<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] 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.
<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 October 31, 2000, there were outstanding 87,914,595 shares of common
stock ($1 par value per share) of the registrant.
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<PAGE> 2
ITT INDUSTRIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION: PAGE
Item 1. Financial Statements:
Consolidated Condensed Income Statements -- Three and Nine
Months Ended September 30, 2000 and 1999.................. 2
Consolidated Condensed Balance Sheets -- September 30, 2000
and December 31, 1999..................................... 3
Consolidated Condensed Statements of Cash Flows -- Nine
Months Ended September 30, 2000 and 1999.................. 4
Notes to Consolidated Condensed Financial Statements........ 5
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations:
Three and Nine Months Ended September 30, 2000 and 1999... 8
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K............................ 12
Signature................................................... 12
Exhibit Index............................................... 13
</TABLE>
<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 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 to
the current period presentation. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's 1999 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales and revenues.................................... $1,172.7 $1,106.4 $3,602.2 $3,389.8
-------- -------- -------- --------
Costs of sales and revenues........................... 776.8 780.5 2,394.4 2,393.7
Selling, general, and administrative expenses......... 180.6 164.0 562.0 510.9
Research, development, and engineering expenses....... 92.7 63.7 294.0 199.9
-------- -------- -------- --------
Total costs and expenses.............................. 1,050.1 1,008.2 3,250.4 3,104.5
-------- -------- -------- --------
Operating income...................................... 122.6 98.2 351.8 285.3
Interest expense, net................................. (19.7) (11.9) (56.8) (31.9)
Miscellaneous income (expense), net................... 0.1 -- 0.8 0.9
-------- -------- -------- --------
Income before income taxes............................ 103.0 86.3 295.8 254.3
Income tax expense.................................... (38.1) (31.9) (109.4) (94.1)
-------- -------- -------- --------
Net income............................................ $ 64.9 $ 54.4 $ 186.4 $ 160.2
======== ======== ======== ========
EARNINGS PER SHARE:
Net income
Basic............................................ $ 0.74 $ 0.62 $ 2.12 $ 1.79
Diluted.......................................... $ 0.72 $ 0.60 $ 2.07 $ 1.73
Cash dividends declared per common share.............. $ 0.15 $ 0.15 $ 0.45 $ 0.45
Average Common Shares -- Basic........................ 87.9 87.9 87.9 89.5
Average Common Shares -- Diluted...................... 90.0 90.6 90.0 92.5
</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>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 247.1 $ 181.7
Receivables, net....................................... 866.5 834.7
Inventories, net....................................... 551.7 545.8
Other current assets................................... 75.4 66.1
-------- --------
Total current assets.............................. 1,740.7 1,628.3
Plant, property, and equipment, net......................... 794.6 847.0
Deferred U.S. income taxes.................................. 374.2 373.6
Goodwill, net............................................... 1,279.9 1,206.0
Other assets................................................ 451.2 474.9
-------- --------
Total assets...................................... $4,640.6 $4,529.8
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable....................................... $ 371.8 $ 383.1
Accrued expenses....................................... 770.3 753.1
Accrued taxes.......................................... 384.4 364.9
Notes payable and current maturities of long-term
debt.................................................. 735.9 609.3
-------- --------
Total current liabilities......................... 2,262.4 2,110.4
Pension and postretirement benefits......................... 361.5 382.1
Long-term debt.............................................. 406.8 478.8
Other liabilities........................................... 455.9 459.4
-------- --------
Total liabilities................................. 3,486.6 3,430.7
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............. 87.9 87.9
Retained earnings...................................... 1,255.0 1,113.8
Accumulated other comprehensive income (loss):
Unrealized (loss) on investment securities........ (0.9) (0.7)
Cumulative translation adjustments................ (188.0) (101.9)
-------- --------
Total shareholders' equity................... 1,154.0 1,099.1
-------- --------
Total liabilities and shareholders' equity... $4,640.6 $4,529.8
======== ========
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
2000 1999
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 186.4 $ 160.2
Adjustments to Net income:
Depreciation........................................... 113.8 111.1
Amortization........................................... 37.0 25.1
Payments made for restructuring............................. (18.5) (41.7)
Change in receivables, inventories, accounts payable, and
accrued expenses.......................................... (59.9) (94.3)
Change in accrued and deferred taxes........................ 3.7 34.4
Other, net.................................................. (23.4) (2.6)
------- -------
Net cash -- operating activities....................... 239.1 192.2
------- -------
INVESTING ACTIVITIES
Additions to plant, property, and equipment................. (95.5) (138.6)
Proceeds from the sale of assets............................ 43.7 71.3
