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 March 31, 1997
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-5627
ITT INDUSTRIES, INC.
Incorporated in the State of Indiana 13-5158950
(I.R.S. Employer
Identification Number)
4 West Red Oak Lane, White Plains, NY 10604
(Principal Executive Office)
Telephone Number: (914) 641-2000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
As of April 24, 1997, there were outstanding 118,436,579 shares of
common stock ($1 par value per share) of the registrant.
ITT INDUSTRIES, INC.
TABLE OF CONTENTS
Page
Part FINANCIAL INFORMATION:
I Financial Statements:
Consolidated Condensed Income Statements Three Months Ended
March 31, 1997 and 1996 2
Consolidated Condensed Balance Sheets March 31, 1997 and
December 31, 1996 3
Consolidated Condensed Statements of Cash Flows Three Months
Ended March 31, 1997 and 1996 4
Notes to Consolidated Condensed Financial Statements 5
Business Segment Information 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations:
Three Months Ended March 31, 1997 and 1996 7
Part OTHER INFORMATION:
II Exhibits and Reports on Form 8-K 9
Signature 9
Exhibit Index 10
1
PART I.
FINANCIAL INFORMATION
FINANCIAL STATEMENTS
The following unaudited consolidated condensed financial statements
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC) and, in the opinion of
management, reflect all adjustments (which include only normal
recurring adjustments) necessary for a fair presentation of the
financial position, results of operations, and cash flows for the
periods presented. Certain information and note disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to such SEC rules. The Company believes that the disclosures made are
adequate to make the information presented not misleading. Certain
amounts in the prior periods' consolidated condensed financial
statements have been reclassified to conform with the current period
presentation. It is suggested that these financial statements be read
in conjunction with the financial statements and notes thereto included
in the Company's 1996 Annual Report on Form 10-K.
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
(In millions, except per share)
(unaudited)
Three Months Ended
March 31,
1997 1996
Net sales $ 2,166.6 $ 2,200.9
Cost of sales 1,742.7 1,777.3
Research, development, and engineering
expenses 126.0 130.5
Gross margin 297.9 293.1
Selling, general, and administrative
expenses 186.4 190.3
Other operating (income) expenses 8.2 (2.3)
Operating income 103.3 105.1
Interest expense (33.3) (43.3)
Interest income 3.4 8.6
Miscellaneous expense, net (.8) (1.2)
Income before income taxes 72.6 69.2
Income tax expense (28.3) (29.2)
Net income $ 44.3 $ 40.0
Earnings Per Share:
Net income
Primary $ .37 $ .33
Fully diluted $ .37 $ .33
Cash dividends declared per
common share $ .15 $ .15
__________
The accompanying notes to consolidated condensed financial statements
are an integral part of the above statements.
2
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions, except for shares and per share)
March 31, December 31,
1997 1996
(unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 61.5 $ 121.9
Receivables, net 1,311.5 1,189.8
Inventories, net 789.0 856.9
Other current assets 118.7 120.5
Total current assets 2,280.7 2,289.1
Plant, property, and equipment, net 2,074.7 2,166.7
Deferred U.S. income taxes 195.4 205.1
Goodwill, net 346.1 349.8
Other assets 462.6 480.5
$ 5,359.5 $ 5,491.2
Liabilities and Shareholders'
Equity
Current Liabilities:
Accounts payable $ 664.7 $ 731.8
Accrued expenses 865.1 874.2
Accrued taxes 127.5 96.8
Notes payable and current
maturities of long-term debt 783.7 835.6
Total current liabilities 2,441.0 2,538.4
Pension and postretirement costs 1,048.1 1,126.7
Long-term debt 561.4 583.2
Deferred foreign, state and local
income taxes 107.6 109.5
Other liabilities 362.4 334.2
4,520.5 4,692.0
Shareholders' Equity:
Cumulative Preferred Stock:
Authorized 50,000,000 shares,
no par value, none issued - -
Common stock:
Authorized 200,000,000 shares,
$1 par value per share
Outstanding 118,436,579 shares
and 118,436,579 shares 118.4 118.4
Capital surplus 413.9 418.2
Cumulative translation adjustments 128.7 111.2
Retained earnings 178.0 151.4
839.0 799.2
$ 5,359.5 $ 5,491.2
__________
The accompanying notes to consolidated condensed
financial statements are an integral part of the above balance sheets.
