ..............         8,924         17,260
                                                            ----------     ----------

INVESTING ACTIVITIES:
Additions to property and equipment ....................        (2,250)        (2,222)
Additions to other intangible assets ...................        (1,611)        (1,225)
Issuance of notes receivable ...........................                         (998)
Acquisitions of businesses, net of cash acquired .......                      (20,522)
                                                            ----------     ----------
Net cash used in investing activities ..................        (3,861)       (24,967)
                                                            ----------     ----------

FINANCING ACTIVITIES:
Proceeds from revolving credit agreement ...............                        6,310
Payment of revolving credit agreement ..................                       (6,310)
Proceeds from exercise of common stock options .........           919          1,069
Payments for treasury stock ............................        (6,318)        (1,395)
                                                            ----------     ----------
Net cash used in financing activities ..................        (5,399)          (326)
                                                            ----------     ----------

NET DECREASE IN CASH AND
   CASH EQUIVALENTS ....................................          (336)        (8,033)
CASH AND CASH EQUIVALENTS
   AT BEGINNING OF PERIOD ..............................         5,838         13,352
                                                            ----------     ----------
CASH AND CASH EQUIVALENTS
   AT END OF PERIOD ....................................    $    5,502     $    5,319
                                                            ==========     ==========
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.
--------------------------------------------------------------------------------
                                        6

<PAGE>


NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1.   BASIS OF PRESENTATION

     The unaudited consolidated statement of operations for the three-month and
     nine-month periods ended September 30, 1998 and 1997, reflect, in the
     opinion of management of ITI Technologies, Inc. (the "Company"), all
     normal, recurring adjustments necessary for a fair statement of the results
     of operations for the interim periods. The results of operations for any
     interim period are not necessarily indicative of results for the full year.
     The consolidated balance sheet data as of December 31, 1997, was derived
     from audited consolidated financial statements but does not include all
     disclosures required by generally accepted accounting principles. The
     unaudited consolidated financial statements should be read in conjunction
     with the consolidated financial statements and notes thereto included in
     the Company's Annual Report on Form 10-K for the year ended December 31,
     1997. PricewaterhouseCoopers LLP, the Company's independent accountants,
     have performed reviews of the interim consolidated financial statements
     included herein and their review report thereon accompanies this filing.

     The unaudited consolidated financial statements include the accounts of the
     Company and its wholly owned subsidiaries. All significant intercompany
     accounts and transactions have been eliminated.

2.   LITIGATION

     On August 17, 1995, the Company commenced an action for patent infringement
     against Pittway Corporation and its subsidiary, Ademco Distribution Inc.,
     in the United States District Court for the District of Minnesota. On March
     9, 1998, the jury found that the Ademco VISTA Plus/5800 family of wireless
     security systems infringes the Company's Learn Mode patent and awarded the
     Company damages of approximately $36 million for lost profits and
     royalties. On April 9, 1998, the Court entered an injunction prohibiting
     Pittway Corporation from manufacturing and marketing the Ademco 5800 series
     wireless products that infringe the Company's Learn Mode patent and awarded
     the Company prejudgment interest of approximately $3 million, bringing the
     total judgment to approximately $39 million. Pittway Corporation has
     appealed the verdict. The Company anticipates that the appeal will be
     resolved during the first half of 1999.

     Pittway has announced that in 1997 it had "introduced an improved method of
     enrolling transmitters in its VISTA series of control panels." Pittway
     calls this new method "QED." While the Company has maintained that
     Pittway's QED products also infringe the Company's Learn Mode patent, the
     judge would not allow the Company to add Pittway's QED products to the
     action commenced in August of 1995 to avoid any additional complication and
     delay. Accordingly, the Company commenced a second patent infringement
     lawsuit against Pittway and Ademco Distribution, Inc. on August 3, 1998,
     for infringement of the Company's Learn Mode patent. The suit was also
     filed in the United States District Court for the District of Minnesota.


