1
 
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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 JUNE 30, 1997
 
                                       OR
 
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
 
                         FOR THE TRANSITION PERIOD FROM
                             ------------------ TO
                               ------------------
 
                         COMMISSION FILE NUMBER 1-5627
 
                              ITT INDUSTRIES, INC.
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
 
                            ------------------------
 
                                           
                   INDIANA                                      13-5158950
         (STATE OR OTHER JURISDICTION                        (I.R.S. EMPLOYER
              OF INCORPORATION)                            IDENTIFICATION NO.)
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 July 31, 1997, there were outstanding 118,445,259 shares of common stock ($1 par value per share) of the registrant. ================================================================================ 2 ITT INDUSTRIES, INC. TABLE OF CONTENTS
PAGE ---- PART I FINANCIAL INFORMATION: Financial Statements: Consolidated Condensed Income Statements -- Three Months and Six Months Ended June 30, 1997 and 1996........................................................................ 2 Consolidated Condensed Balance Sheets June 30, 1997 and December 31, 1996.............. 3 Consolidated Condensed Statements of Cash Flows Six Months Ended June 30, 1997 and 1996................................................................................. 4 Notes to Consolidated Condensed Financial Statements................................... 5 Business Segment Information........................................................... 7 Management's Discussion and Analysis of Financial Condition and Results of Operations: Three Months and Six Months Ended June 30, 1997 and 1996............................... 8 PART II OTHER INFORMATION: Submission of Matters to a Vote of Security Holders.................................... 12 Exhibits and Reports on Form 8-K....................................................... 13 Signature............................................................................ 13 Exhibit Index........................................................................ 14
1 3 PART I. FINANCIAL INFORMATION FINANCIAL STATEMENTS The following unaudited consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and, in the opinion of management, reflect all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules. The Company believes that the disclosures made are adequate to make the information presented not misleading. Certain amounts in the prior periods' consolidated condensed financial statements have been reclassified to conform with the current period presentation. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's 1996 Annual Report on Form 10-K and subsequent quarterly filing. 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, --------------------- --------------------- 1997 1996 1997 1996 -------- -------- -------- -------- Net sales..................................... $2,250.9 $2,241.2 $4,417.5 $4,442.1 Cost of sales................................. 1,769.6 1,779.1 3,512.3 3,556.4 Research, development, and engineering expenses.................................... 126.7 128.8 252.7 259.3 -------- -------- -------- -------- Gross margin.................................. 354.6 333.3 652.5 626.4 Selling, general, and administrative expenses.................................... 193.5 174.9 379.9 365.2 Other operating expenses...................... 3.9 6.3 12.1 4.0 -------- -------- -------- -------- Operating income.............................. 157.2 152.1 260.5 257.2 Interest expense.............................. (31.0) (39.9) (64.3) (83.2) Interest income............................... 4.1 1.3 7.5 9.9 Miscellaneous income (expense), net........... 5.1 (.2) 4.3 (1.4) -------- -------- -------- -------- Income before income taxes.................... 135.4 113.3 208.0 182.5 Income tax expense............................ (52.8) (45.6) (81.1) (74.8) -------- -------- -------- -------- Net income.................................... $ 82.6 $ 67.7 $ 126.9 $ 107.7 ======== ======== ======== ======== EARNINGS PER SHARE: Net income Primary..................................... $ .68 $ .56 $ 1.05 $ .89 Fully diluted............................... $ .68 $ .56 $ 1.05 $ .89 Cash dividends declared per common share...... $ .15 $ .15 $ .30 $ .30
- --------------- 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)
JUNE 30, DECEMBER 31, 1997 1996 ----------- ------------ (UNAUDITED) ASSETS Current Assets: Cash and cash equivalents....................................... $ 102.8 $ 121.9 Receivables, net................................................ 1,524.2 1,189.8 Inventories, net................................................ 859.6 856.9 Other current assets............................................ 127.5 120.5 -------- -------- Total current assets......................................... 2,614.1 2,289.1 Plant, property, and equipment, net............................... 2,233.3 2,166.7 Deferred U.S. income taxes........................................ 206.5 205.1 Goodwill, net..................................................... 1,025.3 349.8 Other assets...................................................... 485.2 480.5 -------- -------- $ 6,564.4 $5,491.2 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable................................................ $ 744.6 $ 731.8 Accrued expenses................................................ 938.1 874.2 Accrued taxes................................................... 137.1 96.8 Notes payable and current maturities of long-term debt.......... 1,685.4 835.6 -------- -------- Total current liabilities.................................... 3,505.2 2,538.4 Pension and postretirement costs.................................. 1,024.6 1,126.7 Long-term debt.................................................... 575.0 583.2 Deferred foreign, state and local income taxes.................... 102.9 109.5 Other liabilities................................................. 427.0 334.2 -------- -------- 5,634.7 4,692.0 Shareholders' Equity: Cumulative Preferred Stock: Authorized 50,000,000 shares, no par value, none issued........................................... -- -- Common stock: Authorized 200,000,000 shares, $1 par value per share Outstanding 118,445,259 shares and 118,436,579 shares........ 118.4 118.4 Capital surplus................................................. 412.1 418.2 Cumulative translation adjustments.............................. 156.4 111.2 Retained earnings............................................... 242.8 151.4 -------- -------- 929.7 799.2 -------- -------- $ 6,564.4 $5,491.2 ======== ========
- --------------- 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)
SIX MONTHS ENDED JUNE 30, -------------------- 1997 1996 -------- ------- OPERATING ACTIVITIES Net income............................................................. $ 126.9 $ 107.7 Adjustments to net income: Depreciation......................................................... 199.0 203.4 Amortization......................................................... 21.3 21.5 Change in receivables, inventories, accounts payable, and accrued expenses (net of effects from purchase of Goulds)................. (232.4) (277.7) Change in accrued and deferred taxes................................. 51.0 66.0 Other, net........................................................... 42.5 (17.3) --------- ------- Cash from continuing operations........................................ 208.3 103.6 Cash used for discontinued operations.................................. -- (174.0) --------- ------- Cash from (used for) operating activities............................ 208.3 (70.4) --------- ------- INVESTING ACTIVITIES Additions to plant, property, and equipment............................ (189.7) (173.3) Proceeds from sale of assets........................................... 100.9 110.7 Acquisitions........................................................... (103.4) -- Payment for purchase of Goulds, net of cash acquired................... (782.6) -- Other, net............................................................. (9.5) -- --------- ------- Cash used for investing activities................................... (984.3) (62.6) --------- ------- FINANCING ACTIVITIES Short-term debt, net................................................... 1,051.9 210.2 Long-term debt repaid.................................................. (233.8) (158.2) Long-term debt issued.................................................. .4 -- Repurchase of common stock............................................. (22.5) -- Dividends paid......................................................... (35.5) (18.0) Other, net............................................................. 11.3 15.2 --------- ------- Cash from financing activities....................................... 771.8 49.2 --------- ------- EXCHANGE RATE EFFECTS ON CASH AND CASH EQUIVALENTS..................... (14.9) (2.6) --------- ------- Decrease in cash and cash equivalents.................................. (19.1) (86.4) Cash and cash equivalents -- beginning of period....................... 121.9 94.2 --------- ------- Cash and cash equivalents -- end of period............................. $ 102.8 $ 7.8 ========= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest............................................................. $ 58.2 $ 93.5 ========= ======= Income taxes......................................................... $ 26.0 $ 8.2 ========= =======
- --------------- 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) RECEIVABLES Receivables consist of the following:
JUNE 30, DECEMBER 31, 1997 1996 -------- ------------ Trade.............................................. $1,537.5 $1,194.3 Accrued for completed work......................... 24.3 32.5 Less -- reserves................................... (37.6) (37.0) -------- -------- $1,524.2 $1,189.8 ======== ========
2) INVENTORIES Inventories consist of the following:
JUNE 30, DECEMBER 31, 1997 1996 -------- ------------ Finished goods...................................... $ 352.4 $ 401.6 Work in process..................................... 470.2 434.7 Raw materials....................................... 393.4 301.2 Less -- reserves.................................... (119.3) (81.6) -- progress payments.......................... (237.1) (199.0) ------- ------- $ 859.6 $ 856.9 ======= =======
3) PLANT, PROPERTY, AND EQUIPMENT Plant, property, and equipment consist of the following:
JUNE 30, DECEMBER 31, 1997 1996 --------- ------------ Land and improvements............................. $ 106.8 $ 101.7 Buildings and improvements........................ 819.7 807.7 Machinery and equipment........................... 3,641.4 3,469.1 Construction work in progress..................... 304.0 244.1 Other............................................. 455.6 469.2 --------- --------- 5,327.5 5,091.8 Less -- accumulated depreciation and amortization.................................... (3,094.2) (2,925.1) --------- --------- $ 2,233.3 $ 2,166.7 ========= =========
4) NEW ACCOUNTING ISSUES In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") 128 "Earnings per Share", which is effective for financial statements for periods ending after December 15, 1997. SFAS 128 requires replacement of primary and fully diluted earnings per share with basic and diluted earnings per share. The pro forma basic and diluted earnings per share under SFAS 128 would have been $.70 and $.69, respectively, for the three months ended June 30, 1997, $.57 and $.56, respectively, for the three months ended June 30, 1996, $1.07 and $1.05, 5 7 ITT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (Continued) (In millions, except per share, unless otherwise stated) respectively, for the six months ended June 30, 1997, and $.91 and $.89, respectively, for the six months ended June 30, 1996. In January 1997, the SEC issued amendments to its rules which clarify and expand disclosure requirements for derivative financial instruments. As of June 30, 1997, there has been no significant change in the market risk, or accounting policy associated with derivative financial instruments as stated in the Company's 1996 Annual Report on Form 10-K. 5) ACQUISITION On May 23, 1997 (the "date of acquisition"), the Company acquired Goulds Pumps, Incorporated ("Goulds") for a purchase price of approximately $870 (the "acquisition"). The acquisition was funded with short-term borrowings and was accounted for using the purchase method. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed on the basis of their fair values at the date of acquisition. The purchase price allocations have been prepared on a preliminary basis and changes are expected as evaluations of assets and liabilities are completed and as additional information becomes available. The purchase price, plus assumed liabilities of $342, exceeded the fair value of the assets acquired by approximately $675 and has been recorded as goodwill, which is being amortized over a period of 40 years. The operating results of Goulds have been included in the consolidated condensed income statements from the date of acquisition. The following unaudited pro forma financial information presents results as if the acquisition had occurred at the beginning of the respective periods:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- --------------------- 1997 1996 1997 1996 -------- -------- -------- -------- Net sales............................. $2,374.4 $2,438.8 $4,719.7 $4,823.3 Net income............................ 76.8 64.5 115.9 98.5 Earnings per share -- Primary......... .64 .53 .96 .82 Earnings per share -- Fully diluted... .64 .53 .96 .82
These pro forma results have been prepared for comparative purposes only, and include certain adjustments such as additional depreciation expense as a result of a step-up in the basis of fixed assets, additional amortization expense as a result of goodwill arising from the purchase, and increased interest expense on acquisition debt. The pro forma results are not necessarily indicative of the results of operations which actually would have resulted had the purchase been in effect at the beginning of the respective periods or of future results. 6 8 BUSINESS SEGMENT INFORMATION (IN MILLIONS) (UNAUDITED)
NET SALES - ----------------------------------------- OPERATING INCOME/(LOSS) --------------------------------- THREE MONTHS ENDED SIX MONTHS THREE MONTHS SIX MONTHS JUNE 30, ENDED ENDED ENDED - ------------------- JUNE 30, JUNE 30, JUNE 30, ------------------- --------------- --------------- 1997 1996 1997 1996 1997 1996 1997 1996 - -------- -------- -------- -------- ------ ------ ------ ------ $1,385.9 $1,448.2 $2,778.9 $2,868.4 Automotive $100.8 $101.9 $174.8 $177.2 409.5 378.2 818.8 731.9 Defense & Electronics 33.9 30.1 59.0 50.2 397.2 320.8 704.7 627.4 Fluid Technology 37.2 29.7 61.1 51.6 58.3 94.0 115.1 214.4 Dispositions & other (1.6) 1.8 (6.3) 5.2 - -------- -------- -------- -------- ------ ------ ------ ------ 2,250.9 2,241.2 4,417.5 4,442.1 Total Segments 170.3 163.5 288.6 284.2 -- -- -- -- Corporate expenses (13.1) (11.4) (28.1) (27.0) - -------- -------- -------- -------- ------ ------ ------ ------ $2,250.9 $2,241.2 $4,417.5 $4,442.1 $157.2 $152.1 $260.5 $257.2 ======== ======== ======== ======== ====== ====== ====== ======
7 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Three months ended June 30, 1997 compared with three months ended June 30, 1996 Net income of $82.6 million or $.68 per fully diluted share, increased 22.0% over the $67.7 million or $.56 per fully diluted share reported in the 1996 second quarter. The increase in net income was attributable to a reduction in interest expense, operating income gains at Defense & Electronics, and a gain from the sale of the Company's North American aftermarket operations and industrial lighting and plastic components business. Net sales for the second quarter of 1997 were slightly higher than the second quarter of 1996, due mainly to the inclusion of sales from Goulds since the date of acquisition. Excluding sales from Goulds, sales were $2,183.9 million, down $57.3 million or 2.6% from the 1996 second quarter due to unfavorable foreign exchange translation and lower sales at non-core operations held for disposition. Operating income for the second quarter of 1997 of $157.2 million exceeded the $152.1 million in the prior year due mainly to the inclusion of Goulds' operations since the date of acquisition. Excluding Goulds' operations, operating income decreased $1.9 million to $150.2 million because of a decline in earnings of companies held for disposition and slightly higher headquarters expenses, partially offset by higher earnings at Defense & Electronics. Other operating income/expenses, which include gains and losses from foreign exchange transactions and other charges, were $3.9 million in the current quarter, compared to $6.3 million of expense in the 1996 second quarter. Operating margins were 7.0% in the second quarter of 1997 compared to 6.8% in the second quarter of 1996. Interest expense for the second quarter of 1997 decreased to $31.0 million compared to $39.9 million in the 1996 second quarter. The reduction in interest expense is attributable to lower interest rates resulting from the continuation of the debt restructuring implemented in the fourth quarter of 1996, partially offset by additional interest expense on debt related to the acquisition of Goulds. Interest income was $4.1 million in the current quarter compared to $1.3 million in the prior year second quarter, a result of higher cash balances. The effective income tax rate was 39.0% in the 1997 second quarter compared to 40.2% in the 1996 second quarter. Income tax expense increased by $7.2 million to $52.8 million in the 1997 second quarter due to higher pretax earnings. Business Segments -- Sales and operating income for the three months ended June 30, 1997, and 1996 ($ in millions) for each of the Company's three major continuing business segments were as follows:
OPERATING SALES INCOME - ------------------- --------------- THREE MONTHS THREE MONTHS - ------------------- --------------- 1997 1996 1997 1996 - -------- -------- ------ ------ $1,385.9 $1,448.2 .................. Automotive .................. $100.8 $101.9
Automotive's revenue was down approximately $62.3 million or 4.3% due primarily to unfavorable foreign exchange and continued pricing pressures from original equipment manufacturers. The reduction in sales due to the disposal of the North American aftermarket operations during the quarter and the ongoing strikes at Chrysler Corporation and General Motors Corporation were more than offset by an increase in worldwide vehicle production and favorable installation/mix. Operating income for the second quarter of 1997 was slightly lower than the second quarter of 1996 because of lower prices, the ramp-up of the new MK-20, and the ongoing strikes discussed above, which were partially offset by an increase in volume. 8 10
OPERATING SALES INCOME - --------------- ------------- THREE MONTHS THREE MONTHS - --------------- ------------- 1997 1996 1997 1996 - ------ ------ ----- ----- $409.5 $378.2 ................ Defense & Electronics ................ $33.9 $30.1
ITT Defense & Electronics' revenue for the quarter was up 8.3% from the prior year due to sales growth in both the defense and interconnect segments of the business. Sales growth in the international sector of the defense segment was strong due to the award of the SINCGARS (Single Channel Ground and Airborne Radio Systems) contract from the U.S. Army and major orders for Night Vision equipment from Australia. Operating income increased 12.7% over the 1996 second quarter, driven by a strong operating performance at Cannon, the result of prior years' restructuring efforts.
OPERATING SALES INCOME - --------------- ------------- THREE MONTHS THREE MONTHS - --------------- ------------- 1997 1996 1997 1996 - ------ ------ ----- ----- $397.2 $320.8 .................. Fluid Technology .................. $37.2 $29.7