Acquisitions................................................ (122.8) (232.6)
Other, net.................................................. (2.4) 5.8
------- -------
Net cash -- investing activities....................... (177.0) (294.1)
------- -------
FINANCING ACTIVITIES
Short-term debt, net........................................ 72.0 210.3
Long-term debt repaid....................................... (21.2) (70.6)
Long-term debt issued....................................... 0.1 1.4
Repurchase of common stock.................................. (28.8) (394.3)
Dividends paid.............................................. (39.6) (42.4)
Other, net.................................................. 18.8 26.7
------- -------
Net cash -- financing activities....................... 1.3 (268.9)
------- -------
EXCHANGE RATE EFFECTS ON CASH AND CASH EQUIVALENTS.......... (14.3) (14.4)
NET CASH -- DISCONTINUED OPERATIONS......................... 16.3 (276.8)
------- -------
Net change in cash and cash equivalents..................... 65.4 (662.0)
Cash and cash equivalents -- beginning of period............ 181.7 880.9
------- -------
Cash and cash equivalents -- end of period.................. $ 247.1 $ 218.9
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................... $ 62.2 $ 55.6
======= =======
Income taxes........................................... $ 85.8 $ 20.2
======= =======
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of the above statements.
4
<PAGE> 6
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE, UNLESS OTHERWISE STATED)
1) RESTRUCTURING
At December 31, 1999, the reserve balance for all remaining restructuring
activities was $44.7. Cash payments of $18.5 were recorded in the first nine
months of 2000 decreasing the reserve balance at September 30, 2000 to $26.2. As
reported in the 1999 Annual Report, restructuring activities include reductions
in workforce by an aggregate of 2,726 persons. Total headcount reductions at
December 31,1999 were 1,680 persons. At September 30, 2000 cumulative headcount
reductions were 2,241 persons. The restructuring activities are progressing
according to the plans discussed in the 1999 Annual Report.
2) RECEIVABLES
Net receivables consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Trade.............................................. $ 794.5 $ 738.5
Accrued for completed work......................... 0.4 32.3
Other.............................................. 95.3 86.0
Less reserves...................................... (23.7) (22.1)
------------ -----------
$ 866.5 $ 834.7
============ ===========
</TABLE>
3) INVENTORIES
Net inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Finished goods..................................... $ 179.9 $ 186.5
Work in process.................................... 209.6 263.1
Raw materials...................................... 215.4 209.1
Less -- progress payments.......................... (53.2) (112.9)
------------ -----------
$ 551.7 $ 545.8
============ ===========
</TABLE>
4) PLANT, PROPERTY, AND EQUIPMENT
Net plant, property, and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Land and improvements.............................. $ 62.8 $ 66.1
Buildings and improvements......................... 348.7 343.4
Machinery and equipment............................ 1,152.8 1,186.0
Construction work in progress...................... 72.9 86.3
Other.............................................. 391.6 368.9
------------ -----------
2,028.8 2,050.7
Less -- accumulated depreciation and
amortization..................................... (1,234.2) (1,203.7)
------------ -----------
$ 794.6 $ 847.0
============ ===========
</TABLE>
5
<PAGE> 7
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE, UNLESS OTHERWISE STATED)
5) COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- ---------------
2000 1999 2000 1999
------ ----- ------ ------
<S> <C> <C> <C> <C>
Net income.................................................. $ 64.9 $54.4 $186.4 $160.2
Other comprehensive income (loss):
Foreign currency translation adjustments............... (36.3) (6.6) (84.2) (14.1)
Reclassifications included in net income............... (5.6) -- (5.6) --
Unrealized gain (loss) on investment securities........ 2.9 (2.1) (0.2) (0.9)
------ ----- ------ ------
Other comprehensive income (loss), before tax..... (39.0) (8.7) (90.0) (15.0)
Income tax related to other comprehensive income....... (1.7) 4.7 3.7 (5.8)
------ ----- ------ ------
Other comprehensive income (loss), after tax...... (40.7) (4.0) (86.3) (20.8)
------ ----- ------ ------
Comprehensive income........................................ $ 24.2 $50.4 $100.1 $139.4
====== ===== ====== ======
</TABLE>
6) CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- ---------------
2000 1999 2000 1999
----- ----- ------ ------
<S> <C> <C> <C> <C>
BASIC BASIS --
Income from continuing operations...................... $64.9 $54.4 $186.4 $160.2
Average common shares outstanding...................... 87.9 87.9 87.9 89.5
----- ----- ------ ------
Earnings Per Share..................................... $0.74 $0.62 $ 2.12 $ 1.79
===== ===== ====== ======
DILUTED BASIS --
Income from continuing operations...................... $64.9 $54.4 $186.4 $160.2
Average common shares outstanding...................... 87.9 87.9 87.9 89.5
Add: Stock options..................................... 2.1 2.7 2.1 3.0
----- ----- ------ ------
Average common shares outstanding -- diluted basis..... 90.0 90.6 90.0 92.5
----- ----- ------ ------
Earnings Per Share..................................... $0.72 $0.60 $ 2.07 $ 1.73
===== ===== ====== ======
</TABLE>
7) DEBT
On May 2, 2000, the Company entered into several fixed-to-floating interest
rate swap agreements for a notional amount of $421.5 million. The agreements
change the interest expense on substantially all of the Company's long-term debt
from fixed to variable rates based on the three-month LIBOR. The terms of the
agreements match the terms of the fixed debt.
