UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
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.
(Exact name of registrant as specified in charter.)
Indiana 13-5158950
(State or other Jurisdiction (I.R.S. Employer
of Incorporation) Identification Number)
4 West Red Oak Lane, White Plains, NY 10604
(Principal Executive Office)
Telephone Number: (914) 641-2000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
As of October 31, 1997, there were outstanding 118,445,259 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 and Nine
Months Ended September 30, 1997 and 1996 2
Consolidated Condensed Balance Sheets-September 30, 1997 and
December 31, 1996 3
Consolidated Condensed Statements of Cash Flows Nine Months
Ended September 30, 1997 and 1996 4
Notes to Consolidated Condensed Financial Statements 5
Business Segment Information 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations:
Three Months and Nine Months Ended September 30, 1997 and 1996 8
Part OTHER INFORMATION:
II Exhibits and Reports on Form 8-K 12
Signature 12
Exhibit Index 13
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 and subsequent
quarterly filings.
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
(In millions, except per share)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Net sales $2,060.4 $2,044.8 $6,478.0 $6,486.9
Cost of sales 1,618.9 1,633.3 5,131.4 5,189.7
Research, development,
and engineering expenses 121.2 121.9 373.8 381.2
Gross margin 320.3 289.6 972.8 916.0
Selling, general, and
administrative expenses 201.2 179.3 581.1 544.5
Other operating expenses 4.0 0.9 16.1 4.9
Special charges 239.0 - 239.0 -
Operating (loss) income (123.9) 109.4 136.6 366.6
Interest expense (37.1) (40.2) (101.4) (123.4)
Interest income 4.5 5.7 12.0 15.6
Miscellaneous income
(expense), net 7.1 (3.3) 11.4 (4.7)
Income (loss) before income
taxes (149.4) 71.6 58.6 254.1
Income tax benefit (expense) 58.3 (27.9) (22.8) (102.7)
Net (loss) income $ (91.1) $ 43.7 $ 35.8 $ 151.4
Earnings (Loss) Per Share:
Net (loss) income
Primary $ (.75) $ .36 $ .30 $ 1.26
Fully diluted $ (.75) $ .36 $ .29 $ 1.26
Cash dividends declared per
common share $ .15 $ .15 $ .45 $ .45
__________
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)
September 30, December 31,
1997 1996
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 208.4 $ 121.9
Receivables, net 1,447.7 1,189.8
Inventories, net 805.9 856.9
Other current assets 129.5 120.5
Total current assets 2,591.5 2,289.1
Plant, property, and equipment,
net 2,080.0 2,166.7
Deferred U.S. income taxes 213.0 205.1
Goodwill, net 1,002.5 349.8
Other assets 493.2 480.5
$6,380.2 $5,491.2
Liabilities and Shareholders'
Equity
Current Liabilities:
Accounts payable $ 689.5 $ 731.8
Accrued expenses 1,023.4 874.2
Accrued taxes 64.0 96.8
Notes payable and current
maturities of long-term debt 1,781.3 835.6
Total current liabilities 3,558.2 2,538.4
Pension and postretirement costs 976.5 1,126.7
Long-term debt 561.1 583.2
Deferred foreign, state and local
income taxes 72.8 109.5
Other liabilities 428.4 334.2
5,597.0 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 118,445,259 shares
and 118,436,579 shares 118.4 118.4
Capital surplus 401.8 418.2
Cumulative translation
adjustments 129.1 111.2
Retained earnings 133.9 151.4
783.2 799.2
