<PAGE> 1
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 September 30, 1998
[ ] 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.
INCORPORATED IN THE STATE OF INDIANA 13-5158950
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
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 October 30, 1998, there were outstanding 103,781,476 shares of
common stock ($1 par value per share) of the registrant.
<PAGE> 2
ITT INDUSTRIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Condensed Income Statements -- Three Months and Nine
Months Ended September 30, 1998 and 1997 .................................... 3
Consolidated Condensed Balance Sheets -- September 30, 1998 and
December 31, 1997 ........................................................... 4
Consolidated Condensed Statements of Cash Flows -- Nine Months Ended
September 30, 1998 and 1997 ................................................. 5
Notes to Consolidated Condensed Financial Statements .......................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations:
Three Months and Nine Months Ended September 30, 1998 and 1997 ................ 11
Part II. OTHER INFORMATION:
Item 1. Legal Proceedings ............................................................. 19
Item 2. Changes in Securities and Use of Proceeds ..................................... 19
Item 5. Other Information ............................................................. 19
Item 6. Exhibits and Reports on Form 8-K .............................................. 20
Signature ................................................................................ 21
Exhibit Index ............................................................................ 22
</TABLE>
1
<PAGE> 3
PART I.
ITEM 1. 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 1997 Annual Report on Form 10-K.
2
<PAGE> 4
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales ........................................... $ 1,039.1 $ 1,067.5 $ 3,232.5 $ 2,983.0
----------- ----------- ----------- -----------
Cost of sales ....................................... 714.2 767.0 2,255.1 2,123.7
Selling, general, and administrative expenses ....... 176.4 173.7 536.2 472.8
Research, development, and engineering expenses ..... 75.5 59.8 202.6 195.4
Other operating expenses (income),net ............... 0.9 140.8 39.0 141.6
----------- ----------- ----------- -----------
Total costs and expenses ............................ 967.0 1,141.3 3,032.9 2,933.5
----------- ----------- ----------- -----------
Operating income (loss) ............................. 72.1 (73.8) 199.6 49.5
Interest expense .................................... (31.1) (37.0) (104.6) (101.3)
Interest income ..................................... 4.7 4.5 15.4 12.0
Miscellaneous income (expense), net ................. (1.6) (.9) (3.6) (3.3)
----------- ----------- ----------- -----------
Income (loss) from continuing operations before
Income tax expense .............................. 44.1 (107.2) 106.8 (43.1)
Income tax expense (benefit) ........................ (17.2) 41.8 (41.7) 16.8
----------- ----------- ----------- -----------
Income (loss) from continuing operations ............ 26.9 (65.4) 65.1 (26.3)
Discontinued operations:
Operating income, net of tax of $9.6, ($16.5),
$65.0 and $39.7, respectively ................... 15.0 (25.7) 101.7 62.1
Gain on the sale of Automotive operations, net of tax
of $849.7 in each period ....................... 1,546.9 -- 1,546.9 --
----------- ----------- ----------- -----------
Net income (loss) ................................... $ 1,588.8 $ (91.1) $ 1,713.7 $ 35.8
=========== =========== =========== ===========
EARNINGS PER SHARE:
Income from continuing operations
Basic ............................................. $ .23 $ (.55) $ .56 $ (.22)
Diluted ........................................... $ .23 $ (.55) $ .54 $ (.22)
Discontinued operations
Basic ............................................. $ 13.58 $ (.22) $ 14.07 $ .52
Diluted ........................................... $ 13.22 $ (.22) $ 13.71 $ .52
Net income
Basic ............................................. $ 13.81 $ (.77) $ 14.63 $ .30
Diluted ........................................... $ 13.45 $ (.77) $ 14.25 $ .30
Cash dividends declared per common share ............ $ .15 $ .15 $ .45 $ .45
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of the above statements.
3
<PAGE> 5
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN MILLIONS, EXCEPT FOR SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................ $ 2,338.0 $ 192.2
Receivables, net ......................................... 889.3 727.1
Inventories, net ......................................... 605.7 572.4
Other current assets ..................................... 92.8 82.7
---------- ----------
Total current assets .................................. 3,925.8 1,574.4
Plant, property, and equipment, net ........................ 977.6 1,031.2
Deferred U.S. income taxes ................................. 280.1 264.6
Goodwill, net .............................................. 901.2 859.6
Other assets ............................................... 361.4 366.6
Net assets of discontinued operations ...................... -- 931.4
---------- ----------
$ 6,446.1 $ 5,027.8
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Commercial paper ......................................... $ -- $ 698.4
Accounts payable ......................................... 350.5 409.3
Accrued expenses ......................................... 979.7 701.7
Accrued taxes ............................................ 1,092.7 143.4
Notes payable and current maturities of long-term debt ... 702.7 943.0
---------- ----------
Total current liabilities ............................. 3,125.6 2,895.8
Pension and postretirement costs ........................... 404.1 446.4
Long-term debt ............................................. 522.9 531.2
Other liabilities .......................................... 458.8 332.1
---------- ----------
4,511.4 4,205.5
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 108,674,676 shares and 118,445,827 shares . 108.7 118.4
Capital surplus .......................................... 69.6 397.0
Accumulated other comprehensive income:
Unrealized gain (loss) on investment securities ..... (0.7) 1.6
Cumulative translation adjustments .................. (92.4) 116.8
---------- ----------
(93.1) 118.4
Retained earnings ........................................ 1,849.5 188.5
---------- ----------
1,934.7 822.3
---------- ----------
$ 6,446.1 $ 5,027.8
========== ==========
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of the above balance sheets.
