-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
E6/PqI94Nt7sTRG9eIhpsKBSF8bbRkfbXW1sGWL7mvfn+RffMnmz9Lq3tkZ/OwSJ
2fY99tFHwY66PCxlykyshQ==
<SEC-DOCUMENT>0000950123-01-002627.txt : 20010327
<SEC-HEADER>0000950123-01-002627.hdr.sgml : 20010327
ACCESSION NUMBER: 0000950123-01-002627
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010326
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ITT INDUSTRIES INC
CENTRAL INDEX KEY: 0000216228
STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590]
IRS NUMBER: 135158950
STATE OF INCORPORATION: IN
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-05627
FILM NUMBER: 1578556
BUSINESS ADDRESS:
STREET 1: FOUR W RED OAK LANE
CITY: WHITE PLAINS
STATE: NY
ZIP: 10604
BUSINESS PHONE: 9146412058
MAIL ADDRESS:
STREET 1: FOUR W RED OAK LANE
CITY: WHITE PLAINS
STATE: NY
ZIP: 10604
FORMER COMPANY:
FORMER CONFORMED NAME: ITT CORP
DATE OF NAME CHANGE: 19920703
FORMER COMPANY:
FORMER CONFORMED NAME: INTERNATIONAL TELEPHONE & TELEGRAPH CORP
DATE OF NAME CHANGE: 19840321
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>y42903e10-k405.txt
<DESCRIPTION>ITT INDUSTRIES, INC.
<TEXT>
<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-K
ANNUAL REPORT
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
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 NO. 1-5627
------------------
ITT INDUSTRIES, INC.
<TABLE>
<S> <C>
INCORPORATED IN THE STATE OF INDIANA 13-5158950
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
</TABLE>
4 WEST RED OAK LANE, WHITE PLAINS, NY 10604
(PRINCIPAL EXECUTIVE OFFICE)
TELEPHONE NUMBER: (914) 641-2000
------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT, ALL OF WHICH ARE
REGISTERED ON THE NEW YORK STOCK EXCHANGE, INC.:
COMMON STOCK, $1 PAR VALUE (ALSO REGISTERED ON PACIFIC STOCK EXCHANGE)
SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK PURCHASE RIGHTS (ALSO
REGISTERED ON PACIFIC STOCK EXCHANGE)
8 7/8% SENIOR DEBENTURES DUE JUNE 2003
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE.
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
.... ....
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the Common Stock of the registrant held by
non-affiliates of the registrant on January 31, 2001 was approximately $3.5
billion.
As of February 28, 2001, there were outstanding 87,914,595 shares of Common
Stock, $1 par value, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement filed or to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A involving the
election of directors at the annual meeting of the shareholders of the
registrant scheduled to be held on May 15, 2001, is incorporated by reference in
Part III of this Form 10-K.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<C> <C> <S> <C>
PART 1 Business.................................................... 2
I 2 Properties.................................................. 12
3 Legal Proceedings........................................... 12
4 Submission of Matters to a Vote of Security Holders......... 13
* Executive Officers of the Registrant........................ 13
PART 5 Market for Registrant's Common Equity and Related
II Stockholder Matters....................................... 14
6 Selected Financial Data..................................... 15
7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 16
7A Quantitative and Qualitative Disclosures About Market
Risk...................................................... 24
8 Financial Statements and Supplementary Data................. 24
9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 24
PART 10 Directors and Executive Officers of the Registrant.......... 24
III 11 Executive Compensation...................................... 24
12 Security Ownership of Certain Beneficial Owners and
Management................................................ 24
13 Certain Relationships and Related Transactions.............. 24
PART 14 Exhibits, Financial Statement Schedules, and Reports on Form
IV 8-K....................................................... 24
Signatures........................................................... II-1
Exhibit Index........................................................ II-2
</TABLE>
- ------------
* Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
PART I
ITEM 1. BUSINESS
ITT Industries, Inc., with 2000 sales of approximately $4.8 billion, is a
global multi-industry company engaged directly and through its subsidiaries in
the design and manufacture of a wide range of engineered products and the
provision of related services. We are focused on the four principal business
segments of Connectors & Switches, Defense Products & Services, Pumps &
Complementary Products, and Specialty Products.
Our World Headquarters is located at 4 West Red Oak Lane, White Plains, NY
10604. We have approximately 42,000 employees based in 49 countries. Unless the
context otherwise indicates, references herein to "ITT Industries," the
"Company," and such words as "we," "us," and "our" include ITT Industries, Inc.
and its subsidiaries. ITT Industries, Inc. was incorporated on September 5, 1995
in Indiana. Reference is made to "-- COMPANY HISTORY AND CERTAIN RELATIONSHIPS."
Our telephone number is (914) 641-2000.
1
<PAGE> 3
The table below shows, in percentage terms, our consolidated sales and
revenues and operating income (excluding restructuring and other special items)
attributable to each of our ongoing lines of business for the last three years:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
SALES AND REVENUES
Connectors & Switches........... 16% 11% 12%
Defense Products & Services..... 28 31 29
Pumps & Complementary Products.. 36 37 39
Specialty Products.............. 20 21 19
Other........................... -- -- 1
--- --- ---
100% 100% 100%
=== === ===
OPERATING INCOME
Connectors & Switches........... 20% 15% 16%
Defense Products & Services..... 24 27 30
Pumps & Complementary Products.. 39 40 45
Specialty Products.............. 28 32 28
Other........................... (11) (14) (19)
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
BUSINESS AND PRODUCTS
CONNECTORS & SWITCHES
Connectors & Switches, with sales and revenues of approximately $774.6
million, $516.0 million, and $527.9 million for 2000, 1999, and 1998,
respectively, is a significant connector and switch company that develops and
manufactures connectors, interconnects, cable assemblies, switches, key pads,
multi-function grips, panel switch assemblies, dome arrays, input/output (I/O)
card kits, smart card systems, LAN components, high-speed/high-bandwidth network
systems, and related services.
Connectors & Switches consists of products and services for the areas of
communications, industrial, transportation, consumer, military/aerospace,
computer, and commercial aircraft.
In the communications area, Connectors & Switches designs products and
provides services specifically for today's fast-growing transmission and
networking industries. These products and services include connectors,
interconnects, cable assemblies, keypads, switches, panel switch assemblies, I/O
card kits, smart card systems, and LAN components, as well as
high-speed/high-bandwidth network systems and services. They are used in
wireless, carrier networks, enterprise networks, datacommunications,
transmission, and switching applications.
In the industrial area, Connectors & Switches' products are incorporated in
various industrial equipment and control products, including DL zero insertion
force connectors, cable assemblies, electromechanical switches, and device
control interfaces. They are used in industrial controls, production equipment,
and instrument applications. Medical applications include robotic surgical,
ultrasound, and other diagnostic equipment.
In the transportation area, Connectors & Switches' products are
incorporated in off-highway, heavy-vehicle, and automotive applications. The
products include high reliability connectors, multi-function control assemblies,
and the K12 Series Switch used in powertrain, instrument controls, and chassis
applications.
In the consumer area, Connectors & Switches primarily supplies keypads for
remote control devices.
In the military/aerospace area, Connectors & Switches supplies products for
mission-critical applications ranging from below the ocean to deep in space. The
products include circular, microminiature, fiber optic, and "special" connectors
used in military electronics, missiles, and space applications.
In the computer area, Connectors & Switches supplies keypads, connectors,
and switches for computers and computer peripherals.
In the commercial aircraft area, Connectors & Switches supplies highly
reliable light, space-saving products for technically advanced aircraft. The
products include rack and panel, circular, and fiber optic connectors. Their
applications range from avionics (flight control, communications and navigation)
to passenger in-flight entertainment systems.
The following table illustrates the percentage of sales and revenues for
the listed categories for the periods specified:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Communications................. 39% 32% 29%
Industrial..................... 17 20 18
Transportation................. 11 14 13
Consumer....................... 10 6 5
Military/Aerospace............. 10 13 17
Computer....................... 7 5 5
Commercial Aircraft............ 6 10 13
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
2
<PAGE> 4
Order backlog for Connectors & Switches was $207.9 million in 2000,
compared with $158.6 million in 1999 and $130.2 million in 1998.
Connectors & Switches products are marketed primarily under the Cannon(R)
brand name.
The level of activity for Connectors & Switches is affected by overall
economic conditions in the markets served and the competitive position with
respect to price, quality, technical expertise, and customer service. See
"-- COMPETITION."
Connectors & Switches companies have an aggregate of approximately 14,800
employees and have 31 facilities located in 12 countries.
DEFENSE PRODUCTS & SERVICES
Defense Products & Services, with sales and revenues of approximately $1.33
billion, $1.41 billion, and $1.29 billion for 2000, 1999, and 1998,
respectively, develops, manufactures, and supports high technology electronic
systems and components for worldwide defense and commercial markets. Operations
are in North America, Europe, and the Middle East. Product groups are government
services, tactical mobile communications, night vision, airborne electronic
warfare, satellite instruments, and radar and other.
Defense Products & Services concentrates its efforts primarily in those
market segments where management believes it can be a market leader. It is a
leading supplier of products that management believes will be critical to the
armed forces in the 21st century. This particularly includes products designated
to facilitate communications in the forward area battlefield, night vision
devices that enable soldiers to conduct night combat operations, and airborne
electronic warfare systems that protect aircraft from enemy missiles. Management
believes that Defense Products & Services may also benefit from trends to
commercialize and outsource military support services.
Defense Products & Services consists of the two major areas of (i) systems
and services and (ii) defense electronics. Systems and services consists of our
systems business and our advanced engineering and sciences business. Defense
electronics consists of our aerospace and communications business, our night
vision business, and our avionics business.