3
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
(unaudited)
Three Months Ended
March 31,
1997 1996
Operating Activities
Net income $ 44.3 $ 40.0
Adjustments to net income:
Depreciation 99.1 102.7
Amortization 10.9 9.0
Change in receivables,inventories,
accounts payable, and accrued
expenses (170.7) (202.8)
Change in accrued and deferred
taxes 43.2 43.7
Other, net 26.4 8.1
Cash from continuing operations 53.2 .7
Cash used for discontinued
operations - (100.5)
Cash from (used for) operating
activities 53.2 (99.8)
Investing Activities
Additions to plant, property, and
equipment (75.7) (86.8)
Proceeds from sale of assets 2.3 47.3
Acquisitions (7.6) -
Other, net (2.4) -
Cash used for investing
activities (83.4) (39.5)
Financing Activities
Short-term debt, net 111.3 148.9
Long-term debt repaid (121.1) (93.2)
Repurchase of common stock (14.7) -
Dividends paid (17.8) -
Other, net 8.9 9.0
Cash from (used for) financing
activities (33.4) 64.7
Exchange Rate Effects on Cash and
Cash Equivalents 3.2 (3.0)
Decrease in cash and cash
equivalents (60.4) (77.6)
Cash and cash equivalents-
beginning of period 121.9 94.2
Cash and cash equivalents-
end of period $ 61.5 $ 16.6
Supplemental Disclosures of Cash
Flow Information:
Cash paid (received) during the
period for:
Interest $ 27.0 $ 40.2
Income taxes $ (6.5) $ (6.8)
__________
The accompanying notes to consolidated condensed financial
statements are an integral part of the above statements.
4
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(In millions, except per share, unless otherwise stated)
1) Receivables
Receivables consist of the following:
March 31, December 31,
1997 1996
Trade $ 1,322.1 $ 1,194.3
Accrued for completed work 25.2 32.5
Less-reserves (35.8) (37.0)
$ 1,311.5 $ 1,189.8
2) Inventories
Inventories consist of the following:
March 31, December 31,
1997 1996
Finished goods $ 353.7 $ 401.6
Work in process 420.7 434.7
Raw materials 322.7 301.2
Less- reserves (82.2) (81.6)
- progress payments (225.9) (199.0)
$ 789.0 $ 856.9
3) Plant, Property, and Equipment
Plant, property, and equipment consist of the following:
March 31, December 31,
1997 1996
Land and improvements $ 101.6 $ 101.7
Buildings and improvements 783.6 807.7
Machinery and equipment 3,368.1 3,469.1
Construction work in progress 239.6 244.1
Other 453.0 469.2
4,945.9 5,091.8
Less- accumulated depreciation
and amortization (2,871.2) (2,925.1)
$ 2,074.7 $ 2,166.7
5
[CAPTION]
4) New Accounting Pronouncement
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") 128 "Earnings per
Share", which is effective for financial statements for periods ending
after December 15, 1997. SFAS 128 requires replacement of primary and
fully diluted earnings per share with basic and diluted earnings per
share. The pro forma basic and diluted earnings per share under SFAS
128 would have been $.37 and $.37, respectively, for the three months
ended March 31, 1997, and $.34 and $.33, respectively, for the three
months ended March 31, 1996.