In November 2000, the company entered into a revolving credit agreement
which expires in November 2005 with 20 domestic and foreign banks providing
aggregate commitments of $1.0 billion. The interest rate for borrowings under
these agreements is generally based on the London Interbank Offered Rate
(LIBOR), plus a spread which reflects the Company's debt rating. The provisions
of these agreements require the Company to maintain a certain financial ratio.
The commitment fee on the revolving credit agreement is .125% of the total
commitment, based on the Company's current debt ratings. This agreement replaced
the revolving credit agreement that expired in November 2000.
6
<PAGE> 8
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE, UNLESS OTHERWISE STATED)
8) ACQUISITIONS
On June 26, 2000, the Company purchased C&K Components, Inc. ("C&K") a
privately held company, for approximately $107 million, net of cash acquired.
C&K is a worldwide leader in the design and manufacture of switches for the
telecommunications, computer and electronic equipment markets. C&K has annual
sales of approximately $113 million. The acquisition has been accounted for
using the purchase method. The purchase price allocation has been prepared on a
preliminary basis and changes are expected as evaluations of the assets and
liabilities are completed and as additional information becomes available. The
excess of the purchase price over the fair value of the assets acquired and the
liabilities assumed has or will be recorded as goodwill and will be amortized
over 30 years.
On November 3, 2000, the Company purchased Lucas Man Machine Interface
("MMI") a division of TRW, for approximately $60 million, net of cash acquired.
MMI is a manufacturer of multi-layer switch components and assemblies for the
wireless mobile handset market. MMI has annual sales of approximately $53
million. The acquisition has been accounted for using the purchase method. The
purchase price allocation has been prepared on a preliminary basis and changes
are expected as evaluations of the assets and liabilities are completed and as
additional information becomes available. The excess of the purchase price over
the fair value of the assets acquired and the liabilities assumed has or will be
recorded as goodwill and will be amortized over 30 years.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1999
Sales and revenues for the third quarter of 2000 were $1,172.7 million, an
increase of $66.3 million or 6.0% ($107.5 million or 9.7% in constant
currencies) over same period sales for 1999. The increase is attributable to
several acquisitions made in 2000 and 1999, as well as organic growth, partially
offset by the scheduled wind down of certain Defense contracts. Net income for
the third quarter of 2000 was $64.9 million, or $0.72 per diluted share, an
increase of $10.5 million, or $0.12 per diluted share, from the comparable
period last year. The increase in net income was attributable to higher sales
and higher operating margins partially offset by increased interest expense.
Operating income for the third quarter of 2000 was $122.6 million compared
to $98.2 million, an increase of $24.4 million or 24.8% over the third quarter
of 1999. This increase is due to higher volume as well as a significant
improvement in productivity. Segment operating margin for the third quarter of
2000 of 11.5% was 1.5 percentage points higher than the margins for the same
period in 1999. The improvements resulted from the introduction of new, more
profitable products, higher volume, and higher productivity.
Interest expense (net of interest income of $4.4 million) for the third
quarter of 2000 increased $7.8 million on higher average debt levels, due to
several acquisitions made in the second half of 1999 and the first nine months
of 2000, and higher average interest rates.
The effective income tax rate for the third quarters of both 2000 and 1999
was 37%. Income tax expense increased $6.2 million to $38.1 million due to
higher pre-tax earnings.