Systems and Services
The Systems Division is involved in support services and systems
engineering. This business provides military base operations support, equipment
and facility maintenance, and training services for government sites around the
world.
The Advanced Engineering & Sciences Division is involved in communications
systems and engineering and applied research. This business provides advanced
technology services and customized products to government, industrial, and
commercial customers in the areas of information technology, consulting and
technical assistance, military systems effects and analysis, and hardware
design, test, and evaluation.
Defense Electronics
The ITT Aerospace/Communications Division ("A/CD") manufactures products,
including voice and data systems, that facilitate communications in the forward
area battlefield. A/CD produces the Single Channel Ground and Airborne Radio
System ("SINCGARS") and has a contract to produce the Near Term Digital Radio
("NTDR"), which has data transmission capacity twenty times greater than
SINCGARS. A/CD also produces sophisticated sounding and imaging instruments such
as those used by the National Oceanographic and Atmospheric Agency in remote
sensing space payloads to track hurricanes, tornadoes, and other weather
patterns. In addition, A/CD provides navigation payloads for the Global
Positioning System ("GPS") navigation satellite.
The Night Vision Division provides advanced goggles for airborne and ground
applications which give United States and allied soldiers the capability to
conduct night combat operations. Night Vision is the leading full service
supplier of Generation III night vision products to the United States and allied
military forces. Night Vision also produces a commercial line of night vision
products for law enforcement, marine, and recreational applications.
The Avionics Division produces airborne electronic warfare systems, such as
the Airborne Self-Protection Jammer ("ASPJ"), to help protect aircraft from
radar-guided weapons. Avionics is developing for the United States Army the
next-generation fully integrated airborne electronic warfare system for rotary
wing aircraft called a Suite of Integrated Radio Frequency Countermeasures
("SIRFC"). Avionics,
3
<PAGE> 5
teamed with BAE Systems, is also developing the United States Integrated
Defensive Countermeasures ("IDECM") system for fixed wing aircraft such as the
F/A-18 E/F fighter fleet. The Avionics Division is a co-developer of the
integrated communications, navigation and identification system for the U.S. Air
Force F-22 Raptor.
Defense Products & Services also produces and installs ship and air defense
radar and air traffic control systems both in the United States and
internationally.
The following table illustrates the percentage of sales and revenues for
the listed categories for the periods specified:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Systems and Services
Systems....................... 32% 37% 40%
Advanced Engineering &
Sciences.................... 13 -- --
Defense Electronics
A/CD.......................... 32 37 37
Night Vision.................. 15 14 12
Avionics...................... 8 12 11
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
Defense Products & Services sells its products to a wide variety of
governmental and non-governmental entities located throughout the world.
Approximately 97% of 2000 sales and revenues of Defense Products & Services was
to governmental entities, of which approximately 84% was to the United States
Government (principally in defense programs).
A substantial portion of the work of Defense Products & Services is
performed in the United States under prime contracts and subcontracts, some of
which by statute are subject to profit limitations and all of which are subject
to termination by the United States Government. Apart from the United States
Government, no other governmental or commercial customer accounted for more than
3.5% of 2000 sales and revenues for Defense Products & Services.
Sales and revenues to non-governmental entities as a percentage of total
sales and revenues for Defense Products & Services were 3% in 2000, 3% in 1999,
and 2% in 1998. Certain products sold by Defense Products & Services have
particular commercial application, including night vision devices and radar
systems. In addition, Defense Products & Services, in partnership with
California Commercial Spaceport, Inc. in a venture known as Spaceport Systems
International, provides full service payload processing and launch capability
for small to medium satellite systems in low polar earth orbits.
Order backlog for Defense Products & Services was $2.41 billion in 2000,
compared with $1.84 billion in 1999 and $2.22 billion in 1998.
The level of activity in Defense Products & Services is affected by overall
defense budgets, the portion of those budgets devoted to products and services
of the type provided by Defense Products & Services, demand and budget
availability for such products and services in areas other than defense, and
other factors. See "-- COMPETITION."
Defense Products & Services companies have an aggregate of approximately
9,200 employees and have 95 facilities in 15 countries.
PUMPS & COMPLEMENTARY PRODUCTS
Pumps & Complementary Products, with sales and revenues of approximately
$1.75 billion, $1.74 billion, and $1.77 billion for 2000, 1999, and 1998,
respectively, is engaged in the design, development, production, sale, and
after-sale support of products, systems and services used to move, measure, and
manage fluids. Pumps & Complementary Products is a leading worldwide supplier of
a broad range of pumps, mixers, heat exchangers, valves, and systems for
residential, agricultural, commercial, municipal, and industrial applications.
Major production and assembly facilities are located in Argentina, Australia,
Austria, Canada, China, England, Germany, Italy, Malaysia, Mexico, the
Philippines, South Korea, Sweden, and the United States. Principal customers are
in North America, Europe, the Middle East, Africa, Latin America, and the
Asia/Pacific region. No single customer accounted for more than 2% of 2000 sales
for Pumps & Complementary Products. Sales are made directly and through
independent distributors and representatives.
Pumps & Complementary Products offers a wide range of product and system
solutions for the two major areas of water and wastewater and industrial and
process.
4
<PAGE> 6
Water and Wastewater
Water and wastewater consists of our Flygt Division, our Fluid Handling
Division, our Water Technology Division, and our Lowara business. The water and
wastewater business provides submersible and dry-mount pumps, submersible
mixers, valves, and sequential batch reactor wastewater treatment systems.
Our Flygt Division is the world's originator and largest manufacturer of
submersible pumps and mixers. These pumps and mixers form the heart of many of
the world's sewage and wastewater treatment facilities. As the world's leading
producer of fluid handling machinery for treating and recycling wastewater, ITT
Industries actively promotes more efficient use and re-use of water and
endeavors to raise the level of awareness of the need to preserve and protect
the earth's water resources. Sanitaire(R) and ABJ(TM) brands are leaders in
aeration products and systems for municipal and industrial wastewater treatment.
The broad range of products includes ceramic and membrane fine bubble diffusers,
stainless steel coarse bubble diffusers, in-place cleaning systems, and complete
activated sludge plants. Combining Flygt's submersible pumps and mixers with
Sanitaire and ABJ products provides a solution to customers' needs for complete
system solutions in wastewater treatment.
Goulds Pumps ("Goulds") provides pumps and accessories for residential,
agriculture and irrigation, sewage and drainage, commercial, and light
industrial use. In the residential market, Goulds offers a wide range of water
systems products, including state-of-the-art submersible and jet pumps, pressure
tanks, controls and special use pumps for the home water well industry. Over one
quarter of all well water pumps in North America are supplied by Goulds.
Other products serving the water and wastewater market are supplied by
Lowara and by our A-C Custom Pump Division ("A-C Pump"). Lowara is a leader in
stainless steel manufacturing technology. Its pumps are used in residential,
agriculture, and irrigation applications. Dry mount pumps from A-C Pump provide
an alternative technical solution to submersible pumps when high horsepower is
needed. Typical application areas are sewage and sludge handling , circulating
water applications for power plants, desalinization, and flood control.
Submersible pumps and line shaft turbine pumps provide for the pumping
needs of agriculture, aquaculture, golf courses, and similar applications. Our
wide range of submersible drainage pumps from Flygt serves the construction
market by dewatering construction sites on a global basis. A-C Pump has been in
the forefront of developing, designing, and custom building a wide range of fire
pump systems, including prefabricated, turnkey fire pump packages, and house
units that meet every fire protection need. Through our Bell & Gossett Division,
we provide a broad variety of products for environmental control in buildings
and for building service and utility applications. We are market leaders in
liquid-based heating and air conditioning systems and our liquid level control
and steam trap products for boiler and steam systems through our McDonnell &
Miller(R) and Hoffman Specialty(R) brand name products. With extensive product
offerings of pumps, heat exchangers, valves, and control equipment for the power
industry, we provide a level of experience and expertise to solve the most
difficult fluid handling problems. Double suction, horizontal multistage, and
vertical turbine pumps handle the most demanding condensate or circulating water
needs. Also available are pumps for slurry, ash handling, and other tough
applications.
Industrial & Process
In the industrial & process business, Pumps & Complementary Products offers
a broad line of pumps with applications ranging from pharmaceutical uses to
enormous pumps for cooling power plants. We offer a broad line of industrial
pumps for moving abrasives, corrosives, slurries, solids or other liquids. We
are the ANSI standard process pump market leader. Our chemical process pumps and
valves are available in a wide variety of alloys. Other unique non-metallic
pumps and valves provide advantages when handling severe corrosives. A line of
"sealless" magnetic drive pumps from our Goulds and Richter units is offered for
services where leakage cannot be tolerated. In mining and mineral applications,
our pumps and valves provide a wide range of corrosion and abrasion resistance.
The pumps are designed for vertical, horizontal, submersible situations for coal
prep plants, mine slurries, and dewatering applications. Vertical turbine pumps,
API process pumps, vertical can pumps for low NPSH, fire pumps and submersibles
as well as high per-
5
<PAGE> 7
formance valves are available for the oil refining and gas processing
industries. Our heavy duty stock pumps and a complete line of double suction and
LoPulse(R) fan pumps are designed for pulp and paper applications.
Life Cycle Costing
Life cycle cost is the total system cost over the life of that system. It
includes installation, energy costs, maintenance, decommissioning, as well as
the original purchase price -- which generally is a small fraction of the
overall life cycle cost. ITT Industries is focused on improving the total life
cycle cost for customers through the application of technology. With energy
conservation becoming increasingly important from a cost control as well as
environmental perspective, life cycle costing initiatives create another factor
in market differentiation.
