1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
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 October 31, 2000, there were outstanding 87,914,595 shares of common
stock ($1 par value per share) of the registrant.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
ITT INDUSTRIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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
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)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
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
The accompanying notes to consolidated condensed financial statements are an
integral part of the above statements.
2
4
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN MILLIONS, EXCEPT FOR SHARES AND PER SHARE)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
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
======== ========
The accompanying notes to consolidated condensed financial statements are an
integral part of the above balance sheets.
3
5
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
2000 1999
------- -------
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
======= =======
The accompanying notes to consolidated condensed financial statements are an
integral part of the above statements.
4
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:
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
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
============ ===========
3) INVENTORIES
Net inventories consist of the following:
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
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
============ ===========
4) PLANT, PROPERTY, AND EQUIPMENT
Net plant, property, and equipment consist of the following:
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
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
============ ===========
5
7
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE, UNLESS OTHERWISE STATED)
5) COMPREHENSIVE INCOME
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- ---------------
2000 1999 2000 1999
------ ----- ------ ------
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
====== ===== ====== ======
6) CALCULATION OF EARNINGS PER SHARE
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- ---------------
2000 1999 2000 1999
----- ----- ------ ------
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
===== ===== ====== ======
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
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
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):
PUMPS & DEFENSE DISPOSITIONS,
THREE MONTHS ENDED COMPLEMENTARY PRODUCTS & SPECIALTY CONNECTORS OTHER &
SEPTEMBER 30, 2000 PRODUCTS SERVICES PRODUCTS & SWITCHES ELIMINATIONS CORPORATE TOTAL
------------------ ------------- ---------- --------- ---------- ------------- --------- --------
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
PUMPS & DEFENSE DISPOSITIONS,
THREE MONTHS ENDED COMPLEMENTARY PRODUCTS & SPECIALTY CONNECTORS OTHER &
SEPTEMBER 30, 1999 PRODUCTS SERVICES PRODUCTS & SWITCHES ELIMINATIONS CORPORATE TOTAL
------------------ ------------- ---------- --------- ---------- ------------- --------- --------
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
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
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):
PUMPS & DEFENSE DISPOSITIONS,
NINE MONTHS ENDED COMPLEMENTARY PRODUCTS & SPECIALTY CONNECTORS OTHER &
SEPTEMBER 30, 2000 PRODUCTS SERVICES PRODUCTS & SWITCHES ELIMINATIONS CORPORATE TOTAL
------------------ ------------- ---------- --------- ---------- ------------- --------- --------
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
PUMPS & DEFENSE DISPOSITIONS,
NINE MONTHS ENDED COMPLEMENTARY PRODUCTS & SPECIALTY CONNECTORS OTHER &
SEPTEMBER 30, 1999 PRODUCTS SERVICES PRODUCTS & SWITCHES ELIMINATIONS CORPORATE TOTAL
------------------ ------------- ---------- --------- ---------- ------------- --------- --------
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
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
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.
10
12
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.
11
13
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)
12
14
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION LOCATION
- ------- ----------- --------
(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
13
1
Exhibit 10(a)
ITT INDUSTRIES, INC.
------------------------
ITT INDUSTRIES 1996 RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
------------------------
PLAN INFORMATION
------------------------
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES
THAT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
OCTOBER 1, 2000
2
Additional information about the Plan and its administration may be
obtained without charge by written or oral request to the Manager -- Stock
Administration and Cash Management, ITT Industries, Inc. ("ITT Industries"), 4
West Red Oak Lane, White Plains, NY 10604, telephone number (914) 641-2000.
The following documents filed by ITT Industries or its predecessor, ITT
Corporation, a Delaware corporation ("ITT Corporation"), with the Securities and
Exchange Commission (the "Commission") (File No. 1-5627) are hereby incorporated
by reference in this Prospectus:
(a) Annual Report on Form 10-K for the year ended December 31, 1999;
(b) Quarterly Reports on Form 10-Q for the quarters ended March 31,
and June 30, 2000;
(c) Proxy Statement for the Special Meeting of Shareholders of ITT
Corporation on September 21, 1995 (Filed with the Commission on August 28,
1995); and.
(d) Form 8-A dated December 20, 1995.
