<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
------------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
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 1-5627
ITT INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
------------------------
<TABLE>
<S> <C>
INDIANA 13-5158950
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
</TABLE>
4 WEST RED OAK LANE, WHITE PLAINS, NY 10604
(PRINCIPAL EXECUTIVE OFFICE)
TELEPHONE NUMBER: (914) 641-2000
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of July 31, 1997, there were outstanding 118,445,259 shares of common
stock ($1 par value per share) of the registrant.
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<PAGE> 2
ITT INDUSTRIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I
FINANCIAL INFORMATION:
Financial Statements:
Consolidated Condensed Income Statements -- Three Months and Six Months Ended June 30,
1997 and 1996........................................................................ 2
Consolidated Condensed Balance Sheets June 30, 1997 and December 31, 1996.............. 3
Consolidated Condensed Statements of Cash Flows Six Months Ended June 30, 1997 and
1996................................................................................. 4
Notes to Consolidated Condensed Financial Statements................................... 5
Business Segment Information........................................................... 7
Management's Discussion and Analysis of Financial Condition and Results of Operations:
Three Months and Six Months Ended June 30, 1997 and 1996............................... 8
PART II
OTHER INFORMATION:
Submission of Matters to a Vote of Security Holders.................................... 12
Exhibits and Reports on Form 8-K....................................................... 13
Signature............................................................................ 13
Exhibit Index........................................................................ 14
</TABLE>
1
<PAGE> 3
PART I.
FINANCIAL INFORMATION
FINANCIAL STATEMENTS
The following unaudited consolidated condensed financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC) and, in the opinion of management, reflect all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation of the financial position, results of operations, and cash
flows for the periods presented. Certain information and note disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
SEC rules. The Company believes that the disclosures made are adequate to make
the information presented not misleading. Certain amounts in the prior periods'
consolidated condensed financial statements have been reclassified to conform
with the current period presentation. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's 1996 Annual Report on Form 10-K and subsequent
quarterly filing.
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales..................................... $2,250.9 $2,241.2 $4,417.5 $4,442.1
Cost of sales................................. 1,769.6 1,779.1 3,512.3 3,556.4
Research, development, and engineering
expenses.................................... 126.7 128.8 252.7 259.3
-------- -------- -------- --------
Gross margin.................................. 354.6 333.3 652.5 626.4
Selling, general, and administrative
expenses.................................... 193.5 174.9 379.9 365.2
Other operating expenses...................... 3.9 6.3 12.1 4.0
-------- -------- -------- --------
Operating income.............................. 157.2 152.1 260.5 257.2
Interest expense.............................. (31.0) (39.9) (64.3) (83.2)
Interest income............................... 4.1 1.3 7.5 9.9
Miscellaneous income (expense), net........... 5.1 (.2) 4.3 (1.4)
-------- -------- -------- --------
Income before income taxes.................... 135.4 113.3 208.0 182.5
Income tax expense............................ (52.8) (45.6) (81.1) (74.8)
-------- -------- -------- --------
Net income.................................... $ 82.6 $ 67.7 $ 126.9 $ 107.7
======== ======== ======== ========
EARNINGS PER SHARE:
Net income
Primary..................................... $ .68 $ .56 $ 1.05 $ .89
Fully diluted............................... $ .68 $ .56 $ 1.05 $ .89
Cash dividends declared per common share...... $ .15 $ .15 $ .30 $ .30
</TABLE>
- ---------------
The accompanying notes to consolidated condensed financial statements are an
integral part of the above statements.
2
<PAGE> 4
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN MILLIONS, EXCEPT FOR SHARES AND PER SHARE)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................................... $ 102.8 $ 121.9
Receivables, net................................................ 1,524.2 1,189.8
Inventories, net................................................ 859.6 856.9
Other current assets............................................ 127.5 120.5
-------- --------
Total current assets......................................... 2,614.1 2,289.1
Plant, property, and equipment, net............................... 2,233.3 2,166.7
Deferred U.S. income taxes........................................ 206.5 205.1
Goodwill, net..................................................... 1,025.3 349.8
Other assets...................................................... 485.2 480.5
-------- --------
$ 6,564.4 $5,491.2
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................ $ 744.6 $ 731.8
Accrued expenses................................................ 938.1 874.2
Accrued taxes................................................... 137.1 96.8
Notes payable and current maturities of long-term debt.......... 1,685.4 835.6
-------- --------
Total current liabilities.................................... 3,505.2 2,538.4
Pension and postretirement costs.................................. 1,024.6 1,126.7
Long-term debt.................................................... 575.0 583.2
Deferred foreign, state and local income taxes.................... 102.9 109.5
Other liabilities................................................. 427.0 334.2
-------- --------
5,634.7 4,692.0
Shareholders' Equity:
Cumulative Preferred Stock: Authorized 50,000,000 shares, no par
value, none issued........................................... -- --
Common stock:
Authorized 200,000,000 shares, $1 par value per share
Outstanding 118,445,259 shares and 118,436,579 shares........ 118.4 118.4
Capital surplus................................................. 412.1 418.2
Cumulative translation adjustments.............................. 156.4 111.2
Retained earnings............................................... 242.8 151.4
-------- --------
929.7 799.2
-------- --------
$ 6,564.4 $5,491.2
======== ========
</TABLE>
- ---------------
The accompanying notes to consolidated condensed financial statements are an
integral part of the above balance sheets.
3
<PAGE> 5
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
-------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................................. $ 126.9 $ 107.7
Adjustments to net income:
Depreciation......................................................... 199.0 203.4
Amortization......................................................... 21.3 21.5
Change in receivables, inventories, accounts payable, and accrued
expenses (net of effects from purchase of Goulds)................. (232.4) (277.7)
Change in accrued and deferred taxes................................. 51.0 66.0
Other, net........................................................... 42.5 (17.3)
--------- -------
Cash from continuing operations........................................ 208.3 103.6
Cash used for discontinued operations.................................. -- (174.0)
--------- -------
Cash from (used for) operating activities............................ 208.3 (70.4)
--------- -------
INVESTING ACTIVITIES
Additions to plant, property, and equipment............................ (189.7) (173.3)
Proceeds from sale of assets........................................... 100.9 110.7
Acquisitions........................................................... (103.4) --
Payment for purchase of Goulds, net of cash acquired................... (782.6) --
Other, net............................................................. (9.5) --
--------- -------
Cash used for investing activities................................... (984.3) (62.6)
--------- -------
FINANCING ACTIVITIES
Short-term debt, net................................................... 1,051.9 210.2
Long-term debt repaid.................................................. (233.8) (158.2)
Long-term debt issued.................................................. .4 --
Repurchase of common stock............................................. (22.5) --
Dividends paid......................................................... (35.5) (18.0)
Other, net............................................................. 11.3 15.2
--------- -------
Cash from financing activities....................................... 771.8 49.2
--------- -------
EXCHANGE RATE EFFECTS ON CASH AND CASH EQUIVALENTS..................... (14.9) (2.6)
--------- -------
Decrease in cash and cash equivalents.................................. (19.1) (86.4)
Cash and cash equivalents -- beginning of period....................... 121.9 94.2
--------- -------
Cash and cash equivalents -- end of period............................. $ 102.8 $ 7.8
========= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................................. $ 58.2 $ 93.5
========= =======
Income taxes......................................................... $ 26.0 $ 8.2
========= =======
</TABLE>
- ---------------
The accompanying notes to consolidated condensed financial statements are an
integral part of the above statements.