$6,380.2 $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)
Nine Months Ended
September 30,
1997 1996
Operating Activities
Net income $ 35.8 $ 151.4
Adjustments to net income:
Special charges 239.0 -
Depreciation 293.0 301.2
Amortization 29.6 25.2
Change in receivables,
inventories, accounts payable,
and accrued expenses (net of
effects from purchase of Goulds) (180.8) (395.1)
Change in accrued and deferred
taxes (86.3) 64.8
Other, net 9.1 (8.2)
Cash from continuing operations 339.4 139.3
Cash used for discontinued
operations - (142.1)
Cash from (used for) operating
activities 339.4 (2.8)
Investing Activities
Additions to plant, property, and
equipment (298.2) (265.6)
Proceeds from sale of assets 140.8 123.9
Acquisitions (103.5) -
Payment for purchase of Goulds, net
of cash acquired (812.2) -
Other, net (2.6) -
Cash used for investing
activities (1,075.7) (141.7)
Financing Activities
Short-term debt, net 1,177.6 341.7
Long-term debt repaid (247.3) (161.3)
Long-term debt issued 1.4 -
Repurchase of common stock (53.0) -
Dividends paid (53.3) (35.7)
Other, net 24.5 15.8
Cash from financing activities 849.9 160.5
Exchange Rate Effects on Cash and
Cash Equivalents (27.1) (7.7)
Increase in cash and cash
equivalents 86.5 8.3
Cash and cash equivalents-
beginning of period 121.9 94.2
Cash and cash equivalents-
end of period $ 208.4 $ 102.5
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the period for:
Interest $ 101.2 $ 105.1
Income taxes $ 75.3 $ 31.0
__________
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:
September 30, December 31,
1997 1996
Trade $ 1,460.1 $ 1,194.3
Accrued for completed work 23.8 32.5
Less reserves (36.2) (37.0)
$ 1,447.7 1,189.8
2) Inventories
Inventories consist of the following:
September 30, December 31,
1997 1996
Finished goods $ 264.6 401.6
Work in process 541.4 434.7
Raw materials 407.7 301.2
Less- reserves (171.3) (81.6)
- progress payments (236.5) (199.0)
$ 805.9 $ 856.9
3) Plant, Property, and Equipment
Plant, property, and equipment consist of the following:
September 30, December 31,
1997 1996
Land and improvements $ 103.8 $ 101.7
Buildings and improvements 751.7 807.7
Machinery and equipment 3,356.3 3,469.1
Construction work in
progress 305.9 244.1
Other 426.7 469.2
4,944.4 5,091.8
Less- accumulated
depreciation and
amortization (2,864.4) (2,925.1)
$ 2,080.0 $ 2,166.7
5
[CAPTION]
4) New Accounting Issues
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 earnings (loss) per share under SFAS 128
would have been $(.77 ) and $.37 for the three months ended September
30, 1997 and September 30, 1996, respectively and $.30 and $1.29 for
the nine months ended September 30, 1997, and September 30, 1996,
respectively. The pro forma diluted earnings per share under SFAS 128
would have been $(.77) and $.36 for the three months ended September 30,
1997 and September 30, 1996, respectively and $.30 and $1.26 for the
nine months ended September 30, 1997 and September 30, 1996, respectively.
In January 1997, the SEC issued amendments to its rules which
clarify and expand disclosure requirements for derivative financial
instruments. As of September 30, 1997, there has been no significant
change in the market risk, or accounting policy associated with
derivative financial instruments as stated in the Company's 1996 Annual
Report on Form 10-K.