All documents filed with the Commission by ITT Industries pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, as
amended, since the end of the fiscal year covered by such Form 10-K and prior to
the filing of a post-effective amendment which indicates that all securities
offered have been sold or which deregisters all securities then remaining unsold
shall be deemed to be incorporated by reference in the Prospectus and to be a
part thereof from the date of filing such documents. Any statement contained in
a document incorporated or deemed to be incorporated by reference in the
Prospectus shall be deemed to be modified or superseded for purposes of the
Prospectus to the extent that a statement contained in the Prospectus or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference in the Prospectus modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of the Prospectus. Any of the above
documents, as well as ITT Industries' most recent annual report to shareholders
and any other report or communication distributed to ITT Industries'
shareholders generally, may be obtained without charge by written or oral
request to the Manager -- Stock Administration and Cash Management, ITT
Industries, Inc., 4 West Red Oak Lane, White Plains, NY 10604, telephone number
(914) 641-2000.
TABLE OF CONTENTS
General Information......................................... 2
The ITT Industries 1996 Restricted Stock Plan for 3
Non-Employee Directors....................................
Administration of the Plan.................................. 7
Resale Restrictions......................................... 7
Federal Tax Treatment....................................... 7
GENERAL INFORMATION
ITT Industries is offering up to 100,000 shares of its Common Stock, $1 par
value (the "Common Stock"), pursuant to the ITT Industries 1996 Restricted Stock
Plan for Non-Employee Directors (the "Plan"). The Common Stock will be made
available from authorized but unissued shares, shares held by ITT Industries in
its treasury, or shares purchased in the open market. The Plan is not subject to
the requirements of the Employee Retirement Income Security Act of 1974.
Directors of ITT Industries who are not employees of ITT Industries or any of
its subsidiaries are eligible to participate in the Plan. As more fully set
forth in the Plan, a non-employee director's "annual retainer" (as defined in
the Plan) will be paid in the form of annual automatic grants of shares of
restricted Common Stock. The Plan is set forth below.
2
3
ITT INDUSTRIES 1996 RESTRICTED STOCK PLAN
FOR NON-EMPLOYEE DIRECTORS
ARTICLE I -- PLAN ADMINISTRATION AND ELIGIBILITY
1.1 PURPOSE
The purpose of the ITT Industries 1996 Restricted Stock Plan for
Non-Employee Directors (the "Plan") is to attract and retain persons of ability
as Directors of ITT Industries, Inc. (the "Company") and to provide them with a
closer identity with the interests of the Company's stockholders by paying the
Annual Retainer in common stock of the Company.
1.2 ADMINISTRATION
The Plan shall be administered by the Compensation and Personnel Committee
of the Board of Directors (hereinafter referred to as the "Committee"). The
Committee shall have the responsibility of interpreting the Plan and
establishing and amending such rules and regulations necessary or appropriate
for the administration of the Plan. All interpretations of the Plan or any
Restricted Stock awards issued under it shall be final and binding upon all
persons having an interest in the Plan. No member of the Committee shall be
liable for any action or determination taken or made in good faith with respect
to this Plan or any award granted hereunder.
1.3 ELIGIBILITY
Directors of the Company who are not employees of the Company or any of its
subsidiaries shall be eligible to participate in the Plan.
1.4 STOCK SUBJECT TO THE PLAN
(a) The maximum number of shares which may be granted under the Plan shall
be 100,000 shares of common stock of the Company (the "Stock").
(b) If any Restricted Stock is forfeited by a Director in accordance with
the provisions of Section 2.2(e), such shares of Restricted Stock shall be
restored to the total number of shares available for grant pursuant to the Plan.
(c) Upon the grant of a Restricted Stock award the Company may distribute
newly issued shares or treasury shares.
ARTICLE II -- RESTRICTED STOCK
2.1 RESTRICTED STOCK AWARDS
Restricted Stock awards shall be made automatically on the date of the
Annual Meeting of Stockholders, to each Director elected at the meeting or
continuing in office following the meeting. The award shall equal the number of
whole shares arrived at by dividing the Annual Retainer that is in effect for
the calendar year within which the award date falls, by the Fair Market Value of
the Company's common stock. Fractional shares shall be paid in cash.
(a) "Annual Retainer" shall mean the amount that is payable to a Director
for service on the Board of Directors during the calendar year. Annual Retainer
shall not include fees paid for attendance at any Board or Committee meeting.
(b) "Fair Market Value" shall mean the average of the high and low prices
per share of the Company's common stock on the date of the Annual Meeting, as
reported by the New York Stock Exchange Composite Tape.