4
<PAGE> 6
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE, UNLESS OTHERWISE STATED)
1) RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
Trade.............................................. $1,537.5 $1,194.3
Accrued for completed work......................... 24.3 32.5
Less -- reserves................................... (37.6) (37.0)
-------- --------
$1,524.2 $1,189.8
======== ========
</TABLE>
2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
Finished goods...................................... $ 352.4 $ 401.6
Work in process..................................... 470.2 434.7
Raw materials....................................... 393.4 301.2
Less -- reserves.................................... (119.3) (81.6)
-- progress payments.......................... (237.1) (199.0)
------- -------
$ 859.6 $ 856.9
======= =======
</TABLE>
3) PLANT, PROPERTY, AND EQUIPMENT
Plant, property, and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
Land and improvements............................. $ 106.8 $ 101.7
Buildings and improvements........................ 819.7 807.7
Machinery and equipment........................... 3,641.4 3,469.1
Construction work in progress..................... 304.0 244.1
Other............................................. 455.6 469.2
--------- ---------
5,327.5 5,091.8
Less -- accumulated depreciation and
amortization.................................... (3,094.2) (2,925.1)
--------- ---------
$ 2,233.3 $ 2,166.7
========= =========
</TABLE>
4) NEW ACCOUNTING ISSUES
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 128 "Earnings per Share", which is
effective for financial statements for periods ending after December 15, 1997.
SFAS 128 requires replacement of primary and fully diluted earnings per share
with basic and diluted earnings per share. The pro forma basic and diluted
earnings per share under SFAS 128 would have been $.70 and $.69, respectively,
for the three months ended June 30, 1997, $.57 and $.56, respectively, for the
three months ended June 30, 1996, $1.07 and $1.05,
5
<PAGE> 7
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (Continued)
(In millions, except per share, unless otherwise stated)
respectively, for the six months ended June 30, 1997, and $.91 and $.89,
respectively, for the six months ended June 30, 1996.
In January 1997, the SEC issued amendments to its rules which clarify and
expand disclosure requirements for derivative financial instruments. As of June
30, 1997, there has been no significant change in the market risk, or accounting
policy associated with derivative financial instruments as stated in the
Company's 1996 Annual Report on Form 10-K.
5) ACQUISITION
On May 23, 1997 (the "date of acquisition"), the Company acquired Goulds
Pumps, Incorporated ("Goulds") for a purchase price of approximately $870 (the
"acquisition"). The acquisition was funded with short-term borrowings and was
accounted for using the purchase method. Accordingly, the purchase price was
allocated to the assets acquired and liabilities assumed on the basis of their
fair values at the date of acquisition. The purchase price allocations have been
prepared on a preliminary basis and changes are expected as evaluations of
assets and liabilities are completed and as additional information becomes
available. The purchase price, plus assumed liabilities of $342, exceeded the
fair value of the assets acquired by approximately $675 and has been recorded as
goodwill, which is being amortized over a period of 40 years. The operating
results of Goulds have been included in the consolidated condensed income
statements from the date of acquisition. The following unaudited pro forma
financial information presents results as if the acquisition had occurred at the
beginning of the respective periods:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................. $2,374.4 $2,438.8 $4,719.7 $4,823.3
Net income............................ 76.8 64.5 115.9 98.5
Earnings per share -- Primary......... .64 .53 .96 .82
Earnings per share -- Fully diluted... .64 .53 .96 .82
</TABLE>
These pro forma results have been prepared for comparative purposes only,
and include certain adjustments such as additional depreciation expense as a
result of a step-up in the basis of fixed assets, additional amortization
expense as a result of goodwill arising from the purchase, and increased
interest expense on acquisition debt. The pro forma results are not necessarily
indicative of the results of operations which actually would have resulted had
the purchase been in effect at the beginning of the respective periods or of
future results.
6
<PAGE> 8
BUSINESS SEGMENT INFORMATION
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
NET SALES
- ----------------------------------------- OPERATING INCOME/(LOSS)
---------------------------------
THREE MONTHS
ENDED SIX MONTHS THREE MONTHS SIX MONTHS
JUNE 30, ENDED ENDED ENDED
- ------------------- JUNE 30, JUNE 30, JUNE 30,
------------------- --------------- ---------------
1997 1996 1997 1996 1997 1996 1997 1996
- -------- -------- -------- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,385.9 $1,448.2 $2,778.9 $2,868.4 Automotive $100.8 $101.9 $174.8 $177.2
409.5 378.2 818.8 731.9 Defense & Electronics 33.9 30.1 59.0 50.2
397.2 320.8 704.7 627.4 Fluid Technology 37.2 29.7 61.1 51.6
58.3 94.0 115.1 214.4 Dispositions & other (1.6) 1.8 (6.3) 5.2
- -------- -------- -------- -------- ------ ------ ------ ------
2,250.9 2,241.2 4,417.5 4,442.1 Total Segments 170.3 163.5 288.6 284.2
-- -- -- -- Corporate expenses (13.1) (11.4) (28.1) (27.0)
- -------- -------- -------- -------- ------ ------ ------ ------
$2,250.9 $2,241.2 $4,417.5 $4,442.1 $157.2 $152.1 $260.5 $257.2
======== ======== ======== ======== ====== ====== ====== ======
</TABLE>
7
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended June 30, 1997 compared with three months ended June 30,
1996
Net income of $82.6 million or $.68 per fully diluted share, increased
22.0% over the $67.7 million or $.56 per fully diluted share reported in the
1996 second quarter. The increase in net income was attributable to a reduction
in interest expense, operating income gains at Defense & Electronics, and a gain
from the sale of the Company's North American aftermarket operations and
industrial lighting and plastic components business.
Net sales for the second quarter of 1997 were slightly higher than the
second quarter of 1996, due mainly to the inclusion of sales from Goulds since
the date of acquisition. Excluding sales from Goulds, sales were $2,183.9
million, down $57.3 million or 2.6% from the 1996 second quarter due to
unfavorable foreign exchange translation and lower sales at non-core operations
held for disposition. Operating income for the second quarter of 1997 of $157.2
million exceeded the $152.1 million in the prior year due mainly to the
inclusion of Goulds' operations since the date of acquisition. Excluding Goulds'
operations, operating income decreased $1.9 million to $150.2 million because of
a decline in earnings of companies held for disposition and slightly higher
headquarters expenses, partially offset by higher earnings at Defense &
Electronics. Other operating income/expenses, which include gains and losses
from foreign exchange transactions and other charges, were $3.9 million in the
current quarter, compared to $6.3 million of expense in the 1996 second quarter.
Operating margins were 7.0% in the second quarter of 1997 compared to 6.8% in
the second quarter of 1996.
Interest expense for the second quarter of 1997 decreased to $31.0 million
compared to $39.9 million in the 1996 second quarter. The reduction in interest
expense is attributable to lower interest rates resulting from the continuation
of the debt restructuring implemented in the fourth quarter of 1996, partially
offset by additional interest expense on debt related to the acquisition of
Goulds. Interest income was $4.1 million in the current quarter compared to $1.3
million in the prior year second quarter, a result of higher cash balances.
