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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
[ ] 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.
[X] Yes [ ] No
As of July 31, 2001, there were outstanding 87,914,595 shares of common
stock ($1 par value per share) of the registrant.
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ITT INDUSTRIES, INC.
TABLE OF CONTENTS
PAGE
----
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
2
Consolidated Condensed Income Statements -- Three and Six
Months Ended June 30, 2001 and 2000.......................
3
Consolidated Condensed Balance Sheets -- June 30, 2001 and
December 31, 2000.........................................
4
Consolidated Condensed Statements of Cash Flows -- Six
Months Ended June 30, 2001 and 2000.......................
5
Notes to Consolidated Condensed Financial Statements........
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations:
8
Three and Six Months Ended June 30, 2001 and 2000...........
Part II. OTHER INFORMATION:
12
Item 1. Legal Proceedings...........................................
12
Item 4. Submission of Matters to a Vote of Security Holders.........
12
Item 6. Exhibits and Reports on Form 8-K............................
13
Signature...................................................
14
Exhibit Index...............................................
1
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PART I.
FINANCIAL INFORMATION
ITEM 1. 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 2000 Annual Report on Form 10-K.
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2001 2000 2001 2000
-------- -------- -------- --------
Sales and revenues................................ $1,184.3 $1,227.5 $2,370.3 $2,437.5
-------- -------- -------- --------
Costs of sales and revenues....................... 779.8 813.9 1,556.8 1,625.6
Selling, general, and administrative expenses..... 165.7 174.1 351.5 365.0
Research, development, and engineering expenses... 96.1 102.0 197.9 201.3
Goodwill amortization expense..................... 10.3 8.3 20.3 16.4
-------- -------- -------- --------
Total costs and expenses.......................... 1,051.9 1,098.3 2,126.5 2,208.3
-------- -------- -------- --------
Operating income.................................. 132.4 129.2 243.8 229.2
Interest expense, net............................. (15.9) (18.0) (36.5) (37.1)
Miscellaneous income (expense), net............... 0.5 0.2 0.6 0.7
-------- -------- -------- --------
Income before income taxes........................ 117.0 111.4 207.9 192.8
Income tax expense................................ (40.9) (41.2) (72.7) (71.3)
-------- -------- -------- --------
Net income........................................ $ 76.1 $ 70.2 $ 135.2 $ 121.5
======== ======== ======== ========
EARNINGS PER SHARE:
Net income
Basic........................................... $ .87 $ .80 $ 1.54 $ 1.38
Diluted......................................... $ .84 $ .78 $ 1.49 $ 1.35
Cash dividends declared per common share.......... $ .15 $ .15 $ .30 $ .30
Average Common Shares -- Basic.................... 87.9 87.9 87.9 87.9
Average Common Shares -- Diluted.................. 90.5 90.0 90.5 89.9
- ---------------
The accompanying notes to the consolidated condensed financial statements are an
integral part of the above statements.
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ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN MILLIONS, EXCEPT FOR SHARES AND PER SHARE)
JUNE 30, DECEMBER 31,
2001 2000
----------- ------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 118.8 $ 88.7
Receivables, net.......................................... 810.7 814.9
Inventories, net.......................................... 524.0 531.3
Other current assets...................................... 83.1 71.4
-------- --------
Total current assets.............................. 1,536.6 1,506.3
Plant, property, and equipment, net......................... 801.2 865.4
Deferred income taxes....................................... 360.7 384.4
Goodwill, net............................................... 1,374.8 1,373.0
Other assets................................................ 488.0 482.3
-------- --------
Total assets...................................... $4,561.3 $4,611.4
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 408.2 $ 386.0
Accrued expenses.......................................... 735.5 823.9
Accrued taxes............................................. 363.7 392.9
Notes payable and current maturities of long-term debt.... 640.8 629.9
-------- --------
Total current liabilities......................... 2,148.2 2,232.7
Pension benefits............................................ 195.8 195.8
Postretirement benefits other than pensions................. 224.2 205.6
Long-term debt.............................................. 437.9 408.4
Other liabilities........................................... 345.7 357.7
-------- --------
Total liabilities................................. 3,351.8 3,400.2
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......................................... 1,368.3 1,306.9
Accumulated other comprehensive income (loss):
Unrealized (loss) on investment securities............. (2.2) (2.3)
Minimum pension liability.............................. (19.2) (12.9)
Cumulative translation adjustments..................... (225.3) (168.4)
-------- --------
Total shareholders' equity........................ 1,209.5 1,211.2
-------- --------
Total liabilities and shareholders' equity........ $4,561.3 $4,611.4
======== ========
- ---------------
The accompanying notes to the consolidated condensed financial statements are an
integral part of the above balance sheets.