Business Segments -- Sales and revenues and operating income of the
Company's business segments for the three months ended September 30, 2000 and
1999 were as follows (in millions):
<TABLE>
<CAPTION>
PUMPS & DEFENSE DISPOSITIONS,
THREE MONTHS ENDED COMPLEMENTARY PRODUCTS & SPECIALTY CONNECTORS OTHER &
SEPTEMBER 30, 2000 PRODUCTS SERVICES PRODUCTS & SWITCHES ELIMINATIONS CORPORATE TOTAL
------------------ ------------- ---------- --------- ---------- ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales & Revenues.................. $425.3 $310.6 $223.1 $214.4 $(0.7) $ -- $1,172.7
Operating income.................. 50.8 28.4 28.0 28.1 0.4 (13.1) 122.6
</TABLE>
<TABLE>
<CAPTION>
PUMPS & DEFENSE DISPOSITIONS,
THREE MONTHS ENDED COMPLEMENTARY PRODUCTS & SPECIALTY CONNECTORS OTHER &
SEPTEMBER 30, 1999 PRODUCTS SERVICES PRODUCTS & SWITCHES ELIMINATIONS CORPORATE TOTAL
------------------ ------------- ---------- --------- ---------- ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales & Revenues.................. $441.2 $319.9 $216.2 $127.4 $1.7 $ -- $1,106.4
Operating income.................. 44.0 24.2 26.5 15.9 (0.1) (12.3) 98.2
</TABLE>
Pumps & Complementary Products' sales and revenues decreased $15.9 million
in the third quarter of 2000 due to the impact of foreign exchange rates more
than offsetting higher volume in the water and wastewater businesses. Operating
income for the third quarter of 2000 was up $6.8 million on higher prices,
higher productivity, liquidation of foreign businesses, and the benefits of
restructuring and cost reduction initiatives.
Defense Products & Services' sales and revenues for the third quarter of
2000 decreased $9.3 million from last year. The 1999 acquisition of Stanford
Telecommunications, Inc. space and defense communication businesses ("Stel"),
(which added approximately $29 million) was offset by the scheduled wind down of
certain large contracts and lower international shipments in 2000. Operating
income for the third quarter of 2000 was up $4.2 million mainly due to margin
improvements from product/program mix.
Specialty Products' sales for the third quarter of 2000 increased $6.9
million compared to the same period of 1999. The 1999 acquisition of Flojet
Corporation ("Flojet"), which added approximately $11 million, was partially
offset by the impact of foreign exchange rates. Operating income was up $1.5
million over the prior year mainly due to higher sales volume and increased
productivity.
Connectors & Switches' sales and revenues increased $87.0 million in the
third quarter of 2000 compared with last year due to robust growth in
telecommunications, industrial, and transportation markets partially
8
<PAGE> 10
offset by the negative impact of foreign exchange rates. The 1999 acquisition of
STX Pte. Ltd. ("STX"), and the 2000 acquisition of C&K Components, Inc. ("C&K")
(which combined to add approximately $55 million) also had a favorable impact.
Operating income for the third quarter of 2000 was up $12.2 million over the
prior year due to higher volume, greater contribution from new products with
higher margins, and a better cost structure.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1999
Sales and revenues for the first nine months of 2000 were $3,602.2 million,
an increase of $212.4 million or 6.3% ($319.3 million or 9.4% in constant
currencies) over the same period sales for 1999. The increase is attributable to
several acquisitions made in 2000 and 1999, as well as organic growth, partially
offset by the absence of a defense settlement received in 1999 and the scheduled
wind down of certain Defense contracts. Net income for the first nine months of
2000 was $186.4 million, or $2.07 per diluted share, an increase of $26.2
million, or $0.34 per diluted share, over the comparable period last year. The
increase in net income was attributable to higher sales and higher operating
margins partially offset by increased interest expense.
Operating income for the first nine months of 2000 was $351.8 million, an
increase of $66.5 million or 23.3% over the same period sales for 1999. This
increase is due to higher volume as well as a significant improvement in
productivity. Segment operating margin of 11.0% for the first nine months of
2000 was 1.3 percentage points higher than the margins for the same period in
1999. The improvements resulted from the introduction of new, more profitable
products, higher volume, and higher productivity.
Interest expense (net of interest income of $14.2 million) for the first
nine months of 2000 increased $24.9 million on higher average debt levels, due
to the 1999 share repurchase program that was completed in the first quarter of
1999 and several acquisitions made in the second half of 1999 and the first nine
months of 2000, and higher average interest rates.