The effective income tax rate was 39.0% in the 1997 second quarter compared
to 40.2% in the 1996 second quarter. Income tax expense increased by $7.2
million to $52.8 million in the 1997 second quarter due to higher pretax
earnings.
Business Segments -- Sales and operating income for the three months ended
June 30, 1997, and 1996 ($ in millions) for each of the Company's three major
continuing business segments were as follows:
<TABLE>
<CAPTION>
OPERATING
SALES INCOME
- ------------------- ---------------
THREE MONTHS THREE MONTHS
- ------------------- ---------------
1997 1996 1997 1996
- -------- -------- ------ ------
<S> <C> <C> <C> <C>
$1,385.9 $1,448.2 .................. Automotive .................. $100.8 $101.9
</TABLE>
Automotive's revenue was down approximately $62.3 million or 4.3% due
primarily to unfavorable foreign exchange and continued pricing pressures from
original equipment manufacturers. The reduction in sales due to the disposal of
the North American aftermarket operations during the quarter and the ongoing
strikes at Chrysler Corporation and General Motors Corporation were more than
offset by an increase in worldwide vehicle production and favorable
installation/mix. Operating income for the second quarter of 1997 was slightly
lower than the second quarter of 1996 because of lower prices, the ramp-up of
the new MK-20, and the ongoing strikes discussed above, which were partially
offset by an increase in volume.
8
<PAGE> 10
<TABLE>
<CAPTION>
OPERATING
SALES INCOME
- --------------- -------------
THREE MONTHS THREE MONTHS
- --------------- -------------
1997 1996 1997 1996
- ------ ------ ----- -----
<S> <C> <C> <C> <C>
$409.5 $378.2 ................ Defense & Electronics ................ $33.9 $30.1
</TABLE>
ITT Defense & Electronics' revenue for the quarter was up 8.3% from the
prior year due to sales growth in both the defense and interconnect segments of
the business. Sales growth in the international sector of the defense segment
was strong due to the award of the SINCGARS (Single Channel Ground and Airborne
Radio Systems) contract from the U.S. Army and major orders for Night Vision
equipment from Australia. Operating income increased 12.7% over the 1996 second
quarter, driven by a strong operating performance at Cannon, the result of prior
years' restructuring efforts.
<TABLE>
<CAPTION>
OPERATING
SALES INCOME
- --------------- -------------
THREE MONTHS THREE MONTHS
- --------------- -------------
1997 1996 1997 1996
- ------ ------ ----- -----
<S> <C> <C> <C> <C>
$397.2 $320.8 .................. Fluid Technology .................. $37.2 $29.7
</TABLE>
ITT Fluid Technology's 1997 second quarter sales were 23.8% higher than the
1996 second quarter due to the inclusion of Goulds' sales since the date of
acquisition. Excluding sales from Goulds, ITT Fluid Technology's sales were up
2.9% from the prior year period. Sales growth in the United States and United
Kingdom were partially offset by foreign exchange translation and a continued
decline in municipal spending in Western Europe. The improvement in operating
income was primarily attributable to the inclusion of Goulds' operations since
the date of acquisition. Excluding Goulds, ITT Fluid Technology's operating
income was flat due largely to unfavorable foreign exchange translation.
Six months ended June 30, 1997 compared with six months ended June 30, 1996
Net income of $126.9 million or $1.05 per fully diluted share increased
17.9% over the $107.7 million or $.89 per fully diluted share reported in the
first six months of 1996. The increase in net income was attributable to a
reduction in interest expense, operating income gains at Defense & Electronics,
and a gain from the sale of the Company's North American aftermarket operations
and industrial lighting and plastic components business, partially offset by a
profit decline at companies held for disposition.
Excluding sales from Goulds, the Company's sales were $4,350.5 million,
down 2.1% from the 1996 first six months due to unfavorable foreign exchange
translation and lower sales at non-core operations held for disposition.
Operating income for the first six months of 1997 of $260.5 million exceeded the
$257.2 million in the prior year due to the inclusion of Goulds' operations
since the date of acquisition. Excluding Goulds' operations, operating income
was slightly below the prior year six month period because of a decline in
earnings of companies held for disposition, partially offset by higher earnings
at Defense & Electronics. Other operating income/expenses, which include gains
and losses from foreign exchange transactions and other charges, was expense of
$12.1 million for the first six months of 1997, compared to $4.0 million of
expense for the 1996 first six months. Operating margins were 5.9% in the first
six months of 1997 compared to 5.8% in the first six months of 1996.
Interest expense decreased from $83.2 million for the 1996 first six months
to $64.3 million for the first six months of 1997. The reduction in interest
expense is attributable to lower interest rates resulting from the continuation
of the debt restructuring implemented in the fourth quarter of 1996, partially
offset by interest expense on debt related to the acquisition of Goulds.
Interest income was $7.5 million for the current six month period compared to
$9.9 million for the prior year six month period, a result of lower cash
balances.
The effective income tax rate was 39.0% for the 1997 first six months
compared to 41.0% in the first six months of 1996. Income tax expense increased
by $6.3 million to $81.1 million in the 1997 period due to higher pretax
earnings.
9
<PAGE> 11
Business Segments -- Sales and operating income for the six months ended
June 30, 1997, and 1996 ($ in millions)for each of the Company's three major
continuing business segments were as follows:
<TABLE>
<CAPTION>
OPERATING
SALES INCOME
- ------------------- ---------------
SIX MONTHS SIX MONTHS
- ------------------- ---------------
1997 1996 1997 1996
- -------- -------- ------ ------
<S> <C> <C> <C> <C>
$2,778.9 $2,868.4 ................ Automotive ................ $174.8 $177.2
</TABLE>
Automotive's revenue was down approximately $89.5 million or 3.1% due
primarily to unfavorable foreign exchange and continued pricing pressures from
original equipment manufacturers. Operating income for the first six months of
1997 was lower by $2.4 million as a result of lower prices, unfavorable foreign
exchange, and the ramp-up of the new MK-20, partially offset by an increase in
volume.
<TABLE>
<CAPTION>
OPERATING
SALES INCOME
- ------------------- ---------------
SIX MONTHS SIX MONTHS
- ------------------- ---------------
1997 1996 1997 1996
- -------- -------- ------ ------
<S> <C> <C> <C> <C>
$ 818.8 $ 731.9 ............ Defense & Electronics ............ $ 59.0 $ 50.2
</TABLE>
Sales growth in both the defense and interconnect segments of the business
resulted in a 11.9% increase in ITT Defense & Electronics revenue from the prior
year first six months. The increase in the defense segment sales is due to
strong order input received in 1996 and strong growth in the international
sector. The interconnect segment sales increase is due to improving market
conditions. Operating income was 17.7% higher in the 1997 period, driven by a
strong operating performance at Cannon and volume gains in defense lines.