Global Service and Customer Care
Through our Pro-Service Shops, ITT Industries has built a global network of
service centers for aftermarket customer care. Our aftermarket capabilities
include the repair and service of all brands of pumps and rotating equipment,
engineering upgrades, contract maintenance, and inventory management services.
We offer field service solutions for troubleshooting, disassembly, on-site
repairs, and emergency service.
ITT Fluid Technology -- On-Line
Electronic commerce at ITT Industries is exemplified by the web site of our
Bell & Gossett Division. There, contractors and specifying engineers are now
able to view products, select and quote complex pumping systems, use software
for pipe sizing and pressure drop analysis, as well as engage in helpful on-line
engineering dialogue.
The following table illustrates the percentage of sales and revenues for
the listed categories for the periods specified:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Water and Wastewater
Flygt...................... 35% 35% 33%
Fluid Handling Division.... 17 17 16
Water Technology
Division................. 14 13 12
Lowara..................... 8 8 9
Industrial & Process
Industrial Pump Group...... 26 27 30
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
Our management believes that Pumps & Complementary Products has a solid
technology base and proven expertise in designing its products to meet customer
needs. Management believes that the continuing development of new products will
enable Pumps & Complementary Products to maintain and build market leadership
positions in served markets.
Order backlog for Pumps & Complementary Products was $264.0 million in
2000, compared with $273.8 million in 1999 and $269.7 million in 1998.
Brand names include ABJ(TM), A-C(TM) Pump, Bell & Gossett(R), Flygt(R),
Goulds(R), Hoffman Specialty(R), ITT Standard(R), Lowara(R), McDonnell &
Miller(R), Richter(R), Sanitaire(R), and Vogel(R).
The level of activity in Pumps & Complementary Products is dependent upon
economic conditions in the markets served, weather conditions, in the case of
municipal markets, the ability of municipalities to fund projects for our
products and services, and other factors. See "-- COMPETITION."
Pumps & Complementary Products companies have an aggregate of approximately
10,400 employees and have 273 facilities in 35 countries.
SPECIALTY PRODUCTS
Specialty Products, with sales and revenues of approximately $972.4
million, $959.5 million, and $849.3 million for 2000, 1999, and 1998,
respectively, comprises a group of units operating in a range of specialty
market segments. Operations are located principally in North America and Europe,
with sales in Latin America and Asia supported through joint ventures or
distribution arrangements. Specialty Products
6
<PAGE> 8
consists of the areas of Fluid Handling Systems, Flow Control, Galfer, and Koni.
ITT Fluid Handling Systems designs and produces engineered tubing systems
and connectors for use in applications such as braking systems, fuel supply, and
other fluid transfer applications in transportation or industrial uses. Fluid
Handling Systems' principle customers are the major North American and European
automotive makers, their key Tier 1 suppliers, and other similar customers.
Ford, General Motors, and Chrysler, with their respective affiliates, account
for approximately 31%, 21%, and 10%, respectively, of the sales of this unit.
Fluid Handling also owns 50% of a joint venture with Sanoh Industrial Co. of
Japan that supplies similar products to the major Japanese transplant
manufacturers in the United States.
The Flow Control group consists of Jabsco, HydroAir, Engineered Valves,
Aerospace, and Conoflow. The Jabsco Division is the world's leading producer of
pumps and related products for the leisure marine market. Products are sold
worldwide under the brand names Jabsco(R), Rule(R), Flojet(R), and Danforth(R).
Flojet is also a leading producer of pumps and components for beverage and other
specialty industrial fluid dispensing applications. Specialty Products' units,
under the brand names HydroAir(R) and Marlow(R), design and manufacture pumps
and other components for manufacturers of whirlpool and spa baths.
ITT Engineered Valves designs and manufactures precision valves for
Bio-pharmaceutical and other similar applications under the brand name
Pure-Flo(R), and for severe service chemical and mining applications under brand
names including Dia-Flo(R) and Fabri-Valve(R). Sales are achieved through a
worldwide network of distributors and service organizations.
ITT Aerospace Controls designs switches, valves, and controls for aerospace
applications. Principal customers are North American aircraft manufacturers
where the quality and performance required for FAA certification is a key
factor. This unit also sells switches to industrial customers for severe service
applications.
Speciality Products also markets pressure regulators and diaphragm seals
for industrial applications and natural gas vehicles under the brand name
Conoflow(R).
Galfer designs and manufactures quality friction pads for braking
applications on vehicles. From three facilities in Italy, Galfer services most
European OEM auto makers and also operates a substantial facility for research
and testing of new materials. Approximately 29% of Galfer's business is in
aftermarket activity.
Koni designs and markets adjustable shock absorbers under the brand name
KONI(R) for high performance vehicles, trucks, buses, and railways. Customers
are principally in Europe, North America, and Asia.
The following table illustrates the percentage of sales and revenues for
the listed categories for the periods specified:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Fluid Handling Systems....... 44% 45% 43%
Flow Control................. 33 30 29
Galfer....................... 14 16 18
Koni......................... 9 9 10
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
The level of activity for Specialty Products depends upon economic
conditions in the served markets, particularly the automotive and the marine and
leisure markets. See "-- COMPETITION." Order backlog is not a significant factor
in this segment.
Specialty Products companies have an aggregate of approximately 7,100
employees and have 44 facilities located in 11 countries.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" and see Note 20 "BUSINESS SEGMENT INFORMATION" to "NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS" for further details with respect to
business segments.
MANAGEMENT INITIATIVES
Management has undertaken a number of initiatives focused on enhancing the
value of the Company. During 2000, we initiated a Value-Based Six Sigma program
directed toward implementing continuing process improvements. The program is
multi-faceted and involves a number of factors, including leadership
development, production and marketing rationalizations, and product development.
Also included in our initiatives is the central theme of re-deploying cash, as
well as concepts of portfolio management, emphasizing growth areas, cultivating
our people, realizing added value from our technology, and maintaining
consistent results.
7
<PAGE> 9
ACQUISITIONS, DIVESTITURES, RESTRUCTURING, AND RELATED MATTERS
We have been involved in an ongoing program of acquiring businesses that
provide a rational fit with businesses we presently conduct and divesting
businesses that do not enhance that fit.
During 2000, we acquired C & K Components, Inc., a designer and
manufacturer of switches for the telecommunications, computer, and electronic
equipment markets. We also acquired the Man Machine Interface business of TRW, a
manufacturer of multi-layer switch components and assemblies for the wireless
mobile handset market. Both acquisitions are for our Connectors & Switches
segment. In addition, we acquired the business of Aerotherm Corporation, a
company that makes guidance systems for target missiles, and sold our GaAsTEK
business, both with respect to our Defense Products & Services segment.
During 1999, we acquired STX Pte. Ltd. for our Connectors & Switches
segment, the space and defense communications businesses of Stanford
Telecommunications, Inc. and K and M Electronics, Inc. for our Defense Products
& Services segment, Water Pollution Control Corp. (now our Sanitaire Division)
and assets of Energy Machine Service, Inc. for our Pumps & Complementary
Products segment, and Hydro Air Industries and Flojet Corp. (now our Flojet
Division) for our Specialty Products segment. In addition, we made an investment
in EarthWatch Incorporated for our Defense Products & Services segment and
divested all, or portions of, our Community Development Corporation, Carbon
Industries, and Palm Coast Utility businesses.
In 1998, we acquired Great American Gumball Corporation for our Connectors
& Switches segment and A.G. Johansons Metallfabrik AB, Rule Industries, Inc.,
Sinton Engineering Co. Limited, and Sinton (UK) Limited for our Specialty
Products segment.
On September 25, 1998, we completed the sale to Continental AG and certain
of its subsidiaries of our business of designing, developing, manufacturing, and
marketing brake systems and chassis modules for the automotive industry
worldwide for approximately $1.93 billion in cash. That business was conducted
through various direct and indirect subsidiaries, and joint ventures in which we
held an ownership interest.
On September 28, 1998, we completed the sale to Valeo SA and certain of its
subsidiaries of our business of designing, developing, manufacturing, and
marketing electrical motors and actuators, air management and engine cooling
products, wiper and washer systems, lamps, power antennas, switches, and sensors
for the automotive industry worldwide for approximately $1.7 billion in cash.
That business was conducted through various direct and indirect subsidiaries and
joint ventures in which we held an ownership interest.
After-tax proceeds from the sales of our automotive Brake and Chassis and
our automotive Electrical Systems businesses were directed to reducing debt,
funding acquisitions, investing in our remaining businesses and repurchasing
approximately 30.5 million of our shares. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- RISKS AND
UNCERTAINTIES -- SALES OF AUTOMOTIVE BUSINESSES" AND NOTE 5 "DISCONTINUED
OPERATIONS" TO "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS" for further
information regarding sales of automotive businesses and discontinued
operations. Also during 1998 we divested our Barton fluid measurement and Pomona
Electronics businesses.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES -- STATUS OF
RESTRUCTURING ACTIVITIES."
GEOGRAPHIC MARKETS
The geographic sales base of Connectors & Switches is predominantly in
Europe, which accounted for 41% of 2000 sales and revenues, the United States,
which accounted for 37% of 2000 sales and revenues, and the Asia/Pacific region,
which accounted for 20% of 2000 sales and revenues. Connectors & Switches has
facilities in Costa Rica as well as facilities in the Asia/Pacific region,
including two joint ventures in China, a wholly-owned subsidiary in Japan, the
San Teh key pad unit (STX Pte. Ltd.) headquartered in Singapore with four
manufacturing locations in China, and the Man Machine Interface (MMI)
manufacturing facility in China. These Asia/Pacific operations supply connectors
and switch products across a broad market spectrum, including the
communications, industrial, and consumer sectors.