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ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
------------------
2001 2000
------- -------
OPERATING ACTIVITIES
Net income.................................................. $ 135.2 $ 121.5
Adjustments to Net Income:
Depreciation and amortization............................. 111.3 99.7
Change in receivables, inventories, accounts payable, and
accrued expenses.......................................... (69.7) (72.9)
Change in accrued and deferred taxes........................ 4.0 5.7
Change in other current and non-current assets.............. 14.5 3.9
Change in other non-current liabilities..................... 5.0 (12.5)
Other, net.................................................. 3.1 (3.1)
------- -------
Net cash -- operating activities.......................... 203.4 142.3
------- -------
INVESTING ACTIVITIES
Additions to plant, property, and equipment................. (67.4) (58.0)
Proceeds from sale of assets................................ 31.7 40.7
Acquisitions................................................ (45.3) (111.8)
Other, net.................................................. 1.4 (1.2)
------- -------
Net cash -- investing activities.......................... (79.6) (130.3)
------- -------
FINANCING ACTIVITIES
Short-term debt, net........................................ 71.1 121.1
Long-term debt repaid....................................... (60.9) (11.6)
Long-term debt issued....................................... -- 0.1
Repurchase of common stock.................................. (135.7) (10.8)
Proceeds from issuance of common stock...................... 70.4 5.9
Dividends paid.............................................. (26.4) (26.4)
Other, net.................................................. 0.8 0.8
------- -------
Net cash -- financing activities.......................... (80.7) 79.1
------- -------
EXCHANGE RATE EFFECTS ON CASH AND CASH EQUIVALENTS.......... (3.2) (14.4)
NET CASH -- DISCONTINUED OPERATIONS......................... (9.8) 23.8
------- -------
Net change in cash and cash equivalents..................... 30.1 100.5
Cash and cash equivalents -- beginning of period............ 88.7 181.7
------- -------
CASH AND CASH EQUIVALENTS -- END OF PERIOD.................. $ 118.8 $ 282.2
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.................................................. $ 62.3 $ 42.7
======= =======
Income taxes.............................................. $ 62.2 $ 59.3
======= =======
- ---------------
The accompanying notes to the consolidated condensed financial statements are an
integral part of the above statements.
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ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE, UNLESS OTHERWISE STATED)
1) RECEIVABLES
Net receivables consist of the following:
JUNE 30, DECEMBER 31,
2001 2000
--------- ------------
Trade............................................... $ 811.2 $ 820.0
Other............................................... 22.4 15.9
Reserves............................................ (22.9) (21.0)
--------- ---------
$ 810.7 $ 814.9
========= =========
2) INVENTORIES
Net inventories consist of the following:
JUNE 30, DECEMBER 31,
2001 2000
--------- ------------
Finished goods...................................... $ 145.9 $ 181.6
Work in process..................................... 157.1 183.5
Raw materials....................................... 280.5 210.0
Progress payments................................... (59.5) (43.8)
--------- ---------
$ 524.0 $ 531.3
========= =========
3) PLANT, PROPERTY, AND EQUIPMENT
Net plant, property, and equipment consist of the following:
JUNE 30, DECEMBER 31,
2001 2000
--------- ------------
Land and improvements............................... $ 59.0 $ 59.3
Buildings and improvements.......................... 360.5 370.8
Machinery and equipment............................. 1,207.4 1,202.0
Construction work in progress....................... 104.6 99.8
Other............................................... 339.4 393.7
--------- ---------
2,070.9 2,125.6
Accumulated depreciation and amortization........... (1,269.7) (1,260.2)
--------- ---------
$ 801.2 $ 865.4
========= =========
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ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE, UNLESS OTHERWISE STATED)
4) COMPREHENSIVE INCOME
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ----------------
2001 2000 2001 2000
------- ------- ------ ------
Net income..................................... $ 76.1 $ 70.2 $135.2 $121.5
Other comprehensive income (loss):
Foreign currency translation adjustments..... (18.2) (36.2) (57.3) (48.0)
Minimum pension liability.................... -- -- (9.6) --
Unrealized gain (loss) on investment
securities................................ 0.5 0.3 0.1 (3.2)
