<PAGE> 1
- --------------------------------------------------------------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<C> <S>
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
[ ] 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
</TABLE>
ITT INDUSTRIES, INC.
<TABLE>
<S> <C>
INCORPORATED IN THE STATE OF INDIANA 13-5158950
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
</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 April 30, 1999, there were outstanding 87,914,595 shares of common
stock ($1 par value per share) of the registrant.
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ITT INDUSTRIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Condensed Income Statements -- Three Months
Ended March 31, 1999 and 1998............................. 2
Consolidated Condensed Balance Sheets -- March 31, 1999 and
December 31, 1998......................................... 3
Consolidated Condensed Statements of Cash Flows -- Three
Months Ended March 31, 1999 and 1998...................... 4
Notes to Consolidated Condensed Financial Statements........ 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations:
Three Months Ended March 31, 1999 and 1998.................. 7
Part II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K............................ 9
Signature................................................... 10
Exhibit Index............................................... 11
</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 1998 Annual Report on Form 10-K.
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Sales and revenues.......................................... $1,091.7 $1,099.2
-------- --------
Costs of sales and revenues................................. 774.9 776.8
Selling, general, and administrative expenses............... 168.7 178.9
Research, development, and engineering expenses............. 66.0 72.0
Restructuring and nonrecurring items........................ -- 20.1
Other operating expenses.................................... 6.2 5.1
-------- --------
Total costs and expenses.................................... 1,015.8 1,052.9
-------- --------
Operating income............................................ 75.9 46.3
Interest expense............................................ (18.9) (39.1)
Interest income............................................. 10.0 6.6
Miscellaneous income (expense), net......................... 0.4 (0.7)
-------- --------
Income from continuing operations before income taxes....... 67.4 13.1
Income tax expense.......................................... 24.9 5.1
-------- --------
Income from continuing operations........................... 42.5 8.0
Discontinued operations:
Operating income, net of tax of $30.4....................... -- 47.6
-------- --------
Net income.................................................. $ 42.5 $ 55.6
======== ========
EARNINGS PER SHARE:
Income from continuing operations
Basic..................................................... $ .46 $ .07
Diluted................................................... $ .45 $ .07
Discontinued operations
Basic..................................................... $ -- $ .40
Diluted................................................... $ -- $ .39
Net income
Basic..................................................... $ .46 $ .47
Diluted................................................... $ .45 $ .46
Cash dividends declared per common share.................... $ .15 $ .15
</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>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 472.7 $ 880.9
Receivables, net.......................................... 820.0 842.6
Inventories, net.......................................... 584.4 578.9
Other current assets...................................... 78.5 80.0
-------- --------
Total current assets.............................. 1,955.6 2,382.4
Plant, property, and equipment, net......................... 866.4 991.6
Deferred U.S. income taxes.................................. 365.5 367.4
Goodwill, net............................................... 867.2 865.3
Other assets................................................ 419.6 442.1
-------- --------
$4,474.3 $5,048.8
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 376.4 $ 396.2
Accrued expenses.......................................... 833.8 932.9
Accrued taxes............................................. 409.9 570.1
Notes payable and current maturities of long-term debt.... 367.2 251.6
-------- --------
Total current liabilities......................... 1,987.3 2,150.8
