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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
/ / TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 1-5627
ITT INDUSTRIES, INC.
INCORPORATED IN THE STATE OF INDIANA 13-5158950
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
4 West Red Oak Lane, White Plains, NY 10604
(Principal Executive Office)
TELEPHONE NUMBER: (914) 641-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of April 23, 1996, there were outstanding 117,826,867 shares of
common stock ($1 par value per share) of the registrant.
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ITT INDUSTRIES, INC.
TABLE OF CONTENTS
PAGE
Part FINANCIAL INFORMATION:
I Financial Statements:
Consolidated Income Statements -- Three Months Ended March 31, 1996
and 1995.............................................................. 2
Consolidated Balance Sheets -- March 31, 1996 and December 31, 1995....... 3
Consolidated Statements of Cash Flows -- Three Months Ended
March 31, 1996 and 1995............................................... 4
Notes to Consolidated Financial Statements ............................... 5
Business Segments......................................................... 7
Management's Discussion and Analysis of Financial Condition and Results
of Operations:
Three months ended March 31, 1996 and 1995................................ 7
Part OTHER INFORMATION:
II Exhibits and Reports on Form 8-K.......................................... 10
Signature........................................................ 10
Exhibit Index.................................................... 11
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PART I.
FINANCIAL INFORMATION
FINANCIAL STATEMENTS
The following unaudited consolidated financial statements, in the opinion
of management, reflect all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the financial position,
results of operations, and cash flows for the periods presented. Certain amounts
in the prior periods' consolidated financial statements have been reclassified
to conform with the current period presentation. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's 1995 Annual Report on Form 10-K.
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
------- -------
Net sales ................................................. $ 2,201 $ 2,248
Cost of sales ............................................. 1,908 1,942
------- -------
Gross margin .............................................. 293 306
Selling, general, and administrative expenses ............. 190 190
Other operating (income) expenses ......................... (2) 13
------- -------
Operating income .......................................... 105 103
Interest expense .......................................... (44) (33)
Interest income ........................................... 9 9
Miscellaneous expense, net ................................ (1) --
------- -------
Income from continuing operations before income tax expense 69 79
Income tax expense ........................................ (29) (34)
------- -------
Income from continuing operations ......................... 40 45
Discontinued operations:
Operating income, net of tax of $83 ..................... -- 183
------- -------
Net income ................................................ $ 40 $ 228
======= =======
EARNINGS PER SHARE:
Income from continuing operations
Primary ................................................. $ .33 $ .34
Fully diluted ........................................... $ .33 $ .34
Discontinued operations
Primary ................................................. -- 1.71
Fully diluted ........................................... -- 1.57
Net income
Primary ................................................. $ .33 $ 2.05
Fully diluted ........................................... $ .33 $ 1.91
Cash dividends declared per common share .................. $ .15 $ .495
- --------
The accompanying notes to consolidated financial statements are an integral part
of the above statements.
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4
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT FOR SHARES AND PER SHARE)
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents .............................. $ 17 $ 94
Receivables, net ....................................... 1,337 1,257
Inventories ............................................ 913 908
Other current assets ................................... 246 243
------ ------
Total current assets ................................ 2,513 2,502
Plant, property, and equipment, net ...................... 2,172 2,235
Deferred U.S. income taxes ............................... 215 218
Goodwill, net ............................................ 359 363
Other assets ............................................. 543 561
------ ------
$5,802 $5,879
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ....................................... $ 658 $ 781
Accrued expenses ....................................... 1,070 1,072
Accrued taxes .......................................... 149 162
Notes payable and current maturities of long-term debt . 929 646
------ ------
Total current liabilities ........................... 2,806 2,661
Pension and postretirement costs ......................... 1,094 1,101
Long-term debt ........................................... 728 961
Deferred foreign, state and local income taxes ........... 111 121
Other liabilities ........................................ 413 408
------ ------
5,152 5,252
Shareholders' Equity:
Common stock:
Authorized 200,000,000 shares, $1 par value per share
Outstanding 117,784,803 shares and 117,068,833 shares 118 117
Capital surplus ........................................ 408 399
Cumulative translation adjustments ..................... 102 111
Retained earnings ...................................... 22 --
------ ------
650 627
------ ------
$5,802 $5,879
====== ======
- ----------
The accompanying notes to consolidated financial statements are an integral part
of the above balance sheets.