4
<PAGE> 6
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income ........................................................... $ 1,713.7 $ 35.8
Discontinued operations:
Operating income ................................................... (101.7) (62.1)
Gain on sale of discontinued operations ............................ (1,546.9) --
---------- ----------
Income (loss) from continuing operations ............................. 65.1 (26.3)
Adjustments to income from continuing operations:
Depreciation ....................................................... 124.0 129.5
Amortization ....................................................... 28.2 17.1
Nonrecurring charges ............................................... 61.8 136.7
Change in receivables, inventories, accounts payable, and
accrued expenses ................................................. (130.5) (49.0)
Change in accrued and deferred taxes ............................... (9.6) (62.9)
Other, net ......................................................... (84.3) 64.0
---------- ----------
Cash from operating activities .................................. 54.7 209.1
---------- ----------
INVESTING ACTIVITIES
Additions to plant, property, and equipment .......................... (115.1) (111.5)
Proceeds from sale of assets ......................................... 3,709.7 6.3
Acquisitions ......................................................... (79.7) (836.9)
Other, net ........................................................... 1.4 (2.1)
---------- ----------
Cash from (used for) investing activities ....................... 3,516.3 (944.2)
---------- ----------
FINANCING ACTIVITIES
Short-term debt, net ................................................. (999.1) 1,177.6
Long-term debt repaid ................................................ (23.2) (247.3)
Long-term issued ..................................................... -- 1.4
Repurchase of common stock ........................................... (359.1) (53.0)
Dividends paid ....................................................... (52.7) (53.3)
Other, net ........................................................... 104.7 24.5
---------- ----------
Cash from (used for) financing activities ....................... (1,329.4) 849.9
---------- ----------
EXCHANGE RATE EFFECTS ON CASH AND CASH EQUIVALENTS ................... 5.2 (27.1)
CASH (USED FOR) DISCONTINUED OPERATIONS .............................. (101.0) (1.2)
---------- ----------
Increase in cash and cash equivalents ................................ 2,145.8 86.5
Cash and cash equivalents -- beginning of period ..................... 192.2 121.9
---------- ----------
Cash and cash equivalents -- end of period ........................... $ 2,338.0 $ 208.4
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION - CONTINUING
OPERATIONS:
Cash paid during the period for:
Interest ........................................................... $ 99.2 $ 101.2
========== ==========
Income taxes ....................................................... $ 78.4 $ 61.1
========== ==========
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of the above statements.
5
<PAGE> 7
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
1) DISCONTINUED OPERATIONS
On September 28, 1998, the Company closed the sale of its automotive Electrical
Systems business to Valeo, SA of France for approximately $1,700. This
transaction followed the sale of the Company's Brake and Chassis unit to
Continental AG of Germany for approximately $1,930 completed on September 25,
1998. As a result of the sales, these two units, as well as several other small
previously sold automotive units, have been accounted for as a discontinued
operation.
The revenues and expenses of the discontinued operations have been removed from
the consolidated condensed income statements for all periods presented, with the
income (loss) from operations, net of tax, reflected below income from
continuing operations. The assets and liabilities of the discontinued operations
have been reclassified to net assets of discontinued operations in the
consolidated condensed balance sheet as of December 31, 1997. The cash used for
the operations of the discontinued operations in both consolidated condensed
statements of cash flows presented is reflected in cash (used for) discontinued
operations.
The consolidated condensed balance sheet as of September 30, 1998 reflects
accrued taxes of $949.3 resulting from the gain on the sale of the discontinued
operations, as well as $183.2 of accrued liabilities and $113.5 of other
liabilities for various sales-related contingencies and costs. Management
expects the majority of the taxes to be paid by the end of 1998.
Revenues of the discontinued operations for the three months ended September 30,
1998 and 1997 were $925.8 and $992.9, respectively. Revenues of the discontinued
operations for the nine months ended September 30, 1998 and 1997 were $3,030.4
and $3,495.0, respectively.
2) RECEIVABLES, NET
Receivables consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Trade ........................................ $ 784.3 $ 719.3
Accrued for completed work ................... 20.8 26.8
Other ........................................ 103.6 --------
Less reserves ................................ (19.4) (19.0)
-------- --------
$ 889.3 $ 727.1
======== ========
</TABLE>
6
<PAGE> 8
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (Continued)
(In millions, except per share amounts, unless otherwise stated)
3) INVENTORIES, NET
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Finished goods ........................... $ 202.2 $ 275.0
Work in process .......................... 526.2 379.3
Raw materials ............................ 222.2 219.0
Less -- reserves ......................... (112.7) (67.2)
-- progress payments ................ (232.2) (233.7)
------- -------
$ 605.7 $ 572.4
======= =======
</TABLE>
4) PLANT, PROPERTY, AND EQUIPMENT, NET
Plant, property, and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Land and improvements .................... $ 51.4 $ 61.2
Buildings and improvements ............... 340.7 366.3
Machinery and equipment .................. 1,348.8 1,277.0
Construction work in progress ............ 93.2 95.8
Other .................................... 471.2 489.0
--------- ---------
2,305.3 2,289.3
Less -- accumulated depreciation and
Amortization ............................ (1,327.7) (1,258.1)
--------- ---------
$ 977.6 $ 1,031.2
========= =========
</TABLE>
7
<PAGE> 9
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (Continued)
(In millions, except per share amounts, unless otherwise stated)
5) COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1998 1997 1998 1997
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Net income (loss) ....................................... $ 1,588.8 $ (91.1) $ 1,713.7 $ 35.8
Other comprehensive income:
Foreign currency translation adjustments:
Adjustments arising during period ................... 1.3 (1.4) (10.0) 48.5
Reclassifications included in net income ............ (182.6) (22.7) (182.6) (19.9)
---------- -------- ---------- --------
(181.3) (24.1) (192.6) 28.6
Unrealized gains (losses) on investment securities .... (2.7) -- (2.3) --
---------- -------- ---------- --------
Other comprehensive income (loss), before tax ....... (184.0) (24.1) (194.9) 28.6
Income tax related to other comprehensive income ...... (14.7) (3.2) (16.6) (10.7)
---------- -------- ---------- --------
Other comprehensive income (loss), after tax ........ (198.7) (27.3) (211.5) 17.9
Comprehensive income (loss) ............................. $ 1,390.1 $ (118.4) $ 1,502.2 $ 53.7
========== ======== ========== ========
</TABLE>
Note: The $182.6 pre-tax reclassification adjustment for the three month and
nine month periods ended September 30, 1998, was due to the sale of the
Company's discontinued automotive businesses.
8
<PAGE> 10
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (Continued)
(In millions, except per share amounts, unless otherwise stated)
6) CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
BASIC BASIS --
Income from continuing operations .................. $ 26.9 $ (65.4) $ 65.1 $ (26.3)
--------- --------- --------- ---------
Average common shares outstanding .................. 115.0 118.4 117.1 118.4
--------- --------- --------- ---------
Earnings Per Share ................................. $ .23 $ (.55) $ .56 $ (.22)
========= ========= ========= =========
DILUTED BASIS --
Income from continuing operations .................. $ 26.9 $ (65.4) $ 65.1 $ (26.3)
--------- --------- --------- ---------
Average common shares outstanding .................. 115.0 118.4 117.1 118.4
Add: Stock options ................................. 3.1 -- 3.2 --
--------- --------- --------- ---------
Average common shares outstanding on a diluted basis 118.1 118.4 120.3 118.4
--------- --------- --------- ---------
Earnings Per Share ................................. $ .23 $ (.55) $ .54 $ (.22)
========= ========= ========= =========
</TABLE>
7) ACQUISITION
On June 25, 1998 the Company acquired Rule Industries, Inc. ("Rule") from
Kennametal, Inc. for $63.3. The purchase price exceeded the fair value of the
net assets acquired by $51.3 and has been recorded as goodwill, which is being
amortized over 40 years. Rule manufactures marine products, including
submersible pumps, anchors and compasses, and has annual sales of approximately
$25.