Pension benefits............................................ 173.9 178.0
Postretirement benefits other than pensions................. 236.2 241.9
Long-term debt.............................................. 514.2 515.5
Other liabilities........................................... 592.8 662.6
-------- --------
3,504.4 3,748.8
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 87,914,595 shares and 95,967,976 shares... 87.9 96.0
Capital surplus........................................... -- --
Accumulated other comprehensive income (loss):
Unrealized (loss) on investment securities............. (0.2) (0.5)
Cumulative translation adjustments..................... (89.0) (67.0)
-------- --------
(89.2) (67.5)
Retained earnings........................................... 971.2 1,271.5
-------- --------
969.9 1,300.0
-------- --------
$4,474.3 $5,048.8
======== ========
</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>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
-------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 42.5 $ 55.6
Discontinued operations:
Operating income.......................................... -- (47.6)
------- ------
Income from continuing operations........................... 42.5 8.0
Adjustments to income from continuing operations:
Depreciation.............................................. 36.1 41.8
Amortization.............................................. 10.1 11.0
Restructuring and nonrecurring charges.................... -- 20.1
Payments made for restructuring............................. (14.9) --
Change in receivables, inventories, accounts payable, and
accrued expenses.......................................... (60.4) (93.5)
Change in accrued and deferred taxes........................ 9.6 39.5
Other, net.................................................. (12.2) (22.2)
------- ------
Cash from operating activities......................... 10.8 4.7
------- ------
INVESTING ACTIVITIES
Additions to plant, property, and equipment................. (29.9) (31.9)
Proceeds from the sale of assets............................ 34.5 2.9
Acquisitions................................................ (33.2) (7.9)
Other, net.................................................. (1.9) 1.0
------- ------
Cash (used for) investing activities................... (30.5) (35.9)
------- ------
FINANCING ACTIVITIES
Short-term debt, net........................................ 138.1 49.4
Long-term debt repaid....................................... (9.7) (10.6)
Long-term debt issued....................................... 1.5 0.2
Repurchase of common stock.................................. (369.2) (13.6)
Dividends paid.............................................. (15.4) (17.8)
Other, net.................................................. 11.9 7.6
------- ------
Cash from (used for) financing activities.............. (242.8) 15.2
------- ------
EXCHANGE RATE EFFECTS ON CASH AND CASH EQUIVALENTS.......... (6.7) (7.5)
CASH FROM (USED FOR) DISCONTINUED OPERATIONS................ (139.0) (8.6)
------- ------
Decrease in cash and cash equivalents....................... (408.2) (32.1)
Cash and cash equivalents -- beginning of period............ 880.9 192.2
------- ------
Cash and cash equivalents -- end of period.................. $ 472.7 $160.1
======= ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest.................................................. $ 14.2 $ 33.2
======= ======
Income taxes.............................................. $ 16.2 $(11.5)
======= ======
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of the above statements.
4
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ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE, UNLESS OTHERWISE STATED)
1) RESTRUCTURING: At December 31, 1998 the reserve balance for restructuring
activities was $138.4 million. In the first quarter of 1999, reserve utilization
was $17.1 million, consisting of cash payments of $14.9 million, $1.1 million of
reversals, $0.6 million of foreign exchange fluctuations and $0.5 million of
other. The reserve balance at March 31, 1999 for restructuring was $121.3
million. As reported in the 1998 Annual Report, restructuring activities include
reductions in workforce by an aggregate of 2,422 persons. Total headcount
reductions at December 31, 1998 were 425 persons. At March 31, 1999 cumulative
headcount reductions were 880 persons. The restructuring activities are
progressing according to plans as discussed in the 1998 Annual Report.