------ ------ ------ ------
Other comprehensive income (loss), before
tax..................................... (17.7) (35.9) (66.8) (51.2)
Income tax benefit related to other
comprehensive income...................... -- 9.2 3.7 5.4
------ ------ ------ ------
Other comprehensive income (loss), after
tax..................................... (17.7) (26.7) (63.1) (45.8)
------ ------ ------ ------
Comprehensive income........................... $ 58.4 $ 43.5 $ 72.1 $ 75.7
====== ====== ====== ======
5) CALCULATION OF EARNINGS PER SHARE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
2001 2000 2001 2000
------ ------ ------ ------
BASIC BASIS --
Income from continuing operations............. $76.1 $70.2 $135.2 $121.5
----- ----- ------ ------
Average common shares outstanding............. 87.9 87.9 87.9 87.9
----- ----- ------ ------
Earnings Per Share............................ $ .87 $ .80 $ 1.54 $ 1.38
===== ===== ====== ======
DILUTED BASIS --
Income from continuing operations............. $76.1 $70.2 $135.2 $121.5
----- ----- ------ ------
Average common shares outstanding............. 87.9 87.9 87.9 87.9
Add: Stock options............................ 2.6 2.1 2.6 2.0
----- ----- ------ ------
Average common shares outstanding -- diluted
basis...................................... 90.5 90.0 90.5 89.9
----- ----- ------ ------
Earnings Per Share............................ $ .84 $ .78 $ 1.49 $ 1.35
===== ===== ====== ======
6) RESTRUCTURING
At December 31, 2000, the reserve balance for all remaining restructuring
activities was $18.5. Cash payments of $5.8 were recorded in the first six
months of 2001, as well as a non-cash adjustment of $0.6, decreasing the reserve
balance at June 30, 2001 to $12.1. As of December 31, 2000, remaining actions
under previously announced restructuring activities were to close seven
facilities and reduce headcount by 237, which was revised to 231 persons in the
first quarter of 2001. During the first six months of 2001, the Company closed
three facilities and reduced head count by 156 persons. The restructuring
activities are progressing according to the plans discussed in the 2000 Annual
Report.
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8
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT PER SHARE, UNLESS OTHERWISE STATED)
7) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Statement of Financial accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended, was adopted by
the Company on January 1, 2001. The nature of the Company's business activities
necessarily involves the management of various financial and market risks,
including those related to changes in interest rates, currency exchange rates,
and commodity prices. As discussed more completely in Notes 1 and 16 of the 2000
Annual Report on Form 10-K, the Company uses derivative financial instruments to
mitigate or eliminate certain of those risks. The only significant derivatives
that the Company had on January 1, 2001, were the interest rate swaps (the
"Swaps") discussed in Note 16 of the 2000 Annual Report on Form 10-K. The
adoption of SFAS No. 133 required the Company to record the total fair value of
the Swaps in the financial statements, which caused an increase to other assets
and long-term debt of $39.7, bringing the carrying value of the Swaps to $42.5.
At June 30, 2001, the value of the Swaps was $32.6. The adoption of SFAS No. 133
did not have a material impact on the results of operations or cash flows of the
Company.
A reconciliation of current period changes contained in the accumulated
other comprehensive loss component of shareholders' equity is not provided, as
there was no transition adjustment recorded within other comprehensive loss as
of January 1, 2001 and no material activity to report for the first six months
of 2001. Additional disclosures required by SFAS No. 133, as amended, are
presented below.
Hedges of future cash flows
There were no ineffective portions of changes in fair values of hedge
positions reported in earnings for the first six months of 2001 and no amounts
were excluded from the measure of effectiveness reported in earnings for the
first six months of 2001.
As of June 30, 2001, the Company had cash flow hedges that had current
period declines of approximately $0.3, which is expected to be reclassified to
earnings over the next twelve month period ending June 30, 2002. The actual
amounts that will be reclassified to earnings over the next twelve months will
vary from this amount as a result of changes in market conditions. No amounts
were reclassified to earnings during the six months ended June 30, 2001 in
connection with forecasted transactions that were no longer considered probable
of occurring.
At June 30, 2001, the maximum term of derivative instruments that hedge
forecasted transactions was five months.