8
<PAGE> 10
The geographic sales base of Defense Products & Services is predominantly
the United States, which accounted for approximately 85% of 2000 sales and
revenues. Management of Defense Products & Services has been in the process of
increasing its international defense business and anticipates growth
opportunities in the Asia/Pacific region, Europe, and the Middle East.
The geographic sales base of Pumps & Complementary Products is broad. In
2000, approximately 49% of the sales and revenues of Pumps & Complementary
Products was derived from the United States, while approximately 29% was derived
from Western Europe. The geographic sales mix differs among products and among
divisions of Pumps & Complementary Products. Our management anticipates growth
opportunities in Eastern Europe, Central Asia, Africa/Middle East, Latin
America, and the Asia/Pacific region. In China, Pumps & Complementary Products
has manufacturing and distribution facilities to produce and sell submersible
pumps for the sewage handling and mining markets and a joint venture that
produces vertical turbine pumps and includes a foundry operation. It also has
joint venture sales and manufacturing and other operations in Eastern Europe,
Latin America, Africa/Middle East, and other locations in the Asia/Pacific
region.
The geographic sales base of Specialty Products is predominantly in North
America and Europe. In 2000, approximately 57% of sales and revenues of
Specialty Products were to customers in the United States, and approximately 32%
of sales were to customers in Western Europe. Management of ITT Industries sees
growth opportunities in South America, Mexico, and Asia, particularly in China.
See Note 20 "BUSINESS SEGMENT INFORMATION" to "NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS" for further geographical information concerning sales and
revenues and long-lived assets.
COMPETITION
Substantially all of our operations are in highly competitive businesses.
The nature of the competition varies across all business segments. A number of
large companies engaged in the manufacture and sale of similar lines of products
and the provision of similar services are included in the competition, as are
many small enterprises with only a few products or services. Technological
innovation, price, quality, reliability, and service are primary factors in the
markets served by the various segments of our businesses.
In Connectors & Switches, competitive pressures continue on a global basis.
In most of the markets served, competition is based primarily upon price,
quality, technical expertise, and customer service.
In Defense Products & Services, government defense budgets, particularly in
the United States, generally have leveled off after years of significant
declines. Business consolidations continue to change the competitive
environment. We have adjusted to these changes by focusing on the defense
electronics and services markets, by making process improvements, and through
capacity rationalization. In most of the markets served by Defense Products &
Services, competition is based primarily upon price, quality, technological
expertise, cycle time, and service.
The Pumps & Complementary Products segment is affected by strong
competition, changing economic conditions, industry overcapacity that leads to
intense pricing pressures, and public bidding in some markets. Management of
Pumps & Complementary Products responds to competitive pressures by utilizing
strong distribution networks, strong brand names, broad product lines focused on
market niches, a global customer base, a continuous stream of new products
developed from a strong technology base, a focus on quality and customer
service, and through continuous cost improvement programs and life cycle cost
initiatives.
In Specialty Products, competition is a significant factor which has
resulted in increased pressure to reduce prices and, therefore, costs. Product
capability, quality, engineering support, and experience are also important
competitive factors.
EXPOSURE TO CURRENCY FLUCTUATIONS
Our companies conduct operations worldwide. We, therefore, are exposed to
the effects of fluctuations in relative currency values. Although our companies
engage in various hedging strategies with respect to their foreign currency
exposure where appropriate, it is not possible to hedge all such exposure.
Accord-
9
<PAGE> 11
ingly, our operating results may be impacted by fluctuations in relative
currency values.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- MARKET RISK EXPOSURES" and Note 16 "FINANCIAL
INSTRUMENTS" to "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS."
CYCLICALITY
Many of the markets in which our businesses operate are cyclical and can be
affected by general economic conditions in those markets. Since we manufacture
and sell products used in historically cyclical industries, such as the
construction, mining and minerals, transportation, automotive, and aerospace
industries, we could be adversely affected by negative cycles affecting those
and other industries.
GOVERNMENTAL REGULATION AND RELATED MATTERS
A number of our businesses are subject to governmental regulation by law or
through contractual arrangements. Our Defense Products & Services businesses
perform work under contracts with the United States Department of Defense and
similar agencies in certain other countries. These contracts are subject to
security and facility clearances under applicable governmental regulations,
including regulations requiring background investigations for high-level
security clearances for our executive officers. Most of such contracts are
subject to termination by the respective governmental parties on various
grounds, although such terminations have rarely occurred in the past.
ENVIRONMENTAL MATTERS
We are subject to stringent environmental laws and regulations concerning
air emissions, water discharges and waste disposal. Such environmental laws and
regulations include the Federal Clean Air Act, the Clean Water Act, the
Resource, Conservation and Recovery Act, and the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA" or "Superfund").
Environmental requirements are significant factors affecting all operations.
Management believes that our companies closely monitor all of their respective
environmental responsibilities, together with trends in environmental laws. We
have established an internal program to assess compliance with applicable
environmental requirements for all of our facilities, both domestic and
overseas. The program is designed to identify problems in a timely manner,
correct deficiencies and prevent future noncompliance. Over the past several
years we have conducted regular, thorough audits of our major operating
facilities. As a result, management believes that our companies are in
substantial compliance with current environmental regulations. Management does
not believe, based on current circumstances, that we will incur compliance costs
pursuant to such regulations that will have a material adverse effect on our
financial position, results of operations or cash flows. In addition, we have
purchased insurance protection against certain unknown risks.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- RISKS AND UNCERTAINTIES -- ENVIRONMENTAL MATTERS" and
"LEGAL PROCEEDINGS".
RAW MATERIALS
All of our businesses require various raw materials (e.g., metals and
plastics), the availability and prices of which may fluctuate. Although some
cost increases may be recovered through increased prices to customers, our
operating results are exposed to such fluctuations. We attempt to control such
costs through purchasing and various other programs. In recent years, our
businesses have not experienced significant difficulties in obtaining an
adequate supply of raw materials necessary for our manufacturing processes.
RESEARCH, DEVELOPMENT, AND ENGINEERING
Our businesses require substantial commitment of resources for research,
development, and engineering activities to maintain significant positions in the
markets we serve. Such activities are conducted in laboratory and engineering
facilities at several of our major manufacturing locations. Although most of our
funds dedicated to research, development, and engineering activities are applied
to areas of high technology, such as aerospace and applications involving
electronic components, these activities are important in all of our business
segments. Expenditures by ITT Industries for research, development, and
engineering relating to our on-going lines of business totaled $391.2 million in
2000, $264.4 million in 1999, and $267.6 million in 1998. Of those amounts 74.6%
in 2000,
10
<PAGE> 12
57.8% in 1999, and 67.4% in 1998 was expended pursuant to customer contracts.
INTELLECTUAL PROPERTY
While we own and control a number of patents, trade secrets, confidential
information, trademarks, trade names, copyrights, and other intellectual
property rights which, in the aggregate, are of material importance to our
business, management believes that our business, as a whole, is not materially
dependent upon any one intellectual property or related group of such
properties. We are licensed to use certain patents, technology, and other
intellectual property rights owned and controlled by others, and, similarly,
other companies are licensed to use certain patents, technology, and other
intellectual property rights owned and controlled by us.
Patents, patent applications, and license agreements will expire or
terminate over time by operation of law, in accordance with their terms or
otherwise. Such expiration or termination of patents, patent applications, and
license agreements is not expected by our management to have a material adverse
effect on our financial position, results of operations or cash flows.
At the time of the Distribution (see -- "COMPANY HISTORY AND CERTAIN
RELATIONSHIPS"), we obtained from ITT Destinations certain exclusive rights and
licenses to use the "ITT" name, mark, and logo. In 1999, we acquired all right,
title, and interest in and to the "ITT" name, mark, and logo and an assignment
of certain agreements granting The Hartford and ITT Educational Services, Inc.
(ESI) limited rights to use the "ITT" name, mark, and logo in their businesses.
These agreements are perpetual, and the licenses are subject to maintenance of
certain quality standards by both The Hartford and ESI.
EMPLOYEES
As of December 31, 2000, ITT Industries and its subsidiaries employed an
aggregate of approximately 42,000 people. Of this number, approximately 19,000
are employees in the United States, of whom approximately 30% are represented by
labor unions. Generally, labor relations have been maintained in a normal and
satisfactory manner.
COMPANY HISTORY AND CERTAIN RELATIONSHIPS
ITT Industries, Inc. is an Indiana corporation incorporated on September 5,
1995 as ITT Indiana, Inc. It is the successor pursuant to a statutory merger of
ITT Corporation, a Delaware corporation ("ITT Delaware"), into ITT Indiana, Inc.
effective December 20, 1995, whereupon its name became ITT Industries, Inc. ITT
Delaware, originally incorporated in Maryland in 1920 as International Telephone
and Telegraph Corporation, was reincorporated in Delaware in 1968. It changed
its name to ITT Corporation in 1983. On December 19, 1995, ITT Delaware made a
distribution (the "Distribution") to its stockholders consisting of all the
shares of common stock of ITT Destinations, Inc., a Nevada corporation ("ITT
Destinations"), and all the shares of common stock of ITT Hartford Group, Inc.,
a Delaware corporation (now known as The Hartford Financial Services Group, Inc.
or "The Hartford"), both of which were wholly-owned subsidiaries of ITT
Delaware. In connection with the Distribution, ITT Destinations changed its name
to ITT Corporation. On February 23, 1998, ITT Corporation was acquired by
Starwood Hotels & Resorts Worldwide, Inc.