[CAPTION]
5) Subsequent Event
On April 21, 1997, ITT Industries, Inc. announced that it had
entered into a definitive agreement to acquire Goulds Pumps,
Incorporated ("Goulds") for $37 a share or approximately $815 million
in cash, plus assumption of $119 million of Goulds' debt. Under the
terms of the agreement, which was unanimously approved by the boards of
directors of both companies, a wholly-owned subsidiary of ITT
Industries, Inc. will commence a cash tender offer for all of the
outstanding shares of Goulds. The tender offer will be subject to the
valid tender of Goulds' shares representing a majority of the voting
power of Goulds, the expiration of waiting periods under applicable
antitrust and competition laws, and other customary closing conditions.
The offer is not subject to financing. Goulds is a supplier of
industrial, residential and commercial pumps, parts and accessories.
The acquisition will be accounted for as a purchase and will be
included in the Fluid Technology business segment.
BUSINESS SEGMENT INFORMATION
(In millions)
(unaudited)
Net Sales Operating Income/(Loss)
Three months ended Three months ended
March 31, March 31,
1997 1996 1997 1996
$1,393.0 $1,420.2 .......Automotive.......... $ 74.0 $ 75.3
409.3 353.7 ...Defense & Electronics... 25.1 20.1
307.5 306.6 ......Fluid Technology..... 23.9 21.9
56.8 120.4 ....Dispositions & other... (4.7) 3.4
2,166.6 2,200.9 ......Total Segments....... 118.3 120.7
- - .Corporate expenses & other (15.0) (15.6)
$2,166.6 $2,200.9 $ 103.3 $ 105.1
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three months ended March 31, 1997 compared with three months ended
March 31, 1996
Net income of $44.3 million or $.37 per fully diluted share represents
a 10.9% increase over the $40.0 million or $.33 per fully diluted share
of net income reported in the 1996 first quarter. The increase in net
income was attributable to a decrease in interest expense and positive
results at Defense & Electronics and Fluid Technology partially offset
by a small profit decline at Automotive.
Net sales for the first quarter of 1997 were below the first quarter
of 1996, due mainly to lower sales at non-core operations held for
disposition and unfavorable foreign exchange translation. Operating
income for the first quarter of 1997 of $103.3 million was slightly
below the $105.1 million in the first quarter of 1996, driven mainly by
a decline in earnings of companies held for disposition, partially
offset by higher earnings at Defense & Electronics and Fluid
Technology. Other operating income/expenses, which include gains and
losses from foreign exchange transactions and other charges, was
expense of $8.2 million in the current quarter, compared with income of
$2.3 million in the 1996 first quarter. Operating margins were 4.8% in
both quarters, a result of the earnings remaining fairly constant
despite the sales decline.
Interest expense for the first quarter of 1997 decreased to $33.3
million compared with $43.3 million in the 1996 first quarter. The
reduction in interest expense is attributable to lower interest rates
resulting from the continuation of the debt restructuring implemented
in 1996. Interest income was $3.4 million in the current quarter
compared to $8.6 million in the prior quarter, a result of maintaining
lower cash balances.
The effective income tax rate was reduced to 39% in the 1997 first
quarter from 42.2% in the 1996 first quarter, a result of tax reduction
initiatives implemented in 1996 and a shift in earnings from
jurisdictions with higher tax rates to jurisdictions with lower tax
rates. Income tax expense decreased slightly to $28.3 million in the
1997 first quarter, due to the lower effective tax rate offset by
higher pretax earnings.
Business Segments- Sales and operating income for each of the
Company's three major continuing business segments were as follows for
the three months ended March 31, 1997, and 1996 ($ in millions):
Sales Operating Income
Three months Three months
1997 1996 1997 1996
$1,393.0 $1,420.2 Automotive $ 74.0 $75.3
Although ITT Automotive's volume was up as a result of a 5% increase,
over the prior year, in worldwide automobile production for the first
quarter, Automotive's revenue was down approximately $27.2 million due
to unfavorable foreign exchange and continued pricing pressures from
original equipment manufacturers. Operating income was adversely
affected by lower prices, the ramp-up of the new MK-20, and the
continued strength of the dollar, partially offset by the increase in
volume and the absence of costs associated with the General Motors
strike reported in the prior year.