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5
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------
1996 1995
----- -----
OPERATING ACTIVITIES
Net income ................................................ $ 40 $ 228
Discontinued operations ................................... -- (183)
----- -----
Income from continuing operations ..................... 40 45
Adjustments to income from continuing operations:
Depreciation ............................................ 103 101
Amortization .............................................. 9 9
Change in receivables, inventories, accounts payable, and
accrued expenses .................................... (202) (169)
Change in accrued and deferred taxes .................... 44 37
Other, net .............................................. 8 (21)
----- -----
Cash from continuing operations ........................... 2 2
Cash used for discontinued operations ..................... (101) (351)
----- -----
Cash used for operating activities .................... (99) (349)
----- -----
INVESTING ACTIVITIES
Additions to plant, property, and equipment ............... (87) (81)
Proceeds from sale of assets .............................. 47 4
Acquisitions .............................................. -- (15)
Other, net ................................................ -- 12
----- -----
Cash used for investing activities .................... (40) (80)
----- -----
FINANCING ACTIVITIES
Short-term debt, net ...................................... 148 595
Long-term debt repaid ..................................... (93) (37)
Repurchase of common stock ................................ -- (34)
Dividends paid ............................................ -- (66)
Other, net ................................................ 10 14
----- -----
Cash from financing activities ........................ 65 472
----- -----
EXCHANGE RATE EFFECTS ON CASH AND CASH EQUIVALENTS ........ (3) 36
----- -----
Increase (decrease) in cash and cash equivalents .......... (77) 79
Cash and cash equivalents -- beginning of period .......... 94 322
----- -----
Cash and cash equivalents -- end of period ................ $ 17 $ 401
===== =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (refunded) during the period for:
Interest ................................................ $ 40 $ 30
===== =====
Income taxes ............................................ $ (7) $ 5
===== =====
- ----------
The accompanying notes to consolidated financial statements are an integral part
of the above statements.
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ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS)
1) RECEIVABLES
Receivables consist of the following:
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
Trade ........................ $ 1,348 $ 1,254
Accrued for completed work ... 24 41
Less -- reserves ............. (35) (38)
------- -------
$ 1,337 $ 1,257
======= =======
2) INVENTORIES
Inventories consist of the following:
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
Finished goods .................... $ 451 $ 417
Work in process ................... 444 421
Raw materials and supplies ........ 306 333
Less -- reserves .................. (83) (85)
-- progress payments ..... (205) (178)
----- -----
$ 913 $ 908
===== =====
3) PLANT, PROPERTY, AND EQUIPMENT
Plant, property, and equipment consist of the following:
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
Land and improvements .................. $ 106 $ 115
Buildings and improvements ............. 864 888
Machinery and equipment ................ 3,422 3,425
Construction work in progress .......... 286 297
Other .................................. 358 330
------- -------
5,036 5,055
Less -- accumulated depreciation and
amortization ....................... (2,864) (2,820)
------- -------
$ 2,172 $ 2,235
======= =======
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS)
4) DISCONTINUED OPERATIONS
The accompanying financial statements for the three months ended March 31,
1995, reflect the results of ITT Corporation, a Delaware corporation ("ITT
Delaware"). Discontinued Operations include the results of ITT Delaware's
interests in the insurance business segment ("ITT Hartford"), ITT Delaware's
interests in the hospitality and entertainment, and information services
businesses ("ITT Corporation"), and a wholly-owned Finance business segment
("ITT Financial"). ITT Hartford and ITT Corporation were distributed to ITT
Delaware's shareholders on December 19, 1995 (the "Distribution") and ITT
Delaware was merged into ITT Industries, Inc. (the "Company"). In 1995, ITT
Delaware recorded a provision for the final asset sales and closedown costs of
ITT Financial.