9
<PAGE> 11
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (Continued)
(In millions, except per share amounts, unless otherwise stated)
8) OTHER OPERATING EXPENSES
During the third quarter of 1998, the Company's Connectors and Switches unit
recorded $16 of restructuring charges related to the closure of facilities,
workforce reductions and other cost-cutting measures taken in North America and
Europe. On a pre-tax basis these charges have a cash impact of approximately $9.
During the second quarter of 1998, the Company's Pumps and Complementary
Products unit recognized restructuring charges of $25.7 for the closure of its
Cincinnati, Ohio pump manufacturing facility. These charges relate primarily to
the write-down of assets, severance and closure costs associated with the shut
down of the facility. On a pre-tax basis these charges have a cash impact of
approximately $14. The Company also recorded $20.1 in the first quarter of 1998
for legal expenses and losses on the divestiture of non-core businesses. These
charges more than offset $31 of gains from the sales of the Company's Barton
fluid measurement unit and Pomona Electronics business in the second quarter and
third quarter, respectively.
In the third quarter of 1997, the Company recognized charges of $66 for
estimated losses on the divestitures of non-core businesses, as well as a charge
of $15 to increase environmental reserves. Also in the third quarter of 1997,
restructuring charges of $37.2 were recognized at the Specialty Products and
Pumps and Complementary Products units for the rationalization of production
capacity and related workforce reductions.
9) NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for fiscal years
beginning after June 15, 1999. SFAS 133 establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS 133 also
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement and requires companies to
formally document, designate, and assess the effectiveness of transactions that
receive hedge accounting.
The Company has not yet quantified the impacts of adopting SFAS 133 on reported
financial results and has not determined the timing of, or method of, adoption.
However, the adoption of SFAS 133 could increase volatility in net income and
other comprehensive income.
10
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NEW BUSINESS SEGMENT FORMAT
Effective in the third quarter of 1998, the Company has begun reporting
its results of operations under a new business segment format. The new reporting
segments are the following: Defense Products & Services, Pumps and Complementary
Products, Connectors & Switches, and Specialty Products. This new
segment-reporting format reflects management's view of the operations of the
Company and will be maintained after the Company's adoption of Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information, at year-end 1998. Descriptions of the
Company's new segments are as follows:
Defense Products & Services
The businesses in this segment are those that directly serve the
military and government agencies with products and services. These products
include air traffic control systems, jamming devices that guard military planes
against radar-guided weapons, digital combat radios, night vision devices and
satellite instruments. Approximately 33% of the sales in this segment are
generated through contracts for technical and support services which the unit
provides to the military and other government agencies.
Pumps and Complementary Products
This segment contains ITT Industries' pump businesses, including brands
such as Flygt(R), Goulds(R), Bell & Gosset(R), A-C Pump(R), Lowara(R) and
Vogel(R), making ITT Industries the world's largest pump producer. Businesses
within this segment also supply mixers, heat exchangers and related products
with brands names such as McDonnell & Miller(R) and ITT Standard(R) in addition
to those brand names mentioned above.
Connectors & Switches
The businesses in this segment, formerly included within the "Defense &
Electronics" segment, consist of the Company's products marketed under the
Cannon(R) brand. These products include connectors, switches and cabling used in
telecommunications, computing, aerospace and industrial applications, as well as
network services.
Specialty Products
Businesses in the Specialty Products segment produce engineered valves
and switches for industrial and aerospace applications, products for the marine
and leisure markets, fluid handling materials such as stainless steel and
flexible tubing for various industrial markets, and specialty shock absorbers
and brake friction materials for the transportation industry.
Business Segment Information (in Millions)
<TABLE>
<CAPTION>
Defense Pumps and
Products & Complementary Connectors Specialty Dispositions Grand
September 30, 1998 Services Products & Switches Products & Other Corporate Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Identifiable assets $ 602.9 $1,840.1 $ 325.7 $ 602.5 $ 265.9 $2,809.0 $6,446.1
Nine Months ended
September 30, 1998
- --------------------------------------------------------------------------------------------------------------------------
Depreciation $ 19.8 $ 42.7 $ 25.7 $ 26.3 $ 7.6 $ 1.9 $ 124.0
Amortization 2.5 16.3 1.0 6.9 (2.0) 3.5 28.2
Gross Plant Additions 14.5 35.2 23.0 37.6 3.8 1.0 115.1
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
Defense Pumps and
Products & Complementary Connectors Specialty Dispositions Grand
December 31, 1997 Services Products & Switches Products & Other Corporate Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Identifiable assets $ 583.1 $1,827.3 $ 331.4 $ 499.7 $1,253.2 $ 533.1 $5,027.8
Nine Months ended
September 30, 1997
- --------------------------------------------------------------------------------------------------------------------------
Depreciation $ 20.4 $ 31.1 $ 25.0 $ 24.7 $ 27.0 $ 1.3 $ 129.5
Amortization 0.3 11.1 0.9 6.8 (2.0) -- 17.1
Gross Plant Additions 14.3 23.0 19.5 30.0 24.7 -- 111.5
</TABLE>
Note: The identifiable assets of Dispositions & Other as of December 31, 1997
include the net assets of the discontinued automotive operations
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1997
Income from continuing operations of $26.9 million, or $.23 per diluted
share, compared with a loss from continuing operations of $65.4 million, or $.55
per diluted share, in the third quarter of 1997. The improvement was mainly
attributable to pre-tax charges last year of $66 million for expected losses on
the divestitures of non-core business, $37.2 million for restructuring projects
at the Company's Pumps and Complementary Products and Specialty Products units,
and $15 million to increase environmental reserves. Net income of $1,588.8
million, or $13.45 per diluted share, in the third quarter of 1998 improved from
a net loss of $91.1 million, or $.77 per diluted share, in the third quarter of
1997. The improvement was due to the gain on the sale of the discontinued
operations as well as higher income from both continuing operations and
discontinued operations. In the third quarter of 1998, the Company recognized an
after-tax gain of $1,546.9 million, or $13.10 per diluted share, on the sales of
the Company's automotive Brake and Chassis and Electrical Systems units.