2) RECEIVABLES, NET
Receivables consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- -------------
<S> <C> <C>
Trade....................................................... $760.1 $753.5
Accrued for completed work.................................. (0.1) 22.3
Other....................................................... 83.0 89.5
Less reserves............................................... (23.0) (22.7)
------ ------
$820.0 $842.6
====== ======
</TABLE>
3) INVENTORIES, NET
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Finished goods.............................................. $ 215.2 $ 206.2
Work in process............................................. 501.5 511.6
Raw materials............................................... 193.0 209.8
Less -- reserves............................................ (113.8) (115.0)
-- progress payments................................... (211.5) (233.7)
------- -------
$ 584.4 $ 578.9
======= =======
</TABLE>
4) PLANT, PROPERTY, AND EQUIPMENT, NET
Plant, property, and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Land and improvements....................................... $ 47.6 $ 51.5
Buildings and improvements.................................. 329.4 346.7
Machinery and equipment..................................... 1,124.9 1,295.8
Construction work in progress............................... 105.2 103.9
Other....................................................... 525.5 509.1
--------- ---------
2,132.6 2,307.0
Less -- accumulated depreciation and amortization........... (1,266.2) (1,315.4)
--------- ---------
$ 866.4 $ 991.6
========= =========
</TABLE>
5
<PAGE> 7
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
5) COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Net income:
Continuing operations..................................... $ 42.5 $ 8.0
Discontinued operations................................... -- 47.6
------ ------
Total..................................................... 42.5 55.6
Other comprehensive income (loss):
Foreign currency translation adjustments.................. (25.2) (15.0)
Unrealized gain (loss) on investment securities........... 0.3 (0.1)
------ ------
Other comprehensive income (loss) before tax........... (24.9) (15.1)
Income tax related to other comprehensive income.......... 3.2 1.0
------ ------
Other comprehensive income, after tax.................. (21.7) (14.1)
------ ------
Comprehensive income........................................ $ 20.8 $ 41.5
====== ======
</TABLE>
6) CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
---------------
1999 1998
----- ------
<S> <C> <C>
BASIC BASIS --
Income from continuing operations......................... $42.5 $ 8.0
----- ------
Average common shares outstanding......................... 92.0 118.4
----- ------
Earnings Per Share........................................ $ .46 $ .07
===== ======
DILUTED BASIS --
Income from continuing operations......................... $42.5 $ 8.0
----- ------
Average common shares outstanding......................... 92.0 118.4
Add: Stock options........................................ 3.3 3.2
----- ------
Average common shares outstanding on a diluted basis...... 95.3 121.6
----- ------
Earnings Per Share........................................ $ .45 $ .07
===== ======
</TABLE>
7) NEW ACCOUNTING STANDARD: In June 1998, the Financial Accounting Standards
Board issued 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. This statement shall be effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999, which, for the Company, would be the
calendar year beginning January 1, 2000. 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, given the current
level of the Company's derivative and hedging activities, the impact is not
expected to be material.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended March 31, 1999 compared with three months ended March 31,
1998
Net income from continuing operations for the first quarter of 1999 was
$42.5 million, or $.45 per diluted share, an increase of $22.2 million, or $.28
per diluted share, excluding nonrecurring items, from the comparable period last
year. The increase in net income was attributable to higher operating income
resulting from restructuring and other cost saving initiatives and a significant
reduction in net interest expense.
Sales and revenues for the first quarter of 1999 declined slightly from the
first quarter of 1998. The decline in sales and revenues was mainly due to
shipments from our Defense Products & Services units that were delayed until the
second quarter. Selling, general and administrative expenses were $168.7
million, a decrease of $10.2 million compared with the first quarter of 1998
primarily due to dispositions and cost reduction initiatives. Operating margin
for the first quarter of 1999 was 8.2% compared with 7.6% last year. Operating
income from continuing operations was $75.9 million in the first quarter of
1999, compared to $46.3 million last year. The increase was due to a
nonrecurring charge incurred in the first quarter of 1998 and the cost reduction
program announced by the Company on December 2, 1998 including closing
facilities, discontinuing product lines and reducing headcount. At March 31,
1999 the status of the restructuring program included closing of six of the
planned sixteen facilities, discontinuing nine of the planned fourteen product
lines and reducing the workforce by 880, or approximately 36.3% of an aggregate
of 2,422 persons.
Interest expense for the first quarter of 1999 was $18.9 million, compared
with $39.1 million in the first quarter of 1998. The decrease in interest
expense was due to using a portion of the proceeds from the automotive sales to
significantly lower the Company's debt level. Interest income was $10.0 million
in the current quarter, compared to $6.6 million in the prior quarter, a result
of higher marketable securities investments generated on the remaining proceeds
from the automotive sales.
The effective income tax rate for the first quarter of 1999 was 37.0%,
compared with 39.0% for the first quarter of 1998. The reduction in the
effective income tax rate is due to the decrease in pre-tax income from higher
taxed European locations as a result of the automotive sales. Income tax expense
increased to $24.9 million due to higher pre-tax earnings.