ITT Fluid Technology's 1997 second quarter sales were 23.8% higher than the 1996 second quarter due to the inclusion of Goulds' sales since the date of acquisition. Excluding sales from Goulds, ITT Fluid Technology's sales were up 2.9% from the prior year period. Sales growth in the United States and United Kingdom were partially offset by foreign exchange translation and a continued decline in municipal spending in Western Europe. The improvement in operating income was primarily attributable to the inclusion of Goulds' operations since the date of acquisition. Excluding Goulds, ITT Fluid Technology's operating income was flat due largely to unfavorable foreign exchange translation. Six months ended June 30, 1997 compared with six months ended June 30, 1996 Net income of $126.9 million or $1.05 per fully diluted share increased 17.9% over the $107.7 million or $.89 per fully diluted share reported in the first six months of 1996. The increase in net income was attributable to a reduction in interest expense, operating income gains at Defense & Electronics, and a gain from the sale of the Company's North American aftermarket operations and industrial lighting and plastic components business, partially offset by a profit decline at companies held for disposition. Excluding sales from Goulds, the Company's sales were $4,350.5 million, down 2.1% from the 1996 first six months due to unfavorable foreign exchange translation and lower sales at non-core operations held for disposition. Operating income for the first six months of 1997 of $260.5 million exceeded the $257.2 million in the prior year due to the inclusion of Goulds' operations since the date of acquisition. Excluding Goulds' operations, operating income was slightly below the prior year six month period because of a decline in earnings of companies held for disposition, partially offset by higher earnings at Defense & Electronics. Other operating income/expenses, which include gains and losses from foreign exchange transactions and other charges, was expense of $12.1 million for the first six months of 1997, compared to $4.0 million of expense for the 1996 first six months. Operating margins were 5.9% in the first six months of 1997 compared to 5.8% in the first six months of 1996. Interest expense decreased from $83.2 million for the 1996 first six months to $64.3 million for the first six months of 1997. The reduction in interest expense is attributable to lower interest rates resulting from the continuation of the debt restructuring implemented in the fourth quarter of 1996, partially offset by interest expense on debt related to the acquisition of Goulds. Interest income was $7.5 million for the current six month period compared to $9.9 million for the prior year six month period, a result of lower cash balances. The effective income tax rate was 39.0% for the 1997 first six months compared to 41.0% in the first six months of 1996. Income tax expense increased by $6.3 million to $81.1 million in the 1997 period due to higher pretax earnings. 9 11 Business Segments -- Sales and operating income for the six months ended June 30, 1997, and 1996 ($ in millions)for each of the Company's three major continuing business segments were as follows:
OPERATING SALES INCOME - ------------------- --------------- SIX MONTHS SIX MONTHS - ------------------- --------------- 1997 1996 1997 1996 - -------- -------- ------ ------ $2,778.9 $2,868.4 ................ Automotive ................ $174.8 $177.2
Automotive's revenue was down approximately $89.5 million or 3.1% due primarily to unfavorable foreign exchange and continued pricing pressures from original equipment manufacturers. Operating income for the first six months of 1997 was lower by $2.4 million as a result of lower prices, unfavorable foreign exchange, and the ramp-up of the new MK-20, partially offset by an increase in volume.
OPERATING SALES INCOME - ------------------- --------------- SIX MONTHS SIX MONTHS - ------------------- --------------- 1997 1996 1997 1996 - -------- -------- ------ ------ $ 818.8 $ 731.9 ............ Defense & Electronics ............ $ 59.0 $ 50.2
Sales growth in both the defense and interconnect segments of the business resulted in a 11.9% increase in ITT Defense & Electronics revenue from the prior year first six months. The increase in the defense segment sales is due to strong order input received in 1996 and strong growth in the international sector. The interconnect segment sales increase is due to improving market conditions. Operating income was 17.7% higher in the 1997 period, driven by a strong operating performance at Cannon and volume gains in defense lines.
OPERATING SALES INCOME - ------------------- --------------- SIX MONTHS SIX MONTHS - ------------------- --------------- 1997 1996 1997 1996 - -------- -------- ------ ------ $ 704.7 $ 627.4 .............. Fluid Technology .............. $ 61.1 $ 51.6
ITT Fluid Technology's 1997 first six months sales were 12.3% higher than the 1996 six month period due primarily to the inclusion of Goulds' sales since the date of acquisition. Excluding sales from Goulds, ITT Fluid Technology's sales were up marginally because of growth in the United States and the United Kingdom, significantly offset by unfavorable foreign exchange translation, a continued decline in municipal spending in Western Europe, and the absence of sales from the General Controls product line which was sold in the second quarter of 1996. The improvement in operating income was primarily attributable to the inclusion of Goulds' operations since the date of acquisition. Excluding Goulds, ITT Fluid Technology's operating income was up 4.9%, as a result of cost control actions in Europe and operating improvements at several North American units in the first quarter of 1997. LIQUIDITY AND CAPITAL RESOURCES Cash from operating activities was $208.3 million for the first six months of 1997 compared to $(70.4) million in the prior year, primarily the result of lower working capital requirements and the absence of payments related to discontinued operations. The increase in working capital (receivables, inventory, payables, and accrued liabilities) required a cash outflow of $232.4 million, due largely to a seasonal increase in receivables and the timing of a payment from a major customer at Automotive. Working capital required a cash outflow of $277.7 million in the first six months of 1996 due to a seasonal increase in receivables and a reduction in accounts payable at Automotive and Defense & Electronics. Many of the Company's businesses require substantial investment in plant and tooling in order to produce their products. Gross plant additions totaled $189.7 million for the first six months of 1997, with approximately 73% of that total incurred at Automotive. Spending for the first six months of 1996 was $173.3 million, of which approximately 70% was also at Automotive. 10 12 Cash from investing activities for the first six months of 1997 included proceeds from the sale of the North American aftermarket operations and the industrial lighting and plastic components business. Cash outflows included the purchase of Goulds and the remaining 20% interest in Electrical Systems, Inc. (ESI) from General Motors Corporation. Cash inflows in the first six months of 1996 included $110.7 million from the sale of land and other assets, including a portion of ITT Community Development Corporation and the ITT General Controls product line. External borrowings were $2,260.4 million at June 30, 1997, compared with $1,418.8 million at December 31, 1996. Cash and cash equivalents were $102.8 million at June 30, 1997, compared to $121.9 million at year-end 1996. The higher debt level at June 30, 1997 reflects borrowings to fund the acquisitions partially offset by proceeds from asset sales as discussed above. Shareholders' equity increased $130.5 million during the first six months of 1997, due to growth in retained earnings and cumulative translation adjustments. On both April 1, 1997 and July 1, 1997, the Company paid a quarterly dividend of $.15 per share. A quarterly dividend of the same amount will be paid on October 1, 1997. 11 13 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At ITT Industries' annual meeting of shareholders held on May 15, 1997, the persons whose names are set forth below were elected as directors, constituting the entire Board of Directors, with relevant voting information for each person:
VOTES CAST --------------------------- BROKER FOR WITHHELD NONVOTES ----------- --------- -------- Rand V. Araskog............................. 105,092,247 2,142,302 0 Robert A. Burnett........................... 105,872,895 1,361,654 0 Curtis J. Crawford.......................... 106,119,010 1,115,539 0 Michel David-Weill.......................... 106,173,052 1,061,497 0 D. Travis Engen............................. 106,044,168 1,190,381 0 S. Parker Gilbert........................... 106,189,920 1,044,629 0 Edward C. Meyer............................. 106,106,767 1,127,782 0 Sidney Taurel............................... 106,060,161 1,174,388 0
In addition to the election of directors, the following matters were acted upon: (a) The vote on the approval of the ITT Industries 1997 Annual Incentive Plan for Executive Officers was passed by a vote of 102,032,635 shares in favor, 4,179,203 shares against, 1,022,711 shares abstained, and 0 broker nonvotes. (b) The vote on the approval of the ITT Industries 1997 Long-Term Incentive Plan was passed by a vote of 101,050,186 shares in favor, 5,218,994 shares against, 965,369 shares abstained and 0 broker nonvotes. (c) The reappointment of Arthur Andersen LLP as independent auditors for 1997 was ratified by a vote of 106,436,027 shares in favor, 297,485 shares against, 501,037 shares abstained, and 0 broker nonvotes. 12 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) See the Exhibit Index for a list of exhibits filed herewith. (b) ITT Industries filed Form 8-K Current Reports dated April 22, 1997 and June 5, 1997, both relating to the acquisition of Goulds Pumps, Incorporated. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ITT INDUSTRIES, INC. (Registrant) By /s/ RICHARD J. TOWNSEND -------------------------------------- Richard J. Townsend Vice President and Controller (Principal accounting officer) August 13, 1997 13 15 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION - ------- ---------------------------------------------------------------------- -------------- (2) Plan of acquisition, reorganization, arrangement, liquidation or None succession (3) (i) Restated Articles of Incorporation Filed Herewith (ii) By-Laws None (4) Instruments defining the rights of security holders, including None indentures (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 None holders (23) Consents of experts and counsel None (24) Power of attorney None (27) Financial Data Schedule Filed Herewith (99) Additional Exhibits None
14
   1
 
