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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 July 31, 2000, 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
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<S> <C> <C>
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Condensed Income Statements -- Three and Six Months Ended
June 30, 2000 and 1999............................................................2
Consolidated Condensed Balance Sheets -- June 30, 2000 and
December 31, 1999.................................................................3
Consolidated Condensed Statements of Cash Flows -- Six Months Ended
June 30, 2000 and 1999............................................................4
Notes to Consolidated Condensed Financial Statements .................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations:
Three and Six Months Ended June 30, 2000 and 1999.....................................8
Part II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders..................................12
Item 6. Exhibits and Reports on Form 8-K.....................................................13
Signature............................................................................13
Exhibit Index........................................................................14
</TABLE>
1
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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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sales and revenues................................... $1,223.5 $1,191.7 $2,429.5 $2,283.4
------- ------- ------- --------
Costs of sales and revenues.......................... 817.6 838.3 1,630.4 1,613.2
Selling, general, and administrative expenses........ 182.4 172.0 381.4 346.9
Research, development, and engineering expenses...... 94.3 70.2 188.5 136.2
------- ------- ------- --------
Total costs and expenses............................. 1,094.3 1,080.5 2,200.3 2,096.3
------- ------- ------- --------
Operating income..................................... 129.2 111.2 229.2 187.1
Interest expense..................................... (21.1) (18.9) (46.9) (37.8)
Interest income...................................... 3.1 7.8 9.8 17.8
Miscellaneous income (expense), net.................. 0.2 0.5 0.7 0.9
------- ------- ------- --------
Income before income taxes 111.4 100.6 192.8 168.0
Income tax expense................................... (41.2) (37.3) (71.3) (62.2)
------- ------- ------- --------
Net income........................................... $ 70.2 $ 63.3 $ 121.5 $ 105.8
======= ======= ======= ========
EARNINGS PER SHARE:
Net income
Basic.............................................. $ 0.80 $ 0.72 $ 1.38 $ 1.17
Diluted............................................ $ 0.78 $ 0.70 $ 1.35 $ 1.13
Cash dividends declared per common share............. $ 0.15 $ 0.15 $ 0.30 $ 0.30
</TABLE>
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The accompanying notes to consolidated condensed financial statements are an
integral part of the above statements.
2
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ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN MILLIONS, EXCEPT FOR SHARES AND PER SHARE)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................... $ 282.2 $ 181.7
Receivables, net............................................. 929.6 834.7
Inventories, net............................................. 538.6 545.8
Other current assets......................................... 79.6 66.1
------- -------
Total current assets...................................... 1,830.0 1,628.3
Plant, property, and equipment, net............................ 811.5 847.0
Deferred U.S. income taxes..................................... 374.0 373.6
Goodwill, net.................................................. 1,302.5 1,206.0
Other assets .................................................. 458.4 474.9
------- -------
Total assets.............................................. $ 4,776.4 $ 4,529.8
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................. $ 399.8 $ 383.1
Accrued expenses............................................. 782.5 753.1
Accrued taxes................................................ 388.0 364.9
Notes payable and current maturities of long-term debt....... 725.6 609.3
------- -------
Total current liabilities................................. 2,295.9 2,110.4
Pension and postretirement benefits............................ 374.0 382.1
Long-term debt................................................. 479.9 478.8
Other liabilities.............................................. 481.3 459.4
------- -------
3,631.1 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............................................ 1,205.8 1,113.8
Accumulated other comprehensive income (loss):
Unrealized (loss) on investment securities................ (3.9) (0.7)
Cumulative translation adjustments........................ (144.5) (101.9)
-------- --------
Total shareholders' equity ......................... 1,145.3 1,099.1
------- -------
Total liabilities and shareholders' equity.......... $ 4,776.4 $ 4,529.8
======= =======
</TABLE>
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The accompanying notes to consolidated condensed financial statements are an
integral part of the above balance sheets.