After-tax income from the operations of the discontinued operations was $15
million, compared to a loss of $25.7 million last year. The improvement was
primarily due to charges recognized last year for restructuring projects and
anticipated losses on the divestitures of certain auto businesses which more
than offset the effect of the General Motors ("GM") strike on this year's
results.
Net sales for the third quarter of 1998 declined $28.4 million from the
third quarter of 1997. The decline in sales was primarily due to the divestiture
of non-core businesses. Cost of sales for the third quarter of 1998 declined
$52.8 million from last year mainly due to divestitures of non-core businesses
as well as cost reductions in ongoing businesses. Other operating expenses of
$0.9 million declined from $140.8 million last year. The decline was mainly due
to charges taken last year of $66 million for estimated losses on the
divestitures of non-core businesses, $37.2 million for restructuring projects,
and $15 million to increase environmental reserves. Operating income was $72.1
million in the third quarter of 1998, compared to operating loss of $73.8
million last year.
Interest expense of $31.1 million improved from $37 million last year.
The improvement was mostly due to the favorable impact of a gain from certain
interest rate swaps.
The effective income tax rates for both quarters were 39%. Income tax
expense was $17.2 million in the third quarter of 1998 compared to income tax
benefit of $41.8 last year.
Business Segments - Unaudited sales and operating income of the
Company's business segments were as follows for the three months ended September
30, 1998, and 1997 (in millions):
12
<PAGE> 14
<TABLE>
<CAPTION>
Defense Pumps and
THREE MONTHS ENDED Products & Complementary Connectors Specialty Dispositions, Grand
SEPTEMBER 30, 1998 Services Products & Switches Products Other & Elims Corporate Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 278.1 $ 436.9 $ 133.0 $ 191.4 $ (0.3) -- $1,039.1
Operating Income:
Before nonrecurring items 23.2 37.6 12.8 13.8 1.0 (16.3) 72.1
Nonrecurring items -- -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total operating income 23.2 37.6 12.8 13.8 1.0 (16.3) 72.1
</TABLE>
<TABLE>
<CAPTION>
Defense Pumps and
THREE MONTHS ENDED Products & Complementary Connectors Specialty Dispositions, Grand
SEPTEMBER 30, 1997 Services Products & Switches Products Other & Elims Corporate Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 266.8 $ 434.4 $ 138.0 $ 182.5 $ 45.8 -- $1,067.5
Operating Income:
Before nonrecurring items 16.6 36.9 11.7 15.4 (1.6) (16.1) 62.9
Nonrecurring items -- (44.1) -- (12.9) (64.7) (15.0) (136.7)
- ----------------------------------------------------------------------------------------------------------------------------------
Total operating income 16.6 (7.2) 11.7 2.5 (66.3) (31.1) (73.8)
</TABLE>
The revenues and operating income of the Defense Products & Services unit
increased from the prior year mainly due to the acquisition of Kaman Sciences
and higher export sales. Revenues and operating income increased 4.2% and 39.8%,
respectively. Operating margin was 8.3%, compared to 6.2% in the prior year. The
improvement in operating margin was primarily due to the impact of the Kaman
Sciences acquisition and increased export sales, as well as cost controls and
other productivity enhancements.
The Pumps and Complementary Products unit's revenues were approximately flat
compared to last year. Difficult market conditions in Asia and certain
industrial markets were offset by strong results for the North American Water
Division and strong demand in the European wastewater market. Operating income,
before nonrecurring items, was up slightly from last year. The increase was
mainly due to the effect of cost reduction actions, which more than offset
higher labor rates. Last year, the unit recognized nonrecurring charges of $44.1
million primarily for restructuring projects.
The Connectors & Switches unit's 1998 third quarter sales decreased 3.6%
compared to the third quarter of 1997. The decline was primarily due to weak
market demand in Asia and lower growth in the personal computer and telecom
markets. Operating income improved $1.1 million primarily due to cost reductions
which more than offset lower sales volume. Nonrecurring items for the third
quarter of 1998 consisted of $16.0 million of charges for various restructuring
projects which were offset by a gain on the sale of the unit's Pomona
Electronics business.
The revenues of the Specialty Products unit were up $8.9 million primarily due
to the effect of several small acquisitions and share gains in certain markets,
which more than offset the effect of the GM strike. Operating income, before
nonrecurring items, declined $1.6 million from last year. The decline was mainly
due to the effect of
13
<PAGE> 15
the GM strike and higher labor rates, which more than offset the impact of
acquisitions. The Specialty Products unit recognized nonrecurring charges of
$12.9 million last year mainly for restructuring projects.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1997
Income from continuing operations was $65.1 million, or $.54 per
diluted share, in the first nine months of 1998, compared to a loss from
continuing operations of $26.3 million, or $.22 per diluted share, for the first
nine months of 1997. The improvement in the results of the continuing operations
was primarily due to the pre-tax charges recognized last year of $66 million for
expected losses on the divestitures of non-core business, $37.2 million for
restructuring projects, and $15 million to increase environmental reserves, as
well as higher operating income, before nonrecurring items, from the Company's
Defense Products & Services, Pumps and Complementary Products, and Connectors
and Switches units this year. The previous factors more than offset pre-tax
charges of $25.7 million for restructuring and $20.1 million for anticipated
legal expenses and losses on the divestitures of non-core businesses recognized
this year. Net income of $1,713.7 million, or $14.25 per diluted share, in the
first nine months of 1998, improved from net income of $35.8 million, or $.30
per diluted share, in the first nine months of 1997. The improvement was due to
the gain on the sale of the discontinued operations, as well as higher income
from both continuing operations and discontinued operations. In 1998, the
Company recognized an after-tax gain of $1,546.9 million, or $13.10 per diluted
share, on the sales of the Company's automotive Brake and Chassis and Electrical
Systems units. After-tax income from the operations of the discontinued
operations was $101.7 million, compared to $62.1 million last year. The
improvement was primarily due to charges recognized last year for restructuring
projects and anticipated losses on the divestitures of certain auto businesses,
which together more than offset the effect of the General Motors ("GM") strike
on this year's results.
Net sales for the first nine months of 1998 increased $249.5 million
from last year. The increase in sales was primarily due to the acquisitions of
Goulds Pumps in May 1997 and Kaman Sciences at the end of 1997, which more than
offset the impact of the divestitures of non-core businesses. Cost of sales
increased $131.4 million from last year mainly due to the impact of the
acquisitions of Goulds Pumps and Kaman Sciences which more than offset the
effects of divestitures and cost reductions. Selling, general and administrative
expenses were $536.2 million this year, compared to $472.8 million last year.