                                                                    EXHIBIT 3(i)
 
                            ARTICLES OF RESTATEMENT
 
     ITT Industries, Inc., a corporation organized and existing under the laws
of the State of Indiana (the "Corporation"), hereby certifies as follows:
 
     ITT Industries, Inc. was originally incorporated under the name ITT
Indiana, Inc. pursuant to its original Articles of Incorporation filed with the
Secretary of State for the State of Indiana on September 5, 1995. Effective
December 20, 1995, ITT Corporation, a Delaware corporation, was merged with and
into the Corporation, and the name of the Corporation was changed to ITT
Industries, Inc. The Restated Articles of Incorporation set forth below only
restate and integrate the provisions of the Corporation's Articles of
Incorporation as heretofore amended or supplemented, and there is no discrepancy
between those provisions and the provisions of these Restated Articles of
Incorporation. This restatement does not contain any amendment to the Articles
of Incorporation of the Corporation requiring shareholder approval. The text of
the Articles of Incorporation as amended or supplemented heretofore is hereby
restated to read as herein set forth in full:
 
                       RESTATED ARTICLES OF INCORPORATION
 
                                       OF
 
                              ITT INDUSTRIES, INC.
 
                                 ARTICLE FIRST
 
     The name of the corporation is ITT Industries, Inc. (the "Corporation").
 
                                 ARTICLE SECOND
 
     The address of the registered office of the Corporation in the State of
Indiana is One North Capitol Avenue, Suite 1180, Indianapolis, Indiana 46204.
The name of the registered agent of the Corporation at such address is The
Corporation Trust Company.
 
                                 ARTICLE THIRD
 
     The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Indiana Business Corporation
Law.
 
                                 ARTICLE FOURTH
 
     (a) The aggregate number of shares of stock that the Corporation shall have
authority to issue is 250,000,000 shares, consisting of 200,000,000 shares
designated "Common Stock" and 50,000,000 shares designated "Preferred Stock".
The shares of Common Stock shall have a par value of $1 per share, and the
shares of Preferred Stock shall not have any par or stated value, except that,
solely for the purpose of any statute or regulation imposing any fee or tax
based upon the capitalization of the Corporation, the shares of Preferred Stock
shall be deemed to have a par value of $.01 per share.
 
     (b) The Board of Directors of the Corporation shall have the full authority
permitted by law, at any time and from time to time, to divide the authorized
and unissued shares of Preferred Stock into classes or series, or both, and to
determine the following provisions, designations, powers, preferences and
relative, participating, optional and other special rights and the
qualifications, limitations or restrictions thereof for shares of any such class
or series of Preferred Stock:
 
          (1) the designation of such class or series, the number of shares to
     constitute such class or series and the stated or liquidation value
     thereof;
 
                                        1
   2
 
          (2) whether the shares of such class or series shall have voting
     rights, in addition to any voting rights provided by law, and, if so, the
     terms of such voting rights;
 
          (3) the dividends, if any, payable on such class or series, whether
     any such dividends shall be cumulative, and, if so, from what dates, the
     conditions and dates upon which such dividends shall be payable, the
     preference or relation which such dividends shall bear to the dividends
     payable on any shares of stock of any other class or any other series of
     the same class;
 
          (4) whether the shares of such class or series shall be subject to
     redemption at the election of the Corporation and/or the holders of such
     class or series and, if so, the times, price and other conditions of such
     redemption, including securities or other property payable upon any such
     redemption, if any;
 
          (5) the amount or amounts, if any, payable upon shares of such class
     or series upon, and the rights of the holders of such class or series in,
     the voluntary or involuntary liquidation, dissolution or winding up, or any
     distribution of the assets, of the Corporation; provided that in no event
     shall the amount or amounts, if any, exceed $100 per share plus accrued
     dividends in the case of involuntary liquidation, dissolution or winding
     up;
 
          (6) whether the shares of such class or series shall be subject to the
     operation of a retirement or sinking fund and, if so, the extent to and
     manner in which any such retirement or sinking fund shall be applied to the
     purchase or redemption of the shares of such class or series for retirement
     or other corporate purposes and the terms and provisions relative to the
     operation thereof;
 
          (7) whether the shares of such class or series shall be convertible
     into, or exchangeable for, shares of stock of any other class or any other
     series of the same class or any securities, whether or not issued by the
     Corporation, and, if so, the price or prices or the rate or rates of
     conversion or exchange and the method, if any, of adjusting the same, and
     any other terms and conditions of conversion or exchange;
 
          (8) the limitations and restrictions, if any, to be effective while
     any shares of such class or series are outstanding upon the payment of
     dividends or the making of other distributions on, and upon the purchase,
     redemption or other acquisition by the Corporation of, the Common Stock or
     shares of stock of any other class or any other series of the same class;
 
          (9) the conditions or restrictions, if any, upon the creation of
     indebtedness of the Corporation or upon the issuance of any additional
     shares of stock, including additional shares of such class or series or of
     any other series of the same class or of any other class;
 
          (10) the ranking (be it pari passu, junior or senior) of each class or
     series vis-a-vis any other class or series of any class of Preferred Stock
     as to the payment of dividends, the distribution of assets and all other
     matters; and
 
          (11) any other powers, preferences and relative, participating,
     optional and other special rights and any qualifications, limitations or
     restrictions thereof, insofar as they are not inconsistent with the
     provisions of these Articles of Incorporation, to the full extent permitted
     in accordance with the laws of the State of Indiana.
 