3
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ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................... $ 121.5 $ 105.8
Adjustments to Net income:
Depreciation................................................ 76.2 75.6
Amortization................................................ 23.5 16.9
Payments made for restructuring............................... (14.8) (31.6)
Change in receivables, inventories, accounts payable, and
accrued expenses........................................ (58.1) (81.0)
Change in accrued and deferred taxes.......................... 5.7 14.8
Other, net.................................................... (11.7) (13.2)
-------- ---------
Net cash - operating activities........................... 142.3 87.3
------- --------
INVESTING ACTIVITIES
Additions to plant, property, and equipment................... (58.0) (95.8)
Proceeds from the sale of assets.............................. 40.7 36.4
Acquisitions.................................................. (111.8) (78.7)
Other, net.................................................... (1.2) 6.5
-------- --------
Net cash - investing activities........................... (130.3) (131.6)
-------- ---------
FINANCING ACTIVITIES
Short-term debt, net.......................................... 121.1 (12.5)
Long-term debt repaid......................................... (11.6) (39.4)
Long-term debt issued......................................... 0.1 1.4
Repurchase of common stock.................................... (10.8) (383.4)
Dividends paid................................................ (26.4) (29.2)
Other, net.................................................... 6.7 21.2
------- --------
Net cash - financing activities........................... 79.1 (441.9)
------- ---------
EXCHANGE RATE EFFECTS ON CASH AND CASH EQUIVALENTS............ (14.4) (11.8)
NET CASH - DISCONTINUED OPERATIONS............................ 23.8 (254.5)
------- ---------
Net change in cash and cash equivalents....................... 100.5 (752.5)
Cash and cash equivalents -- beginning of period.............. 181.7 880.9
------- --------
Cash and cash equivalents -- end of period.................... $ 282.2 $ 128.4
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.................................................... $ 42.7 $ 34.4
==== ====
Income taxes................................................ $ 59.3 $ 25.9
==== ====
</TABLE>
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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, 1999, the reserve balance for all restructuring
activities was $44.7 million. Cash payments of $14.8 million were recorded in
the first six months of 2000 decreasing the reserve balance at June 30, 2000 for
restructuring to $29.9 million. 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 June 30, 2000 cumulative headcount reductions were 2,110 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>
JUNE 30, DECEMBER 31,
2000 1999
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<S> <C> <C>
Trade......................................... $ 840.1 $ 738.5
Accrued for completed work.................... 22.5 32.3
Other......................................... 92.0 86.0
Less reserves................................. (25.0) (22.1)
------- -------
$ 929.6 $ 834.7
======= =======
</TABLE>
3) INVENTORIES
Net inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------- -------------
<S> <C> <C>
Finished goods................................ $ 209.0 $ 203.7
Work in process............................... 230.9 287.3
Raw materials................................. 248.0 228.4
Less -- reserves.............................. (66.3) (60.7)
-- progress payments..................... (83.0) (112.9)
-------- ---------
$ 538.6 $ 545.8
========= ==========
</TABLE>
4) PLANT, PROPERTY, AND EQUIPMENT
Net plant, property, and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- --------------
<S> <C> <C>
Land and improvements......................... $ 62.2 $ 66.1
Buildings and improvements.................... 348.4 343.4
Machinery and equipment....................... 1,150.2 1,186.0
Construction work in progress................. 78.0 86.3
Other......................................... 385.2 368.9
-------- --------
2,024.0 2,050.7
Less -- accumulated depreciation and
Amortization.............................. (1,212.5) (1,203.7)
-------- --------
$ 811.5 $ 847.0
======== ========
</TABLE>
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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 ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- -------------------------------
2000 1999 2000 1999
-------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income.............................................. $ 70.2 $ 63.3 $ 121.5 $ 105.8
Other comprehensive income (loss):
Foreign currency translation adjustments.............. (36.2) 11.3 (48.0) (7.5)
Unrealized gain (loss) on investment securities....... 0.3 0.9 (3.2) 1.2
---------- --------- -------- ---------
Other comprehensive income (loss), before tax....... (35.9) 12.2 (51.2) (6.3)
Income tax related to other comprehensive income...... 9.2 (7.3) 5.4 (10.5)
---------- --------- -------- ---------
Other comprehensive income (loss), after tax........ (26.7) 4.9 (45.8) (16.8)
---------- --------- -------- ---------
Comprehensive income.................................... $ 43.5 $ 68.2 $ 75.7 $ 89.0
========== ========= ======== =========
</TABLE>
6) CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------- ----------------------------------
2000 1999 2000 1999
------------------ --------------- --------------- ----------------
<S> <C> <C> <C> <C>
BASIC BASIS --
Income from continuing operations......... $ 70.2 $ 63.3 $ 121.5 $ 105.8
------ ------ ----- -----
Average common shares outstanding......... 87.9 87.9 87.9 90.2
------ ------ ----- -----
Earnings Per Share........................ $ .80 $ .72 $ 1.38 $ 1.17
====== ====== ===== =====
DILUTED BASIS --
Income from continuing operations......... $ 70.2 $ 63.3 $ 121.5 $ 105.8
------ ------ ----- -----
Average common shares outstanding......... 87.9 87.9 87.9 90.2
Add: Stock options........................ 2.1 2.9 2.0 3.2
------ ------ ----- -----
Average common shares outstanding- diluted
basis..................................... 90.0 90.8 89.9 93.4
------ ------ ----- -----
Earnings Per Share........................ $ .78 $ .70 $ 1.35 $ 1.13
====== ====== ===== =====
</TABLE>
7) INTEREST RATE SWAP AGREEMENTS
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.