ITT Delaware, ITT Destinations, and The Hartford entered into a
Distribution Agreement (the "Distribution Agreement") providing for, among other
things, certain corporate transactions required to effect the Distribution and
other arrangements among the three parties subsequent to the Distribution.
The Distribution Agreement provides for, among other things, assumptions of
liabilities and cross-indemnities generally designed to allocate the financial
responsibility for the liabilities arising out of or in connection with (i) the
former automotive, defense & electronics, and fluid technology segments to ITT
Industries and its subsidiaries, (ii) the hospitality, entertainment, and
information services businesses to ITT Destinations and its subsidiaries, and
(iii) the insurance businesses to The Hartford and its subsidiaries. The
Distribution Agreement also provides for the allocation of the financial
responsibility for the liabilities arising out of or in connection with former
and present businesses not described in the immediately preceding sentence to or
among ITT Industries, ITT Destinations, and The Hartford on a shared basis. The
Distribution Agreement provides that neither ITT Industries, ITT Destinations
nor The Hartford will take any action that would jeopardize the intended tax
consequences of the Distribution.
ITT Industries, ITT Destinations, and The Hartford also entered into
agreements in con-
11
<PAGE> 13
nection with the Distribution relating to intellectual property, tax, and
employee benefit matters.
One member of the Board of Directors of ITT Industries also serves on the
Board of Directors of The Hartford.
------------------------
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- FORWARD-LOOKING STATEMENTS" for information regarding
forward-looking statements and cautionary statements relating thereto.
------------------------
ITEM 2. PROPERTIES
Our principal executive offices are in leased premises located in White
Plains, NY. We consider the many offices, plants, warehouses, and other
properties that we own or lease to be in good condition and generally suitable
for the purposes for which they are used. These properties are located in
several states in the United States, as well as in numerous countries throughout
the world. See "BUSINESS" for further information with respect to properties in
each of our business segments, including the numbers of facilities and countries
in which they are located.
ITEM 3. LEGAL PROCEEDINGS
ITT Industries and its subsidiaries are responsible, in whole or in part,
or are alleged to be responsible for environmental investigation and remediation
at approximately 130 sites in various countries. Of those sites, ITT Industries
has received notice that it is considered a Potentially Responsible Party
("PRP") at approximately 15 sites by the United States Environmental Protection
Agency ("EPA") and/or a similar state agency under CERCLA or its state
equivalent. Other situations generally involve either actions brought by private
parties relating to sites formerly owned or operated by subsidiaries of the
Company seeking to recoup incurred costs or shift environmental liability to ITT
Industries pursuant to contractual language, or situations discovered by ITT
Industries through its internal environmental assessment program.
In Glendale, California ITT Industries has been involved in an
environmental proceeding relating to the San Fernando Valley aquifer. ITT
Industries is one of numerous PRPs who are alleged by the EPA to have
contributed to the contamination of the aquifer. In January 1999, the EPA filed
a complaint in the United States District Court for the Central District of
California against ITT Industries and Lockheed Martin Corporation, United States
v. ITT Industries, Inc. and Lockheed Martin Corp. CV99-00552 SVW AIJX, to
recover costs it has incurred in connection with the foregoing. In May 1999, the
EPA and the PRPs, including ITT Industries and Lockheed Martin, reached a
settlement, and a consent decree requiring the PRPs to perform additional
remedial activities was entered in August 2000.
In a suit filed several years ago by ITT Industries in the California
Superior Court, Los Angeles County, ITT Corporation, et al. v. Pacific Indemnity
Corporation et al. against its insurers, ITT Industries is seeking recovery of
costs it incurred in connection with the Glendale case and other environmental
matters. In April 1999, the Superior Court granted partial summary judgment
under California law, dismissing certain claims in the California action. The
California Court of Appeals has accepted ITT Industries' petition for review of
the Superior Court's order. Argument was scheduled for August 1999; however, it
has been continued to an indefinite date pending further developments in other
similar cases in California to which the Company is not a party. In April 1999,
ITT Industries initiated a new coverage action in New Jersey, ITT Industries,
Inc. et al. v. Federal Ins. Co. et al., (Middlesex County, No. L-1919-99),
involving new environmental insurance claims as well as claims pending but
dormant before the Court in California. ITT Industries' insurers challenged the
convenience of New Jersey as the forum for this action. In its ruling on the
motion, the Court dismissed the non-New Jersey claims, deferred action on
certain New Jersey claims and retained jurisdiction over one New Jersey claim.
ITT Industries has negotiated settlements with certain defendant insurance
companies, is engaged in negotiations with others, and is prepared to pursue its
legal remedies where reasonable negotiations are not productive.
While there can be no assurance as to the ultimate outcome of any
litigation involving ITT Industries, management does not believe any pending
legal proceeding will result in a judgment or settlement that will have, after
taking into account ITT Industries' existing provisions for such liabilities, a
material adverse effect on
12
<PAGE> 14
ITT Industries' financial position, results of operations or cash flows.
Reference is made to "BUSINESS -- COMPANY HISTORY AND CERTAIN
RELATIONSHIPS" for information concerning the allocation of certain liabilities
among the parties to the Distribution Agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
No matter was submitted to a vote of our shareholders during the fourth
quarter of the
fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is provided regarding the executive officers of
ITT Industries:
<TABLE>
<CAPTION>
DATE OF
AGE AT YEAR OF ELECTION
FEBRUARY 1, INITIAL ELECTION TO PRESENT
NAME 2001 POSITION AS AN OFFICER POSITION
---- ---- -------- ------------- --------
<S> <C> <C> <C> <C>
David J. Anderson................. 51 Senior Vice President and Chief 1999 12/13/99
Financial Officer
Robert L. Ayers................... 55 Vice President, ITT Industries; 1998 10/1/99
President, Fluid Technology
Henry J. Driesse.................. 57 Vice President, ITT Industries, 2000 9/12/00
President, Defense
Donald E. Foley................... 49 Vice President and Treasurer 1996 5/21/96
James D. Fowler, Jr. ............. 56 Senior Vice President and Director, 2000 11/6/00
Human Resources
Gerard Gendron.................... 48 Vice President, ITT Industries; 1998 10/27/98
President, Cannon Worldwide
Louis J. Giuliano................. 54 Chairman, President and Chief Executive 1988 2/24/01
Officer and Director
Richard J. M. Hamilton............ 51 Vice President, ITT Industries; 1992 9/1/99
President, Specialty Products
Martin Kamber..................... 52 Senior Vice President, Director of 1995 12/19/95
Corporate Development
Vincent A. Maffeo................. 50 Senior Vice President and General 1995 12/19/95
Counsel
Thomas R. Martin.................. 47 Senior Vice President, Director of 1996 3/9/99
Corporate Relations
Richard W. Powers................. 59 Vice President, Director of Taxes and 1991 12/19/95
Assistant Secretary
Marvin R. Sambur.................. 54 Vice President 1998 10/27/98
Edward W. Williams................ 62 Vice President and Corporate Controller 1998 10/27/98
</TABLE>
Travis Engen served as Chairman and Chief Executive of ITT Industries from
its inception in December, 1995, until February 28, 2001, at which time he
resigned and thereafter retired to take the position as President and Chief
Executive Officer of another company.
Each of the above-named officers was elected to his present position to
serve at the pleasure of the Board of Directors.
Throughout the past five years, all of the above-named officers have held
executive positions with ITT Industries bearing at least substantially the same
responsibilities as those borne in their present offices, except that (i) Mr.
Anderson, prior to his election as Senior Vice President and Chief Financial
Officer (1999), was Senior Vice President and Chief Financial Officer of Newport
News Shipbuilding (1996) and, prior to that, Executive Vice President and Chief
Financial Officer of RJR Tobacco; (ii) Mr. Ayers, prior to his election as Vice
President (1998) and President of Fluid Technology (1999), was President of
Sulzer Bingham Pumps Inc. (1990); (iii) Mr. Driesse, prior to his election as
Vice President and President of Defense (2000), was President of ITT Avionics
(1991); (iv) Mr. Foley, prior to his election as Vice President and Treasurer
(1996), was Assistant Treasurer of International Paper Company; (v) Mr. Fowler,
prior to his election as Senior Vice President and Director, Human Resources
(2000), was Executive Director and President of the Executive Leadership Council
(1997), an independent consultant with Fowler Associates (1996), and, prior to
that, held various executive positions with ITT Delaware and its subsidiaries;
(vi) Mr. Gendron, prior to his election as Vice President (1998), was and
continues as President of Cannon Worldwide (1997) and, prior to that, its Vice
President (1995); (vii) Mr. Giuliano, prior to his election as Chairman,
President, Chief Executive Officer and Director (2/24/01), was President and
Chief Operating Officer (1998), and, prior to that, was
13
<PAGE> 15
Senior Vice President (1995); (viii) Mr. Hamilton, in addition to his election
as Vice President (1992) and President of Specialty Products (1999), held other
senior positions with ITT Industries, including Senior Vice President and
Controller (1995); (ix) Mr. Martin, prior to his election as Senior Vice
President, Director of Corporate Relations (1999), was Vice President, Director
of Corporate Relations (1996), and, prior to that, was Vice President of
Corporate Communications of Federal Express Corp. (1995); (x) Mr. Sambur, prior
to his election as Vice President (1998), was President of our
Aerospace/Communications Division (1991) and has held other executive positions,
including President of Defense; and (xi) Mr. Williams, prior to his election as
Vice President and Corporate Controller (1998), was Vice President and
Controller of our Defense & Electronics business.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
COMMON STOCK -- MARKET PRICES AND DIVIDENDS
<TABLE>
<CAPTION>
2000 1999
---------------- ----------------
HIGH LOW HIGH LOW
------ ------ ------ ------
IN DOLLARS
<S> <C> <C> <C> <C>
Three Months Ended
March 31.................................................. $34.94 $22.38 $40.88 $35.00
June 30................................................... 36.19 28.63 41.50 34.88
September 30.............................................. 34.94 29.63 40.00 30.50
December 31............................................... 39.63 29.75 36.25 31.38
</TABLE>
The above table reflects the range of market prices of our common stock as
reported in the consolidated transaction reporting system of the New York Stock
Exchange, the principal market in which this security is traded (under the
trading symbol "ITT"). During the period from January 1, 2001 through February
28, 2001, the high and low reported market prices of our common stock were
$44.25 and $36.38, respectively.