     (c) Such divisions and determinations may be accomplished by an amendment
to this ARTICLE FOURTH, which amendment may be made solely by action of the
Board of Directors, which shall have the full authority permitted by law to make
such divisions and determinations.
 
     (d) The powers, preferences and relative, participating, optional and other
special rights of each class or series of Preferred Stock and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other classes or series at any time outstanding; provided
that each series of a class is given a distinguishing designation and that all
shares of a series have powers, preferences and relative, participating,
optional and other special rights and the qualifications, limitations or
 
                                        2
   3
 
restrictions thereof identical with those of other shares of the same series
and, except to the extent otherwise provided in the description of the series,
with those other series of the same class.
 
     (e) Holders of shares of Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available for the payment thereof, dividends at the rates fixed by the Board of
Directors for the respective series before any dividends shall be declared and
paid, or set aside for payment, on shares of Common Stock with respect to the
same dividend period. Nothing in this ARTICLE FOURTH shall limit the power of
the Board of Directors to create a series of Preferred Stock with dividends the
rate of which is calculated by reference to, and the payment of which is
concurrent with, dividends on shares of Common Stock.
 
     (f) In the event of the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, holders of shares of each series of Preferred
Stock will be entitled to receive the amount fixed for such series upon any such
event (not in excess of $100 per share in the case of involuntary liquidation,
dissolution or winding up) plus, in the case of any series on which dividends
will have been determined by the Board of Directors to be cumulative, an amount
equal to all dividends accumulated and unpaid thereon to the date of final
distribution whether or not earned or declared before any distribution shall be
paid, or set aside for payment, to holders of Common Stock. If the assets of the
Corporation are not sufficient to pay such amounts in full, holders of all
shares of Preferred Stock will participate in the distribution of assets ratably
in proportion to the full amounts to which they are entitled or in such order or
priority, if any, as will have been fixed in the resolution or resolutions
providing for the issue of the series of Preferred Stock. Neither the merger nor
consolidation of the Corporation into or with any other corporation, nor a sale,
transfer or lease of all or part of its assets, will be deemed a liquidation,
dissolution or winding up of the Corporation within the meaning of this
paragraph except to the extent specifically provided for herein. Nothing in this
ARTICLE FOURTH shall limit the power of the Board of Directors to create a
series of Preferred Stock for which the amount to be distributed upon any
liquidation, dissolution or winding up of the Corporation is calculated by
reference to, and the payment of which is concurrent with, the amount to be
distributed to the holders of shares of Common Stock.
 
     (g) The Corporation, at the option of the Board of Directors, may redeem
all or part of the shares of any series of Preferred Stock on the terms and
conditions fixed for such series.
 
     (h) Except as otherwise required by law, as otherwise provided herein or as
otherwise determined by the Board of Directors as to the shares of any series of
Preferred Stock prior to the issuance of any such shares, the holders of
Preferred Stock shall have no voting rights and shall not be entitled to any
notice of meetings of shareholders.
 
     (i) Each holder of shares of Common Stock shall be entitled to one vote for
each share of Common Stock held of record on all matters on which the holders of
shares of Common Stock are entitled to vote. Subject to the provisions of
applicable law and any certificate of designation providing for the issuance of
any series of Preferred Stock, the holders of outstanding shares of Common Stock
shall have and possess the exclusive right to notice of shareholders' meetings
and the exclusive power to vote. No shareholder will be permitted to cumulate
votes at any election of directors.
 
     (j) Subject to all the rights of the Preferred Stock, the holders of the
Common Stock shall be entitled to receive, when, as and if declared by the Board
of Directors, out of funds legally available for the payment thereof, dividends
payable in cash, stock or otherwise. Upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, and after the
holders of the Preferred Stock of each series shall have been paid in full in
cash the amounts to which they respectively shall be entitled or a sum
sufficient for such payment in full shall have been set aside, the remaining net
assets of the Corporation shall be distributed pro rata to the holders of the
Common Stock in accordance with their respective rights and interests, to the
exclusion of the holders of the Preferred Stock.
 
                                        3
   4
 
               SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK
 
     A description of such Series A Participating Cumulative Preferred Stock
with the designations, voting powers, preferences and relative, participating,
optional and other special rights and qualifications, limitations or
restrictions relating thereto is as follows:
 
          SECTION 1.  Designation and Number of Shares.  The shares of such
     series shall be designated as "Series A Participating Cumulative Preferred
     Stock" (the "Series A Preferred Stock"), without par value. The number of
     shares initially constituting the Series A Preferred Stock shall be
     300,000; provided, however, that, if more than a total of 300,000 shares of
     Series A Preferred Stock shall be issuable upon the exercise of Rights (the
     "Rights") issued pursuant to that Rights Agreement between the Corporation
     and The Bank of New York, a New York banking corporation, as Rights Agent
     (the "Rights Agreement"), the Board of Directors of the Corporation,
     pursuant to Section 23-1-25-2(d) of the Business Corporation Law of the
     State of Indiana, shall direct by resolution or resolutions that articles
     of amendment be properly executed and delivered to the Secretary of State
     for the State of Indiana for filing in accordance with the provisions of
     Section 23-1-18-1 and Section 23-1-38-6 thereof, providing for the total
     number of shares of Series A Preferred Stock authorized to be issued to be
     increased (to the extent that the Articles of Incorporation then permit) to
     the largest number of whole shares (rounded up to the nearest whole number)
     issuable upon exercise of such Rights.
 
          SECTION 2.  Dividends or Distributions.  (a) Subject to the prior and
     superior rights of the holders of shares of any other series of Preferred
     Stock or other class of capital stock of the Corporation ranking prior and
     superior to the shares of Series A Preferred Stock with respect to
     dividends, the holders of shares of the Series A Preferred Stock shall be
     entitled to receive, when, as and if declared by the Board of Directors,
     out of the assets of the Corporation legally available therefor, (1)
     quarterly dividends payable in cash on the last day of each fiscal quarter
     in each year, or such other dates as the Board of Directors of the
     Corporation shall approve (each such date being referred to herein as a
     "Quarterly Dividend Payment Date"), commencing on the first Quarterly
     Dividend Payment Date after the first issuance of a share or a fraction of
     a share of Series A Preferred Stock, in the amount of $.01 per whole share
     (rounded to the nearest cent) less the amount of all cash dividends
     declared on the Series A Preferred Stock pursuant to the following clause
     (2) since the immediately preceding Quarterly Dividend Payment Date or,
     with respect to the first Quarterly Dividend Payment Date, since the first
     issuance of any share or fraction of a share of Series A Preferred Stock
     (the total of which shall not, in any event, be less than zero) and (2)
     dividends payable in cash on the payment date for each cash dividend
     declared on the Common Stock in an amount per whole share (rounded to the
     nearest cent) equal to the Formula Number (as hereinafter defined) then in
     effect times the cash dividends then to be paid on each share of Common
     Stock. In addition, if the Corporation shall pay any dividend or make any
     distribution on the Common Stock payable in assets, securities or other
     forms of noncash consideration (other than dividends or distributions
     solely in shares of Common Stock), then, in each such case, the Corporation
     shall simultaneously pay or make on each outstanding whole share of Series
     A Preferred Stock a dividend or distribution in like kind equal to the
     Formula Number then in effect times such dividend or distribution on each
     share of the Common Stock. As used herein, the "Formula Number" shall be
     1,000; provided, however, that, if at any time after the Distribution
     Record Date (as defined in that Notice of Special Meeting and Proxy
     Statement, dated August 30, 1995, filed with the Securities and Exchange
     Commission by ITT Corporation), the Corporation shall (i) declare or pay
     any dividend on the Common Stock payable in shares of Common Stock or make
     any distribution on the Common Stock in shares of Common Stock, (ii)
     subdivide (by a stock split or otherwise) the outstanding shares of Common
     Stock into a larger number of shares of Common Stock or (iii) combine (by a
     reverse stock split or otherwise) the outstanding shares of Common Stock
     into a smaller number of shares of Common Stock, then in each such event
     the Formula Number shall be adjusted to a number determined by multiplying
     the Formula Number in effect immediately prior to such event by a fraction,
     the numerator of which is the number of shares of Common Stock that are
     outstanding
 