The increase from last year was primarily due to the inclusion of the results of
Goulds Pumps and Kaman Sciences for the entire period in 1998. Other operating
expenses of $39.0 million decreased from $141.6 million last year. The decrease
from last year was mainly due to charges recognized last year of $66 million for
estimated losses on the divestitures of non-core businesses, $37.2 million for
restructuring projects and $15 million to increase environmental reserves, as
well as a $15 million gain from the sale of the Barton fluid measurement unit
this year. The previous factors more than offset the $25.7 million restructuring
charge and $20.1 million of accruals for anticipated legal expenses and losses
on the divestitures of non-core businesses recognized this year. Operating
income was $199.6 million in the first nine months of 1998, compared to $49.5
million last year.
The effective income tax rates for both periods were 39%. Income tax
expense was $41.7 million for the first nine months of 1998, compared to income
tax benefit of $16.8 million last year.
14
<PAGE> 16
Business Segments - Unaudited sales and operating income of the Company's
business segments were as follows for the nine months ended September 30, 1998,
and 1997 (in millions):
<TABLE>
<CAPTION>
Defense Pumps and
NINE MONTHS ENDED Products & Complementary Connectors Specialty Dispositions, Grand
SEPTEMBER 30, 1998 Services Products & Switches Products Other & Elims Corporate Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 925.9 $1,293.1 $ 408.0 $ 604.8 $ 0.7 -- $3,232.5
Operating Income:
Before nonrecurring items 67.4 105.5 38.8 64.9 2.9 (49.1) 230.4
Nonrecurring items -- (25.7) -- -- 15.0 (20.1) (30.8)
- ------------------------------------------------------------------------------------------------------------------------------
Total operating income 67.4 79.8 38.8 64.9 17.9 (69.2) 199.6
</TABLE>
<TABLE>
<CAPTION>
Defense Pumps and
NINE MONTHS ENDED Products & Complementary Connectors Specialty Dispositions, Grand
SEPTEMBER 30, 1997 Services Products & Switches Products Other & Elims Corporate Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 791.3 $ 991.5 $ 417.8 $ 602.9 $ 179.5 -- $2,983.0
Operating Income:
Before nonrecurring items 54.4 86.0 33.6 65.3 (7.8) (44.2) 187.3
Nonrecurring items -- (44.1) -- (12.9) (65.8) (15.0) (137.8)
- ------------------------------------------------------------------------------------------------------------------------------
Total operating income 54.4 41.9 33.6 52.4 (73.6) (59.2) 49.5
</TABLE>
The revenues of the Defense Products & Services unit increased $134.6 million
from last year. The increase was mainly due to the impact of the acquisition of
Kaman Sciences and higher export sales. Operating income increased $13 million
from last year. The increase was primarily due to the impact of the acquisition
of Kaman Sciences, higher export sales, and cost reductions.
The Pumps and Complementary Products unit's revenues increased $301.6 million
from last year. The increase was mainly due to the acquisition of Goulds Pumps
which more than offset the effects of poor market conditions in Asia, weak
demand in certain industrial segments, and the impact of unfavorable foreign
currency translation. Operating income, before nonrecurring charges, increased
$19.5 million mainly due to the acquisition of Goulds Pumps and cost-cutting
actions, which more than offset the weak conditions in certain markets and the
impact of higher labor rates. In the current year, the unit recognized
nonrecurring restructuring charges of $25.7 million for the shut down of a pump
manufacturing facility in Cincinnati, Ohio. Last year, the unit recognized
nonrecurring charges of $44.1 million, primarily for restructuring projects.
The Connectors & Switches unit's revenues decreased $9.8 million compared to
last year. The decline was primarily due to weak market demand in Asia and lower
growth in the personal computer and telecom markets. Operating income improved
$5.2 million from last year primarily due to cost reductions, which more than
offset the impact of the weak market conditions. Nonrecurring items for the
first nine months of 1998 consisted of $16.0 million of charges for various
restructuring projects, offset by a gain on the sale of the unit's Pomona
Electronics business.
The revenues of the Specialty Products unit were up slightly from last year. The
increase was mainly due to the impact of several small acquisitions and share
gains in certain markets, which more than offset the effect of the GM
15
<PAGE> 17
strike. Operating income, before nonrecurring items, declined $0.4 million from
last year. The decline was mainly due to the effect of the GM strike and higher
labor rates which more than offset the impacts of acquisitions and share gains
in certain markets. The Specialty Products unit recognized nonrecurring charges
of $12.9 million last year, mainly for restructuring projects.
LIQUIDITY AND CAPITAL RESOURCES
Cash from operating activities of $54.7 million and total divestiture proceeds
of $3.7 billion were used primarily for debt repayment of approximately $1
billion, repurchases of common stock of $359.1 million, capital expenditures of
$115.1 million, acquisitions of $79.7 million, dividend payments of $52.7
million, and $101 million to fund the operations of the Company's discontinued
automotive operations and to pay certain sales-related costs.
DIVESTITURES: During the third quarter of 1998, the Company sold its
automotive Brake and Chassis and Electrical Systems businesses for combined
proceeds of $3.6 billion. The consolidated condensed balance sheet as of
September 30, 1998 reflects accrued taxes of $949.3 million resulting from the
gain on the sale of these operations. Management expects the majority of these
taxes to be paid by the end of 1998. In addition, the Company recorded $183.2
million of accrued liabilities and $113.5 million of other liabilities for
various sales-related contingencies and costs. In the current year, the Company
also divested its Barton fluid measurement and Pomona Electronics units. Total
proceeds from divestitures amounted to $3.7 billion for the first nine months of
1998.
SHARE REPURCHASE PROGRAM: On July 29, 1998, the Company announced that
its board of directors authorized a share repurchase program. The program
authorizes the repurchase of $1.1 billion of stock. Share repurchases for the
nine months ended September 30, 1998, were $359.1 million.
CASH FLOWS: Cash from operating activities in the first nine months of
1998 was $54.7 million, a decrease of $154.4 million from the first nine months
of 1997. The increase in working capital requirements in the first nine months
of 1998 was largely due to the timing of payments, a larger build up of
inventory, and the timing of accounts receivable collections. The decrease in
other net operating activities was mainly due to the timing of pension related
payments and a larger reclassification of gains from asset sales, resulting
primarily from the sales of Barton and Pomona, to proceeds from the sale of
assets.