The effective income tax rate for the first nine months of both 2000 and
1999 was 37%. Income tax expense increased $15.3 million to $109.4 million due
to higher pre-tax earnings.
Business Segments -- Sales and revenues, operating income and total assets
of the Company's business segments for the nine months ended and as of September
30, 2000 and 1999 were as follows (in millions):
<TABLE>
<CAPTION>
PUMPS & DEFENSE DISPOSITIONS,
NINE MONTHS ENDED COMPLEMENTARY PRODUCTS & SPECIALTY CONNECTORS OTHER &
SEPTEMBER 30, 2000 PRODUCTS SERVICES PRODUCTS & SWITCHES ELIMINATIONS CORPORATE TOTAL
------------------ ------------- ---------- --------- ---------- ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales & Revenues.................. $1,304.0 $1,000.2 $744.4 $556.4 $(2.8) $ -- $3,602.2
Operating income.................. 143.3 78.5 103.3 69.6 (1.5) (41.4) 351.8
Total Assets.............. 1,612.2 779.4 713.8 748.6 22.0 764.5 4,640.6
</TABLE>
<TABLE>
<CAPTION>
PUMPS & DEFENSE DISPOSITIONS,
NINE MONTHS ENDED COMPLEMENTARY PRODUCTS & SPECIALTY CONNECTORS OTHER &
SEPTEMBER 30, 1999 PRODUCTS SERVICES PRODUCTS & SWITCHES ELIMINATIONS CORPORATE TOTAL
------------------ ------------- ---------- --------- ---------- ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales & Revenues.................. $1,284.0 $1,023.2 $703.0 $372.4 $7.2 $ -- $3,389.8
Operating income.................. 116.4 70.3 98.8 43.1 0.3 (43.6) 285.3
Total Assets.............. 1,746.0 641.1 737.0 311.0 78.3 831.5 4,344.9
</TABLE>
Pumps & Complementary Products' sales and revenues increased $20.0 million
in the first nine months of 2000 on higher volume within the construction and
water and wastewater businesses partially offset by the impact of foreign
exchange rates and softness in industrial pumps. Operating income for the first
nine months of 2000 was up $26.9 million on higher prices, higher productivity,
liquidation of foreign businesses and the benefits of restructuring and cost
reduction initiatives.
Defense Products & Services' sales and revenues for the first nine months
of 2000 decreased $23.0 million compared to the same period of last year. 1999
sales and revenues included a $25.6 million claim settlement related to an old
project. The acquisition of Stel (which added approximately $98 million) was
partially offset by the scheduled wind down of certain large contracts and lower
international shipments. Operating income for the 2000 period was up $8.2
million. Margin improvements from product/program mix and gains on sale of
assets drove the increase. 1999 operating income was positively impacted by the
$25.6 million claim
9
<PAGE> 11
settlement referred to above and the receipt of a $5.3 million settlement. In
the 1999 period, the Company recorded $28.3 million in charges for loss
contracts, warranty provisions and other matters.
Specialty Products' sales for the first nine months of 2000 increased $41.4
million compared to the same period of 1999. The increase was due to 1999
acquisitions of Flojet and Hydro-Air (which combined to add approximately $42
million) partially offset by the impact of foreign exchange rates. Operating
income was $4.5 million higher than the prior year mainly due to higher volume
and margin improvements.
Connectors & Switches' sales and revenues increased $184.0 million in the
first nine months of 2000 compared with last year due to robust growth in
telecommunications, industrial and transportation markets partially offset by
the negative impact of foreign exchange rates. The acquisitions of STX and C&K
(which combined to add approximately $96 million) also had a favorable impact.
Operating income for the first nine months of 2000 was up $26.5 million over the
prior year due to higher volume, greater contribution from new products with
higher margins, and a better cost structure.
Corporate expenses were below the prior year due to expenses recorded in
1999 for tax organization costs and terminated projects. Sales and revenues of
disposition companies decreased due to the 1999 dispositions of Carbon
Industries, Palm Coast Utility, and assets of Community Development Corporation.
Operating income for disposition companies was down in 2000 due to first quarter
provisions recorded to increase existing expense accruals.
LIQUIDITY AND CAPITAL RESOURCES
Cash from operating activities of $239.1 million, proceeds from
divestitures and asset sales of $43.7 million and net cash from discontinued
operations of $16.3 million were used primarily for acquisitions of $122.8
million, capital expenditures of $95.5 million, dividend payments of $39.6
million, and the negative impact of exchange rates on cash of $14.3 million. The
exchange rate effects on cash and cash equivalents include $7.2 million of
after-tax losses on foreign currency hedges.