Hedges of recognized assets, liabilities and firm commitments
The ineffective portion of changes in fair values of hedge positions
reported in earnings for the first six months of 2001 amounted to $0.1 before
income taxes. These amounts were reported in "operating income." There were no
amounts excluded from the measure of effectiveness.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2000
Sales and revenues for the second quarter of 2001 were $1,184.3 million, a
decrease of $43.2 million or 3.5% ($16.7 million or 1.4% in constant currencies)
from the same period sales for 2000. The decrease is primarily attributable to
the scheduled wind down of certain Defense contracts and softness in the
telecommunications markets partially offset by acquisitions made in 2000. Net
income for the second quarter of 2001 was $76.1 million, or $0.84 per diluted
share, an increase of $5.9 million, or $0.06 per diluted share, from the
comparable period last year. The increase in net income was attributable to
higher operating margins, a reduced effective tax rate and a decrease in
interest expense.
Operating income for the second quarter of 2001 was $132.4 million compared
to $129.2 million for the second quarter of 2000, an increase of $3.2 million or
2.5%. Segment operating margin for the second quarter of 2001 of 12.3% was 0.7
percentage points higher than the margins for the same period in 2000. These
increases are due to cost control actions put in place to address the U.S.
economic slowdown.
Interest expense (net of interest income of $1.7 million) for the second
quarter of 2001 decreased $2.1 million primarily due to lower average interest
rates.
The effective income tax rate for the second quarter of 2001 was 35%
compared to the rate of 37% for the second quarter of 2000. The decrease in the
effective tax rate is due to several initiatives taken in 2000 to reduce the
structural rate.
Business Segments -- Unaudited sales and revenues and operating income of
the Company's business segments for the three months ended June 30, 2001 and
2000 were as follows (in millions):
PUMPS & DEFENSE CONNECTORS CORPORATE,
THREE MONTHS ENDED COMPLEMENTARY PRODUCTS & SPECIALTY & ELIMINATIONS &
JUNE 30, 2001 PRODUCTS SERVICES PRODUCTS SWITCHES OTHER TOTAL
- ------------------ ------------- ---------- --------- ---------- -------------- --------
Sales and revenues... $445.6 $315.2 $266.4 $159.0 $ (1.9) $1,184.3
Operating income..... 55.8 29.3 36.2 24.1 (13.0) 132.4
THREE MONTHS ENDED
JUNE 30, 2000
- ---------------------
Sales and revenues... $451.0 $347.1 $256.3 $174.3 $ (1.2) $1,227.5
Operating income..... 50.4 28.7 39.3 24.4 (13.6) $ 129.2
Pumps & Complementary Products' sales and revenues declined $5.4 million in
the second quarter of 2001 compared to the second quarter of 2000. Softness in
industrial markets and the impact of foreign exchange rates were partially
offset by higher volume in the water and wastewater markets. Operating income
for the second quarter of 2001 was up $5.4 million due to improved product mix
and cost reduction initiatives.
Defense Products & Services' sales and revenues for the second quarter of
2001 decreased $31.9 million from the comparable period in the prior year. This
is primarily the result of the wind down of certain large contracts. Operating
income for the second quarter of 2001 was up $0.6 million due to improved
margins on certain mature contracts and cost control actions.
Specialty Products' sales for the second quarter of 2001 increased $10.1
million compared to the same period of 2000. The increase is primarily due to
market share gains in both the European and North American automotive markets
partially offset by the impact of foreign exchange rates and continued softness
in the North American automobile markets. Operating income was down $3.1 million
due to startup costs associated with new platform wins.
Connectors & Switches' sales and revenues decreased $15.3 million in the
second quarter of 2001 compared to the same period of 2000. The decline is
primarily due to the recent downturn in the telecommunications markets in Europe
and North America. Acquisitions completed in the prior year partially offset the
softness in these markets. Operating income for the second quarter of 2001 was
down $0.3 million
8
10
from the comparable period in the prior year reflecting decreases in volume
offset by benefits from cost control measures taken to address the market
conditions.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2000
Sales and revenues for the first six months of 2001 were $2,370.3 million,
a decrease of $67.2 million or 2.8% ($16.1 million or 0.7% in constant
currencies) from same period sales for 2000. The decrease is attributable to the
downturn in the telecommunications industry and the scheduled wind down of
certain Defense contracts partially offset by acquisitions made in 2000. Net
income for the first six months of 2001 was $135.2 million, or $1.49 per diluted
share, an increase of $13.7 million, or $0.14 per diluted share, from the
comparable period last year. The increase in net income was attributable to
higher operating margins and a lower effective tax rate.
Operating income for the first six months of 2001 was $243.8 million
compared to $229.2 million in the same period of 2000, an increase of $14.6
million or 6.4%. Segment operating margin for the first six months of 2001 of
11.4% was 0.8 percentage points higher than the margins for the same period in
2000. These increases are primarily due to cost control actions taken to address
the slowing economic environment.