<TABLE>
<CAPTION>
OPERATING
SALES INCOME
- ------------------- ---------------
SIX MONTHS SIX MONTHS
- ------------------- ---------------
1997 1996 1997 1996
- -------- -------- ------ ------
<S> <C> <C> <C> <C>
$ 704.7 $ 627.4 .............. Fluid Technology .............. $ 61.1 $ 51.6
</TABLE>
ITT Fluid Technology's 1997 first six months sales were 12.3% higher than
the 1996 six month period due primarily to the inclusion of Goulds' sales since
the date of acquisition. Excluding sales from Goulds, ITT Fluid Technology's
sales were up marginally because of growth in the United States and the United
Kingdom, significantly offset by unfavorable foreign exchange translation, a
continued decline in municipal spending in Western Europe, and the absence of
sales from the General Controls product line which was sold in the second
quarter of 1996. The improvement in operating income was primarily attributable
to the inclusion of Goulds' operations since the date of acquisition. Excluding
Goulds, ITT Fluid Technology's operating income was up 4.9%, as a result of cost
control actions in Europe and operating improvements at several North American
units in the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash from operating activities was $208.3 million for the first six months
of 1997 compared to $(70.4) million in the prior year, primarily the result of
lower working capital requirements and the absence of payments related to
discontinued operations.
The increase in working capital (receivables, inventory, payables, and
accrued liabilities) required a cash outflow of $232.4 million, due largely to a
seasonal increase in receivables and the timing of a payment from a major
customer at Automotive. Working capital required a cash outflow of $277.7
million in the first six months of 1996 due to a seasonal increase in
receivables and a reduction in accounts payable at Automotive and Defense &
Electronics.
Many of the Company's businesses require substantial investment in plant
and tooling in order to produce their products. Gross plant additions totaled
$189.7 million for the first six months of 1997, with approximately 73% of that
total incurred at Automotive. Spending for the first six months of 1996 was
$173.3 million, of which approximately 70% was also at Automotive.
10
<PAGE> 12
Cash from investing activities for the first six months of 1997 included
proceeds from the sale of the North American aftermarket operations and the
industrial lighting and plastic components business. Cash outflows included the
purchase of Goulds and the remaining 20% interest in Electrical Systems, Inc.
(ESI) from General Motors Corporation. Cash inflows in the first six months of
1996 included $110.7 million from the sale of land and other assets, including a
portion of ITT Community Development Corporation and the ITT General Controls
product line.
External borrowings were $2,260.4 million at June 30, 1997, compared with
$1,418.8 million at December 31, 1996. Cash and cash equivalents were $102.8
million at June 30, 1997, compared to $121.9 million at year-end 1996. The
higher debt level at June 30, 1997 reflects borrowings to fund the acquisitions
partially offset by proceeds from asset sales as discussed above.
Shareholders' equity increased $130.5 million during the first six months
of 1997, due to growth in retained earnings and cumulative translation
adjustments. On both April 1, 1997 and July 1, 1997, the Company paid a
quarterly dividend of $.15 per share. A quarterly dividend of the same amount
will be paid on October 1, 1997.
11
<PAGE> 13
PART II.
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At ITT Industries' annual meeting of shareholders held on May 15, 1997, the
persons whose names are set forth below were elected as directors, constituting
the entire Board of Directors, with relevant voting information for each person:
<TABLE>
<CAPTION>
VOTES CAST
--------------------------- BROKER
FOR WITHHELD NONVOTES
----------- --------- --------
<S> <C> <C> <C>
Rand V. Araskog............................. 105,092,247 2,142,302 0
Robert A. Burnett........................... 105,872,895 1,361,654 0
Curtis J. Crawford.......................... 106,119,010 1,115,539 0
Michel David-Weill.......................... 106,173,052 1,061,497 0
D. Travis Engen............................. 106,044,168 1,190,381 0
S. Parker Gilbert........................... 106,189,920 1,044,629 0
Edward C. Meyer............................. 106,106,767 1,127,782 0
Sidney Taurel............................... 106,060,161 1,174,388 0
</TABLE>
In addition to the election of directors, the following matters were acted upon:
(a) The vote on the approval of the ITT Industries 1997 Annual Incentive
Plan for Executive Officers was passed by a vote of 102,032,635 shares
in favor, 4,179,203 shares against, 1,022,711 shares abstained, and 0
broker nonvotes.
(b) The vote on the approval of the ITT Industries 1997 Long-Term Incentive
Plan was passed by a vote of 101,050,186 shares in favor, 5,218,994
shares against, 965,369 shares abstained and 0 broker nonvotes.
(c) The reappointment of Arthur Andersen LLP as independent auditors for
1997 was ratified by a vote of 106,436,027 shares in favor, 297,485
shares against, 501,037 shares abstained, and 0 broker nonvotes.
12
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See the Exhibit Index for a list of exhibits filed herewith.
(b) ITT Industries filed Form 8-K Current Reports dated April 22, 1997 and
June 5, 1997, both relating to the acquisition of Goulds Pumps,
Incorporated.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ITT INDUSTRIES, INC.
(Registrant)
By /s/ RICHARD J. TOWNSEND
--------------------------------------
Richard J. Townsend
Vice President and Controller
(Principal accounting officer)
August 13, 1997
13
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION LOCATION
- ------- ---------------------------------------------------------------------- --------------
<C> <S> <C>
(2) Plan of acquisition, reorganization, arrangement, liquidation or None
succession
(3) (i) Restated Articles of Incorporation Filed Herewith
(ii) By-Laws None
(4) Instruments defining the rights of security holders, including None
indentures
(10) Material contracts None
(11) Statement re computation of per share earnings Filed Herewith
(12) Statements re computation of ratios
Calculation of ratio of earnings to total fixed charges Filed Herewith
(15) Letter re unaudited interim financial information None
(18) Letter re change in accounting principles None
(19) Report furnished to security holders None
(22) Published report regarding matters submitted to vote of security None
holders
(23) Consents of experts and counsel None
(24) Power of attorney None
(27) Financial Data Schedule Filed Herewith
(99) Additional Exhibits None
</TABLE>
14
<PAGE> 1
EXHIBIT 3(i)
ARTICLES OF RESTATEMENT
ITT Industries, Inc., a corporation organized and existing under the laws
of the State of Indiana (the "Corporation"), hereby certifies as follows:
ITT Industries, Inc. was originally incorporated under the name ITT
Indiana, Inc. pursuant to its original Articles of Incorporation filed with the
Secretary of State for the State of Indiana on September 5, 1995. Effective
December 20, 1995, ITT Corporation, a Delaware corporation, was merged with and
into the Corporation, and the name of the Corporation was changed to ITT
Industries, Inc. The Restated Articles of Incorporation set forth below only
restate and integrate the provisions of the Corporation's Articles of
Incorporation as heretofore amended or supplemented, and there is no discrepancy
between those provisions and the provisions of these Restated Articles of
Incorporation. This restatement does not contain any amendment to the Articles
of Incorporation of the Corporation requiring shareholder approval. The text of
the Articles of Incorporation as amended or supplemented heretofore is hereby
restated to read as herein set forth in full:
RESTATED ARTICLES OF INCORPORATION
OF
ITT INDUSTRIES, INC.
ARTICLE FIRST
The name of the corporation is ITT Industries, Inc. (the "Corporation").
ARTICLE SECOND
The address of the registered office of the Corporation in the State of
Indiana is One North Capitol Avenue, Suite 1180, Indianapolis, Indiana 46204.
The name of the registered agent of the Corporation at such address is The
Corporation Trust Company.
ARTICLE THIRD
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Indiana Business Corporation
Law.