3
4
2.2 TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS
(a) Written Agreement -- Each Restricted Stock award shall be evidenced by
a written agreement delivered to the Director in such form as the Committee
shall prescribe. Such agreement shall include the restrictions described under
Section 2.2(c) and any other restrictions and conditions on the shares as the
Committee deems appropriate.
(b) Shares held in Escrow -- The Restricted Stock subject to such award
shall be registered in the name of the Director and held in escrow by the
Committee until the restrictions on such shares lapse as described below.
(c) Restrictions -- Restricted Stock granted to a Director may not be sold,
assigned, transferred, pledged or otherwise disposed of, except by will or the
laws of descent and distribution, prior to the earliest of the following dates:
(1) The fifth anniversary of the date of grant, unless the Director
shall have elected no later than October 31 of the calendar year
immediately prior to the fifth anniversary of the date of such grant to
extend the period of restriction with respect to such grant. The extension
of such period of restriction shall be to such time as shall be either (w)
the tenth anniversary of such date of grant or (x) six months and one day
after such time as the restrictions set forth in Section 2.2(c) other than
this clause (1) shall otherwise lapse; provided, however, that if the
Director has elected under clause (w) and the event referred to in clause
(x) occurs first, the Director shall be deemed to have elected under clause
(x). In the event that the Director has elected under clause (w) and
anticipates that the event referred to in clause (x) will not occur prior
to the tenth anniversary of such date of grant, the Director may elect, no
later than October 31 of the calendar year immediately prior to the tenth
anniversary of such date of grant a second extension of the period of
restriction to such time as shall be either (y) the fifteenth anniversary
of such date of grant or (z) six months and one day after such time as the
restrictions set forth in Section 2.2(c) other than this clause (1) shall
otherwise lapse; provided, however, that if the Director has elected under
clause (y) and the event referred to in clause (z) occurs first, the
Director shall be deemed to have elected under clause (z).
(2) Retirement from the Board at age 72.
(3) "Change in Control" of the Company. A "Change in Control" shall be
deemed to have occurred if:
(i) a report on Schedule 13D shall be filed with the Securities and
Exchange Commission pursuant to Section 13(d) of the Securities Exchange
Act of 1934 (the "Act") disclosing that any person (within the meaning
of Section 13(d) of the Act), other than the Company or a subsidiary of
the Company or any employee benefit plan sponsored by the Company or a
subsidiary of the Company, is the beneficial owner directly or
indirectly of twenty percent or more of the outstanding Stock of the
Company;
(ii) any person (within the meaning of Section 13(d) of the Act),
other than the Company or a subsidiary of the Company or any employee
benefit plan sponsored by the Company or a subsidiary of the Company,
shall purchase shares pursuant to a tender offer or exchange offer to
acquire any Stock of the Company (or securities convertible into Stock)
for cash, securities or any other consideration, provided that after
consummation of the offer, the person in question is the beneficial
owner (as such term is defined in Rule 13d-3 under the Act), directly or
indirectly, of fifteen percent or more of the outstanding Stock of the
Company (calculated as provided in paragraph (d) of Rule 13d-3 under the
Act in the case of rights to acquire Stock);
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of Stock
of the Company would be converted into cash, securities or other
property, other than a merger of the Company in which holders of Stock
of the Company immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation
4
5
immediately after the merger as immediately before, or (B) any sale,
lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets of the
Company; or
(iv) there shall have been a change in a majority of the members of
the Board within a 12-month period unless the election or nomination for
election by the Company's stockholders of each new Director during such
12-month period was approved by the vote of two-thirds of the Directors
then still in office who were Directors at the beginning of such
12-month period.
(4) Death of the Director.
(5) Disability of the Director.
(6) Termination of service from the Board on account of (i) a physical
or mental condition that, in the opinion of a qualified physician, is
expected to impede the Director's ability to fulfill his or her principal
duties for a period of at least three months; (ii) the relocation of the
Director's principal place of business to a location that increases the
time required for such Director to travel to the Company's headquarters by
more than 50%; (iii) the acceptance by the Director of a position (other
than an honorary position) in the government of the United States, any
State or any municipality or any subdivision thereof or any organization
performing any quasi-governmental function; (iv) any circumstances which,
in the opinion of outside counsel to the Company, would (or could
reasonably be expected to) conflict with applicable law or any written
policy of the Company; or (v) any other circumstance in which the Committee
believes, in its sole discretion, that the purposes for which the grants of
Restricted Stock were made have been fulfilled, and as such is consistent
with the intention of the Plan.