                                        4
   5
 
     immediately after such event and the denominator of which is the number of
     shares of Common Stock that are outstanding immediately prior to such event
     (and rounding the result to the nearest whole number); and provided
     further, that, if at any time after the Distribution Record Date, the
     Corporation shall issue any shares of its capital stock in a merger,
     reclassification, or change of the outstanding shares of Common Stock, then
     in each such event the Formula Number shall be appropriately adjusted to
     reflect such merger, reclassification or change so that each share of
     Preferred Stock continues to be the economic equivalent of a Formula Number
     of shares of Common Stock prior to such merger, reclassification or change.
 
             (b) The Corporation shall declare a dividend or distribution on the
        Series A Preferred Stock as provided in Section 2(a) immediately prior
        to or at the same time it declares a dividend or distribution on the
        Common Stock (other than a dividend or distribution solely in shares of
        Common Stock); provided, however, that, in the event no dividend or
        distribution (other than a dividend or distribution in shares of Common
        Stock) shall have been declared on the Common Stock during the period
        between any Quarterly Dividend Payment Date and the next subsequent
        Quarterly Dividend Payment Date, a dividend of $.01 per share on the
        Series A Preferred Stock shall nevertheless be payable on such
        subsequent Quarterly Dividend Payment Date. The Board of Directors may
        fix a record date for the determination of holders of shares of Series A
        Preferred Stock entitled to receive a dividend or distribution declared
        thereon, which record date shall be the same as the record date for any
        corresponding dividend or distribution on the Common Stock.
 
             (c) Dividends shall begin to accrue and be cumulative on
        outstanding shares of Series A Preferred Stock from and after the
        Quarterly Dividend Payment Date next preceding the date of original
        issue of such shares of Series A Preferred Stock; provided, however,
        that dividends on such shares which are originally issued after the
        record date for the determination of holders of shares of Series A
        Preferred Stock entitled to receive a quarterly dividend and on or prior
        to the next succeeding Quarterly Dividend Payment Date shall begin to
        accrue and be cumulative from and after such Quarterly Dividend Payment
        Date. Notwithstanding the foregoing, dividends on shares of Series A
        Preferred Stock which are originally issued prior to the record date for
        the determination of holders of shares or Series A Preferred Stock
        entitled to receive a quarterly dividend on the first Quarterly Dividend
        Payment Date shall be calculated as if cumulative from and after the
        last day of the fiscal quarter next preceding the date of original
        issuance of such shares. Accrued but unpaid dividends shall not bear
        interest. Dividends paid on the shares of Series A Preferred Stock in an
        amount less than the total amount of such dividends at the time accrued
        and payable on such shares shall be allocated pro rata on a
        share-by-share basis among all such shares at the time outstanding.
 
             (d) So long as any shares of the Series A Preferred Stock are
        outstanding, no dividends or other distributions shall be declared, paid
        or distributed, or set aside for payment or distribution, on the Common
        Stock unless, in each case, the dividend required by this Section 2 to
        be declared on the Series A Preferred Stock shall have been declared.
 
             (e) The holders of the shares of Series A Preferred Stock shall not
        be entitled to receive any dividends or other distributions except as
        provided herein.
 
          SECTION 3.  Voting Rights.  The holders of shares of Series A
     Preferred Stock shall have the following voting rights:
 
             (a) Each holder of Series A Preferred Stock shall be entitled to a
        number of votes equal to the Formula Number then in effect, for each
        share of Series A Preferred Stock held of record on each matter on which
        holders of the Common Stock or shareholders generally are entitled to
        vote, multiplied by the maximum number of votes per share which any
        holder of the Common Stock or shareholders generally then have with
        respect to such matter (assuming any holding period or other requirement
        to vote a greater number of shares is satisfied).
 
                                        5
   6
 
             (b) Except as otherwise provided herein or by applicable law, the
        holders of shares of Series A Preferred Stock and the holders of shares
        of Common Stock shall vote together as one class for the election of
        directors of the Corporation and on all other matters submitted to a
        vote of shareholders of the Corporation.
 
             (c) If, at the time of any annual meeting of shareholders for the
        election of directors, the equivalent of six quarterly dividends
        (whether or not consecutive) payable on any share or shares of Series A
        Preferred Stock are in default, the number of directors constituting the
        Board of Directors of the Corporation shall be increased by two. In
        addition to voting together with the holders of Common Stock for the
        election of other directors of the Corporation, the holders of record of
        the Series A Preferred Stock, voting separately as a class to the
        exclusion of the holders of Common Stock, shall be entitled at said
        meeting of shareholders (and at each subsequent annual meeting of
        shareholders), unless all dividends in arrears have been paid or
        declared and set apart for payment prior thereto, to vote for the
        election of two directors of the Corporation, the holders of any Series
        A Preferred Stock being entitled to cast a number of votes per share of
        Series A Preferred Stock equal to the Formula Number. Until the default
        in payments of all dividends which permitted the election of said
        directors shall cease to exist, any director who shall have been so
        elected pursuant to the next preceding sentence may be removed at any
        time, either with or without cause, only by the affirmative vote of the
        holders of the shares of Series A Preferred Stock at the time entitled
        to cast a majority of the votes entitled to be cast for the election of
        any such director at a special meeting of such holders called for that
        purpose, and any vacancy thereby created may be filled by the vote of
        such holders. If and when such default shall cease to exist, the holders
        of the Series A Preferred Stock shall be divested of the foregoing
        special voting rights, subject to revesting in the event of each and
        every subsequent like default in payments of dividends. Upon the
        termination of the foregoing special voting rights, the terms of office
        of all persons who may have been elected directors pursuant to said
        special voting rights shall forthwith terminate, and the number of
        directors constituting the Board of Directors shall be reduced by two.
        The voting rights granted by this Section 3(c) shall be in addition to
        any other voting rights granted to the holders of the Series A Preferred
        Stock in this Section 3.
 
             (d) Except as provided herein, in Section 11 or by applicable law,
        holders of Series A Preferred Stock shall have no special voting rights
        and their consent shall not be required (except to the extent they are
        entitled to vote with holders of Common Stock as set forth herein) for
        authorizing or taking any corporate action.
 