Net income of the Company's Discontinued Operations was comprised of the
following:
THREE MONTHS ENDED
MARCH 31, 1995
------------------
ITT Corporation .............. $ 7
ITT Hartford ................. 140
ITT Financial ................ 36
----
$183
====
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8
BUSINESS SEGMENT INFORMATION
(IN MILLIONS)
(UNAUDITED)
Business segment information excluding "Discontinued Operations" is as follows:
NET SALES OPERATING INCOME/(LOSS)
-------------------------------------
- ----------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
- ---------------------------------------- -------------------------------------
1996 1995 1996 1995
---- ----- ----- ----
$ 1,420 $ 1,477 .............Automotive............ $ 75 $ 99
354 359 .............Defense & Electronics. 20 18
306 289 ............Fluid Technology....... 22 18
121 123 ............Dispositions & other... 3 (8)
-------- -------- ------- -------
2,201 2,248 ..............Total Segments....... 120 127
-- -- ..Corporate expenses & other....... (15) (24)
-------- -------- ------- -------
$ 2,201 $ 2,248 $ 105 $ 103
======== ======== ======= =======
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1995
Net income of $40 million or $.33 per fully diluted share was below the
$45 million or $.34 per fully diluted share of net income from continuing
operations reported in the 1995 first quarter. The decrease in net income from
continuing operations in the current quarter was attributable primarily to a 17
day strike by the United Auto Workers against General Motors ("GM"), the
Company's largest single customer. The GM strike had an adverse impact on the
Company's 1996 first quarter earnings of approximately $12 million or $.10 per
fully diluted share. Without the GM strike, these results would have been
approximately $52 million or $.43 per fully diluted share. In the 1995 first
quarter, net income, including $183 million of net income from Discontinued
Operations, was $228 million or $1.91 per fully diluted share (see note 4).
Net sales for the first quarter of 1996 were below the first quarter of
1995, due mainly to the adverse impact of the GM strike of about $50 million.
Operating income for the first quarter of 1996 of $105 million was slightly
higher than the $103 million in the first quarter of 1995, despite the effect of
the GM strike which resulted in approximately a $20 million reduction in
operating income. The effect of the GM strike was offset by higher earnings at
Defense & Electronics and Fluid Technology, along with significantly lower
corporate expenses at ITT Industries' new headquarters. Other operating
income/expenses, which include gains and losses from foreign exchange
transactions and other charges, was income of $2 million in the current quarter,
compared with an expense of $13 million in the 1995 first quarter. Operating
margins were 4.8% in the quarter compared to 4.6% in the first quarter of 1995,
a result of the factors discussed above.
Interest expense increased to $44 million compared with $33 million in
the 1995 first quarter. Interest expense in the 1996 quarter reflects actual
interest expenses incurred on debt assumed by ITT Industries
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on, or subsequent to, the Distribution, while interest expense in the 1995
quarter reflected an allocation of total ITT Delaware's interest between the
continuing and Discontinued Operations, based on debt outstanding at that time.
Interest income was $9 million in both periods.
The effective income tax rate approximated 42% in the 1996 first quarter and
43% in the 1995 first quarter. Income tax expense decreased by $5 million, to
$29 million in the 1996 first quarter, due to the lower pretax earnings.
Business Segments -- Sales and operating income for each of the Company's
three major continuing business segments were as follows for the three months
ended March 31, 1996, and 1995 ($ in millions):
SALES OPERATING INCOME
------------------------ -------------------------
THREE MONTHS THREE MONTHS
------------------------ -------------------------
1996 1995 1996 1995
----- ----- ----- -----
$ 1,420 $ 1,477 .........Automotive.......... $ 75 $ 99
ITT Automotive's first quarter revenue was reduced approximately $50 million by
the GM strike, as discussed above. Not including the effect of the GM strike,
ITT Automotive's sales were only slightly below the 1995 sales level despite
12.4% lower North American and 4.5% lower European light vehicle production and
original equipment manufacturers (O.E.M.) pricing pressure. Operating income was
reduced approximately $20 million by the GM strike. Apart from the strike,
operating income was adversely affected by lower prices and, to a lesser extent,
by ongoing restructuring expenses at European operations. These impacts were
principally offset by cost reduction actions, including lower headcount and the
sale of assets.