--------------------------------------------------------------------------------
                                        7

<PAGE>


2.   LITIGATION (CONTINUED)

     Costs associated with these actions and related appeal are being
     capitalized as a patent asset associated with the related technology. As of
     September 30, 1998, the Company has capitalized $4.7 million of costs
     related to these lawsuits, which are included in other intangible assets on
     the consolidated balance sheet.

3.   EARNINGS PER SHARE

     Effective with year-end 1997, the Company adopted Statement of Financial
     Accounting Standard No. 128, "Earnings per Share", and has retroactively
     presented basic and diluted earnings per share in accordance with this
     standard. A dilutive effect on earnings results from the assumed exercise
     of stock options outstanding under the Company's Stock Option Incentive
     Plan.

     The Company calculated basic and diluted earnings per share as follows for
     the third quarter and nine months ended September 30 (in thousands, except
     per share data):

                                             Third Quarter   Nine Months Ended
                                            ---------------  -----------------
                                              1998    1997      1998     1997
                                             ----     ----      ----     ----
     Net income                             $3,956   $3,189   $9,888   $4,512
     Weighted average shares outstanding:
        Basic (actual shares outstanding)    8,498    8,409    8,503    8,373
        Effect of dilutive options             382      437      401      276
                                            ------   ------   ------   ------
        Diluted                              8,880    8,846    8,904    8,649
                                            ======   ======   ======   ======
      
     Per share amounts:
        Basic                               $  .47   $  .38   $ 1.16   $  .54
        Diluted                             $  .45   $  .36   $ 1.11   $  .52

4.   TREASURY STOCK

     On June 18, 1998, the Board of Directors of the Company authorized the
     repurchase, from time to time, of up to 1,000,000 shares of the Company's
     common stock in the open market or in private transactions. Total
     repurchases under this authorization of 245,200 shares occurred during the
     third quarter. The Board also canceled the previous stock repurchase
     program authorized on November 22, 1996, to repurchase up to 900,000
     shares, under which the Company had acquired 711,500 shares.


--------------------------------------------------------------------------------
                                       8

<PAGE>


5.   OTHER FINANCIAL STATEMENT DATA (IN THOUSANDS):

                                             September 30,  December 31,
                                                  1998          1997
                                             ------------   ------------
                                              (UNAUDITED)
Accounts receivable:
   Accounts receivable .....................   $ 18,343      $ 15,555
   Allowance for doubtful accounts .........     (1,255)       (1,045)
                                               --------      --------
        Total ..............................   $ 17,088      $ 14,510
                                               ========      ========
Inventories:                                                 
   Raw materials ...........................   $ 11,800      $  9,956
   Allowance for obsolescence ..............     (1,555)       (1,660)
                                               --------      --------
                                                 10,245         8,296
   Work-in-process .........................      4,969         4,877
   Finished goods ..........................      8,395         8,789
                                               --------      --------
        Total ..............................   $ 23,609      $ 21,962
                                               ========      ========
                                                             
Property and equipment:                                      
   Machinery and equipment .................   $ 11,891      $ 10,080
   Furniture and fixtures ..................      4,269         3,881
   Building and improvements ...............      1,784         1,751
                                               --------      --------
                                                 17,944        15,712
   Accumulated depreciation and amortization     (7,523)       (5,887)
                                               --------      --------
        Total ..............................   $ 10,421      $  9,825
                                               ========      ========
                                                             
Other intangible assets:                                     
   Trademarks and trade names ..............   $ 13,829      $ 13,829
   Technology and patents ..................      5,170         3,569
   Customer lists ..........................      3,007         3,007
   Other ...................................        626           616
                                               --------      --------
                                                 22,632        21,021
   Accumulated amortization ................     (2,721)       (2,187)
                                               --------      --------
        Total ..............................   $ 19,911      $ 18,834
                                               ========      ========
                                                             
Other accrued expenses:                                      
   Warranty ................................   $    650      $    650
   Professional fees .......................        443           493
   Other ...................................      1,513           864
                                               --------      --------
        Total ..............................   $  2,606      $  2,007
                                               ========      ========
 
 
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                                       9

<PAGE>


Item 2.   Management's Discussion and Analysis of Financial Condition and 
          Results of Operations.