6
<PAGE> 8
8) ACQUISITIONS
On June 26, 2000, the Company acquired C&K Components, Inc. ("C&K") a
privately held company, for approximately $108 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.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999
Sales and revenues for the second quarter of 2000 were $1,223.5 million,
an increase of $31.8 million or 2.7% ($67.8 million or 5.7% in constant
currencies) over same period sales for 1999. The increase is attributable to
several acquisitions made in 1999 as well as organic growth partially offset by
the absence of a defense settlement received in 1999 as well as the scheduled
wind down of Defense contracts. Net income for the second quarter of 2000 was
$70.2 million, or $0.78 per diluted share, an increase of $6.9 million, or $0.08
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 second quarter of 2000 was $129.2 million
compared to $111.2 million, an increase of $18.0 million or 16.2% over the
second quarter of 1999. This increase is due to higher volume as well as a
significant improvement in productivity. Segment operating margin for the second
quarter of 2000 of 11.7% was 0.9 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.
Net interest expense for the second quarter of 2000 increased $6.9
million on higher average debt levels, due to several acquisitions made in the
second half of 1999 and the first half of 2000, and higher average interest
rates.
The effective income tax rate for the second quarters of both 2000 and
1999 was 37%. Income tax expense increased $3.9 million to $41.2 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 June 30, 2000 and
1999 were as follows (in millions):
<TABLE>
<CAPTION>
Pumps & Defense Dispositions,
Three months ended Complementary Products & Specialty Connectors Other & Grand
June 30, 2000 Products Services Products & Switches Eliminations Corporate Total
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales & Revenues $ 447.0 $ 347.1 $ 256.3 $ 174.3 $ (1.2) $ ----- $ 1,223.5
Operating income $ 50.4 $ 28.7 $ 39.3 $ 24.4 $ (0.2) $ (13.4) $ 129.2
</TABLE>
<TABLE>
<CAPTION>
Pumps & Defense Dispositions,
Three months ended Complementary Products & Specialty Connectors Other & Grand
June 30, 1999 Products Services Products & Switches Eliminations Corporate Total
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales & Revenues $ 441.3 $ 376.7 $ 246.8 $ 123.8 $ 3.1 $ ------ $ 1,191.7
Operating income $ 43.0 $ 27.5 $ 41.1 $ 16.7 $ 0.2 $ (17.3) $ 111.2
</TABLE>
Pumps & Complementary Products' sales and revenues increased $5.7 million
in the second quarter of 2000 on higher volume within the construction and water
and wastewater businesses, partially offset by the impact of foreign exchange
rates. Operating income for the second quarter of 2000 was up $7.4 million on
higher sales volume, higher productivity and the benefits of restructuring and
cost reduction initiatives.
Defense Products & Services' sales and revenues for the second quarter of
2000 decreased $29.6 million from last year. 1999 sales and revenues included a
$25.6 million claim settlement related to an old project. The acquisition of
Stanford Telecommunications Inc's space and defense communication businesses
("Stel"), (which added approximately $35 million) was offset by the wind down of
certain large contracts. Operating income for the second quarter of 2000 was up
$1.2 million due mainly to margin improvements from product/program mix. 1999
operating income was positively impacted by the $25.6 million claim settlement
referred to above and the receipt of a $5.3 million settlement. In the second
quarter of 1999, the Company recorded $28.3 million in charges for loss
contracts, warranty provisions and other matters.