(7) Notwithstanding Section 2.2(c)(2) hereof, retirement from the
Board at or after attaining age 65, provided that such Director was a
member of the Board of Directors of the Company's corporate predecessor,
ITT Corporation, a Delaware corporation, on December 18, 1995 and served as
a Director of the Company thereafter.
(d) Dividends and Voting Rights -- The Director shall, subject to Section
2.2(c), possess all incidents of ownership of the shares of Restricted Stock
including the right to receive dividends with respect to such shares and to vote
such shares.
(e) The Company shall deliver to the Director, or the beneficiary of such
Director, if applicable, all of the shares of stock that were awarded to the
Director as Restricted Stock, within 30 days following the lapse of restrictions
as described under Section 2.2(c). If the Director discontinues serving on the
Board prior to the date upon which restrictions lapse as described under Section
2.2(c), such Director's Restricted Stock will be forfeited by the Director and
transferred to and reacquired by the Company at no cost to the Company.
ARTICLE III -- GENERAL PROVISIONS
3.1 AUTHORITY
Appropriate officers of the Company designated by the Committee are
authorized to execute Restricted Stock agreements, and amendments thereto, in
the name of the Company, as directed from time to time by the Committee.
3.2 ADJUSTMENTS IN THE EVENT OF CHANGE IN COMMON STOCK OF THE COMPANY
In the event of any reorganization, merger, recapitalization,
consolidation, liquidation, stock dividend, stock split, reclassification,
combination of shares, rights offering, split-up, or extraordinary dividend
(including a spin-off) or divestiture, or any other change in the corporate
structure or shares, the number and kind of shares which thereafter may be
granted under the Plan and the number of shares of Restricted Stock awarded
pursuant to Section 2.1 with respect to which all restrictions have not lapsed,
shall be appropriately adjusted consistent with such change in such manner as
the Board in its discretion may deem equitable to prevent
5
6
substantial dilution or enlargement of the rights granted to, or available for,
Directors participating in the Plan. Any fractional shares resulting from such
adjustments shall be eliminated.
3.3 RIGHTS OF DIRECTORS
The Plan shall not be deemed to create any obligation on the part of the
Board to nominate any Director for reelection by the Company's stockholders or
to retain any Director at any particular rate of compensation. The Company shall
not be obligated to issue Stock pursuant to an award of Restricted Stock for
which the restrictions hereunder have lapsed if such issuance would constitute a
violation of any applicable law. Except as provided herein, no Director shall
have any rights as a stockholder with respect to any shares of Restricted Stock
awarded to him.
3.4 BENEFICIARY
A Director may file with the Committee a written designation of a
beneficiary on such form as may be prescribed by the Committee and may, from
time to time, amend or revoke such designation. In the event of the death of a
Director, his beneficiary shall have the right to receive the shares of
Restricted Stock awarded pursuant to the Plan. If no designated beneficiary
survives the Director, the executor or administrator of the Director's estate
shall be deemed to be the Director's beneficiary.
3.5 LAWS AND REGULATIONS
The Committee shall have the right to condition any issuance of shares to
any Director hereunder on such Director's undertaking in writing to comply with
such restrictions on the subsequent disposition of such shares as the Committee
shall deem necessary or advisable as a result of any applicable law or
regulation. The Committee may postpone the delivery of stock following the lapse
of restrictions with respect to awards of Restricted Stock for such time as the
Committee in its discretion may deem necessary, in order to permit the Company
with reasonable diligence (i) to effect or maintain registration of the Plan, or
the shares issuable upon the lapse of certain restrictions respecting awards of
Restricted Stock, under the Securities Act of 1933 or the securities laws of any
applicable jurisdiction, or (ii) to determine that such shares and the Plan are
exempt from such registration; the Company shall not be obligated by virtue of
any Restricted Stock agreement or any provision of the Plan to recognize the
lapse of certain restrictions respecting awards of Restricted Stock or issue
shares in violation of said Act or of the law of the government having
jurisdiction thereof.
3.6 AMENDMENT, SUSPENSION AND DISCONTINUANCE OF THE PLAN
The Board may from time to time amend, suspend or discontinue the Plan,
provided that the Board may not, without the approval of the holders of a
majority of the outstanding shares entitled to vote, take any action which would
cause the Plan to no longer comply with Rule 16b-3 under the Act, or any
successor rule or other regulatory requirement.