[CAPTION]
5) Acquisition
On May 23, 1997 (the "date of acquisition") the Company acquired
Goulds Pumps, Incorporated ("Goulds") for a purchase price of
approximately $870 (the "acquisition"). The acquisition was funded
with short-term borrowings and was accounted for using the purchase
method. Accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed on the basis of their fair values at
the date of acquisition. The purchase price allocations have been
prepared on a preliminary basis and changes are expected as evaluations
of assets and liabilities are completed and as additional information
becomes available. The purchase price, plus assumed liabilities of
$342, exceeded the fair value of the assets acquired by approximately
$675 and has been recorded as goodwill, which is being amortized over a
period of 40 years. The operating results of Goulds have been included
in the consolidated condensed income statements from the date of
acquisition. The following unaudited pro forma financial information
presents results as if the acquisition had occurred at the beginning of
the respective periods:
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
Net sales $ 2,060.4 $ 2,250.3 $ 6,780.2 $ 7,073.6
Net income (91.1) 41.3 27.3 139.7
Earnings per share
-Primary (0.75) .34 .23 1.16
Earnings per share
-Fully diluted (0.75) .34 .22 1.16
These pro forma results have been prepared for comparative purposes
only, and include certain adjustments such as additional depreciation
expense as a result of a step-up in the basis of fixed assets,
additional amortization expense as a result of goodwill arising from
the purchase, and increased interest expense on acquisition debt. The
pro forma results are not necessarily indicative of the results of
operations which actually would have resulted had the purchase been in
effect at the beginning of the respective periods or of future results.
6
[CAPTION]
6) Special Charges
During the third quarter of 1997, the Corporation took several
actions to strengthen the operating performance of the Company and
improve operating efficiencies. As a result, ITT Industries has
recognized a $239.0 pre-tax charge to operating income. A
restructuring charge of $114.4 was recognized at the ITT
Automotive and ITT Fluid Technologies units. These restructuring
charges relate primarily to the write-down of assets and to severance
costs associated with the closure and consolidation of facilities and
related workforce reductions. An additional charge of $91.1
was recognized by the Corporation for estimated losses on the planned
sales of certain non-core businesses including the sale of the ITT
Semiconductors business which was consumated in October 1997. Other
special charges of $31.5 have been recognized for conforming
the accounting policies of the recently acquired Goulds Pumps, Inc.
with ITT Industries' accounting policies and to increase environmental
reserves.
BUSINESS SEGMENT INFORMATION
(In millions)
(Unaudited)
Net Sales
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
Automotive $1,114.4 $1,268.9 $3,893.3 $4,137.3
Defense &
Electronics 404.8 375.2 1,223.6 1,107.1
Fluid Technology 504.5 326.5 1,209.2 953.9
Dispositions &
other 36.7 74.2 151.9 288.6
$2,060.4 $2,044.8 $6,478.0 $6,486.9
Operating Income/(Loss)
Three months ended Nine months ended
September 30, September 30,
1997 1997
Before After Before After
Special Special Special Special Special Special
Charges Charges Charges 1996 Charges Charges Charges 1996
Automotive $ 61.6 $(113.0) $(51.4)$ 73.6 $ 236.3 $(113.0) $ 123.3 $ 250.8
Defense &
Electronics 28.4 - 28.4 24.9 87.4 - 87.4 75.1
Fluid Technology 42.9 (68.8) (25.9) 26.0 104.0 (68.8) 35.2 77.6
Dispositions &
other (1.6) (42.2) (43.8) (0.7) (7.8) (42.2) (50.0) 4.5
Total Segments $ 131.3 (224.0) (92.7) 123.8 419.9 (224.0) 195.9 408.0
Corporate
expenses (16.2) (15.0) (31.2) (14.4) (44.3) (15.0) (59.3) (41.4)
$ 115.1 $(239.0)$(123.9)$109.4 $ 375.6 $(239.0) $ 136.6 $ 366.6
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three months ended September 30, 1997 compared with three months ended
September 30, 1996
A net loss of $91.1 million or a $.75 loss per fully diluted share was
reported in the third quarter 1997 compared to net income of $43.7
million or $.36 per fully diluted share reported in the 1996 third
quarter. The decline was caused by after-tax special charges of $145.8
million ($239.0 million pre-tax), or $1.20 per share taken in the third
quarter to implement a profit improvement plan. Excluding these special
charges, net income was $54.7 million or $.45 per fully diluted share,
a 25.0% improvement over the prior year. This improvement is
attributable to increased profitability at Defense & Electronics and
Fluid Technology, a decline in interest expense, and a gain on the sale
of the North American seats operations, partially offset by a decline in
profitability at Automotive.