          SECTION 4.  Certain Restrictions.  (a) Whenever quarterly dividends or
     other dividends or distributions payable on the Series A Preferred Stock as
     provided in Section 2 are in arrears, thereafter and until all accrued and
     unpaid dividends and distributions, whether or not declared, on shares of
     Series A Preferred Stock outstanding shall have been paid in full, the
     Corporation shall not
 
                (i) declare or pay dividends on, make any other distributions
           on, or redeem or purchase or otherwise acquire for consideration any
           shares of stock ranking junior (either as to dividends or upon
           liquidation, dissolution or winding up) to the Series A Preferred
           Stock;
 
                (ii) declare or pay dividends on or make any other distributions
           on any shares of stock ranking on a parity (either as to dividends or
           upon liquidation, dissolution or winding up) with the Series A
           Preferred Stock, except dividends paid ratably on the Series A
           Preferred Stock and all such parity stock on which dividends are
           payable or in arrears in proportion to the total amounts to which the
           holders of all such shares are then entitled;
 
                (iii) redeem or purchase or otherwise acquire for consideration
           shares of any stock ranking on a parity (either as to dividends or
           upon liquidation, dissolution or winding up) with the Series A
           Preferred Stock; provided that the Corporation may at any time
           redeem, purchase or otherwise acquire shares of any such parity stock
           in exchange for shares of
 
                                        6
   7
 
           any stock of the Corporation ranking junior (either as to dividends
           or upon liquidation, dissolution or winding up) to the Series A
           Preferred Stock; or
 
                (iv) purchase or otherwise acquire for consideration any shares
           of Series A Preferred Stock, or any shares of stock ranking on a
           parity with the Series A Preferred Stock, except in accordance with a
           purchase offer made in writing or by publication (as determined by
           the Board of Directors) to all holders of such shares upon such terms
           as the Board of Directors, after consideration of the respective
           annual dividend rates and other relative rights and preferences of
           the respective series and classes, shall determine in good faith will
           result in fair and equitable treatment among the respective series or
           classes.
 
             (b) The Corporation shall not permit any subsidiary of the
        Corporation to purchase or otherwise acquire for consideration any
        shares of stock of the Corporation unless the Corporation could, under
        paragraph (a) of this Section 4, purchase or otherwise acquire such
        shares at such time and in such manner.
 
          SECTION 5.  Liquidation Rights.  Upon the liquidation, dissolution or
     winding up of the Corporation, whether voluntary or involuntary, no
     distribution shall be made (1) to the holders of shares of stock ranking
     junior (either as to dividends or upon liquidation, dissolution or winding
     up) to the Series A Preferred Stock unless, prior thereto, the holders of
     shares of Series A Preferred Stock shall have received an amount, equal to
     the accrued and unpaid dividends and distributions thereon, whether or not
     declared, to the date of such payment, plus an amount equal to the greater
     of (x) $.01 per whole share or (y) an aggregate amount per share equal to
     the Formula Number then in effect times the aggregate amount to be
     distributed per share to holders of Common Stock or (2) to the holders of
     stock ranking on a parity (either as to dividends or upon liquidation,
     dissolution or winding up) with the Series A Preferred Stock, except
     distributions made ratably on the Series A Preferred Stock and all other
     such parity stock in proportion to the total amounts to which the holders
     of all such shares are entitled upon such liquidation, dissolution or
     winding up; provided that in no event shall the amount or amounts, if any,
     exceed $100 per share plus accrued dividends in the case of involuntary
     liquidation, dissolution or winding up of the Corporation.
 
          SECTION 6.  Consolidation, Merger, etc.  In case the Corporation shall
     enter into any consolidation, merger, combination or other transaction in
     which the shares of Common Stock are exchanged for or changed into other
     stock or securities, cash or any other property, then in any such case the
     then outstanding shares of Series A Preferred Stock shall at the same time
     be similarly exchanged or changed into an amount per share equal to the
     Formula Number then in effect times the aggregate amount of stock,
     securities, cash or any other property (payable in kind), as the case may
     be, into which or for which each share of Common Stock is exchanged or
     changed. In the event both this Section 6 and Section 2 appear to apply to
     a transaction, this Section 6 will control.
 
          SECTION 7.  No Redemption; No Sinking Fund.  (a) The shares of Series
     A Preferred Stock shall not be subject to redemption by the Corporation or
     at the option of any holder of Series A Preferred Stock; provided, however,
     that the Corporation may purchase or otherwise acquire outstanding shares
     of Series A Preferred Stock in the open market or by offer to any holder or
     holders of shares of Series A Preferred Stock.
 
             (b) The shares of Series A Preferred Stock shall not be subject to
        or entitled to the operation of a retirement or sinking fund.
 
          SECTION 8.  Ranking.  The Series A Preferred Stock shall rank junior
     to all other series of Preferred Stock of the Corporation, unless the Board
     of Directors shall specifically determine otherwise in fixing the powers,
     preferences and relative, participating, optional and other special rights
     of the shares of such series and the qualifications, limitations or
     restrictions thereof.
 
          SECTION 9.  Fractional Shares.  The Series A Preferred Stock shall be
     issuable upon exercise of the Rights issued pursuant to the Rights
     Agreement in whole shares or in any fraction of a share that is one
     one-thousandths (1/1,000ths) of a share or any integral multiple of such
     fraction which
 
                                        7
   8
 
     shall entitle the holder, in proportion to such holder's fractional shares,
     to receive dividends, exercise voting rights, participate in distributions
     and to have the benefit of all other rights of holders of Series A
     Preferred Stock. In lieu of fractional shares, the Corporation, prior to
     the first issuance of a share or a fraction of a share of Series A
     Preferred Stock, may elect (1) to make a cash payment as provided in the
     Rights Agreement for fractions of a share other than one one-thousandths
     (1/1,000ths) of a share or any integral multiple thereof or (2) to issue
     depository receipts evidencing such authorized fraction of a share of
     Series A Preferred Stock pursuant to an appropriate agreement between the
     Corporation and a depository selected by the Corporation; provided that
     such agreement shall provide that the holders of such depository receipts
     shall have all the rights, privileges and preferences to which they are
     entitled as holders of the Series A Preferred Stock.
 
          SECTION 10.  Reacquired Shares.  Any shares of Series A Preferred
     Stock purchased or otherwise acquired by the Corporation in any manner
     whatsoever shall be retired and canceled promptly after the acquisition
     thereof. All such shares shall upon their cancelation become authorized but
     unissued shares of Preferred Stock, without designation as to series until
     such shares are once more designated as part of a particular series by the
     Board of Directors pursuant to the provisions of ARTICLE FOURTH of the
     Articles of Incorporation.
 
          SECTION 11.  Amendment.  None of the powers, preferences and relative,
     participating, optional and other special rights of the Series A Preferred
     Stock as provided herein or in the Articles of Incorporation shall be
     amended in any manner which would alter or change the powers, preferences,
     rights or privileges of the holders of Series A Preferred Stock so as to
     affect them adversely without the affirmative vote of the holders of at
     least 66 2/3% of the outstanding shares of Series A Preferred Stock, voting
     as a separate class, provided, however, that no such amendment approved by
     the holders of at least 66 2/3% of the outstanding shares of Series A
     Preferred Stock shall be deemed to apply to the powers, preferences, rights
     or privileges of any holder of shares of Series A Preferred Stock
     originally issued upon exercise of a Right after the time of such approval
     without the approval of such holder.
 
                                 ARTICLE FIFTH
 
     (a) Special meetings of shareholders of the Corporation may be called only
by the Chairman of the Board of Directors or by a majority vote of the entire
Board of Directors.
 
     (b) Shareholders of the Corporation shall not have any preemptive rights to
subscribe for additional issues of stock of the Corporation except as may be
agreed from time to time by the Corporation and any such shareholder.
 
     (c) Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation, if any, shall
have the right, voting separately by class or series, to elect directors at an
annual or special meeting of shareholders, an election, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of the applicable resolution or resolutions of the Board of Directors
adopted pursuant to ARTICLE FOURTH of these Articles of Incorporation.
 
                                 ARTICLE SIXTH
 
     To the fullest extent permitted by applicable law as then in effect, no
director or officer shall be personally liable to the Corporation or any of its
shareholders for damages for breach of fiduciary duty as a director or officer,
except for liability (a) for breach of duty if such breach constitutes wilful
misconduct or recklessness or (b) for the payment of distributions to
shareholders in violation of Section 23-1-28-3 of the Indiana Business
Corporation Law. Any repeal or modification of this ARTICLE SIXTH by the
shareholders of the Corporation shall not adversely affect any right or
protection of a director or officer of the Corporation existing at the time of
such repeal or modification with respect to acts or omissions occurring prior to
such repeal or modification.
 