Business Segments -- Unaudited sales and revenues and operating income of
the Company's business segments for the three months ended March 31, 1999, and
1998 were as follows (in millions):
<TABLE>
<CAPTION>
CONNECTORS DEFENSE PUMPS & DISPOSITIONS,
THREE MONTHS ENDED & PRODUCTS & COMPLEMENTARY SPECIALTY OTHER & GRAND
MARCH 31, 1999 SWITCHES SERVICES PRODUCTS PRODUCTS ELIMINATIONS CORPORATE TOTAL
- ------------------ ---------- ---------- ------------- --------- ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales and revenues.......... $121.2 $326.6 $ 401.5 $240.0 $ 2.4 $ -- $1,091.7
Operating Income............ $ 10.5 $ 18.6 $ 29.4 $ 31.2 $ 0.2 $ (14.0) $ 75.9
Total Assets................ $306.4 $564.9 $1,749.9 $604.9 $ 152.7 $1,095.5 $4,474.3
</TABLE>
<TABLE>
<CAPTION>
CONNECTORS DEFENSE PUMPS & DISPOSITIONS,(a)
THREE MONTHS ENDED & PRODUCTS & COMPLEMENTARY SPECIALTY OTHER & GRAND
MARCH 31, 1998 SWITCHES SERVICES PRODUCTS PRODUCTS ELIMINATIONS CORPORATE TOTAL
- ------------------ ---------- ---------- ------------- --------- ---------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales and revenues....... $132.1 $336.9 $ 401.2 $204.4 $ 24.6 $ -- $1,099.2
Operating Income:
Before nonrecurring
items............... 10.6 18.6 29.1 23.3 1.3 (16.5) 66.4
Nonrecurring items..... -- -- -- -- -- (20.1) (20.1)
------ ------ -------- ------ -------- -------- --------
Total operating
income............ $ 10.6 $ 18.6 $ 29.1 $ 23.3 $ 1.3 $ (36.6) $ 46.3
Total Assets............. $336.0 $573.6 $1,795.0 $514.3 $1,303.7 $ 559.4 $5,082.0
</TABLE>
- ---------------
(a) Includes net assets from discontinued operations of $985.1
7
<PAGE> 9
Connectors & Switches' sales and revenues declined by $10.9 million in the
first quarter of 1999 compared with last year due to weak demand in some major
markets, particularly industrial. Operating income for the first quarter of 1999
was relatively flat despite the decline in sales and revenues. ITT Industries
expects that weak market conditions in the connector business will be partially
offset by strong growth in the Switches business through the remainder of the
year.
Defense Products & Services' sales and revenues for the first quarter of
1999 decreased by $10.3 million compared to last year, due to delayed shipments
in the aerospace and communications division until the second quarter. Sales and
revenues were up within the segment's Avionics, Night Vision and Gilfillan
units. Operating income for the first quarter of 1999 was flat at $18.6 million
compared with last year.
Pumps & Complementary Products' sales for the quarter were $401.5 million,
up $0.3 million from the first quarter of 1998. Lower sales and revenues in the
industrial pump process industries were offset by increases in the construction
and wastewater business, and by the acquisition of Water Pollution Control
Corporation in January 1999. Operating income for the first quarter of 1999 was
$29.4 million, up slightly from the period last year.
Specialty Products' sales for the first quarter of 1999 were $240.0
million, up $35.6 million from last year due to strong gains within the Friction
Materials, Fluid Handling and Shock Absorber businesses, and the acquisition of
Rule Industries, Inc. in June 1998. Operating income for the first quarter of
1999 was $31.2 million, up $7.9 million over the first quarter of 1998 due to
higher sales volume and the acquisition of Rule Industries, Inc.
LIQUIDITY AND CAPITAL RESOURCES
Cash from operating activities of $10.8 million, proceeds from divestitures
and asset sales of $34.5 million, borrowings of $129.9 million and a $408.2
million reduction in cash were used primarily for repurchases of common stock of
$369.2 million, capital expenditures of $29.9 million, acquisitions of $33.2
million, dividend payments of $15.4 million and $139.0 million for costs related
to discontinued operations.