Net sales for the third quarter of 1997 were slightly higher than the
third quarter of 1996, due mainly to the inclusion of sales from
Goulds. Offsetting the favorable impact of the inclusion of sales from
Goulds, were unfavorable foreign exchange translation and lower sales
at Automotive reflecting the disposal of two product lines in the
current year. An operating loss for the third quarter of 1997 of
$123.9 million included special charges of $239.0 million as discussed
above. Excluding the special charges, operating income was $115.1
million, an improvement of 5.2% over the $109.4 million reported in
1996. Operating income increased because of the inclusion of Goulds'
operations and profit improvement at Defense & Electronics, partially
offset by a decline in Automotive's operations and slightly higher
headquarters expenses. Other operating expenses, which include gains
and losses from foreign exchange transactions and other charges, were
$4.0 million in the current quarter, compared to $.9 million in the
1996 third quarter. Operating margins, excluding special charges,
were 5.6% in the third quarter of 1997 compared to 5.4% in the third
quarter of 1996.
Interest expense for the third quarter of 1997 decreased to $37.1
million compared to $40.2 million in the 1996 third quarter. The
reduction in interest expense is attributable to lower interest rates
resulting from the debt restructuring implemented in the fourth quarter
of 1996, partially offset by additional interest expense on debt
related to the acquisition of Goulds. Interest income was $4.5 million
in the current quarter compared to $5.7 million in the prior year third
quarter, a result of lower cash balances.
The effective income tax rate was 39.0% in the third quarter for both
years. Excluding the tax benefit on the special charges, of $93.2
million, income tax expense increased by $7.0 million to $34.9 million
in the 1997 third quarter due to higher pretax earnings.
Business Segments- Sales and operating income for the three months
ended September 30, 1997, and 1996 ($ in millions) for each of the
Company's three major continuing business segments were as follows:
Sales Operating Income
Three months Three months
1997 1996 1997 1996
$1,114.4 $1,268.9 Automotive $(51.4) $ 73.6
Automotive's sales were down approximately $154.5 million or 12.2% due
primarily to unfavorable foreign exchange and the absence of sales from
the two product lines sold in the current year. The special charges of
$113.0 million taken in the third quarter resulted in an operating loss
at Automotive of $51.4 million. Excluding special charges, operating
income for the 1997 third quarter of $61.6 million was $12.0 million
lower than the third quarter of 1996 because of unfavorable foreign
exchange and continued sales price declines, partially offset by
volume/mix gains and cost reductions.
8
Sales Operating Income
Three months Three months
1997 1996 1997 1996
Defense &
$ 404.8 $ 375.2 Electronics $ 28.4 $ 24.9
ITT Defense & Electronics' revenue for the quarter was up 7.9% from the
prior year due to sales growth in both the defense and electronics
segments of the business. Strong backlog and new contracts for
SINCGARS (Single Channel Ground and Airborne Radio Systems) and
National Polar Orbiting Environmental Satellite System were the drivers
of the sales growth in the defense segment. Electronics sales growth
was primarily in the infocom and aerospace markets. Operating income
increased 14.0% over the 1996 third quarter, driven by the continued
strong operating performance at Cannon.
Sales Operating Income
Three months Three months
1997 1996 1997 1996
$ 504.5 $ 326.5 Fluid Technology $(25.9) $ 26.0
ITT Fluid Technology's 1997 third quarter sales were 54.5% higher than
the 1996 third quarter primarily due to the inclusion of sales from
Goulds. Sales growth in the United States and United Kingdom were
partially offset by foreign exchange translation and a continued
decline in municipal spending in Western Europe. The operating loss of
$25.9 million was the result of $68.8 million of special charges taken
in the third quarter of 1997. Excluding the special charges, operating
income of $42.9 million was $16.9 million higher than the third quarter
of 1996 largely due to the inclusion of Goulds' operations. Fluid
Technology also had improvement in their margins because of higher
margins at their Flygt operations and the realization of the benefits
from the 1996 restructuring in Germany.