SALES OPERATING INCOME
------------------------ -------------------------
THREE MONTHS THREE MONTHS
------------------------ -------------------------
1996 1995 1996 1995
----- ----- ----- -----
$ 354 $ 359 .......Defense & Electronics....... $ 20 $ 18
ITT Defense & Electronics revenue was down slightly (1.4%), from the prior year
first quarter, due to lower sales volume in certain defense programs. However,
operating income was 11% higher in the 1996 period due to improved margins at
ITT Cannon's interconnect lines and sustained margins in defense lines.
SALES OPERATING INCOME
------------------------ -------------------------
THREE MONTHS THREE MONTHS
------------------------ -------------------------
1996 1995 1996 1995
---- ---- ----- -----
$ 306 $ 289 .......Fluid Technology............. $ 22 $ 18
ITT Fluid Technology's 1996 first quarter sales increased 5.9% over the
comparable 1995 period due to higher sales volume in each of its three major
business lines. Operating income for the first quarter of 1996 increased 22%
over the 1995 first quarter. This improvement in operating margin was the result
of strong performances from Bell & Gossett, Aerospace Controls, and Pure-Flo
biotech products, as well as continued growth in developing markets, cost
control actions, and favorable exchange rates.
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10
Liquidity and Capital Resources
The Company generated EBITDA (defined as operating earnings before
interest, taxes, depreciation, and amortization) of $217 million in the three
months ended March 31, 1996, compared with $213 million in the comparable 1995
period.
Many of the Company's businesses require substantial investment in plant
and tooling in order to produce competitively superior products. Gross plant
additions totaled $87 million in the 1996 first quarter, with approximately
two-thirds of that total incurred at Automotive, primarily in ABS and traction
control technology. First quarter 1995 spending was $81 million, two-thirds of
which was also at Automotive. Cash expenditures for plant, property, and
equipment are projected to approximate last year's level of $450 million for
the full year.
Cash inflows in the first quarter of 1996 included $47 million from the
sale of land and other assets, including a portion of ITT Community Development
Corporation.
The increase in working capital (receivables, inventory, payables, and
accrued liabilities) required a cash outflow of approximately $200 million. This
was due largely to a seasonal increase in receivables and a reduction of
accounts payable at Automotive.
External borrowings were $1,657 million at March 31, 1996, compared with
$1,607 million at December 31, 1995. Cash and cash equivalents were $17 million
at March 31, 1996, compared to $94 million at year-end 1995. The higher debt
level at March 31, 1996, reflects funding for working capital needs, capital
additions, and payments of $101 million related to Discontinued Operations,
principally prior year's tax payments and expenses related to the Distribution.
Shareholders' equity increased $23 million during the first quarter of
1996, due primarily to growth in retained earnings. On April 1, 1996, the
Company paid its first quarterly dividend of $.15 per share. A second quarterly
dividend of the same amount will be paid on July 1, 1996.
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PART II.
OTHER INFORMATION
EXHIBITS AND REPORTS ON FORM 8-K
(a) See the Exhibit Index for a list of exhibits filed herewith.