            When used in this discussion, the words "believes," "anticipates"
      and similar expressions are intended to identify forward-looking
      statements. Such statements are subject to certain risks and uncertainties
      which could cause actual results to differ materially from those
      projected. Readers are cautioned not to place undue reliance on these
      forward-looking statements which speak only as of the date hereof. The
      Company undertakes no obligation to publish revised forward-looking
      statements to reflect events or circumstances after the date hereof or to
      reflect the occurrence of unanticipated events. Readers are also urged to
      carefully review and consider the various disclosures made by the Company
      which attempt to advise interested parties of the factors which affect the
      Company's business, not only in this report, but also in the Company's
      periodic reports filed with the Securities and Exchange Commission.

GENERAL:

            On June 18, 1998, the Board of Directors of the Company authorized
      the repurchase, from time to time, of up to 1,000,000 shares of the
      Company's common stock in the open market or in private transactions.
      Total repurchases under this authorization of 245,200 shares at a total
      cost of $6.3 million occurred during the third quarter. The Board also
      canceled the previous stock repurchase program authorized on November 22,
      1996, to repurchase up to 900,000 shares, under which the Company had
      acquired 711,500 shares.

            In the second quarter of 1997, the Company purchased all of the
      outstanding stock of CADDX-CADDI Controls, Inc. ("CADDX") for $19.0
      million in cash (the "Acquisition"). CADDX, located in Gladewater, Texas,
      designs, manufactures and markets hardwire electronic security systems.
      Additionally, the Company also completed the cash purchase of the Regency
      product line and dealer program from the Silent Knight Division of
      Willknight, Inc., located in Minneapolis, Minnesota, for $1.8 million.

RESULTS OF OPERATIONS:

            NET SALES. Net sales increased by $2.9 million, or 10.8%, from $26.5
      million for the three months ended September 30, 1997, to $29.3 million
      for the three months ended September 30, 1998. Net sales increased by $4.8
      million, or 6.3%, from $75.6 million for the nine months ended September
      30, 1997, to $80.4 million for the nine months ended September 30, 1998.
      The increase in sales for both the quarter and nine-month period is
      primarily attributable to volume increases reflecting the successful
      introduction of the Company's new products designed for the mass-market
      portion of the industry.

            Excluding sales to the Company's former largest customer's branch
      operations, sales to all other customers increased over 17% from the third
      quarter of 1997. Sales to the Company's former largest customer's branch
      operations declined from $1.5 million of total sales in the third quarter
      of 1997 to less than $200,000 in the third quarter of 1998. No single
      customer accounted for more than 5% of total sales during the third
      quarter of 1998.


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                                       10

<PAGE>


            GROSS PROFIT. Gross profit increased $1.4 million from $12.0 million
      in the third quarter of 1997 to $13.3 million for the third quarter of
      1998 and increased as a percentage of net sales from 45.2% to 45.4% for
      the respective three-month periods. The increase in gross margin
      percentage is due primarily to the leveraging of fixed manufacturing cost
      over the increased sales volume. This benefit has been partially offset by
      the Company's introduction of lower priced, lower margin products designed
      for the highly competitive mass-market portion of the industry and
      additional material and start-up expenses associated with the manufacture
      of new product offerings. Gross profit increased from $34.6 million for
      the first nine months of 1997 to $36.6 million for the first nine months
      of 1998. This increase was primarily due to increased sales volume and
      the effect of a $725,000 non-recurring purchase accounting adjustment in
      the second quarter of 1997 that resulted from the write-up of CADDX
      inventory at the acquisition date to reflect estimated selling price less
      the sum of estimated costs of completion and sale.

            MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general
      and administrative expenses increased from $4.7 million for the third
      quarter of 1997 to $4.9 million for the third quarter of 1998, and
      increased from $13.4 million for the first nine months of 1997 to $14.7
      million for the first nine months of 1998. The dollar increase in expenses
      for the nine month period is primarily due to the addition of CADDX, which
      was only included for a period of five months in 1997. As a percentage of
      net sales, marketing, general and administrative expenses for the third
      quarter decreased from 17.9% in 1997 to 16.8% in 1998. This decrease is
      due to the higher level of sales during the quarter combined with the
      relatively fixed nature of these expenses. For the first nine months of
      the year, these expenses increased from 17.8% of net sales in 1997 to
      18.3% in 1998. This increase was the result of added cost associated with
      additional sales personnel and product technical support for the Company's
      commercial product lines, and marketing expenses incurred during the first
      six months of the year to support the release of new product lines
      scheduled for the second half of 1998.

            RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
      for the quarter and nine-month periods ended September 30, 1998, increased
      $65,000 from the third quarter of 1997 and increased $577,000 from the
      first nine months of 1997, respectively. The increase for both periods was
      primarily due to the Company's continued emphasis on research and new
      product development and the addition of CADDX. New products scheduled to
      be introduced in 1998 include Concord(TM), a modular hybrid control panel
      that allows dealers to start with a low-cost hardwire platform with the
      ability to add wireless sensors, and the release of upgrades to the
      feature content of the Company's traditional control panels. The Company
      also continues development on its Advent(TM) platform, which is designed
      for the commercial burglary and fire market. The Company anticipates that
      expenditures for research and development activities for the year ended
      December 31, 1998, will be between 7% and 8% of net sales.

            PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS. During the
      second quarter of 1997, in conjunction with the Acquisition, the Company
      recorded a $5.2 million non-recurring charge to operations for the value
      assigned at the Acquisition date to purchased technology under
      development.


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                                       11

<PAGE>


            AMORTIZATION OF INTANGIBLE ASSETS. Amortization of
      acquisition-related intangible assets was approximately $350,000 for both
      the third quarter of 1997 and 1998, and increased from $876,000 for the
      first nine months of 1997 to $1.1 million for the first nine months of
      1998. The increase is attributable to the Company's second quarter 1997
      acquisitions.

            NET INTEREST INCOME. Net interest income increased from $75,000 for
      the third quarter of 1997 to $204,000 for the third quarter of 1998, and
      increased from $466,000 during the first nine months of 1997 to $597,000
      for the first nine months of 1998. The prior year's amount was impacted by
      the use of cash and cash equivalents for the second quarter 1997
      acquisitions. In the third quarter of 1998, the Company repurchased under
      its June 18, 1998 stock repurchase program 245,200 shares of its common
      stock for a total of $6.3 million. Due to this use of cash, the Company
      expects interest income in the fourth quarter of 1998 to decrease from the
      third quarter amount.

            INCOME TAX EXPENSE. Income tax expense increased from $1.8 million
      for the third quarter of 1997 to $2.2 million for the third quarter of
      1998, and remained constant at $5.6 million for the first nine months of
      both 1997 and 1998. The Company's effective tax rate for these periods
      varies from the federal statutory rate primarily due to state income
      taxes, net of federal benefit, and the non-deductibility for income tax
      purposes of the amortization of excess of cost over net assets acquired.
      Additionally, the effective tax rate for the nine months ended September
      30, 1997, was negatively impacted by the non-deductibility for income tax
      purposes of the $5.2 million non-recurring second quarter charge for
      purchased technology under development.

LIQUIDITY AND CAPITAL RESOURCES

            The Company has funded its operations primarily with cash from
      operations. For the first nine months of 1998, the Company generated net
      cash from operating activities of $8.9 million. Net cash provided by
      operating activities resulted primarily from $9.9 million in net income,
      $2.8 million in non-cash depreciation and amortization charges, less $4.0
      million from changes in operating assets and liabilities, principally
      accounts receivable, inventory and funding of the Company's dealer
      financing program.