ARTICLE FOURTH
(a) The aggregate number of shares of stock that the Corporation shall have
authority to issue is 250,000,000 shares, consisting of 200,000,000 shares
designated "Common Stock" and 50,000,000 shares designated "Preferred Stock".
The shares of Common Stock shall have a par value of $1 per share, and the
shares of Preferred Stock shall not have any par or stated value, except that,
solely for the purpose of any statute or regulation imposing any fee or tax
based upon the capitalization of the Corporation, the shares of Preferred Stock
shall be deemed to have a par value of $.01 per share.
(b) The Board of Directors of the Corporation shall have the full authority
permitted by law, at any time and from time to time, to divide the authorized
and unissued shares of Preferred Stock into classes or series, or both, and to
determine the following provisions, designations, powers, preferences and
relative, participating, optional and other special rights and the
qualifications, limitations or restrictions thereof for shares of any such class
or series of Preferred Stock:
(1) the designation of such class or series, the number of shares to
constitute such class or series and the stated or liquidation value
thereof;
1
<PAGE> 2
(2) whether the shares of such class or series shall have voting
rights, in addition to any voting rights provided by law, and, if so, the
terms of such voting rights;
(3) the dividends, if any, payable on such class or series, whether
any such dividends shall be cumulative, and, if so, from what dates, the
conditions and dates upon which such dividends shall be payable, the
preference or relation which such dividends shall bear to the dividends
payable on any shares of stock of any other class or any other series of
the same class;
(4) whether the shares of such class or series shall be subject to
redemption at the election of the Corporation and/or the holders of such
class or series and, if so, the times, price and other conditions of such
redemption, including securities or other property payable upon any such
redemption, if any;
(5) the amount or amounts, if any, payable upon shares of such class
or series upon, and the rights of the holders of such class or series in,
the voluntary or involuntary liquidation, dissolution or winding up, or any
distribution of the assets, of the Corporation; provided that in no event
shall the amount or amounts, if any, exceed $100 per share plus accrued
dividends in the case of involuntary liquidation, dissolution or winding
up;
(6) whether the shares of such class or series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such class or series for retirement
or other corporate purposes and the terms and provisions relative to the
operation thereof;
(7) whether the shares of such class or series shall be convertible
into, or exchangeable for, shares of stock of any other class or any other
series of the same class or any securities, whether or not issued by the
Corporation, and, if so, the price or prices or the rate or rates of
conversion or exchange and the method, if any, of adjusting the same, and
any other terms and conditions of conversion or exchange;
(8) the limitations and restrictions, if any, to be effective while
any shares of such class or series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the purchase,
redemption or other acquisition by the Corporation of, the Common Stock or
shares of stock of any other class or any other series of the same class;
(9) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issuance of any additional
shares of stock, including additional shares of such class or series or of
any other series of the same class or of any other class;
(10) the ranking (be it pari passu, junior or senior) of each class or
series vis-a-vis any other class or series of any class of Preferred Stock
as to the payment of dividends, the distribution of assets and all other
matters; and
(11) any other powers, preferences and relative, participating,
optional and other special rights and any qualifications, limitations or
restrictions thereof, insofar as they are not inconsistent with the
provisions of these Articles of Incorporation, to the full extent permitted
in accordance with the laws of the State of Indiana.
(c) Such divisions and determinations may be accomplished by an amendment
to this ARTICLE FOURTH, which amendment may be made solely by action of the
Board of Directors, which shall have the full authority permitted by law to make
such divisions and determinations.
(d) The powers, preferences and relative, participating, optional and other
special rights of each class or series of Preferred Stock and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other classes or series at any time outstanding; provided
that each series of a class is given a distinguishing designation and that all
shares of a series have powers, preferences and relative, participating,
optional and other special rights and the qualifications, limitations or
2
<PAGE> 3
restrictions thereof identical with those of other shares of the same series
and, except to the extent otherwise provided in the description of the series,
with those other series of the same class.
(e) Holders of shares of Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available for the payment thereof, dividends at the rates fixed by the Board of
Directors for the respective series before any dividends shall be declared and
paid, or set aside for payment, on shares of Common Stock with respect to the
same dividend period. Nothing in this ARTICLE FOURTH shall limit the power of
the Board of Directors to create a series of Preferred Stock with dividends the
rate of which is calculated by reference to, and the payment of which is
concurrent with, dividends on shares of Common Stock.
(f) In the event of the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, holders of shares of each series of Preferred
Stock will be entitled to receive the amount fixed for such series upon any such
event (not in excess of $100 per share in the case of involuntary liquidation,
dissolution or winding up) plus, in the case of any series on which dividends
will have been determined by the Board of Directors to be cumulative, an amount
equal to all dividends accumulated and unpaid thereon to the date of final
distribution whether or not earned or declared before any distribution shall be
paid, or set aside for payment, to holders of Common Stock. If the assets of the
Corporation are not sufficient to pay such amounts in full, holders of all
shares of Preferred Stock will participate in the distribution of assets ratably
in proportion to the full amounts to which they are entitled or in such order or
priority, if any, as will have been fixed in the resolution or resolutions
providing for the issue of the series of Preferred Stock. Neither the merger nor
consolidation of the Corporation into or with any other corporation, nor a sale,
transfer or lease of all or part of its assets, will be deemed a liquidation,
dissolution or winding up of the Corporation within the meaning of this
paragraph except to the extent specifically provided for herein. Nothing in this
ARTICLE FOURTH shall limit the power of the Board of Directors to create a
series of Preferred Stock for which the amount to be distributed upon any
liquidation, dissolution or winding up of the Corporation is calculated by
reference to, and the payment of which is concurrent with, the amount to be
distributed to the holders of shares of Common Stock.
(g) The Corporation, at the option of the Board of Directors, may redeem
all or part of the shares of any series of Preferred Stock on the terms and
conditions fixed for such series.
(h) Except as otherwise required by law, as otherwise provided herein or as
otherwise determined by the Board of Directors as to the shares of any series of
Preferred Stock prior to the issuance of any such shares, the holders of
Preferred Stock shall have no voting rights and shall not be entitled to any
notice of meetings of shareholders.
(i) Each holder of shares of Common Stock shall be entitled to one vote for
each share of Common Stock held of record on all matters on which the holders of
shares of Common Stock are entitled to vote. Subject to the provisions of
applicable law and any certificate of designation providing for the issuance of
any series of Preferred Stock, the holders of outstanding shares of Common Stock
shall have and possess the exclusive right to notice of shareholders' meetings
and the exclusive power to vote. No shareholder will be permitted to cumulate
votes at any election of directors.
(j) Subject to all the rights of the Preferred Stock, the holders of the
Common Stock shall be entitled to receive, when, as and if declared by the Board
of Directors, out of funds legally available for the payment thereof, dividends
payable in cash, stock or otherwise. Upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, and after the
holders of the Preferred Stock of each series shall have been paid in full in
cash the amounts to which they respectively shall be entitled or a sum
sufficient for such payment in full shall have been set aside, the remaining net
assets of the Corporation shall be distributed pro rata to the holders of the
Common Stock in accordance with their respective rights and interests, to the
exclusion of the holders of the Preferred Stock.