CASH FLOWS: Cash from operating activities in the first nine months of
2000 was $239.1 million, an increase of $46.9 million from the same period of
1999. The increase is largely attributable to higher cash earnings, better
working capital management, and lower restructuring payments partially offset by
higher tax payments.
STATUS OF RESTRUCTURING ACTIVITIES: During 1998, the Company recorded
restructuring charges to close facilities, discontinue product lines, and reduce
headcount. As of September 30, 2000, the company had closed 19 of the planned 25
facilities, discontinued 18 of the planned 19 product lines, and reduced the
workforce by 2,027, or approximately 84% of the planned aggregate reduction of
approximately 2,400 persons.
During 1999, the company recorded restructuring charges to close four
facilities and reduce headcount by 326 persons. As of September 30, 2000, three
of the four facilities were closed and the workforce was reduced by 214 persons.
ADDITIONS TO PLANT, PROPERTY AND EQUIPMENT: Capital expenditures during
the first nine months of 2000 were $95.5 million, a decrease of $43.1 million
from the first nine months of 1999. The decrease is due to several large
purchases made in 1999, the delay in the timing of 2000 purchases, as well as a
planned reduction of expenditures for the current year.
DIVESTITURES: During the first nine months of 2000, the Company sold the
net assets of GaAsTEK, a business in the Defense Products and Services segment,
for $28.3 million. The remaining $15.4 million of cash proceeds from the sale of
assets represents plant, property and equipment sales across all of our
businesses.
DEBT AND CREDIT FACILITIES: External debt at September 30, 2000 was
$1,142.7 million, compared with $1,088.1 million at December 31,1999. Cash and
cash equivalents were $247.1 million at September 30, 2000, compared to $181.7
million at year-end 1999. As of September 30, 2000, the maximum borrowing
available under the company's revolving credit agreement was $1.5 billion. This
agreement expired in November 2000.
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In November 2000 the company entered into a revolving credit agreement,
which expires in November 2005 with 20 domestic and foreign banks providing
aggregate commitments of $1.0 billion. The interest rate for borrowings under
these agreements is generally based on London Interbank Offered Rate (LIBOR),
plus a spread which reflects the Company's debt rating. The provisions of these
agreements require the company to maintain a certain financial ratio. The
commitment fee on the revolving credit agreement is .125% of the total
commitment, based on the Company's current debt ratings.
On May 2, 2000, the Company entered into several fixed-to-floating interest
rate swap agreements for a notional amount of $421.5 million. The agreements
change the interest expense on substantially all of the Company's long-term debt
from fixed to variable rates based on the three-month LIBOR. The terms of the
agreements match the terms of the fixed debt.
A 66 basis point change in interest rates (which is equivalent to 10% of
the Company's weighted average variable interest rate at September 30, 2000) on
the Company's cash, marketable securities and floating rate debt obligations,
and related interest rate derivatives, would have a $5.9 million effect on the
Company's annual pretax earnings. A 10% change of long-term interest rates would
not have a significant effect on the fair value of the Company's fixed rate debt
and related interest rate derivatives.
ACCOUNTING PRONOUNCEMENTS
The Company will adopt statement of Financial Accounting Standards ("SFAS")
No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133") and the corresponding amendments of SFAS 138 in the first quarter of 2001.
SFAS 133, as amended by the SFAS 138, is not expected to have a material impact
on the Company's combined results of operations, financial position, or cash
flows.
Effective October 1, 2000, the Company will adopt SAB 101 "Revenue
Recognition in Financial Statements" ("SAB 101") and EITF issue No. 00-10
"Accounting for Shipping and Handling Fees and Costs" ("EITF 00-10"). SAB 101
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements. EITF 00-10 requires that all shipping and handling costs
billed to customers be recorded as sales. The adoption of SAB 101 will not have
a material impact on the Company's combined results of operations, financial
condition or cash flow. The adoption of EITF 00-10 will cause annual sales and
cost of sales to increase by approximately $17 million. The adoption of EITF
00-10 will have no effect on operating income, net income, EPS, financial
condition or cash flow of the Company.
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, 1999 and other of its filings with the Securities and Exchange
Commission, to which reference is hereby made.
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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.
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 Corporate
Controller
(Principal accounting officer)
November , 2000
(Date)
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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
(a) ITT Industries 1996 Restricted Stock Plan for Filed Herewith
Non-Employee Directors, as amended
(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>
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