We declared dividends of $.15 per share of common stock in each of the four
quarters of 1999 and 2000 and in the first quarter of 2001.
Dividend decisions are subject to the discretion of our Board of Directors
and will be based on, and affected by, a number of factors, including operating
results and financial requirements. Therefore, there can be no assurance as to
what level of dividends, if any, will be paid in the future.
There were 36,917 holders of record of our common stock on February 28,
2001.
ITT Industries common stock is listed on the following exchanges:
Frankfurt, London, Midwest, New York, Pacific, and Paris.
14
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(In millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
RESULTS AND POSITION
Sales and revenues................ $4,829.4 $4,632.2 $4,492.7 $4,207.6 $3,744.5
Operating income (loss)(a)........ 493.1 415.2 (74.6) 141.3 246.0
Income (loss) from continuing
operations(a)................... 264.5 232.9 (97.6) 11.9 66.4
Net income........................ 264.5 232.9 1,532.5 108.1 222.6
Income from continuing operations,
as adjusted(b).................. 264.5 230.0 146.0 95.9 66.4
Expenditures on plant additions... 180.6 227.9 212.9 212.5 176.0
Depreciation and amortization..... 201.8 181.1 195.6 196.9 187.3
Total assets...................... 4,611.4 4,529.8 5,048.8 5,058.4 3,976.9
Total assets, excluding
discontinued operations......... 4,611.4 4,529.8 5,048.8 4,127.0 2,929.6
Long-term debt.................... 408.4 478.8 515.5 531.2 582.2
Total debt........................ 1,038.3 1,088.1 767.1 2,172.6 1,368.0
Cash dividends declared per common
share........................... .60 .60 .60 .60 .60
EARNINGS PER SHARE
Income from continuing operations,
as adjusted(b)
Basic........................... $ 3.01 $ 2.58 $ 1.29 $ .81 $ .56
Diluted......................... $ 2.94 $ 2.50 $ 1.29 $ .79 $ .55
Net income
Basic........................... $ 3.01 $ 2.61 $ 13.55 $ .91 $ 1.89
Diluted......................... $ 2.94 $ 2.53 $ 13.55 $ .89 $ 1.85
</TABLE>
(a) Income from continuing operations in 1999, 1998 and 1997 includes (income)
charges of $(4.6), $399.4 and $137.8 pretax, respectively, or $(2.9), $243.6
and $84.0, after-tax, respectively, for restructuring and other items as
described in Note 4.
(b) Income from continuing operations in 1999, as adjusted, excludes
restructuring and other special items of $(2.9) after-tax. Income from
continuing operations in 1998, as adjusted, excludes the items in note (a)
above and $83.2, after-tax, for operating income from discontinued
operations; $1,546.9, after-tax, for gain on sale of ITT Automotive
operations. The 1997 net income from continuing operations, as adjusted,
excludes the items in note (a) above and operating income from discontinued
operations of $101.8, after-tax; and a charge for the cumulative effect of
accounting change of $5.6, after-tax. The 1996 net income from continuing
operations, as adjusted, excludes operating income from discontinued
operations of $156.2, after-tax.
15
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
HIGHLIGHTS
For the years ended December 31, ITT Industries, Inc. (the "Company")
reported the following (in millions):
<TABLE>
<CAPTION>
2000 1999(a) 1998(b)
-------- -------- --------
<S> <C> <C> <C>
Sales and revenues from continuing operations............... $4,829.4 $4,632.2 $4,492.7
Operating income from continuing operations................. $ 493.1 $ 410.6 $ 324.8
Income from continuing operations, after-tax................ $ 264.5 $ 230.0 $ 146.0
======== ======== ========
</TABLE>
(a) 1999 figures are adjusted to exclude restructuring and other special items
of $(4.6) pretax or $(2.9) after-tax.
(b) 1998 figures are adjusted to exclude restructuring and other special items
of $399.4 pretax or $243.6 after-tax.
ACQUISITIONS: During 2000, the Company continued to make acquisitions
intended to strengthen market positions and present the highest potential for
creating value. Most notably, the Company acquired C&K Components, Inc ("C&K"),
a leader in the design and manufacture of switches for the telecommunications,
computer and electronic equipment markets, and Man Machine Interface ("MMI"), a
manufacturer of multi-layer switch components and assemblies for the wireless
mobile handset market. These companies have combined annualized revenue of
approximately $166 million.
DEFENSE AWARD: The Company's Defense Products and Services segment was
awarded a contract to modernize US Air Force Spacelift Range System ("SLRS") in
November 2000, worth an estimated $1.3 billion over ten years. The SLRS contract
will provide the Department of Defense, NASA and commercial customers an
integrated system to support space missions including spacecraft launch,
ballistic missile and aeronautical testing.
VALUE-BASED SIX SIGMA: During 2000, the Value-Based Six Sigma ("VBSS")
program was launched with more than 180 people trained. VBSS is a structured
process for the identification, prioritization, and deployment of improvement
projects. VBSS is the overarching discipline under which the Company will drive
toward operational excellence, improve efficiencies and accelerate new product
introductions. Another 150 people are scheduled for training in 2001.
MARGIN IMPROVEMENT: During 2000, segment operating margins increased over
100 basis points from 10.1% in 1999 to 11.3% in 2000 and total operating margin
increased from 8.9% to 10.2%.
This gain was due to the introduction of new, more profitable products,
higher volume, lower pension expense and higher productivity.
CASH FLOW: During 2000, the Company's free cash flow more than doubled from
$115.3 million in 1999 to $234.0 million in 2000. This improvement is due to the
Company's ongoing effort to maximize operating cash flow.
CONNECTORS & SWITCHES GROWTH: During 2000, our Connectors & Switches
business' sales grew $258.6 million of which 29.6% represents organic growth.
This increase was driven by robust expansion in the telecommunications,
industrial and transportation markets.
COMMERCIALIZATION OF TECHNOLOGY: The Company acquired a 15% equity interest
in MeshNetworks, Inc. ("MeshNetworks") in exchange for licensing a portion of
the Company's wireless technology to the new venture as well as cash.
MeshNetworks is a start-up company which focuses on the commercialization of
mobile communications technology.
CHANGE IN TICKER SYMBOL: Effective September 5, 2000, the Company changed
its ticker symbol on the New York Stock Exchange to "ITT."
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH THE YEAR ENDED DECEMBER 31,
1999: Sales and revenues in 2000 were $4.8 billion, an increase of $197.2
million, or 4.3% over 1999 ($359.9 million or 7.8% in constant currencies). The
increase is attributable to several acquisitions made in 2000 and the second
half of 1999, as well as organic growth, partially offset by the absence of a
defense settlement received in 1999 and the scheduled wind down of certain
Defense contracts.
16
<PAGE> 18
Operating income of $493.1 million in 2000 was $77.9 million higher than
the prior year. Operating income for 1999 of $415.2 million included a $4.6
million credit related to restructuring and other special items. Excluding
restructuring and other special items from 1999, operating income was $82.5
million higher than the 1999 comparative operating income of $410.6 million. The
related operating margin improved to 10.2% from 8.9% in 1999. The increases in
operating income and margin were the result of higher sales volumes, a
significant improvement in productivity, lower pension expense and the
introduction of new, more profitable products.
Interest expense of $75.2 million (net of interest income of $17.9 million)
increased $28.4 million on higher average debt levels due to the 1999 share
repurchase program, which was completed in the first quarter of 1999, and
several acquisitions made in 2000 and the second half of 1999, as well as higher
average interest rates.
Net income from continuing operations in 2000 was $264.5 million, or $2.94
per diluted share compared to $232.9 million, or $2.53 per diluted share in 1999
($230.0 million and $2.50 per share excluding restructuring and other special
items). The Company's effective tax rate was 37.0% in both 2000 and 1999. The
Company expects that its effective tax rate will be reduced to 35.0% in 2001 due
to several tax initiatives undertaken in 2000 to reduce the structural rate.
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31,
1998: Sales and revenues in 1999 were $4.6 billion, an increase of $139.5
million, or 3.1% over 1998. The increase is attributable to several acquisitions
made in 1999 and 1998, as well as organic growth, partially offset by lost
revenue due to discontinued product lines, higher selectivity with products and
customers, and lower sales from companies held for disposition.
Operating income for 1999 was $415.2 million and included a $4.6 million
credit related to restructuring and other special items. The 1998 operating loss
of $74.6 million included restructuring and other special items of $399.4
million. Excluding restructuring and other special items in both years, the
comparative operating income was $410.6 million for 1999 and $324.8 million for
1998. The related operating margin improved to 8.9% in 1999 from 7.2% in 1998.
The year-to-year increases in operating income and margin were the result of
higher sales volumes, cost reductions, and the contribution from acquisitions.
Interest expense of $46.8 million (net of interest income of $38.0 million)
represented a 43.2% reduction from the 1998 interest expense of $82.4 million
(net of interest income of $43.4 million). The decrease was due to using a
portion of the proceeds from the automotive disposition to significantly lower
the Company's debt level.