No amendment, suspension or discontinuance of the Plan shall impair a
Director's right under a Restricted Stock award previously granted to him
without his consent.
3.7 GOVERNING LAW
This Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of New York.
3.8 EFFECTIVE DATE AND DURATION OF THE PLAN
This Plan shall be effective upon the Distribution Date (as defined in the
Proxy Statement of ITT Corporation dated August 30, 1995) subject to the
approval of the Plan by the stockholders of ITT Corporation, and shall terminate
on December 31, 2005, provided that grants of Restricted Stock made prior to the
termination of the Plan may vest following such termination in accordance with
their terms.
6
7
ADMINISTRATION OF THE PLAN
The Compensation and Personnel Committee of the Board of Directors of ITT
Industries, the members of which serve during the pleasure of the Board,
administers the Plan but does not act as a trustee or in any other fiduciary
capacity with respect thereto.
RESALE RESTRICTIONS
The Plan contains no restrictions on the resale of Common Stock once the
Plan restriction period has ended. However, persons who may be deemed to be
affiliates of ITT Industries may not reoffer or resell shares of Common Stock in
a transaction which is not registered under the Securities Act of 1933, as
amended (the "Act"), except pursuant to Rule 144 under the Act or another
exemption thereunder. Rule 144 requires, among other things, that (1) any sales
of Common Stock by such affiliates must be made through a broker, and (2) an
appropriate Form 144 must be mailed to the Securities and Exchange Commission
prior to or concurrently with the placing of a sell order with the broker, with
certain exceptions.
FEDERAL TAX TREATMENT
Set forth below is a summary of the federal income tax consequences under
the Internal Revenue Code of 1986, as amended (the "Code"), of the grant and
vesting of restricted stock awarded to a director of ITT Industries ("Director")
under the Plan. The following summary does not include any discussion of state,
local or foreign income tax consequences or the effect of gift, estate or
inheritance taxes, any of which may be significant to a particular Director
eligible to receive an award. In addition, this summary does not apply to every
specific transaction that may occur. Each recipient of an award under the Plan
should consult his or her tax advisor for advice pertaining to his or her
particular circumstances. The Plan is not qualified under Section 401(a) of the
Code.
Under the Code, a Director normally will not realize taxable income and ITT
Industries will not be entitled to a deduction upon the grant of restricted
stock, since such stock is subject to a "substantial risk of forfeiture" (as
defined in the Code). At the time such restrictions lapse and the shares of
restricted stock are no longer subject to a substantial risk of forfeiture, a
Director will realize taxable compensation (ordinary income) in an amount equal
to the fair market value on the date the restrictions lapse, of the number of
shares of Common Stock which have become nonforfeitable or transferable.
Likewise, ITT Industries will be entitled to a deduction in the same amount in
the same year, provided ITT Industries complies with applicable tax withholding
requirements. However, a Director may make an income recognition election under
Section 83(b) of the Code (an "83(b) Election") within 30 days of the award and
recognize taxable ordinary income in the year the shares of restricted stock are
awarded in an amount equal to their fair market value at the time of the award,
determined without regard to the restrictions. In that event, ITT Industries
will be entitled to a deduction in such year in the same amount, provided ITT
Industries complies with applicable tax withholding requirements. Any gain or
loss realized by the recipient upon the subsequent disposition of Common Stock
will be capital gain (or loss) to the extent the proceeds of sale exceed the
fair market value of the shares on the date of grant, which became the
Director's tax basis as a result of the 83(b) Election. If the Director makes an
83(b) Election and subsequently terminates his employment during the restriction
period, thus forfeiting the shares of restricted stock, the taxes paid on the
award of the shares are also forfeited and ITT Industries must include as
ordinary income the amount it previously deducted in the year of grant with
respect to such shares. Any dividends with respect to the shares of restricted
stock that are paid or made available to a recipient who has not made an 83(b)
Election while the shares remain forfeitable are treated as additional
compensation taxable as ordinary income to the Director and deductible by ITT
Industries when paid. If an 83(b) Election has been made with respect to the
restricted stock, the dividends represent ordinary dividend income to the
Director and are not deductible by ITT Industries.
7
5
1,000
9-MOS
DEC-31-2000
JAN-01-2000
SEP-30-2000
217
30
890
24
552
1,741
2,029
1,234
4,641
2,262
407
0
0
88
1,066
4,641
3,602
3,602
2,394
2,688
562
2
71
296
109
186
0
0
0
186
2.12
2.07