Net interest expense for the first six months of 2001 decreased $0.6
million due to a favorable change in average interest rates and increased cash
from operations offset by higher average debt levels driven by several
acquisitions made in 2000.
The effective income tax rate for the first six months of 2001 was 35%
compared to the rate of 37% for the first six months of 2000. The decrease in
the effective tax rate is due to several initiatives taken in 2000 to reduce the
structural rate.
Business Segments -- Unaudited sales and revenues, operating income, and
total assets of the Company's business segments for the six months ended June
30, 2001 and 2000 were as follows (in millions):
PUMPS & DEFENSE CONNECTORS CORPORATE,
SIX MONTHS ENDED COMPLEMENTARY PRODUCTS & SPECIALTY & ELIMINATIONS &
JUNE 30, 2001 PRODUCTS SERVICES PRODUCTS SWITCHES OTHER TOTAL
- ---------------- ------------- ---------- --------- ---------- -------------- --------
Sales and revenues....... $ 875.7 $618.2 $524.3 $355.5 $ (3.4) $2,370.3
Operating income......... $ 100.3 $ 51.8 $ 69.8 $ 48.6 $(26.7) $ 243.8
Total assets............. $1,603.3 $862.5 $734.6 $710.0 $650.9 $4,561.3
SIX MONTHS ENDED
JUNE 30, 2000
- -------------------------
Sales and revenues....... $ 886.7 $689.6 $521.3 $342.0 $ (2.1) $2,437.5
Operating income......... $ 92.5 $ 50.1 $ 75.3 $ 41.5 $(30.2) $ 229.2
Total assets............. $1,681.2 $787.3 $722.2 $737.9 $776.9 $4,705.5
Pumps & Complementary Products' sales and revenues declined $11.0 million
in the first six months of 2001. The softness is due to continued weakness in
the industrial markets and the impact of foreign exchange rates partially offset
by higher volume within the water and wastewater markets. Operating income for
the first six months of 2001 was up $7.8 million driven by improved product mix
and cost reduction initiatives.
Defense Products & Services' sales and revenues for the first six months of
2001 decreased $71.4 million compared to the same period of last year. The
decline is primarily due to the wind down of certain large contracts partially
offset by the contribution of new contract revenue. Operating income for the
2001 period was up $1.7 million due to improved margins on certain mature
contracts and cost control actions.
Specialty Products' sales for the first six months of 2001 increased $3.0
million compared to the same period of 2000. The increase was due to market
share gains in Europe and North America more than offsetting the impact of the
decline in North American automotive build rates and the impact of foreign
exchange rates. Operating income was $5.5 million lower than the prior year
mainly due to start-up costs associated with new platform wins and
inefficiencies resulting from production swings in the U.S. automotive market.
9
11
Connectors & Switches' sales and revenues increased $13.5 million in the
first six months of 2001 compared with last year primarily due to acquisitions
made in 2000. The increases in sales from these acquisitions were partially
offset by a downturn in the telecommunications markets and second quarter
declines in industrial markets, as well as the negative impact of foreign
exchange rates. Operating income for the first six months of 2001 was up $7.1
million over the prior year due to cost control actions taken by management to
address the economic conditions facing the industry, as well as greater
contribution from new products with higher margins.
Corporate expenses were down due to cost reduction efforts, as well as the
absence of certain accruals recorded in the first quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS: Cash from operating activities in the first half of 2001 was
$203.4 million, an increase of $61.1 million from the same period of 2000. The
increase is largely attributable to higher cash earnings and the liquidation of
non-operating assets.
ADDITIONS TO PLANT, PROPERTY AND EQUIPMENT: Capital expenditures during the
first half of 2001 were $67.4 million, an increase of $9.4 million from the
first half of 2000. The increase reflects the start-up of new programs in Europe
and new product introductions.
DIVESTITURES: During the first six months of 2001, the Company sold two
corporate jets for $30.7 million and other plant, property, and equipment for
$1.0 million. The jets are being leased by the Company in the form of operating
leases. During the first six months of 2000, the Company sold the net assets of
GaAsTEK, a business in the Defense Products and Services segment, for $28.3
million, and generated $12.4 million of cash proceeds from plant, property and
equipment sales across all of our businesses.