Nine months ended September 30, 1997 compared with nine months ended
September 30, 1996
Net income of $35.8 million or $.29 per fully diluted share was
reported in the first nine months of 1997 compared to the $151.4
million or $1.26 per fully diluted share reported in the first nine
months of 1996. The current year net income included after-tax special
charges including restructuring and losses related to the disposal of
non-core businesses of $145.8 million, or $1.20 per share. Excluding
the special charges, net income was $181.6 million or $1.49 per fully
diluted share, a 19.9% increase over the prior year. The increase in
net income was attributable to a reduction in interest expense,
operating income gains at Defense & Electronics, and gains from the
sale of the Company's North American aftermarket and seats operations
as well as industrial lighting and plastic components business,
partially offset by a profit decline at Automotive.
The Company's sales were $6,478.0 million, or flat compared to the
1996 first nine months. The additional sales from Goulds were offset
by unfavorable foreign exchange translation and lower sales at non-core
operations held for disposition. Operating income for the first nine
months of 1997 of $136.6 million included special charges of $239.0
million as previously discussed. Excluding the special charges,
current year operating income of $375.6 million exceeded the $366.6
million in the prior year due to the inclusion of Goulds' operations
since the date of acquisition and higher earnings at Defense &
Electronics, partially offset by a decline in earnings at Automotive and
companies held for disposition. Other operating expenses, which
include gains and losses from foreign exchange transactions and other
charges, was $16.1 million for the first nine months of 1997, compared
to $4.9 million for the 1996 first nine months. Operating margins,
excluding special charges, were 5.8% in the first nine months of 1997
compared to 5.7% in the first nine months of 1996.
Interest expense for the first nine months of 1997 was $101.4 million,
a decrease of $22.0 million from the $123.4 million in the first nine
months of 1996. The reduction in interest expense is attributable to
lower interest rates resulting from the debt restructuring implemented
in the fourth quarter of 1996, partially offset by interest
9
expense on debt related to the acquisition of Goulds. Interest income
was $12.0 million for the current nine month period compared to $15.6
million for the prior year nine month period, a result of lower cash
balances.
The effective income tax rate was 39.0% for the 1997 first nine months
compared to 40.4% in the first nine months of 1996. Excluding the tax
benefit on the special charges, of $93.2 million, income tax expense
increased by $13.3 million to $116.0 million in the 1997 period due to
higher pretax earnings.
Business Segments- Sales and operating income for the nine months
ended September 30, 1997, and 1996 ($ in millions) for each of the
Company's three major continuing business segments were as follows:
Sales Operating Income
Nine months Nine months
1997 1996 1997 1996
$ 3,893.3 $ 4,137.3 Automotive $ 123.3 $ 250.8
Automotive's revenue was down $244.0 million or 5.9% due primarily to
unfavorable foreign exchange and the absence of sales from two product
lines sold in the current year. Operating income, excluding the
special charges of $113.0 million, for the first nine months of 1997 of
$236.3 million was $14.5 million lower than the first nine months of
1996, a result of lower prices, unfavorable foreign exchange, and the
ramp-up of the new MK-20, partially offset by an increase in volume,
and cost reductions.
Sales Operating Income
Nine months Nine months
1997 1996 1997 1996
Defense &
$1,223.6 $1,107.1 Electronics $ 87.4 $ 75.1
Sales growth in both the defense and interconnect segments of the
business resulted in a 10.5% increase in ITT Defense & Electronics
revenue from the prior year first nine months. The increase in the
defense segment sales is due to order input received in 1996 and strong
growth in the international sector. The interconnect segment sales
increase is due to improving market conditions. Operating income was
16.5% higher in the 1997 period, driven by a strong operating
performance at Cannon and volume gains in defense lines.