(b) There were no Form 8-K Current Reports filed by the Registrant
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)
Richard J.M. Hamilton
By _____________________________________
Richard J.M. Hamilton
Senior Vice President and Controller
(Principal accounting officer)
April 30,1996
(Date)
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EXHIBIT INDEX
Exhibit
No. Description Location
--- ----------- --------
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession None
(3) Articles of Incorporation and by-laws None
(4) Instruments defining the rights of security holders, including
indentures None
(10) Material contracts None
(11) Statement re: computation of per share earnings Filed Herewith
(12) Statements re: computation of ratios
Calculation of ratio of earnings to total fixed charges Filed Herewith
(15) Letter re: unaudited interim financial information None
(18) Letter re: change in accounting principles None
(19) Report furnished to security holders None
(22) Published report regarding matters submitted to vote of
security holders None
(23) Consents of experts and counsel None
(24) Power of attorney None
(27) Financial Data Schedule Filed Herewith
(99) Additional Exhibits None
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EXHIBIT 11
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(IN MILLIONS, EXCEPT PER SHARE)
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1995
----- -----
PRIMARY BASIS --
Net income .................................................. $ 40 $ 228
ESOP preferred dividends -- net of tax ...................... -- (8)
---- -----
Net income applicable to primary earnings per share ......... $ 40 $ 220
---- -----
Average common shares outstanding ........................... 117 106
Common shares issuable in respect to common stock equivalents 3 1
---- -----
Average common equivalent shares ............................ 120 107
---- -----
Earnings Per Share
Continuing operations ....................................... $.33 $ .34
Discontinued operations ..................................... -- 1.71
---- -----
Net income .................................................. $.33 $2.05
==== =====
FULL DILUTED BASIS --
Net income applicable to primary earnings per share ......... $ 40 $ 220
ESOP preferred dividends -- net of tax ...................... -- 8
If converted ESOP expense adjustment -- net of tax benefit .. -- (4)
---- -----
Net income applicable to fully diluted earnings per share ... $ 40 $ 224
---- -----
Average common equivalent shares ............................ 120 107
Additional common shares issuable assuming full dilution .... -- 10
---- -----
Average common equivalent shares assuming full dilution ..... 120 117
---- -----
Earnings Per Share
Continuing operations ....................................... $.33 $ .34
Discontinued operations ..................................... -- 1.57
---- -----
Net income .................................................. $.33 $1.91
==== =====
In 1995, the Series N convertible preferred stock was considered a
common stock equivalent. With respect to options, it is assumed that the
proceeds to be received upon exercise are used to acquire common stock of the
Company. The calculation impact of dilutive securities is determined quarterly
based on the forecast of annual earnings.
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EXHIBIT 12
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CALCULATION OF RATIOS OF EARNINGS TO TOTAL FIXED CHARGES
AND CALCULATION OF EARNINGS TO TOTAL FIXED CHARGES AND
PREFERRED DIVIDEND REQUIREMENTS
(IN MILLIONS)
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
----- ----
Earnings:
Income from continuing operations ......................................... $ 40 $ 45
Add:
Adjustment for distributions in excess of undistributed equity earnings
and losses .......................................................... 1 --
Income taxes ........................................................... 29 34
Amortization of interest capitalized ................................... -- --
---- ----
70 79
---- ----
Fixed Charges:
Interest and other financial charges ................................... 44 33
Interest factor attributable to rentals ................................ 7 6
---- ----
51 39
---- ----
Earnings, as adjusted, from continuing operations $121 $118
==== ====
Fixed Charges:
Fixed charges above .................................................... $ 51 $ 39
Interest capitalized ................................................... -- 1
---- ----
Total fixed charges ................................................. 51 40
Dividends on preferred stock (pre-income tax basis) -- 12
---- ----
Total fixed charges and preferred dividend requirements ............. $ 51 $ 52
==== ====
Ratios:
Earnings, as adjusted, from continuing operations to total fixed charges 2.37 2.95
==== ====
Earnings, as adjusted, from continuing operations to total fixed charges
and preferred dividend requirements ................................. 2.37 2.27
==== ====
---------
Notes:
a) The adjustment for distributions in excess of undistributed equity
earnings and losses represents the adjustment to income for
distributions in excess of undistributed earnings and losses of
companies in which at least 20% but less than 50% equity is owned.
b) The interest factor attributable to rentals was computed by
calculating the estimated present value of all long-term rental
commitments and applying the approximate weighted average interest
rate inherent in the lease obligations and adding thereto the
interest element assumed in short-term cancelable and contingent
rentals excluded from the commitment data but included in rental
expense.
(c) The dividend requirements on preferred stock have been determined by
adding to the total preferred dividends an allowance for income
taxes, calculated on the effective income tax rate.
13
5
1,000,000
3-MOS
DEC-31-1996
MAR-31-1996
17
0
1,372
35
913
2,513
5,036
2,864
5,802
2,806
728
0
0
118
532
5,802
2,201
2,201
1,908
1,908
190
0
44
69
29
40
0
0
0
40
0.33
0.33