DEBT AND CREDIT FACILITIES: External debt at September 30, 1998 was
$1.2 billion, compared with $2.2 billion at December 31, 1997. Cash and cash
equivalents were $2.3 billion at September 30, 1998, compared to $192.2 million
at year end 1997. The increase in cash and cash equivalents was mainly due to
the receipt of the proceeds from the sales of the automotive Brake and Chassis
and Electrical Systems businesses. The maximum amount of borrowing available
under the Company's revolving credit agreements at September 30, 1998 was $1.5
billion.
ADDITIONS TO PLANT, PROPERTY AND EQUIPMENT: Capital expenditures during
the first nine months of 1998 were $115.1 million, compared to $111.5 million
during the first nine months of 1997.
ACQUISITIONS: During the first nine months of 1998, the Company
acquired Rule for $63.3 million and two other small companies. The Company
expects to use a portion of the proceeds from the sales of the automotive Brake
and Chassis and Electrical Systems businesses in connection with the financing
of additional acquisitions. During the first nine months of 1997, the Company
acquired Goulds Pumps and two other small companies for $836.9 million.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 ("Y2K") issue arises because many computer systems and other
equipment with embedded technology use only two digits to define the applicable
year and may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in failures or miscalculations causing disruptions of
normal business activities and operations. The Company has undertaken
initiatives and developed processes intended to assure
16
<PAGE> 18
that its computer systems and equipment with embedded technology are in a state
of Y2K readiness so that such failures and miscalculations can be avoided or
their effect mitigated if they occur.
The Company, through the efforts of its information technology, manufacturing,
purchasing, engineering and quality assurance professionals, has conducted a
comprehensive inventory and assessment of software and equipment to determine
their state of Y2K readiness. Such professionals determined that it would be
necessary to modify, upgrade or replace portions of such software and equipment.
The process of modifying and upgrading or replacing such software and equipment
has been underway since early 1997. As of September 30, 1998, the Company
estimates that approximately 60% of all necessary modifications, upgrades and
replacements for its United States operations have been completed and tested. A
target date of March 31, 1999 has been set to complete all such Y2K readiness
initiatives.
The Company has also been engaged in communications with its vendors, service
providers and customers to determine the extent to which the Company would be
vulnerable to a third party's failure to address its own Y2K issues. The Company
is continuing the process of contacting, and in some cases visiting, its
critical and important third parties who have not yet responded satisfactorily
to assess their state of readiness.
The Company is developing contingency plans and estimates of the costs of
implementing such plans in the event the Company or certain third parties fail
to complete their Y2K readiness initiatives on a timely basis. Such contingency
plans may include stockpiling raw materials, increasing inventory levels,
qualifying alternate sources of supply, and other appropriate measures. The
Company currently expects to complete its analyses and contingency planning by
June 30, 1999. The Company derives approximately 43% of its consolidated
revenues from countries other than the United States. The Company also is
developing contingency plans and estimates of the costs of implementing such
plans if necessary to mitigate the effect of possible business and operating
disruptions in other countries resulting from lack of Y2K readiness of third
parties in such countries.
Currently, the Company estimates that the aggregate external cost of its Y2K
initiatives will total approximately $20 million. As of September 30, 1998,
approximately $12 million of costs related to Y2K initiatives had been incurred,
approximately 85% of which were expensed. The Company does not separately track
the costs of its internal professionals who are involved in its Y2K readiness
activities; however, such costs are principally related to their payroll costs.
The costs of the Company's Y2K initiatives are not expected to be material to
the Company's financial condition or its results of operations on a consolidated
basis. However, a failure by the Company to complete the necessary
modifications, upgrades, replacements and testing on a timely basis or to
develop and implement appropriate contingency plans could have an adverse effect
on the future financial results of the Company. In addition, if third parties,
including those in countries outside the United States, fail to complete their
Y2K readiness programs on a timely basis, the Company's results could be
adversely affected.
The costs of the Company's Y2K readiness initiatives and the dates on which the
Company believes that it and the operating segments will complete such
activities are estimates and subject to change. Actual results could differ from
those currently anticipated. Specific factors that could cause such differences
include, but are not limited to, the availability and cost of personnel trained
in Y2K issues, the ability to identify, assess, modify, upgrade, replace and
test all relevant software and equipment, the failure of third parties to
satisfactorily address their Y2K issues on a timely basis, the failure of
non-United States countries in which the Company conducts business to
satisfactorily address Y2K issues, and similar uncertainties.
EURO CONVERSION ISSUE
On January 1, 1999, eleven of the fifteen member countries of the European Union
are scheduled to establish fixed conversion rates between their sovereign
currencies (the "legacy currencies") and a single European currency (the
"euro"). During a transition period from January 1, 1999 through December 31,
2001, legacy currencies will continue in use; however, the value of such
currencies will be set at fixed and irrevocable conversion rates to the euro.
Beginning in January 2002, new euro-denominated bills and coins will be issued
and the legacy currencies
17
<PAGE> 19
will be withdrawn from circulation. The Company is addressing issues raised by
the conversion to the euro, such as assessing whether cross-border price
transparency will limit the Company's flexibility to charge different prices for
similar products and adapting its information technology systems. The Company's
efforts to adapt its systems differ at its various European operations. Some
operations are expected to be able to accommodate euro-denominated invoicing and
purchasing transactions by January 1, 1999. The Company's significant European
operations have formulated plans to accommodate all euro-denominated
transactions and triangulation conventions by January 1, 2002. The Company
anticipates that its costs in connection with the euro conversion will not be
material. The company does not anticipate that the conversion from the legacy
currencies to the euro would have a material adverse impact on its financial
condition or results of operations.
FORWARD-LOOKING STATEMENTS
Certain material presented herein, including material relating to year 2000
readiness disclosures and the Euro conversion issue, consists of forward-looking
statements which involve known and unknown risks, uncertainties and other
important factors that could cause actual results to differ materially from
those expressed in or implied from such forward-looking statements. Such factors
include those set forth in Item 1. Business and Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Forward-Looking
Statements in the ITT Industries, Inc. Form 10-K Annual Report for the fiscal
year ended December 31, 1997 and other of its filings with the Securities and
Exchange Commission to which reference is hereby made. In addition to those
factors, and in particular relevant to year 2000 readiness disclosure, results
depend upon factors such as the continued ability to provide remediation on a
timely basis and, where necessary, implement contingency measures.
