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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(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
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COMMISSION FILE NUMBER 1-5627
ITT INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
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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
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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.
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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
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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
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ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN MILLIONS, EXCEPT FOR SHARES AND PER SHARE)
JUNE 30, DECEMBER 31,
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.
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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.
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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
======== ======== ======== ======== ====== ====== ====== ======
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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.
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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 $81.1 million in the 1997 period due to higher pretax
earnings.
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11
Business Segments -- Sales and operating income for the six months ended
June 30, 1997, and 1996 ($ 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.
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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
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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
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