Sales Operating Income
Nine months Nine months
1997 1996 1997 1996
$1,209.2 $ 953.9 Fluid Technology $ 35.2 $ 77.6
ITT Fluid Technology's 1997 first nine months sales were 26.8% higher
than the 1996 nine month period due to the inclusion of Goulds' sales
since the date of acquisition. The sales increase related to the
Goulds acquisition was partially offset by unfavorable foreign exchange
translation, a continued decline in municipal spending in Western
Europe, and the absence of sales from the General Controls product line
which was sold in the second quarter of 1996. Operating income,
excluding the special charges of $68.8 million, for the first nine
months of 1997 of $104.0 million was $26.4 million higher than the
prior year. The improvement in operating income was primarily
attributable to the inclusion of Goulds' operations since the date of
acquisition. In addition, operating income was up as a result of cost
control actions in Europe and operating improvements at several North
American units in the first quarter of 1997.
10
Special Charges
During the third quarter of 1997, the Corporation took several
actions to strengthen the operating performance of the Company and
improve operating efficiencies. As a result, ITT Industries has
recognized a $239.0 million pre-tax charge to operating income ($145.8
million after taxes or $1.20 per share). A restructuring charge of
$114.4 million was recognized at the ITT Automotive and ITT Fluid
Technologies units. These restructuring charges relate primarily to
the write-down of assets and to severance costs associated with the
closure and consolidation of facilities and related workforce
reductions. An additional charge of $91.1 million was recognized by
the Corporation for estimated losses on the planned sales of certain
non-core businesses including the sale of the ITT Semiconductors
business which consummated in October 1997. Other special charges of $31.5
million have been recognized for conforming the accounting policies of
the recently acquired Goulds Pumps, Inc. with ITT Industries' accounting
policies and to increase environmental reserves. On a pre-tax basis
these charges have approximately a $73 million cash impact, the majority
to be incurred in 1998. Upon full implementation in 1999, the charge
related to the ITT Automotive restructuring will result in annual pre-tax
savings of approximately $115 million and cash savings of approximately
$104 million, respectively.
Liquidity and Capital Resources
Cash from operating activities was $339.4 million for the first nine
months of 1997 compared to an outflow of $2.8 million in the prior
year, primarily the result of lower working capital requirements and
the absence of payments related to discontinued operations.
The increase in working capital (receivables, inventory, payables, and
accrued liabilities) required a cash outflow of $180.8 million, due
largely to a seasonal increase in receivables and the timing of a
payment from a major customer at Automotive. Working capital required
a cash outflow of $395.1 million in the first nine months of 1996 due
to a seasonal increase in receivables and a reduction in accounts
payable at Automotive and Defense & Electronics.
Many of the Company's businesses require substantial investment in
plant and tooling in order to produce their products. Gross plant
additions totaled $298.2 million for the first nine months of 1997,
with approximately 71% of that total incurred at Automotive. Spending
for the first nine months of 1996 was $265.6 million, of which
approximately 69% was at Automotive.
Cash from investing activities for the first nine months of 1997
included proceeds from the sale of the North American aftermarket and
seats operations and the industrial lighting and plastic components
business. Cash outflows included the purchase of Goulds and the
remaining 20% interest in Electrical Systems, Inc. (ESI) from General
Motors Corporation. Cash inflows in the first nine months of 1996
included $123.9 million from the sale of land and other assets,
including a portion of ITT Community Development Corporation and the
ITT General Controls product line.
External borrowings were $2,342.4 million at September 30, 1997,
compared with $1,418.8 million at December 31, 1996. Cash and cash
equivalents were $208.4 million at September 30, 1997, compared to
$121.9 million at year-end 1996. The higher debt level at September
30, 1997 reflects borrowings to fund the acquisitions partially offset
by proceeds from asset sales as discussed above.