18
<PAGE> 20
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3. Legal Proceedings in ITT Industries' Form
10-K Annual Report for the fiscal year ended December 31, 1997. The first two
paragraphs thereunder are hereby updated to read in their entirety as follows:
"ITT Industries and its subsidiaries are responsible, in whole or in
part, or are alleged to be responsible for environmental investigation and
remediation at approximately 135 sites in North America and Europe. Of those
sites, ITT Industries has received notice that it is considered a Potentially
Responsible Party ("PRP") at approximately 46 sites by the United States
Environmental Protection Agency ("EPA") and/or a similar state agency under
CERCLA or its state equivalent. In many of these proceedings, ITT Industries'
liability is considered de minimis. At 19 of these sites, formerly operated by
subsidiaries of the Company, liability and/or defense costs are to be divided
equally among ITT Industries, ITT Corporation and The Hartford pursuant to the
Distribution Agreement. The remaining cases are generally actions either brought
by private parties relating to sites formerly owned or operated by subsidiaries
of the Company seeking to recoup incurred costs or shift environmental liability
to ITT Industries pursuant to contractual language, or situations discovered by
ITT Industries through its internal environmental assessment program.
"ITT Industries is involved in an environmental proceeding in
California relating to the San Fernando Valley aquifer. ITT Industries is one of
numerous PRPs who are alleged by the EPA to have contributed to the
contamination of the aquifer. ITT Industries and other allegedly responsible
parties have completed an allocation arbitration and have commenced the clean-up
required by the EPA. Lockheed Martin Corporation, one of such parties,
challenged the allocation in the Superior Court, Los Angeles County. The lower
court ruled in ITT Industries' favor; however, Lockheed Martin has appealed. The
parties are awaiting oral argument. ITT Industries has filed a suit against its
insurers in the California Superior Court, Los Angeles County, ITT Corporation,
et al. v. Pacific Indemnity Corporation et al. for recovery of costs it has
incurred in connection with this and other environmental matters. ITT Industries
already has negotiated settlements with certain defendant insurance companies,
is engaged in negotiations with others, and is prepared to pursue its legal
remedies where reasonable negotiations are not productive."
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 28, 1998, Linda S. Sanford, a director of ITT Industries, was
granted 1,058 shares of ITT Industries common stock in lieu of the annual
retainer for non-employee directors pursuant to the ITT Industries, Inc. 1996
Restricted Stock Plan for Non-Employee Directors. The shares were not registered
under the Securities Act of 1933 pursuant to the exemption provided by Section
4(2) thereunder.
ITEM 5. OTHER INFORMATION
Rule 14a-4 of the Securities and Exchange Commission's proxy rules
allows the Company to receive and exercise discretionary voting authority to
vote on matters coming before an annual meeting of shareholders, if the Company
does not have notice of the matter at least 45 days before the date
corresponding to the date on which the Company first mailed its proxy materials
for the prior year's annual meeting of shareholders or the date specified by an
overriding advance notice provision in the Company's By-Laws. The Company's
By-Laws contain such an advance notice provision.
19
<PAGE> 21
Under the Company's By-Laws, no business may be brought before an
Annual Meeting of Shareholders except (i) as specified in the notice of the
meeting given by or at the direction of the Board, (ii) as otherwise properly
brought before the meeting by or at the direction of the Board or (iii) by a
shareholder entitled to vote on the business so brought who has delivered
written notice, either by personal delivery or by United States mail, postage
prepaid, to the Secretary of the Company at the principal executive offices of
the Company not less than 70 days nor more than 90 days prior to the anniversary
date of the immediately preceding Annual Meeting. Such notice must contain
certain information specified in the By-Laws. The By-Laws also provide that
nominations for Director may be made only by the Board or by a shareholder
entitled to vote for the election of Directors who has delivered written notice,
either by personal delivery or by United States mail, postage prepaid, to the
Secretary of the Company at the principal executive offices of the Company not
less than 70 nor more than 90 days prior to the anniversary date of the
immediately preceding Annual Meeting. Such notice must contain certain
information specified in the By-Laws. The Company's Annual Meeting of
Shareholders for 1998 was held on May 14, 1998. Unless the meeting date for 1999
varies significantly from the meeting date for 1998, such notice must be so
received no earlier than February 13, 1999 and no later than March 5, 1999.
This requirement is separate and apart from the Securities and Exchange
Commission's requirements that a shareholder must meet in order to have a
shareholder proposal included in the Company's proxy statement under Rule 14a-8.
For the Company's Annual Meeting of Shareholders expected to be held in 1999,
any shareholder who wishes to submit a proposal for inclusion in the Company's
proxy materials pursuant to Rule 14a-8 must submit such proposal to the
Secretary of the Company at the principal executive offices of the Company on or
before November 27, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See the Exhibit Index for a list of exhibits filed herewith.
(b) ITT Industries did not file any Form 8-K Current Reports
during the quarter for which this Report is filed.
20
<PAGE> 22
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/ Edward Williams
------------------------------
Edward Williams
Vice President and Controller
(Principal accounting officer)
November 16, 1998
(Date)
21
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C>
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession .............................................................. None
(3) Articles of Incorporation and by-laws .................................................... None
(4) Instruments defining the rights of security holders,
including indentures ................................................................... None
(10) Material contracts ....................................................................... None
(11) Statement re computation of per share earnings ........................................... See Note 6 to
notes to Consolidated
Financial Statements
(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 holders .................................................................... None
(24) Power of attorney ........................................................................ None
(27) Financial Data Schedule .................................................................. Filed Herewith
(27.1) Restated Financial Data Schedule with respect to December 31, 1997 ....................... Filed Herewith
(27.2) Restated Financial Data Schedule with respect to September 30, 1997 ...................... Filed Herewith
(99) Additional Exhibits ...................................................................... None
</TABLE>
22
<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>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- -------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income from continuing operations .......... $ 65.1 $ (26.3) $ 11.9 $ 66.4 $ (130.7) $ 36.9 $ 48.6
Add(deduct):
Adjustment for distributions in excess
of (less than) undistributed equity
earnings and losses a) ..................... 1.8 1.6 2.1 (0.8) (.7) -- (2.6)
Income taxes ............................... 41.7 (16.8) 7.6 44.3 (46.6) 39.8 24.7
--------- --------- --------- --------- --------- --------- ---------
108.6 (41.5) 21.6 109.9 (178.0) 76.7 70.7
--------- --------- --------- --------- --------- --------- ---------
Fixed Charges:
Interest and other financial charges ....... 104.6 101.3 133.2 169.0 175.2 115.2 154.0
Interest factor attributable to rentals b).. 13.3 9.2 17.7 15.8 16.0 13.4 14.8
--------- --------- --------- --------- --------- --------- ---------
117.9 110.5 150.9 184.8 191.2 128.6 168.8
--------- --------- --------- --------- --------- --------- ---------
Earnings, as adjusted, from continuing
Operations ................................. $ 226.5 $ 69.0 $ 172.5 $ 294.7 $ 13.2 $ 205.3 $ 239.5
========= ========= ========= ========= ========= ========= =========
Fixed Charges:
Fixed charges above ........................ $ 117.9 $ 110.5 $ 150.9 $ 184.8 $ 191.2 $ 128.6 $ 168.8
Interest capitalized ....................... -- -- 1.1 1.1 2.9 6.8 8.0
--------- --------- --------- --------- --------- --------- ---------
Total fixed charges ........................ 117.9 110.5 152.0 185.9 194.1 135.4 176.8
Dividends on preferred stock
(pre-income tax basis) c) .................. -- -- -- -- 23.4 47.5 50.0
--------- --------- --------- --------- --------- --------- ---------
Total fixed charges and preferred
dividend requirements ...................... $ 117.9 $ 110.5 $ 152.0 $ 185.9 $ 217.5 $ 182.9 $ 226.8
========= ========= ========= ========= ========= ========= =========
Ratios:
Earnings, as adjusted, from continuing
operations to total fixed charges .......... 1.92 0.62 1.13 1.59 .07 1.52 1.35
========= ========= ========= ========= ========= ========= =========
Earnings, as adjusted, from continuing
operations to total fixed charges and
preferred dividend requirements ............ 1.92 0.62 1.13 1.59 .06 1.12 1.06
========= ========= ========= ========= ========= ========= =========
</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.