3
<PAGE> 4
SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK
A description of such Series A Participating Cumulative Preferred Stock
with the designations, voting powers, preferences and relative, participating,
optional and other special rights and qualifications, limitations or
restrictions relating thereto is as follows:
SECTION 1. Designation and Number of Shares. The shares of such
series shall be designated as "Series A Participating Cumulative Preferred
Stock" (the "Series A Preferred Stock"), without par value. The number of
shares initially constituting the Series A Preferred Stock shall be
300,000; provided, however, that, if more than a total of 300,000 shares of
Series A Preferred Stock shall be issuable upon the exercise of Rights (the
"Rights") issued pursuant to that Rights Agreement between the Corporation
and The Bank of New York, a New York banking corporation, as Rights Agent
(the "Rights Agreement"), the Board of Directors of the Corporation,
pursuant to Section 23-1-25-2(d) of the Business Corporation Law of the
State of Indiana, shall direct by resolution or resolutions that articles
of amendment be properly executed and delivered to the Secretary of State
for the State of Indiana for filing in accordance with the provisions of
Section 23-1-18-1 and Section 23-1-38-6 thereof, providing for the total
number of shares of Series A Preferred Stock authorized to be issued to be
increased (to the extent that the Articles of Incorporation then permit) to
the largest number of whole shares (rounded up to the nearest whole number)
issuable upon exercise of such Rights.
SECTION 2. Dividends or Distributions. (a) Subject to the prior and
superior rights of the holders of shares of any other series of Preferred
Stock or other class of capital stock of the Corporation ranking prior and
superior to the shares of Series A Preferred Stock with respect to
dividends, the holders of shares of the Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors,
out of the assets of the Corporation legally available therefor, (1)
quarterly dividends payable in cash on the last day of each fiscal quarter
in each year, or such other dates as the Board of Directors of the
Corporation shall approve (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or a fraction of
a share of Series A Preferred Stock, in the amount of $.01 per whole share
(rounded to the nearest cent) less the amount of all cash dividends
declared on the Series A Preferred Stock pursuant to the following clause
(2) since the immediately preceding Quarterly Dividend Payment Date or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred Stock
(the total of which shall not, in any event, be less than zero) and (2)
dividends payable in cash on the payment date for each cash dividend
declared on the Common Stock in an amount per whole share (rounded to the
nearest cent) equal to the Formula Number (as hereinafter defined) then in
effect times the cash dividends then to be paid on each share of Common
Stock. In addition, if the Corporation shall pay any dividend or make any
distribution on the Common Stock payable in assets, securities or other
forms of noncash consideration (other than dividends or distributions
solely in shares of Common Stock), then, in each such case, the Corporation
shall simultaneously pay or make on each outstanding whole share of Series
A Preferred Stock a dividend or distribution in like kind equal to the
Formula Number then in effect times such dividend or distribution on each
share of the Common Stock. As used herein, the "Formula Number" shall be
1,000; provided, however, that, if at any time after the Distribution
Record Date (as defined in that Notice of Special Meeting and Proxy
Statement, dated August 30, 1995, filed with the Securities and Exchange
Commission by ITT Corporation), the Corporation shall (i) declare or pay
any dividend on the Common Stock payable in shares of Common Stock or make
any distribution on the Common Stock in shares of Common Stock, (ii)
subdivide (by a stock split or otherwise) the outstanding shares of Common
Stock into a larger number of shares of Common Stock or (iii) combine (by a
reverse stock split or otherwise) the outstanding shares of Common Stock
into a smaller number of shares of Common Stock, then in each such event
the Formula Number shall be adjusted to a number determined by multiplying
the Formula Number in effect immediately prior to such event by a fraction,
the numerator of which is the number of shares of Common Stock that are
outstanding
4
<PAGE> 5
immediately after such event and the denominator of which is the number of
shares of Common Stock that are outstanding immediately prior to such event
(and rounding the result to the nearest whole number); and provided
further, that, if at any time after the Distribution Record Date, the
Corporation shall issue any shares of its capital stock in a merger,
reclassification, or change of the outstanding shares of Common Stock, then
in each such event the Formula Number shall be appropriately adjusted to
reflect such merger, reclassification or change so that each share of
Preferred Stock continues to be the economic equivalent of a Formula Number
of shares of Common Stock prior to such merger, reclassification or change.
(b) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in Section 2(a) immediately prior
to or at the same time it declares a dividend or distribution on the
Common Stock (other than a dividend or distribution solely in shares of
Common Stock); provided, however, that, in the event no dividend or
distribution (other than a dividend or distribution in shares of Common
Stock) shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $.01 per share on the
Series A Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date. The Board of Directors may
fix a record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive a dividend or distribution declared
thereon, which record date shall be the same as the record date for any
corresponding dividend or distribution on the Common Stock.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from and after the
Quarterly Dividend Payment Date next preceding the date of original
issue of such shares of Series A Preferred Stock; provided, however,
that dividends on such shares which are originally issued after the
record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive a quarterly dividend and on or prior
to the next succeeding Quarterly Dividend Payment Date shall begin to
accrue and be cumulative from and after such Quarterly Dividend Payment
Date. Notwithstanding the foregoing, dividends on shares of Series A
Preferred Stock which are originally issued prior to the record date for
the determination of holders of shares or Series A Preferred Stock
entitled to receive a quarterly dividend on the first Quarterly Dividend
Payment Date shall be calculated as if cumulative from and after the
last day of the fiscal quarter next preceding the date of original
issuance of such shares. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Preferred Stock in an
amount less than the total amount of such dividends at the time accrued
and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding.
(d) So long as any shares of the Series A Preferred Stock are
outstanding, no dividends or other distributions shall be declared, paid
or distributed, or set aside for payment or distribution, on the Common
Stock unless, in each case, the dividend required by this Section 2 to
be declared on the Series A Preferred Stock shall have been declared.
(e) The holders of the shares of Series A Preferred Stock shall not
be entitled to receive any dividends or other distributions except as
provided herein.
SECTION 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(a) Each holder of Series A Preferred Stock shall be entitled to a
number of votes equal to the Formula Number then in effect, for each
share of Series A Preferred Stock held of record on each matter on which
holders of the Common Stock or shareholders generally are entitled to
vote, multiplied by the maximum number of votes per share which any
holder of the Common Stock or shareholders generally then have with
respect to such matter (assuming any holding period or other requirement
to vote a greater number of shares is satisfied).
5
<PAGE> 6
(b) Except as otherwise provided herein or by applicable law, the
holders of shares of Series A Preferred Stock and the holders of shares
of Common Stock shall vote together as one class for the election of
directors of the Corporation and on all other matters submitted to a
vote of shareholders of the Corporation.