                                        8
   9
 
                                ARTICLE SEVENTH
 
     The holders of the capital stock of the Corporation shall not be personally
liable for the payment of the Corporation's debts and the private property of
the holders of the capital stock of the Corporation shall not be subject to the
payment of debts of the Corporation to any extent whatsoever.
 
                                 ARTICLE EIGHTH
 
     Subject to any express provision of the laws of the State of Indiana, these
Articles of Incorporation or the By-laws of the Corporation, the By-laws of the
Corporation may from time to time be supplemented, amended or repealed, or new
By-laws may be adopted, by the Board of Directors at any regular or special
meeting of the Board of Directors, if such supplement, amendment, repeal or
adoption is approved by a majority of the entire Board of Directors. Subject to
any express provision of the laws of the State of Indiana, these Articles of
Incorporation or the By-laws of the Corporation, the By-laws of the Corporation
may from time to time be supplemented, amended or repealed, or new By-laws may
be adopted, by the shareholders at any regular or special meeting of the
shareholders at which a quorum is present, if such supplement, amendment, repeal
or adoption is approved by the affirmative vote of the holders of at least a
majority of the voting power of all outstanding shares of stock of the
Corporation entitled to vote generally in an election of directors.
 
                                 ARTICLE NINTH
 
     The Corporation reserves the right to supplement, amend or repeal any
provision contained in these Articles of Incorporation, in the manner now or
hereafter prescribed by the laws of the State of Indiana, and all rights
conferred on shareholders herein are granted subject to this reservation.
 
                                 ARTICLE TENTH
 
     The name and address of the incorporator signing these Articles of
Incorporation is:
 
NAME ADDRESS George W. Bilicic, Jr. 825 Eighth Avenue New York, New York 10019
These Articles of Restatement of Articles of Incorporation were duly adopted by the Board of Directors of the Corporation in accordance with the provisions of Section 23-1-38-7 of the Indiana Business Corporation Law. IN WITNESS WHEREOF, I have executed these Articles of Restatement of Articles of Incorporation this 9th day of June, 1997. /s/ ROBERT W. BEICKE -------------------------------------- Name: Robert W. Beicke Title: Vice President ATTEST: /s/ GWENN L. CARR - --------------------------------------------------------- Name: Gwenn L. Carr Title: Secretary 9
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                                                                      EXHIBIT 11
 
                     ITT INDUSTRIES, INC. AND SUBSIDIARIES
 
                    CALCULATION OF EARNINGS (LOSS) PER SHARE
                        (IN MILLIONS, EXCEPT PER SHARE)
 
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------- ----------------- 1997 1996 1997 1996 ------ ------ ------ ------ PRIMARY BASIS -- Net income....................................... $ 82.6 $ 67.7 $126.9 $107.7 ------ ------ ------ ------ Average common shares outstanding................ 118.4 117.9 118.4 117.7 Common shares issuable in respect to common stock equivalents................................... 2.1 2.9 2.2 2.8 ------ ------ ------ ------ Average common equivalent shares................. 120.5 120.8 120.6 120.5 ------ ------ ------ ------ Earnings Per Share Net income....................................... $ .68 $ .56 $ 1.05 $ .89 ====== ====== ====== ====== FULLY DILUTED BASIS -- Net income....................................... $ 82.6 $ 67.7 $126.9 $107.7 ------ ------ ------ ------ Average common equivalent shares................. 120.5 120.8 120.6 120.5 Additional common shares issuable assuming full dilution...................................... .2 -- .2 -- ------ ------ ------ ------ Average common equivalent shares assuming full dilution...................................... 120.7 120.8 120.8 120.5 ------ ------ ------ ------ Earnings Per Share Net income....................................... $ .68 $ .56 $ 1.05 $ .89 ====== ====== ====== ======
With respect to options, it is assumed that the proceeds to be received upon exercise are used to acquire common stock of the Company. The dilutive nature of securities is determined quarterly based on the forecast of annual earnings. 10
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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
                             (DOLLARS IN MILLIONS)
 
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, ------------------- --------------------------------------------------------- 1997 1996 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------- ------- --------- Earnings: Income from continuing operations... $ 126.9 $ 107.7 $ 222.6 $ 20.7 $ 201.6 $ 134.8 $ 655.0 Add(deduct): Adjustment for distributions in excess of (less than) undistributed equity earnings and losses a)................... 1.1 1.0 1.9 .6 -- (2.6) (30.8) Income taxes...................... 81.1 74.8 148.4 50.2 147.5 65.1 311.3 Amortization of interest capitalized..................... .4 .4 .9 2.5 .7 3.9 2.7 ------ ------ ------ ------ ------ ------ -------- 209.5 183.9 373.8 74.0 349.8 201.2 938.2 ------ ------ ------ ------ ------ ------ -------- Fixed Charges: Interest and other financial charges......................... 64.3 83.2 169.0 175.2 115.2 154.0 180.0 Interest factor attributable to rentals b)...................... 15.5 15.4 30.9 29.0 22.0 24.2 24.8 ------ ------ ------ ------ ------ ------ -------- 79.8 98.6 199.9 204.2 137.2 178.2 204.8 ------ ------ ------ ------ ------ ------ -------- Earnings, as adjusted, from continuing operations............. $ 289.3 $ 282.5 $ 573.7 $ 278.2 $ 487.0 $ 379.4 $ 1,143.0 ====== ====== ====== ====== ====== ====== ======== Fixed Charges: Fixed charges above............... $ 79.8 $ 98.6 $ 199.9 $ 204.2 $ 137.2 $ 178.2 $ 204.8 Interest capitalized.............. -- .5 1.1 2.9 6.8 8.0 11.6 ------ ------ ------ ------ ------ ------ -------- Total fixed charges......... 79.8 99.1 201.0 207.1 144.0 186.2 216.4 Dividends on preferred stock (pre- income tax basis)c)............... -- -- -- 23.4 47.5 50.0 63.0 ------ ------ ------ ------ ------ ------ -------- Total fixed charges and preferred dividend requirements.............. $ 79.8 $ 99.1 $ 201.0 $ 230.5 $ 191.5 $ 236.2 $ 279.4 ====== ====== ====== ====== ====== ====== ======== Ratios: Earnings, as adjusted, from continuing operations to total fixed charges................... 3.63 2.85 2.85 1.34 3.38 2.04 5.28 ====== ====== ====== ====== ====== ====== ======== Earnings, as adjusted, from continuing operations to total fixed charges and preferred dividend requirements........... 3.63 2.85 2.85 1.21 2.54 1.61 4.09 ====== ====== ====== ====== ====== ====== ========
- --------------- Notes: a) The adjustment for distributions in excess of (less than) undistributed equity earnings and losses represents the adjustment to income for distributions in excess of (less than) undistributed earnings and losses of companies in which at least 20% but less than 50% equity is owned. b) One-third of rental expense is deemed to be representative of interest factor in rental expense. c) The dividend requirements on preferred stock have been determined by adding to the total preferred dividends an allowance for income taxes, calculated at the effective income tax rate. 11
 

5 This schedule contains summary financial information extracted from the June 30, 1997 Financial Statements included in Form 10-Q and is qualified in its entirety by reference to such Financial Statements. 1,000,000 6-MOS DEC-31-1996 JUN-30-1997 103 0 1,562 38 860 2,614 5,328 3,094 6,564 3,505 575 0 0 118 811 6,564 4,418 4,418 3,512 3,765 392 3 64 208 81 127 0 0 0 127 1.05 1.05