FINANCING ACTIVITIES: External debt at June 30, 2001 was $1,078.7 million,
compared with $1,038.3 million at December 31, 2000. Cash and cash equivalents
were $118.8 million at June 30, 2001, compared to $88.7 million at year-end
2000. The maximum amount of borrowing available under the Company's revolving
credit agreement, which provides back-up for the Company's commercial paper
program, at June 30, 2001 was $1.0 billion. The Company received proceeds of
$70.4 million from exercised stock options in the first six months of 2001.
Expenditures of $135.7 million were made to repurchase shares to offset the
dilutive effect of the issued shares.
ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 ("SFAS No. 141"), "Business Combinations"
and Statement of Financial Accounting Standards No. 142 ("SFAS No. 142"),
"Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001, and prohibits the use of the pooling-of-interests method. SFAS No. 142
changes the accounting for goodwill from an amortization method to an impairment
only approach. The amortization of goodwill from past business combinations will
cease upon adoption of this statement on January 1, 2002. Goodwill and
intangible assets acquired in business combinations completed after June 30,
2001 must comply with the provisions of this statement. Companies will also be
required to evaluate all existing goodwill for impairment within six months of
adoption by comparing the fair value of each reporting unit to its carrying
value at the date of adoption. Any transitional impairment losses will be
recognized in the first interim period in the year of adoption and will be
recognized as the effect of a change in accounting principle. The Company is
evaluating the potential impact of adopting these pronouncements on the results
of operations and financial position.
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 general
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economic conditions, foreign currency exchange rates, competition and other
factors all as more thoroughly 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, 2000 and other of its
filings with the Securities and Exchange Commission, to which reference is
hereby made.
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PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Form 10-K Annual Report for the fiscal year ended
December 31, 2000 filed by ITT Industries. The third full paragraph under Item
3. Legal Proceedings therein, concerning insurance coverage relating to
environmental matters, as amended by the Form 10-Q Quarterly Report for the
period ended March 31, 2001, is hereby deleted and replaced in its entirety with
the following:
In a suit filed several years ago by ITT Industries in the California
Superior Court, Los Angeles County, ITT Corporation, et al. v. Pacific
Indemnity Corporation, et al. against its insurers, ITT Industries is
seeking recovery of costs it incurred in connection with the Glendale case
and other environmental matters. In April 1999, the California Superior
Court granted partial summary judgment under California law, dismissing
certain claims in the California action. The California Court of Appeals
accepted ITT Industries' petition for review of the California Superior
Court's order and in March 2001, dismissed the petition without prejudice,
allowing ITT Industries to reassert two of its arguments in the California
Superior Court. ITT Industries has reasserted those arguments in the
California Superior Court. It is not anticipated that there will be a
decision in this matter until late 2001 or early 2002. In April 1999, ITT
Industries initiated a new coverage action in New Jersey, ITT Industries,
Inc., et al. v. Federal Insurance Co., et al. (Middlesex County, No.
L-1919-99), involving new environmental insurance claims as well as claims
pending but dormant before the Court in California. ITT Industries'
insurers challenged the convenience of New Jersey as the forum for this
action. In its ruling on the motion, the Court dismissed the non-New Jersey
claims, deferred action on certain New Jersey claims and retained
jurisdiction over one New Jersey claim. ITT Industries has negotiated
settlements with certain defendant insurance companies, is engaged in
negotiations with others, and is prepared to pursue its legal remedies
where reasonable negotiations are not productive.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At ITT Industries' annual meeting of shareholders held on May 15, 2001, the
persons whose names are set forth below were elected as directors, constituting
the entire Board of Directors. Relevant voting information for each person
follows:
VOTES
-----------------------
FOR WITHHELD
---------- ---------
Rand V. Araskog...................................... 74,386,825 1,638,105
Curtis J. Crawford................................... 74,682,462 1,342,468
Louis J. Giuliano.................................... 74,690,871 1,334,059
Christina A. Gold.................................... 74,706,128 1,318,802
John J. Hamre........................................ 74,708,644 1,316,286
Raymond W. LeBoeuf................................... 74,708,880 1,316,050
Linda S. Sanford..................................... 74,714,725 1,310,205
In addition to the election of directors, the reappointment of Arthur
Andersen LLP as independent auditors for 2001 was ratified by a vote of
74,844,272 shares in favor, 608,791 shares against, and 571,867 shares
abstained. In all cases, there were no broker nonvotes. There were no other
matters presented for a vote at the meeting.
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.
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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)
(Date) August 9, 2001
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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
(11) Statement re computation of per share earnings.............. See Note 5 of
Notes to
Consolidated
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
(99) Additional Exhibits......................................... None
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