(c) If, at the time of any annual meeting of shareholders for the
election of directors, the equivalent of six quarterly dividends
(whether or not consecutive) payable on any share or shares of Series A
Preferred Stock are in default, the number of directors constituting the
Board of Directors of the Corporation shall be increased by two. In
addition to voting together with the holders of Common Stock for the
election of other directors of the Corporation, the holders of record of
the Series A Preferred Stock, voting separately as a class to the
exclusion of the holders of Common Stock, shall be entitled at said
meeting of shareholders (and at each subsequent annual meeting of
shareholders), unless all dividends in arrears have been paid or
declared and set apart for payment prior thereto, to vote for the
election of two directors of the Corporation, the holders of any Series
A Preferred Stock being entitled to cast a number of votes per share of
Series A Preferred Stock equal to the Formula Number. Until the default
in payments of all dividends which permitted the election of said
directors shall cease to exist, any director who shall have been so
elected pursuant to the next preceding sentence may be removed at any
time, either with or without cause, only by the affirmative vote of the
holders of the shares of Series A Preferred Stock at the time entitled
to cast a majority of the votes entitled to be cast for the election of
any such director at a special meeting of such holders called for that
purpose, and any vacancy thereby created may be filled by the vote of
such holders. If and when such default shall cease to exist, the holders
of the Series A Preferred Stock shall be divested of the foregoing
special voting rights, subject to revesting in the event of each and
every subsequent like default in payments of dividends. Upon the
termination of the foregoing special voting rights, the terms of office
of all persons who may have been elected directors pursuant to said
special voting rights shall forthwith terminate, and the number of
directors constituting the Board of Directors shall be reduced by two.
The voting rights granted by this Section 3(c) shall be in addition to
any other voting rights granted to the holders of the Series A Preferred
Stock in this Section 3.
(d) Except as provided herein, in Section 11 or by applicable law,
holders of Series A Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
authorizing or taking any corporate action.
SECTION 4. Certain Restrictions. (a) Whenever quarterly dividends or
other dividends or distributions payable on the Series A Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock; provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity stock
in exchange for shares of
6
<PAGE> 7
any stock of the Corporation ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by
the Board of Directors) to all holders of such shares upon such terms
as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (a) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
SECTION 5. Liquidation Rights. Upon the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, no
distribution shall be made (1) to the holders of shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock unless, prior thereto, the holders of
shares of Series A Preferred Stock shall have received an amount, equal to
the accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment, plus an amount equal to the greater
of (x) $.01 per whole share or (y) an aggregate amount per share equal to
the Formula Number then in effect times the aggregate amount to be
distributed per share to holders of Common Stock or (2) to the holders of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except
distributions made ratably on the Series A Preferred Stock and all other
such parity stock in proportion to the total amounts to which the holders
of all such shares are entitled upon such liquidation, dissolution or
winding up; provided that in no event shall the amount or amounts, if any,
exceed $100 per share plus accrued dividends in the case of involuntary
liquidation, dissolution or winding up of the Corporation.
SECTION 6. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash or any other property, then in any such case the
then outstanding shares of Series A Preferred Stock shall at the same time
be similarly exchanged or changed into an amount per share equal to the
Formula Number then in effect times the aggregate amount of stock,
securities, cash or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is exchanged or
changed. In the event both this Section 6 and Section 2 appear to apply to
a transaction, this Section 6 will control.
SECTION 7. No Redemption; No Sinking Fund. (a) The shares of Series
A Preferred Stock shall not be subject to redemption by the Corporation or
at the option of any holder of Series A Preferred Stock; provided, however,
that the Corporation may purchase or otherwise acquire outstanding shares
of Series A Preferred Stock in the open market or by offer to any holder or
holders of shares of Series A Preferred Stock.
(b) The shares of Series A Preferred Stock shall not be subject to
or entitled to the operation of a retirement or sinking fund.
SECTION 8. Ranking. The Series A Preferred Stock shall rank junior
to all other series of Preferred Stock of the Corporation, unless the Board
of Directors shall specifically determine otherwise in fixing the powers,
preferences and relative, participating, optional and other special rights
of the shares of such series and the qualifications, limitations or
restrictions thereof.
SECTION 9. Fractional Shares. The Series A Preferred Stock shall be
issuable upon exercise of the Rights issued pursuant to the Rights
Agreement in whole shares or in any fraction of a share that is one
one-thousandths (1/1,000ths) of a share or any integral multiple of such
fraction which
7
<PAGE> 8
shall entitle the holder, in proportion to such holder's fractional shares,
to receive dividends, exercise voting rights, participate in distributions
and to have the benefit of all other rights of holders of Series A
Preferred Stock. In lieu of fractional shares, the Corporation, prior to
the first issuance of a share or a fraction of a share of Series A
Preferred Stock, may elect (1) to make a cash payment as provided in the
Rights Agreement for fractions of a share other than one one-thousandths
(1/1,000ths) of a share or any integral multiple thereof or (2) to issue
depository receipts evidencing such authorized fraction of a share of
Series A Preferred Stock pursuant to an appropriate agreement between the
Corporation and a depository selected by the Corporation; provided that
such agreement shall provide that the holders of such depository receipts
shall have all the rights, privileges and preferences to which they are
entitled as holders of the Series A Preferred Stock.
SECTION 10. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall upon their cancelation become authorized but
unissued shares of Preferred Stock, without designation as to series until
such shares are once more designated as part of a particular series by the
Board of Directors pursuant to the provisions of ARTICLE FOURTH of the
Articles of Incorporation.
SECTION 11. Amendment. None of the powers, preferences and relative,
participating, optional and other special rights of the Series A Preferred
Stock as provided herein or in the Articles of Incorporation shall be
amended in any manner which would alter or change the powers, preferences,
rights or privileges of the holders of Series A Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of at
least 66 2/3% of the outstanding shares of Series A Preferred Stock, voting
as a separate class, provided, however, that no such amendment approved by
the holders of at least 66 2/3% of the outstanding shares of Series A
Preferred Stock shall be deemed to apply to the powers, preferences, rights
or privileges of any holder of shares of Series A Preferred Stock
originally issued upon exercise of a Right after the time of such approval
without the approval of such holder.
ARTICLE FIFTH
(a) Special meetings of shareholders of the Corporation may be called only
by the Chairman of the Board of Directors or by a majority vote of the entire
Board of Directors.
(b) Shareholders of the Corporation shall not have any preemptive rights to
subscribe for additional issues of stock of the Corporation except as may be
agreed from time to time by the Corporation and any such shareholder.
(c) Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation, if any, shall
have the right, voting separately by class or series, to elect directors at an
annual or special meeting of shareholders, an election, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of the applicable resolution or resolutions of the Board of Directors
adopted pursuant to ARTICLE FOURTH of these Articles of Incorporation.
ARTICLE SIXTH
To the fullest extent permitted by applicable law as then in effect, no
director or officer shall be personally liable to the Corporation or any of its
shareholders for damages for breach of fiduciary duty as a director or officer,
except for liability (a) for breach of duty if such breach constitutes wilful
misconduct or recklessness or (b) for the payment of distributions to
shareholders in violation of Section 23-1-28-3 of the Indiana Business
Corporation Law. Any repeal or modification of this ARTICLE SIXTH by the
shareholders of the Corporation shall not adversely affect any right or
protection of a director or officer of the Corporation existing at the time of
such repeal or modification with respect to acts or omissions occurring prior to
such repeal or modification.
8
<PAGE> 9
ARTICLE SEVENTH
The holders of the capital stock of the Corporation shall not be personally
liable for the payment of the Corporation's debts and the private property of
the holders of the capital stock of the Corporation shall not be subject to the
payment of debts of the Corporation to any extent whatsoever.