7
Sales Operating Income
Three months Three months
1997 1996 1997 1996
$ 409.3 $ 353.7 Defense & Electronics $ 25.1 $ 20.1
ITT Defense & Electronics' revenue was up 15.7% from the prior year
first quarter due to strong defense order input received in 1996 and
improving interconnect market conditions. Operating income was 25.2%
higher in the 1997 period due to improved volume and margins at ITT
Cannon's interconnect lines and volume gains in defense lines.
Sales Operating Income
Three months Three months
1997 1996 1997 1996
$ 307.5 $ 306.6 Fluid Technology $ 23.9 $ 21.9
ITT Fluid Technology's 1997 first quarter sales were flat compared to
the 1996 period. Sales were adversely impacted by foreign exchange
translation and the absence of $4.7 million in sales from the General
Controls product line, which was sold in the second quarter of 1996.
The improvement in operating margin was the result of cost control
actions in Europe and operating improvements at several North American
units.
Liquidity and Capital Resources
Cash from operating activities was $53.2 million for the first
quarter of 1997 compared to $(99.8) million in the prior year,
primarily the result of lower working capital requirements and absence
of payments related to discontinued operations.
The increase in working capital (receivables, inventory, payables, and
accrued liabilities) required a cash outflow of approximately $170.7
million, due largely to a seasonal increase in receivables. Working
capital required a cash outflow of $202.8 million in the first quarter
of 1996 due to a seasonal increase in receivables and a reduction in
accounts payable at Automotive.
Many of the Company's businesses require substantial investment in
plant and tooling in order to produce their products. Gross plant
additions totaled $75.7 million in the 1997 first quarter, with
approximately 71% of that total incurred at Automotive. First quarter
1996 spending was $86.8 million, two-thirds of which was also at
Automotive.
Cash inflows in the first quarter of 1996 included $47.3 million from
the sale of land and other assets, including a portion of ITT Community
Development Corporation.
External borrowings were $1,345.1 million at March 31, 1997, compared
with $1,418.8 million at December 31, 1996. Cash and cash equivalents
were $61.5 million at March 31, 1997, compared to $121.9 million at
year-end 1996. The lower debt level at March 31, 1997, reflects foreign
exchange gains, which more than offset funding for working capital needs
and capital additions.
Shareholders' equity increased $39.8 million during the first
quarter of 1997, due to growth in retained earnings and cumulative
translation adjustments. On April 1, 1997, the Company paid a
quarterly dividend of $.15 per share. A second quarterly dividend of
the same amount will be paid on July 1, 1997.
8
Part II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the response to Item 3 Legal Proceedings in the
ITT Industries, Inc. Form 10-K for the fiscal year ended December 31,
1996 describing the environmental proceeding in California relating to
the contamination of the San Fernando Valley aquifer and the
arbitration award that was challenged by Lockheed Martin Corporation.
On March 31, 1997 the California Superior Court confirmed the
allocation award and denied Lockheed Martin's motion to vacate the
arbitration award. Lockheed Martin has filed a Notice of Appeal of the
Superior Court's Order.
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/ Richard J. Townsend
Richard J. Townsend
Vice President and Controller
(Principal accounting officer)
April 30, 1997
(Date)
__________________________________
9
EXHIBIT INDEX
Exhibit
No. Description Location
(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 Filed Herewith
(12) Statements re: computation of ratios
Calculation of ratio of earnings to
total fixed charges Filed Herewith
(15) Letter re: unaudited interim financial
information None
(18) Letter re: change in accounting principles None
(19) Report furnished to security holders None
(22) Published report regarding matters
submitted to vote of security holders None
(23) Consents of experts and counsel None
(24) Power of attorney None
(27) Financial Data Schedule Filed Herewith
(99) Additional Exhibits None
10
EXHIBIT 11
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CALCULATION OF EARNINGS (LOSS) PER SHARE
(In millions, except per share)
Three Months Ended
March 31,
1997 1996
PRIMARY BASIS
Net income $ 44.3 $ 40.0
Average common shares outstanding 118.4 117.5
Common shares issuable in respect to
common stock equivalents 2.2 2.7
Average common equivalent shares 120.6 120.2
Earnings Per Share
Net income $ .37 $ .33
FULLY DILUTED BASIS
Net income $ 44.3 $ 40.0
Average common equivalent shares 120.6 120.2
Additional common shares issuable
assuming full dilution - -
Average common equivalent shares
assuming full dilution 120.6 120.2
Earnings Per Share
Net income $ .37 $ .33
With respect to options, it is assumed that the proceeds to be received
upon exercise are used to acquire common stock of the Company. The dilutive
nature of securities is determined quarterly based on the forecast of
annual earnings.