CASH FLOWS: Cash from operating activities in the first quarter of 1999
was $10.8 million, an increase of $6.1 million from the first quarter of 1998.
The increase in working capital requirements of $60.4 million in the first
quarter of 1999 was largely due to seasonal increases in inventory and accounts
receivable, and payments of year end accruals.
SHARE REPURCHASE: The Company's $1.1 billion stock repurchase program was
completed late in the first quarter. During the course of the program, initiated
last July, ITT Industries repurchased 30.5 million of its shares on the open
market, at an average price of approximately $36 per share.
DEBT AND CREDIT FACILITIES: External debt at March 31, 1999 was $881.4
million, compared with $767.1 million at December 31, 1998. Cash and cash
equivalents were $472.7 million at March 31, 1999, compared to $880.9 million at
year end 1998. The maximum amount of borrowing available under the Company's
revolving credit agreements at March 31, 1999 was $1.5 billion.
ADDITIONS TO PLANT, PROPERTY AND EQUIPMENT: Capital expenditures during
the first quarter of 1999 were $29.9 million, a decrease of $2.0 million from
the first quarter of 1998.
ACQUISITIONS: During the first quarter of 1999, the Company acquired Water
Pollution Control Corporation, in the Pumps & Complementary Products segment,
for $33.7 million, net of acquired cash of $1.8 million. The purchase price
exceeded the net assets acquired by $30.0 million and has been recorded as
goodwill, which is being amortized over 40 years.
DIVESTITURES: During the first quarter of 1999, the Company had one
divestiture -- Palm Coast Utility, that generated $25.8 million of cash. The
remaining $8.7 million cash proceeds from the sale of assets represents plant,
property and equipment sales across all of our businesses.
YEAR 2000 UPDATE: As presented in the Company's Form 10-K Annual Report
for the fiscal year ended December 31, 1998, the Company has conducted
comprehensive inventory and assessment of software and
8
<PAGE> 10
equipment to determine their state of year 2000 "Y2K" readiness. As of March 31,
1999, the Company estimates that approximately 93% of software and equipment
essential to the operations of the business, and 88% of all other software and
equipment, have been modified, upgraded or replaced and tested to confirm Y2K
compliance, based upon the number of items the Company has identified which
require remediation. The Company believes that all software and equipment
essential to the operations of the business will be made Y2K compliant by early
in the third quarter 1999, and all other software and equipment deemed to
require modification, upgrading or replacement should be completed by the end of
the third quarter 1999. The Company is continuing the process of determining
third party Y2K readiness and as of March 31, 1999 had communicated with all
critical suppliers and vendors who supply products and services critical to the
operations of the Company's business. The Company has utilized questionnaires,
telephone interviews, site visits and audits in an effort to assess preparedness
of such suppliers and vendors. Over 98% of our critical suppliers have advised
us that they expect to be fully compliant on a timely basis. In addition, we
have verified that approximately 68% of such suppliers were substantially
compliant as of March 31, based on the results of the efforts described above.
Alternative supply arrangements or other contingency plans are being addressed
for those critical suppliers/vendors who we believe may not be Y2K compliant
before year-end. Currently, the Company estimates that the aggregate cost of its
Y2K initiatives will total approximately $20 million. As of March 31, 1999,
approximately $13.0 million of costs related to its Y2K initiatives have been
incurred, approximately 78% of which has been expensed.
EURO CONVERSION ISSUE: The Euro was introduced on January 1, 1999, at
which time the conversion rates between existing sovereign currencies ("legacy
currencies") and the Euro were set for the participating European Monetary Union
states. However, the legacy currencies in those states will continue to be used
as legal tender through January 1, 2002. Thereafter, the legacy currencies will
be canceled and Euro bills and coins will be used in the participating states.