            During 1998, the Company invested $2.3 million in property and
      equipment and $1.6 million in other intangible assets, primarily
      capitalized costs associated with the patent litigation. For the year
      ended December 31, 1998, the Company expects that purchases of property
      and equipment will be approximately $3.0 million.

            For the first nine months of 1998, net cash used in financing 
      activities was $5.4 million. Cash totaling $6.3 million was used to
      repurchase 245,200 shares of the Company's common stock which was
      partially offset by the proceeds from the exercise of stock options of
      $919,000.

            A substantial amount of the Company's working capital is invested in
      accounts receivable, notes receivable and inventories. The Company
      periodically reviews accounts receivable and notes receivable for
      noncollectibility and inventories for obsolescence and establishes
      allowances it believes are appropriate.


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                                       12

<PAGE>


            The Company believes that its current cash position, along with cash
      flows from operations and funds available through the Company's credit
      facility, will be adequate to fund its working capital and capital
      expenditure requirements at least through the end of 1998.

EFFECT OF INFLATION AND FOREIGN CURRENCY TRANSACTIONS

            The Company believes that inflation and foreign currency
      fluctuations have not had a significant effect on its operations.
      Currently, the Company does not conduct any transactions or maintain any
      accounting records in any European currency. As such, the Company
      anticipates that there will be no material effect on its operations as a
      result of the scheduled conversion by eleven member states of the European
      Union to a common currency on January 1, 1999.

IMPACT OF THE YEAR 2000 ISSUE

            The Year 2000 issue is the inability of many computer programs to
      correctly identify dates occurring after December 31, 1999, because they
      use two digits rather than four digits to identify years. This could cause
      a computer system failure or miscalculations, resulting in disruptions of
      operations including, among other things, a temporary inability to process
      transactions or engage in similar normal business activities.

            The Company's assessment of the Year 2000 issue is substantially
      complete. The Company believes that with modifications to existing
      software and conversions to new software, the Year 2000 issue will not
      pose significant operational problems for its computer systems or the
      Company and the cost of such modifications to be immaterial.

            In addition to internal Year 2000 remediation activities, the
      Company is in contact with key suppliers and customers to ensure no
      interruption in the relationship between the Company and these important
      third parties from the Year 2000 issue. A comprehensive survey of all
      vendors and customers has not been, nor will one be, undertaken. All
      efforts thus far have been focused on key vendors and customers. If these
      third parties do not convert their systems in a timely manner and in a way
      that is compatible with the Company's systems, the Year 2000 issue could
      have a material adverse effect on Company operations. The Company believes
      that its actions with key suppliers and customers will minimize these
      risks.

            The vast majority of the Company's products are not date-sensitive.
      The Company has collected information on current and discontinued
      date-sensitive products. This information is available to customers as of
      the date of this filing.

            At this time, the Company does not have in place a comprehensive,
      global contingency plan relative to potential Year 2000 disruptions.
      Rather, each significant system either has been repaired and tested, or is
      being reworked. For systems currently being reworked, contingency plans
      exist to address unforeseen problems.


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                           PART II - OTHER INFORMATION

Item 1.   Legal Proceedings.

          On August 17, 1995, the Company commenced an action for patent
          infringement against Pittway Corporation and its subsidiary, Ademco
          Distribution Inc., in the United States District Court for the
          District of Minnesota. On March 9, 1998, the jury found that the
          Ademco VISTA Plus/5800 family of wireless security systems infringes
          the Company's Learn Mode patent and awarded the Company damages of
          approximately $36 million for lost profits and royalties. On April 9,
          1998, the Court entered an injunction prohibiting Pittway Corporation
          from manufacturing and marketing the Ademco 5800 series wireless
          products that infringe the Company's Learn Mode patent and awarded the
          Company prejudgment interest of approximately $3 million, bringing the
          total judgment to approximately $39 million. Pittway Corporation has
          appealed the verdict. The Company anticipates that the appeal will be
          resolved during the first half of 1999.