ARTICLE EIGHTH
Subject to any express provision of the laws of the State of Indiana, these
Articles of Incorporation or the By-laws of the Corporation, the By-laws of the
Corporation may from time to time be supplemented, amended or repealed, or new
By-laws may be adopted, by the Board of Directors at any regular or special
meeting of the Board of Directors, if such supplement, amendment, repeal or
adoption is approved by a majority of the entire Board of Directors. Subject to
any express provision of the laws of the State of Indiana, these Articles of
Incorporation or the By-laws of the Corporation, the By-laws of the Corporation
may from time to time be supplemented, amended or repealed, or new By-laws may
be adopted, by the shareholders at any regular or special meeting of the
shareholders at which a quorum is present, if such supplement, amendment, repeal
or adoption is approved by the affirmative vote of the holders of at least a
majority of the voting power of all outstanding shares of stock of the
Corporation entitled to vote generally in an election of directors.
ARTICLE NINTH
The Corporation reserves the right to supplement, amend or repeal any
provision contained in these Articles of Incorporation, in the manner now or
hereafter prescribed by the laws of the State of Indiana, and all rights
conferred on shareholders herein are granted subject to this reservation.
ARTICLE TENTH
The name and address of the incorporator signing these Articles of
Incorporation is:
<TABLE>
<CAPTION>
NAME ADDRESS
<S> <C>
George W. Bilicic, Jr. 825 Eighth Avenue
New York, New York 10019
</TABLE>
These Articles of Restatement of Articles of Incorporation were duly
adopted by the Board of Directors of the Corporation in accordance with the
provisions of Section 23-1-38-7 of the Indiana Business Corporation Law.
IN WITNESS WHEREOF, I have executed these Articles of Restatement of
Articles of Incorporation this 9th day of June, 1997.
/s/ ROBERT W. BEICKE
--------------------------------------
Name: Robert W. Beicke
Title: Vice President
ATTEST:
/s/ GWENN L. CARR
- ---------------------------------------------------------
Name: Gwenn L. Carr
Title: Secretary
9
<PAGE> 1
EXHIBIT 11
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CALCULATION OF EARNINGS (LOSS) PER SHARE
(IN MILLIONS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
PRIMARY BASIS --
Net income....................................... $ 82.6 $ 67.7 $126.9 $107.7
------ ------ ------ ------
Average common shares outstanding................ 118.4 117.9 118.4 117.7
Common shares issuable in respect to common stock
equivalents................................... 2.1 2.9 2.2 2.8
------ ------ ------ ------
Average common equivalent shares................. 120.5 120.8 120.6 120.5
------ ------ ------ ------
Earnings Per Share
Net income....................................... $ .68 $ .56 $ 1.05 $ .89
====== ====== ====== ======
FULLY DILUTED BASIS --
Net income....................................... $ 82.6 $ 67.7 $126.9 $107.7
------ ------ ------ ------
Average common equivalent shares................. 120.5 120.8 120.6 120.5
Additional common shares issuable assuming full
dilution...................................... .2 -- .2 --
------ ------ ------ ------
Average common equivalent shares assuming full
dilution...................................... 120.7 120.8 120.8 120.5
------ ------ ------ ------
Earnings Per Share
Net income....................................... $ .68 $ .56 $ 1.05 $ .89
====== ====== ====== ======
</TABLE>
With respect to options, it is assumed that the proceeds to be received
upon exercise are used to acquire common stock of the Company. The dilutive
nature of securities is determined quarterly based on the forecast of annual
earnings.
10
<PAGE> 1
EXHIBIT 12
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CALCULATION OF RATIOS OF EARNINGS TO TOTAL FIXED CHARGES
AND CALCULATION OF EARNINGS TO TOTAL FIXED CHARGES AND
PREFERRED DIVIDEND REQUIREMENTS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income from continuing operations... $ 126.9 $ 107.7 $ 222.6 $ 20.7 $ 201.6 $ 134.8 $ 655.0
Add(deduct):
Adjustment for distributions in
excess of (less than)
undistributed equity earnings
and losses a)................... 1.1 1.0 1.9 .6 -- (2.6) (30.8)
Income taxes...................... 81.1 74.8 148.4 50.2 147.5 65.1 311.3
Amortization of interest
capitalized..................... .4 .4 .9 2.5 .7 3.9 2.7
------ ------ ------ ------ ------ ------ --------
209.5 183.9 373.8 74.0 349.8 201.2 938.2
------ ------ ------ ------ ------ ------ --------
Fixed Charges:
Interest and other financial
charges......................... 64.3 83.2 169.0 175.2 115.2 154.0 180.0
Interest factor attributable to
rentals b)...................... 15.5 15.4 30.9 29.0 22.0 24.2 24.8
------ ------ ------ ------ ------ ------ --------
79.8 98.6 199.9 204.2 137.2 178.2 204.8
------ ------ ------ ------ ------ ------ --------
Earnings, as adjusted, from
continuing operations............. $ 289.3 $ 282.5 $ 573.7 $ 278.2 $ 487.0 $ 379.4 $ 1,143.0
====== ====== ====== ====== ====== ====== ========
Fixed Charges:
Fixed charges above............... $ 79.8 $ 98.6 $ 199.9 $ 204.2 $ 137.2 $ 178.2 $ 204.8
Interest capitalized.............. -- .5 1.1 2.9 6.8 8.0 11.6
------ ------ ------ ------ ------ ------ --------
Total fixed charges......... 79.8 99.1 201.0 207.1 144.0 186.2 216.4
Dividends on preferred stock (pre-
income tax basis)c)............... -- -- -- 23.4 47.5 50.0 63.0
------ ------ ------ ------ ------ ------ --------
Total fixed charges and
preferred dividend
requirements.............. $ 79.8 $ 99.1 $ 201.0 $ 230.5 $ 191.5 $ 236.2 $ 279.4
====== ====== ====== ====== ====== ====== ========
Ratios:
Earnings, as adjusted, from
continuing operations to total
fixed charges................... 3.63 2.85 2.85 1.34 3.38 2.04 5.28
====== ====== ====== ====== ====== ====== ========
Earnings, as adjusted, from
continuing operations to total
fixed charges and preferred
dividend requirements........... 3.63 2.85 2.85 1.21 2.54 1.61 4.09
====== ====== ====== ====== ====== ====== ========
</TABLE>
- ---------------
Notes:
a) The adjustment for distributions in excess of (less than) undistributed
equity earnings and losses represents the adjustment to income for
distributions in excess of (less than) undistributed earnings and losses of
companies in which at least 20% but less than 50% equity is owned.
b) One-third of rental expense is deemed to be representative of interest factor
in rental expense.
c) The dividend requirements on preferred stock have been determined by adding
to the total preferred dividends an allowance for income taxes, calculated at
the effective income tax rate.
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the June 30,
1997 Financial Statements included in Form 10-Q and is qualified in its entirety
by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 103
<SECURITIES> 0
<RECEIVABLES> 1,562
<ALLOWANCES> 38
<INVENTORY> 860
<CURRENT-ASSETS> 2,614
<PP&E> 5,328
<DEPRECIATION> 3,094
<TOTAL-ASSETS> 6,564
<CURRENT-LIABILITIES> 3,505
<BONDS> 575
0
0
<COMMON> 118
<OTHER-SE> 811
<TOTAL-LIABILITY-AND-EQUITY> 6,564
<SALES> 4,418
<TOTAL-REVENUES> 4,418
<CGS> 3,512
<TOTAL-COSTS> 3,765
<OTHER-EXPENSES> 392
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> 208
<INCOME-TAX> 81
<INCOME-CONTINUING> 127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