The Company is addressing issues raised by the conversion to the Euro, such as
assessing whether cross-border price transparency will affect price structures
for similar products and adapting its information technology systems. The
Company's efforts to adapt its systems differ at its various European
operations. All operations are able to accommodate Euro-denominated invoicing
and purchasing transactions. The Company's European operations are formulating
plans to accommodate all Euro-denominated transactions and triangulation
conventions by January 1, 2002, and some of these operations have already
implemented the utilization of the Euro as a transactional currency. The Company
anticipates that its costs in connection with the Euro conversion will not be
material. Further, the Company does not anticipate that the conversion from the
legacy currencies to the Euro would have a material adverse impact on its
consolidated financial condition, results of operations, or cash flows.
FORWARD-LOOKING STATEMENTS
Certain material presented herein 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, 1998 and other of its filings with the Securities and Exchange
Commission, to which reference is hereby made.
PART II.
OTHER INFORMATION
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.
9
<PAGE> 11
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 W. WILLIAMS
------------------------------------
Edward W. Williams
Vice President and Controller
(Principal accounting officer)
May 12, 1999
(Date)
10
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION LOCATION
- ------- ----------- --------
<C> <S> <C>
(2) Plan of acquisition, reorganization, arrangement, None
liquidation or succession
(3) Articles of Incorporation and by-laws None
(4) Instruments defining the rights of security holders, None
including indentures
(10) Material contracts None
(11) Statement re: computation of per share earnings See Note 6 of Notes
to Consolidated
Condensed Financial
Statements
(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 None
security holders
(23) Consents of experts and counsel None
(24) Power of attorney None
(27) Financial Data Schedule Filed Herewith
(99) Additional Exhibits None
</TABLE>
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ITT INDUSTRIES, INC. AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1999 FINANCIAL STATEMENTS INCLUDED IN FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
COMMERCIAL AND INDUSTRIAL COMPANIES
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 137,500
<SECURITIES> 335,200
<RECEIVABLES> 843,000
<ALLOWANCES> 23,000
<INVENTORY> 584,400
<CURRENT-ASSETS> 1,955,600
<PP&E> 2,132,600
<DEPRECIATION> 1,266,200
<TOTAL-ASSETS> 4,474,300
<CURRENT-LIABILITIES> 1,987,300
<BONDS> 514,200
0
0
<COMMON> 87,900
<OTHER-SE> 882,000
<TOTAL-LIABILITY-AND-EQUITY> 4,474,300
<SALES> 1,091,700
<TOTAL-REVENUES> 1,091,700
<CGS> 774,900
<TOTAL-COSTS> 840,900
<OTHER-EXPENSES> 174,900
<LOSS-PROVISION> 500
<INTEREST-EXPENSE> 18,900
<INCOME-PRETAX> 67,400
<INCOME-TAX> 24,900
<INCOME-CONTINUING> 42,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,500
<EPS-PRIMARY> .46
<EPS-DILUTED> .45
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ITT INDUSTRIES, INC. AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S RESTATED MARCH 31, 1998 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.
COMMERCIAL AND INDUSTRIAL COMPANIES
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 160,100
<SECURITIES> 0
<RECEIVABLES> 825,200
<ALLOWANCES> 35,200
<INVENTORY> 576,500
<CURRENT-ASSETS> 1,620,200
<PP&E> 2,322,900
<DEPRECIATION> 1,309,600
<TOTAL-ASSETS> 5,082,000
<CURRENT-LIABILITIES> 2,891,500
<BONDS> 527,600
0
0
<COMMON> 118,400
<OTHER-SE> 722,200
<TOTAL-LIABILITY-AND-EQUITY> 5,082,000
<SALES> 1,099,200
<TOTAL-REVENUES> 1,099,200
<CGS> 776,800
<TOTAL-COSTS> 848,800
<OTHER-EXPENSES> 204,100
<LOSS-PROVISION> 1,000
<INTEREST-EXPENSE> 39,100
<INCOME-PRETAX> 13,100
<INCOME-TAX> 5,100
<INCOME-CONTINUING> 8,000
<DISCONTINUED> 47,600
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,600
<EPS-PRIMARY> .47
<EPS-DILUTED> .46
</TABLE>