8
<PAGE> 10
Specialty Products' sales for the second quarter of 2000 increased $9.5
million compared to the same period of 1999. The increase was due to 1999
acquisitions of Flojet Corporation ("Flojet") and Hydro-Air Industries
("Hydro-Air"), (which combined to add approximately $17 million), the strong
marine market and continued strong automotive build rates, partially offset by
the impact of foreign exchange rates. Operating income was $1.8 million lower
than the prior year mainly due to unfavorable product mix.
Connectors & Switches' sales and revenues increased $50.5 million in the
second quarter of 2000 compared with last year due to robust growth in telecom,
industrial and transportation markets, partially offset by the negative impact
of foreign exchange rates. The acquisition of STX Pte. Ltd. ("STX"), (which
added approximately $21 million) also had a favorable impact. Operating income
for the second quarter of 2000 was up $7.7 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 and assets of Community Development Corporation.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
Sales and revenues for the first six months of 2000 were $2,429.5
million, an increase of $146.1 million or 6.4% ($211.7 million or 9.3% in
constant currencies) over same period sales for 1999. The increase is
attributable to several acquisitions made in 1999 as well as organic growth
partially offset by the absence of a defense settlement received in 1999 as well
as the scheduled wind down of Defense contracts. Net income for the first six
months of 2000 was $121.5 million, or $1.35 per diluted share, an increase of
$15.7 million, or $0.22 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 first six months of 2000 was $229.2 million
compared to $187.1 million, an increase of $42.1 million or 22.5% over the same
period of 1999. This increase is due to higher volume as well as a significant
improvement in productivity. Segment operating margin for the first six months
of 2000 of 10.7% was 1.1 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.
Net interest expense for the first six months of 2000 increased $17.1
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 half of 2000, and higher average interest
rates.
The effective income tax rate for the first six months of both 2000 and
1999 was 37%. Income tax expense increased $9.1 million to $71.3 million due to
higher pre-tax earnings.
9
<PAGE> 11
Business Segments - Unaudited sales and revenues and operating income of
the Company's business segments for the six months ended June 30, 2000 and 1999
were as follows (in millions):
<TABLE>
<CAPTION>
Pumps & Defense Dispositions,
Six months ended Complementary Products & Specialty Connectors Other & Grand
June 30, 2000 Products Services Products & Switches Eliminations Corporate Total
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales & Revenues $ 878.7 $ 689.6 $ 521.3 $ 342.0 $ (2.1) $ ----- $ 2,429.5
Operating income $ 92.5 $ 50.1 $ 75.3 $ 41.5 $ (1.9) $ (28.3) $ 229.2
Total Assets $ 1,681.2 $ 787.3 $ 722.2 $ 737.9 $ 21.7 $ 826.1 $ 4,776.4
</TABLE>
<TABLE>
<CAPTION>
Pumps & Defense Dispositions
Six months ended Complementary Products & Specialty Connectors Other & Grand
June 30, 1999 Products Services Products & Switches Eliminations Corporate Total
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales & Revenues $ 842.8 $ 703.3 $ 486.8 $ 245.0 $ 5.5 $ ----- $ 2,283.4
Operating income $ 72.4 $ 46.1 $ 72.3 $ 27.2 $ 0.4 $ (31.3) $ 187.1
Total Assets $ 1,750.1 $ 594.9 $ 610.7 $ 303.5 $ 138.2 $ 765.5 $ 4,162.9
</TABLE>
Pumps & Complementary Products' sales and revenues increased $35.9
million in the first six 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
six months of 2000 was up $20.1 million on higher sales volume and the benefits
of restructuring and cost reduction initiatives.
Defense Products & Services' sales and revenues for the first six months
of 2000 decreased $13.7 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 Stanford Telecom (which added approximately $68
million) was partially offset by the wind down of certain large contracts.