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1998 FINANCIAL STATEMENTS INCLUDED IN FORM 10-Q AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,338,000
<SECURITIES> 0
<RECEIVABLES> 908,700
<ALLOWANCES> 19,400
<INVENTORY> 605,700
<CURRENT-ASSETS> 3,925,800
<PP&E> 2,305,300
<DEPRECIATION> 1,327,700
<TOTAL-ASSETS> 6,446,100
<CURRENT-LIABILITIES> 3,125,600
<BONDS> 522,900
0
0
<COMMON> 108,700
<OTHER-SE> 1,826,000
<TOTAL-LIABILITY-AND-EQUITY> 6,446,100
<SALES> 3,232,500
<TOTAL-REVENUES> 3,232,500
<CGS> 2,255,100
<TOTAL-COSTS> 2,457,700
<OTHER-EXPENSES> 575,200
<LOSS-PROVISION> 2,700
<INTEREST-EXPENSE> 104,600
<INCOME-PRETAX> 106,800
<INCOME-TAX> 41,700
<INCOME-CONTINUING> 65,100
<DISCONTINUED> 1,648,600
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,713,700
<EPS-PRIMARY> 14.63
<EPS-DILUTED> 14.25
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S RESTATED DECEMBER 31, 1997 FINANCIAL STATEMENTS.
IN THE THIRD QUARTER OF 1998, THE COMPANY SOLD ITS AUTOMOTIVE BRAKE AND CHASSIS
AND ELECTRICAL SYSTEMS UNITS. AS A RESULT OF THESE SALES, THESE TWO UNITS, AS
WELL AS SEVERAL OTHER SMALL PREVIOUSLY SOLD AUTOMOTIVE UNITS, HAVE BEEN
ACCOUNTED FOR AS A DISCONTINUED OPERATION. THE RESTATED FINANCIAL INFORMATION
BELOW REFLECTS THE ACCOUNTING TREATMENT OF SUCH UNITS AS A DISCONTINUED
OPERATION.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 192,200
<SECURITIES> 0
<RECEIVABLES> 746,100
<ALLOWANCES> 19,000
<INVENTORY> 572,400
<CURRENT-ASSETS> 1,574,500
<PP&E> 2,289,300
<DEPRECIATION> 1,258,100
<TOTAL-ASSETS> 5,027,800
<CURRENT-LIABILITIES> 2,895,800
<BONDS> 531,200
0
0
<COMMON> 118,400
<OTHER-SE> 704,000
<TOTAL-LIABILITY-AND-EQUITY> 5,027,800
<SALES> 4,150,000
<TOTAL-REVENUES> 4,150,000
<CGS> 2,925,500
<TOTAL-COSTS> 3,191,800
<OTHER-EXPENSES> 815,900
<LOSS-PROVISION> 8,500
<INTEREST-EXPENSE> 133,200
<INCOME-PRETAX> 19,500
<INCOME-TAX> 7,600
<INCOME-CONTINUING> 11,900
<DISCONTINUED> 101,800
<EXTRAORDINARY> 0
<CHANGES> 5,600
<NET-INCOME> 108,100
<EPS-PRIMARY> .91
<EPS-DILUTED> .89
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S RESTATED SEPTEMBER 30, 1997 FINANCIAL STATEMENTS.
IN THE THIRD QUARTER OF 1998, THE COMPANY SOLD ITS AUTOMOTIVE BRAKE AND CHASSIS
AND ELECTRICAL SYSTEMS UNITS. AS A RESULT OF THESE SALES, THESE TWO UNITS, AS
WELL AS SEVERAL OTHER SMALL PREVIOUSLY SOLD AUTOMOTIVE UNITS, HAVE BEEN
ACCOUNTED FOR AS A DISCONTINUED OPERATION. THE RESTATED FINANCIAL INFORMATION
BELOW REFLECTS THE ACCOUNTING TREATMENT OF SUCH UNITS AS A DISCONTINUED
OPERATION.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 208,400
<SECURITIES> 0
<RECEIVABLES> 773,200
<ALLOWANCES> 15,400
<INVENTORY> 554,300
<CURRENT-ASSETS> 1,611,800
<PP&E> 2,500,700
<DEPRECIATION> 1,515,000
<TOTAL-ASSETS> 5,029,700
<CURRENT-LIABILITIES> 2,893,000
<BONDS> 560,100
0
0
<COMMON> 118,400
<OTHER-SE> 664,700
<TOTAL-LIABILITY-AND-EQUITY> 5,029,700
<SALES> 2,983,000
<TOTAL-REVENUES> 2,983,000
<CGS> 2,123,700
<TOTAL-COSTS> 2,319,200
<OTHER-EXPENSES> 613,300
<LOSS-PROVISION> 5,200
<INTEREST-EXPENSE> 101,400
<INCOME-PRETAX> (43,100)
<INCOME-TAX> (16,800)
<INCOME-CONTINUING> (26,300)
<DISCONTINUED> 62,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,800
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