11
EXHIBIT 12
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CALCULATION OF RATIOS OF EARNINGS TO TOTAL FIXED CHARGES
AND CALCULATION OF EARNINGS TO TOTAL FIXED CHARGES AND
PREFERRED DIVIDEND REQUIREMENTS
(Dollars in millions)
Three Months Ended
March 31, Years Ended December 31,
1997 1996 1996 1995 1994 1993 1992
Earnings:
Income from continuing
operations $ 44.3 $ 40.0 $ 222.6 $ 20.7 $ 201.6 $ 134.8 $ 655.0
Add(deduct):
Adjustment for
distributions in
excess of (less than)
undistributed equity
earnings and loses a) .5 .6 1.9 .6 - (2.6) (30.8)
Income taxes 28.3 29.2 148.4 50.2 147.5 65.1 311.3
Amortization of
interest capitalized .2 .2 .9 2.5 .7 3.9 2.7
73.3 70.0 373.8 74.0 349.8 201.2 938.2
Fixed Charges:
Interest and other
financial charges 33.3 43.3 169.0 175.2 115.2 154.0 180.0
Interest factor
attributable to
rentals b) 7.7 7.2 30.9 29.0 22.0 24.2 24.8
41.0 50.5 199.9 204.2 137.2 178.2 204.8
Earnings, as adjusted,
from continuing
operations $ 114.3 $ 120.5 $ 573.7 $ 278.2 $ 487.0 $ 379.4$1,143.0
Fixed Charges:
Fixed charges above $ 41.0 $ 50.5 $ 199.9 $ 204.2 $ 137.2 $ 178.2 $ 204.8
Interest capitalized - - 1.1 2.9 6.8 8.0 11.6
Total fixed charges 41.0 50.5 201.0 207.1 144.0 186.2 216.4
Dividends on preferred
stock (pre-income tax
basis) c) - - - 23.4 47.5 50.0 63.0
Total fixed charges
and preferred
dividend
requirements $ 41.0 $ 50.5 $ 201.0 $ 230.5 $ 191.5 $ 236.2 $ 279.4
Ratios:
Earnings, as adjusted,
from continuing
operations to total
fixed charges 2.79 2.39 2.85 1.34 3.38 2.04 5.28
Earnings, as adjusted,
from continuing
operations to total
fixed charges and
preferred dividend
requirements 2.79 2.39 2.85 1.21 2.54 1.61 4.09
_________
Notes:
a) The adjustment for distributions in excess of (less than) undistributed
equity earnings and losses represents the adjustment to income for
distributions in excess of (less than) undistributed earnings and losses
of companies in which at least 20% but less than 50% equity is owned.
b) One-third of rental expense is deemed to be representative of interest
factor in rental expense.
c) The dividend requirements on preferred stock have been determined by
adding to the total preferred dividends an allowance for income taxes,
calculated at the effective income tax rate.
12
5
1,000
3-MOS
DEC-31-1997
MAR-31-1997
61,500
0
1,347,300
35,800
789,000
2,280,700
4,945,900
2,871,200
5,359,500
2,441,000
561,400
0
0
118,400
720,600
5,359,500
2,166,600
2,166,600
1,742,700
1,868,700
194,600
1,700
33,300
72,600
28,300
44,300
0
0
0
44,300
.37
.37