Operating income for the 2000 period was up $4.0 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 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 six months of 2000 increased
$34.5 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 $32
million), the strong marine market and continued strong automotive build rates,
partially offset by the impact of foreign exchange rates. Operating income was
$3.0 million higher than the prior year mainly due to higher first quarter
volume and margin improvements.
Connectors & Switches' sales and revenues increased $97.0 million in the
first six months of 2000 compared with last year due to robust growth in telecom
industrial and transportation markets, partially offset by the negative impact
of foreign exchange rates. The acquisition of STX (which added approximately $41
million) also had a favorable impact. Operating income for the first six months
of 2000 was up $14.3 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 and assets of Community Development Corporation. Operating income for
disposition companies was down in 2000 due to first quarter expenses recorded to
increase an existing reserve.
LIQUIDITY AND CAPITAL RESOURCES
Cash from operating activities of $142.3 million, proceeds from
divestitures and asset sales of $40.7 million and net cash from discontinued
operations of $23.8 million were used primarily for acquisitions of $111.8
million, capital expenditures of $58.0 million, dividend payments of $26.4
million and the negative impact of exchange rates on cash of $14.4 million. The
exchange rate effects on cash and cash equivalents include $10.4 million of
after-tax losses on foreign currency hedges.
CASH FLOWS: Cash from operating activities in the first half of 2000 was
$142.3 million, an increase of $55.0
10
<PAGE> 12
million from the same period of 1999. The increase is largely attributable to
higher cash earnings, better working capital management and lower restructuring
payments.
STATUS OF RESTRUCTURING ACTIVITIES: During 1998, the Company recorded
restructuring charges to close facilities, discontinue product lines and reduce
headcount. As of June 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 1,922, or approximately 80% 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 June 30, 2000, three of
the four facilities were closed and the workforce was reduced by 188 persons.
ADDITIONS TO PLANT, PROPERTY AND EQUIPMENT: Capital expenditures during
the first half of 2000 were $58.0 million, a decrease of $37.8 million from the
first half of 1999. The decrease is due to several large purchases made in the
first half of 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 six 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 $12.4 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 June 30, 2000 was $1,205.5
million, compared with $1,088.1 million at December 31,1999. Cash and cash
equivalents were $282.2 million at June 30, 2000, compared to $181.7 million at
year-end 1999. The maximum amount of borrowing available under the Company's
revolving credit agreement at June 30, 2000 was $1.5 billion.
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 67 basis point change in interest rates (which is equivalent to 10% of the
Company's weighted average variable interest rate at June 30, 2000) on the
Company's cash, marketable securities and floating rate debt obligations and
related interest rate derivatives, would have a $6.2 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.
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.
11
<PAGE> 13
PART II.
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At ITT Industries' annual meeting of shareholders held on May 9, 2000,
the persons whose names are set forth below were elected as directors,
constituting the entire Board of Directors. Relevant voting information for each
person follows:
<TABLE>
<CAPTION>
Votes Cast
---------------------------------------
For Withheld
---------- --------
<S> <C> <C>
Rand V. Araskog......................................... 77,383,708 2,717,571
Curtis J. Crawford...................................... 77,757,811 2,343,468
Michel David-Weill...................................... 77,380,827 2,720,452
Travis Engen............................................ 77,701,492 2,399,787
Christina A. Gold....................................... 77,744,118 2,357,161
Edward C. Meyer......................................... 77,711,952 2,389,327
Linda S. Sanford........................................ 77,755,787 2,345,492
Sidney Taurel........................................... 77,760,712 2,340,567
</TABLE>
In addition to the election of directors, the reappointment of Arthur Andersen
LLP as independent auditors for 2000 was ratified by a vote of 78,823,852 shares
in favor, 778,420 shares against 499,006 shares abstained. In all cases, there
were no broker nonvotes. There were no other matters presented for a vote at the
meeting.
12
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See the Exhibit Index for a list of exhibits filed herewith.
(b) ITT Industries 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 Edward W. Williams
------------------------------------------
Edward W. Williams
Vice President and Corporate Controller
(Principal accounting officer)
August 7, 2000
--
(Date)
13
<PAGE> 15
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 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
security holders None
(23) Consents of experts and counsel None
(24) Power of attorney None
(27) Financial Data Schedule Filed Herewith
(99) Additional Exhibits None
</TABLE>
14