Net income from continuing operations excluding restructuring and other
special items in 1999 was $230.0 million, or $2.50 per diluted share, compared
to $146.0 million, or $1.29 per diluted share in 1998. The increase was due to
higher sales volume, benefits from restructuring and other cost reduction
initiatives, a significant reduction in interest expense, and a lower effective
tax rate.
17
<PAGE> 19
BUSINESS SEGMENTS
Sales and revenues and operating income for each of the Company's business
segments were as follows (in millions):
<TABLE>
<CAPTION>
Pumps & Defense Dispositions,
Complementary Products & Specialty Connectors Other &
Year Ended December 31, Products Services Products & Switches Eliminations Corporate Total
----------------------- ------------- ---------- --------- ---------- ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
2000
Sales and revenues............. $1,752.2 $1,334.6 $972.4 $ 774.6 $(4.4) $ -- $4,829.4
Operating income (loss)........ $ 194.5 $ 117.3 $136.0 $ 99.0 $(0.4) $ (53.3) $ 493.1
1999
Sales and revenues............. $1,735.0 $1,413.9 $959.5 $ 516.0 $ 7.8 $ -- $4,632.2
Operating income (loss):
Before restructuring and
other special items........ 164.4 108.8 132.9 62.1 0.5 (58.1) 410.6
Restructuring and other
special items.............. (5.5) 3.9 (3.5) 9.7 -- -- 4.6
-------- -------- ------ ------- ----- ------- --------
Total operating income
(loss)....................... $ 158.9 $ 112.7 $129.4 $ 71.8 $ 0.5 $ (58.1) $ 415.2
1998
Sales and revenues............. $1,770.0 $1,293.4 $849.3 $ 527.9 $52.1 $ -- $4,492.7
Operating income (loss):
Before restructuring and
other special items........ 145.5 97.9 90.9 52.7 5.4 (67.6) 324.8
Restructuring and other
special items.............. (147.6) (69.6) (9.0) (102.4) 31.0 (101.8) (399.4)
-------- -------- ------ ------- ----- ------- --------
Total operating income
(loss)....................... $ (2.1) $ 28.3 $ 81.9 $ (49.7) $36.4 $(169.4) $ (74.6)
-------- -------- ------ ------- ----- ------- --------
</TABLE>
Pumps & Complementary Products' sales and revenues of $1.7 billion
increased $17.2 million, over 1999. The increase reflects higher volume within
the construction and water and wastewater businesses partially offset by the
impact of foreign exchange rates and softness in industrial pumps. In addition,
the adoption of EITF Issue No. 00-10 "Accounting for Shipping and Handling Fees
and Costs" (EITF 00-10) (refer to the section entitled "Accounting
Pronouncements" for further discussion of EITF 00-10) resulted in an increase in
revenues and cost of sales of approximately $16 million in comparison to 1999.
Revenues and cost of sales for years prior to 2000 were not restated to reflect
the provisions of EITF 00-10 as it was impractical to do so. Operating income
for 2000 was up $30.1 million compared to 1999 operating income, excluding
restructuring, due to higher prices, higher productivity, the liquidation of
foreign businesses and the benefits of restructuring and cost initiatives. Sales
for 1999 decreased $35.0 million, or 2.0%, from 1998. Weakness in the industrial
end-user markets, and lost revenue due to discontinued product lines and higher
selectivity with products and customers offset the acquisition of Sanitaire
Corporation and strength in the water and wastewater markets. In addition, 1999
operating income before restructuring and other special items was $164.4
million, up $18.9 million or 13.0% over the prior year.
Defense Products & Services' sales and revenues decreased $79.3 million, or
5.6%, compared to 1999. The decrease is due to the scheduled wind down of
certain large contracts, the absence of a $25.6 million claim settlement
received in 1999, and lost revenue from the sale of GaAsTEK, partially offset by
an entire year of revenues from the 1999 acquisition of Stanford
Telecommunications Inc.'s ("Stel") space and defense communications businesses
(which added approximately $120 million in sales and revenues). Operating income
for 2000 was $8.5 million greater than 1999 operating income, excluding
restructuring, primarily due to margin improvements from product/program mix.
Sales and revenues for 1999 were up 9.3% or $120.5 million over 1998. Higher
domestic SINCGARS sales, higher export sales, particularly a large radar sale to
Korea in the fourth quarter, higher sales volume in our Night Vision unit, as
well as a $25.6 million claim settlement on a prior year project, drove the
revenue increase in this segment. Operating margin remained flat for the year.
Operating income excluding restructuring and other special items was $108.8
million, an increase of $10.9 million or 11.1% over 1998, mainly due to higher
sales volume and the receipt of a $5.3 million settlement during the second
quarter. During 1999, the Company recorded $28.3 million in charges for loss
contracts, warranty provisions and other matters.
18
<PAGE> 20
Specialty Products recorded sales and revenues of $972.4 million for the
year, representing an increase of 1.3% over 1999. The inclusion of the 1999
acquisitions of Flojet Corporation and Hydro-Air Industries for an entire year
(which combined to add approximately $46 million of sales and revenues)
partially offset by the impact of foreign exchange rates were the primary
reasons for the change. Revenues of $959.5 million for 1999, represent an
increase of 13.0% over 1998. Strong sales to OEM automotive customers resulting
from high North American and European vehicle build rates, the impact of the
1998 General Motors strike, higher sales in the pharmaceutical industry, along
with the impact of acquisitions fueled the revenue growth. Operating income
before restructuring and other special items for 1999 rose 46.2% or $42.0
million over 1998, to $132.9 million. Operating margins, before restructuring
and other special items, were up 3.1 percentage points.
Connectors and Switches' sales and revenues were $774.6 million for 2000,
representing an increase of $258.6 million, or 50.1%, compared to 1999. The
increase reflects robust growth in the telecommunications, industrial and
transportation markets partially offset by the negative impact of foreign
exchange rates. The 1999 acquisition of STX Pte. Ltd. ("STX"), and the 2000
acquisitions of C&K and MMI (incremental sales and revenues for these three
acquisitions combined to add approximately $143 million) also had a favorable
impact. Operating income was up $36.9 million, or 59.4%, over the prior year
operating income, excluding restructuring, due to higher volume, greater
contributions from new products with higher margins, and improvements in
manufacturing processes. In 1999, sales and revenues decreased $11.9 million, or
2.3%, compared to 1998. Weak demand in the European connector market during the
first half of 1999 and total year softness within the North American military
aerospace market was partially offset by strong demand for the Company's
communications connectors and switches, and the acquisition of STX during the
fourth quarter of 1999. Operating income before restructuring and other special
items was $62.1 million, up $9.4 million, or 17.8%, from 1998. Operating margin,
before restructuring and other special items, expanded by 2.1 percentage points
in 1999. New products, together with ongoing cost control efforts, contributed
to the operating income increase.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS: Cash flows from operating activities were $414.6 million in
2000, an increase of $71.4 million, or 20.8%, from $343.2 million generated in
1999. The increase is largely attributable to higher earnings, and lower tax and
restructuring payments, partially offset by higher working capital levels, and
other operating activities. Higher accounts receivable balances, due to
increased sales and the timing of collections, were the primary drivers behind
the increase in working capital.
ADDITIONS TO PLANT, PROPERTY AND EQUIPMENT: Capital expenditures during
2000 were $180.6 million, a decrease from $227.9 million in 1999. Approximately
29% of the 2000 spending occurred at Pumps & Complementary Products primarily
related to expansion of existing product lines, new product lines and custodial
replacement. Approximately 26% was incurred at Specialty Products related to
product line changes resulting in product improvements and the expansion of the
capacity for established as well as new products. Approximately 25% was spent at
Connectors & Switches for new product introductions and manufacturing cost
reduction initiatives. Defense Products & Services expended approximately 20% of
the 2000 total, primarily related to the expansion of new and existing product
lines, as well as, custodial replacements. At December 31, 2000, contractual
commitments have been made for future expenditures totaling $51.6 million.
ACQUISITIONS: During 2000, the Company acquired C&K, MMI, and several other
small companies for approximately $192 million. The acquisitions were accounted
for as purchases and accordingly, the results of operations of each entity are
included in the consolidated income statement commencing on the date of
acquisition. Goodwill of $173.9 million, representing the excess of the purchase
price over the fair value of net assets acquired, was recorded by the Company
and is being amortized over 25 to 30 years.
In 1999, the Company acquired Stel's space and defense communications
businesses, Flojet Corporation, STX, Sanitaire Corporation, Hydro Air
Industries, K and M Electronics, and the assets of Energy Machine Service, Inc.
and made an equity investment in EarthWatch Incorporated. The Company paid a
total of $544.8 million for these acquisitions. The acquisitions were accounted
for as purchases and, accord-
19
<PAGE> 21
ingly, the results of operations of each acquired company were included in the
consolidated income statement from the date of acquisition. The excess of the
purchase prices over the fair values of the net assets acquired and the
liabilities assumed of $416.1 million was recorded as goodwill and is being
amortized over periods not exceeding 40 years.
STATUS OF RESTRUCTURING ACTIVITIES: The Company has undertaken a number of
actions in recent years to improve operating efficiencies and reduce structural
costs. The following is a brief summary of the activity during the past three
years. See Note 4, Restructuring and Other Special Items, in the Notes to the
Consolidated Financial Statements for a detailed discussion.
During 1998, the Company recorded restructuring and other special items of
$20.1 million in the first quarter, $10.7 million in the second quarter, and
$368.6 million in the fourth quarter. The actions taken affected all four
business segments and included rationalization of operating locations,
consolidations of sales and distribution facilities, workforce reductions and
product pruning. The items included write-downs of businesses to be sold and an
increase in reserves for environmental exposures.