Shareholders' equity decreased $16.0 million during the first nine
months of 1997, primarily due to growth in retained earnings offset by
$145.8 million of special charges taken in the third quarter. Dividend
payments of $.45 per share were made in the first nine months of 1997.
A quarterly dividend of $.15 per share will be paid on January 1, 1998.
11
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)
November 13, 1997
12
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
13
EXHIBIT 11
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CALCULATION OF EARNINGS (LOSS) PER SHARE
(In millions, except per share)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
PRIMARY BASIS
Net (loss) income $ (91.1) $ 43.7 $ 35.8 $ 151.4
Average common shares outstanding 118.4 118.1 118.4 117.8
Common shares issuable in respect
to common stock equivalents 2.9 2.3 2.4 2.6
Average common equivalent shares 121.3 120.4 120.9 120.4
Earnings (loss) Per Share
Net (loss) income $ (.75) $ .36 $ .30 $ 1.26
FULLY DILUTED BASIS
Net (loss) income $(91.1) $ 43.7 $ 35.8 $151.4
Average common equivalent shares 121.3 120.4 120.9 120.4
Additional common shares issuable
assuming full dilution .6 - 1.1 -
Average common equivalent shares
assuming full dilution 121.9 120.4 122.0 120.4
Earnings (loss) Per Share
Net (loss) income $ (.75) $ .36 $ .29 $ 1.26
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.
14
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)
Nine Months Ended
September 30, Years Ended December 31,
1997 1996 1996 1995 1994 1993 1992
Earnings:
Income from continuing
operations $ 35.8 $ 151.4 $ 222.6 $ 20.7 $201.6 $134.8 $ 655.0
Add(deduct):
Adjustment for
distributions in
excess of (less
than)undistributed
equity earnings and
losses a) 1.2 1.9 1.9 .6 - (2.6) (30.8)
Income taxes 22.9 102.7 148.4 50.2 147.5 65.1 311.3
Amortization of
interest capitalized .7 .7 .9 2.5 .7 3.9 2.7
60.6 256.7 373.8 74.0 349.8 201.2 938.2
Fixed Charges:
Interest and other
financial charges 101.4 123.4 169.0 175.2 115.2 154.0 180.0
Interest factor
attributable to
rentals b) 23.2 23.2 30.9 29.0 22.0 24.2 24.8
124.6 146.6 199.9 204.2 137.2 178.2 204.8
Earnings, as adjusted,
from continuing
Operations $ 185.2 $ 403.3 $ 573.7 $278.2 $487.0 $379.4 $1,143.0
Fixed Charges:
Fixed charges above $ 124.6 $ 146.6 $ 199.9 $204.2 $137.2 $178.2 $ 204.8
Interest capitalized - .6 1.1 2.9 6.8 8.0 11.6
Total fixed
charges 124.6 147.2 201.0 207.1 144.0 186.2 216.4
Dividends on preferred
stock (pre-income tax
basis) c) - - - 23.4 47.5 50.0 63.0
Total fixed
charges and
preferred
dividend
requirements $ 124.6 $ 147.2 $ 201.0 $230.5 $191.5 $236.2 $ 279.4
Ratios:
Earnings, as
adjusted, from
continuing
operations to
total fixed charges 1.49 2.74 2.85 1.34 3.38 2.04 5.28
Earnings, as
adjusted, from
continuing
operations to
total fixed charges
and preferred
dividend
requirements 1.49 2.74 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.
15
5
1,000
9-MOS
DEC-31-1997
SEP-30-1997
208,400
0
1,447,700
36,200
805,900
2,591,500
4,944,400
2,864,400
6,380,200
3,558,200
561,100
0
0
118,400
664,800
6,380,200
6,478,000
6,478,000
5,131,400
5,505,200
836,200
5,200
101,400
58,600
22,800
35,800
0
0
0
35,800
.30
.29