          Pittway has announced that in 1997 it had "introduced an improved
          method of enrolling transmitters in its VISTA series of control
          panels." Pittway calls this new method "QED." While the Company has
          maintained that Pittway's QED products also infringe the Company's
          Learn Mode patent, the judge would not allow the Company to add
          Pittway's QED products to the action commenced in August of 1995 to
          avoid any additional complication and delay. Accordingly, the Company
          commenced a second patent infringement lawsuit against Pittway and
          Ademco Distribution, Inc. on August 3, 1998, for infringement of the
          Company's Learn Mode patent. The suit was also filed in the United
          States District Court for the District of Minnesota. Costs associated
          with these actions are being capitalized as a patent asset associated
          with the related technology.

          In addition, the Company experiences routine litigation in the normal
          course of its business. The Company does not believe that any of this
          routine litigation will have a material adverse effect on the
          financial condition or results of operations of the Company. Costs
          associated with routine litigation are expensed in the period
          incurred.


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Item 5.   Other Information.

          Under the Securities Exchange Act of 1934 ("Exchange Act"), the
          Company's stockholders may submit proposals to be considered at an
          annual stockholders' meeting. Rule 14a-8 under the Exchange Act sets
          forth the procedure and requirements for requesting that the Company
          include these proposals in its proxy statement. However, a stockholder
          may submit proposals to be voted on at an annual meeting without
          having the proposals included in the Company's proxy statement. These
          proposals are known as "non-Rule 14a-8 proposals."

          Rule 14a-4(c)(1) under the Exchange Act states when the proxies named
          by a company for an annual meeting may exercise their discretionary
          voting powers for proposals not included in the company's proxy
          statement, including non-Rule 14a-8 stockholder proposals. Rule
          14a-4(c)(1) was recently amended to provide that proxies named by a
          company to vote at an annual meeting may be given discretionary
          authority to vote all proxies with respect to any non-Rule 14a-8
          proposals that properly come before the annual meeting for a vote of
          the stockholders if (i) the company has not received advance notice of
          the proposal at least 45 days before the date on which the company
          first mailed its proxy materials for the prior year's annual
          stockholders' meeting, and (ii) stockholders have been notified by the
          company of this 45-day advance notice requirement.

          The Company hereby notifies its stockholders that for the annual
          meeting of stockholders expected to be held in May 1999, the deadline
          for notifying the Company of any non-Rule 14a-8 stockholder proposals
          is February 16, 1999. Notice of any such proposal must be given in
          writing to the Secretary of the Company, Mr. Charles A. Durant, ITI
          Technologies, Inc., 2266 Second Street North, North St. Paul,
          Minnesota 55109. Therefore, the Company's proxies will be able to
          exercise their discretionary voting authority with respect to any
          non-Rule 14a-8 proposal not submitted to the Company or submitted to
          the Company after February 16, 1999.

          The notification deadline for stockholders wishing to have a Rule
          14a-8 proposal considered for inclusion in the Company's proxy
          solicitation materials for the Annual Meeting of Stockholders to be
          held in 1999 is December 5, 1998, as set forth in the Company's Proxy
          Statement dated April 3, 1998. Such proposals must be set forth in
          writing and received by the Secretary of the Company, Mr. Charles A.
          Durant, at the above address on or before December 5, 1998.


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Item 6.   Exhibits and Reports on Form 8-K.

          (a)  The following exhibits are filed as part of this Quarterly Report
               on Form 10-Q: 
               15.   Letter regarding unaudited interim financial information.

               27.1  Financial data schedule (for electronic filing purposes
                     only).

          (b)  No Current Reports on Form 8-K were filed by the Company during
               the quarter ended September 30, 1998, or during the period from
               September 30, 1998, to the date of this Quarterly Report on Form
               10-Q.


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                                   SIGNATURES

Pursuant to the Requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


Dated:  November 11, 1998                      ITI TECHNOLOGIES, INC.



                                               By  /s/ Jack A. Reichert
                                                   -----------------------------
                                                   Jack A. Reichert
                                                   Vice President of Finance
                                                   (Chief Accounting Officer)


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