In the fourth quarter of 1999, the Company recorded $20.2 million of
charges related to additional restructuring activities, primarily for the
closure of four facilities and severance of 324 persons. The Company also
recorded $20.0 million of goodwill write-offs. As of December 31, 2000, the
Company had closed three of the four facilities and reduced its work-force by
226. It is expected that the majority of remaining actions will be completed in
2001.
During the fourth quarter of 1999, the Company assessed its restructuring
reserves established in 1998, determined that activities related to those
reserves will be completed for $44.8 million less than originally estimated, and
reversed the related reserves into income. The net effect of the reversal of
1998 reserves and the 1999 restructuring and asset write-offs was an increase to
1999 operating income of $4.6 million and EPS of $0.03. As of December 31, 2000,
the Company had closed 19 of the planned 25 facilities, discontinued all of the
planned 19 product lines, and reduced the workforce by 2,136, or approximately
93% of the revised planned aggregate reduction of approximately 2,300 persons.
The remaining activities will be completed in 2001.
DIVESTITURES: In 2000, the Company generated divestiture proceeds of $47.6
million. In the first quarter of 2000, the Company sold the net assets of
GaAsTEK, a business in the Defense Products and Services segment for $28.3
million. The remaining $19.3 million of cash proceeds from the sale of assets
represents plant, property and equipment sales across all businesses. During
1999, the Company made three significant divestitures, Palm Coast Utility
Corporation, Carbon Industries, Inc. and assets of Community Development
Corporation which in aggregate generated $96.5 million of cash. In addition, the
Company generated $11.2 million of proceeds from property and equipment sales
across all businesses. In 1998, the Company sold its automotive Brake and
Chassis and Electrical Systems businesses, and the Barton fluid measurement and
Pomona Electronics units for a total of $3.75 billion.
SHARE REPURCHASE: During 1999 and 1998, the Company repurchased 8.1 million
and 22.4 million shares, respectively, as part of its share repurchase program
announced on July 29, 1998. The total cost of the share repurchases was $318.3
million and $787.1 million in 1999 and 1998, respectively. In 2000, 1999, and
1998, 1.7 million, 2.2 million, and 1.3 million shares, respectively, were
repurchased to offset the dilutive effect of exercised stock options.
DEBT AND CREDIT FACILITIES: Debt at December 31, 2000 was $1.04 billion,
compared to $1.09 billion at December 31, 1999. Cash and cash equivalents were
$88.7 million at December 31, 2000 compared to $181.7 million at December 31,
1999. In November 2000, the Company entered into a revolving credit agreement
with 20 domestic and foreign banks, which expires in November 2005, and provides
aggregate commitments of $1.0 billion. There were no borrowings under this
facility at December 31, 2000. The interest rate for borrowings under these
agreements is generally based on the London Interbank Offered Rate ("LIBOR"),
plus a spread which reflects the Company's debt rating. The provisions of these
agreements require the Company to maintain certain financial ratios. At December
31, 2000, the Company was in compliance with all financial covenants. The
commitment fee on the revolving credit agreement is .125% of the total
commitment,
20
<PAGE> 22
based on the Company's current debt rating. The agreement entered into in
November 2000, replaced the Company's previous $1.5 billion credit agreement
which expired in November 2000. The revolving credit agreement provides back-up
for the Company's commercial paper program.
MARKET RISK EXPOSURES
The Company, in the normal course of doing business, is exposed to the
risks associated with changes in interest rates, currency exchange rates, and
commodity prices. To limit the risks from such fluctuations, the Company enters
into various hedging transactions that have been authorized pursuant to the
Company's policies and procedures. See Note 1, Accounting Policies, and Note 16,
Financial Instruments, in the Notes to Consolidated Financial Statements.
To manage exposure to interest rate movements and to reduce its borrowing
costs, the Company has borrowed in several currencies and from various sources
and has used interest rate swaps. In May 2000, the Company entered into several
fixed to floating interest rate swap agreements for a notional amount of $421.7
million. The interest expense on substantially all of the Company's long term
debt is calculated on a variable, rather than fixed rate, basis. Terms of the
agreements match the terms of the fixed debt and reference 3 month LIBOR.
At December 31, 2000, the Company's short-term and long-term debt
obligations, net of cash, were $949.6 million. Based on this position and the
Company's overall exposure to interest rate changes, a 71 basis point change in
interest rates (which is equivalent to 10% of the Company's weighted average
short-term interest rate at December 31, 2000) on the Company's cash and
marketable securities, and on its floating rate debt obligations and related
interest rate derivatives, would have a $6.4 million effect on the Company's
pretax earnings for the year ended December 31, 2000. An 85 basis point increase
in long-term interest rates (equivalent to 10% of the Company's weighted average
long-term interest rate at December 31, 2000) would have a $3.6 million effect
on the fair value of the Company's fixed rate debt.
The multinational operations of the Company are exposed to foreign currency
exchange rate risk. The Company utilizes foreign currency denominated forward
contracts to hedge against adverse changes in foreign exchange rates. Such
contracts generally have durations of less than one year. The Company has also
utilized foreign currency denominated derivative instruments to selectively
hedge its net long-term investments in foreign countries. The Company's largest
exposures to foreign exchange rates exist primarily with the Deutsche Mark,
Belgian Franc, Swedish Krona, and Italian Lira against the U.S. Dollar.
A 10% adverse change in currency exchange rates for the Company's foreign
currency derivatives and other foreign currency denominated financial
instruments, held as of December 31, 2000, would have an impact of approximately
$0.4 million on the fair value of such instruments. The Company uses derivative
instruments to hedge exposures, and as such, the quantification of the Company's
market risk for foreign exchange financial instruments does not account for the
offsetting impact of the Company's underlying investment and transactional
positions.
INCOME TAXES
FOREIGN TAX CREDITS: As a global company, the Company makes provisions for,
and pays taxes in numerous jurisdictions, some of which impose income taxes in
excess of equivalent U.S. domestic rates. Credit for such taxes is generally
available under U.S. tax laws when earnings are remitted, or deemed to be
remitted, to the U.S. The Company expects to fully utilize credits generated
through December 31, 2000 for income taxes paid in foreign jurisdictions.
DEFERRED TAX ASSETS: The Company had net deferred tax assets of $367.6
million at December 31, 2000 and $356.8 million at December 31, 1999. The
deferred tax assets for both periods are composed of U.S., foreign, and state
and local deferred tax assets. These net deferred tax assets arise from
temporary differences between assets and liabilities for financial reporting and
tax purposes and primarily relate to reserves, employee benefits, and
accelerated depreciation. It is management's expectation that the Company will
have sufficient future taxable income from continuing operations to utilize its
deductions in future periods.
ACCOUNTING PRONOUNCEMENTS
The Company will adopt Statement of Financial Accounting Standards ("SFAS")
21
<PAGE> 23
No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133") in the first quarter of 2001. SFAS 133, as amended by SFAS 138, will not
have a material impact on the Company's combined results of operations,
financial position, or cash flows.
Effective October 1, 2000, the Company adopted SAB 101 "Revenue Recognition
in Financial Statements" ("SAB 101") and EITF Issue No. 00-10 "Accounting for
Shipping and Handling Fees and Costs" ("EITF 00-10"). SAB 101 provides guidance
on the recognition, presentation and disclosure of the revenue in the financial
statements. EITF 00-10 requires that all shipping and handling costs billed to
customers be recorded as sales. The adoption of SAB 101 did not have a material
impact on the Company's consolidated results of operations, financial condition,
or cash flow. The adoption of EITF 00-10 caused an increase in 2000 annual sales
and cost of sales of approximately $16 million. The adoption of EITF 00-10 had
no effect on operating income, net income, EPS, financial condition or cash flow
of the Company.
RISKS AND UNCERTAINTIES
SALES OF AUTOMOTIVE BUSINESSES: In 1998, the Company received notifications
of claims from the buyers of the automotive businesses requesting post-closing
adjustments to the purchase price under the provisions of the sales agreements.
In 1999, those claims were submitted to arbitration. After a thorough review,
the Company believes that the claims have little merit and is vigorously
disputing them. Although it cannot be determined at this time whether or to what
extent, if any, there will be a post-closing adjustment of the purchase prices
as a result of the arbitration, the Company does not believe such adjustments
would have a material adverse effect on the cash flow, results of operations, or
financial condition of the Company on a consolidated basis.
ENVIRONMENTAL MATTERS: The Company is subject to stringent environmental
laws and regulations that affect its operating facilities and impose liability
for the clean up of past discharges of hazardous substances. In the United
States, these laws include the Federal Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, and the Comprehensive Environmental
Response, Compensation and Liability Act. Management believes that the Company
is in substantial compliance with these and all other applicable environmental
requirements. Environmental compliance costs are accounted for as normal
operating expenses.
In estimating the costs of environmental investigation and remediation, the
Company considers, among other things, regulatory standards, its prior
experience in remediating contaminated sites, and the professional judgment of
environmental experts. It is difficult to estimate the total costs of
investigation and remediation due to various factors, including incomplete
information regarding particular sites and other potentially responsible
parties, uncertainty regarding the extent of contamination and the Company's
share, if any, of liability for such problems, the selection of alternative
remedies, and changes in clean-up standards. When it is possible to create
reasonable estimates of liability with respect to environmental matters, the
Company establishes reserves in accordance with generally accepted accounting
principles. Insurance recoveries are recorded when it is probable that they will
be received. Although the outcome of the Company's various remediation efforts
presently cannot be predicted with a high level of certainty, management does
not expect that these matters will have a material adverse effect on the
Company's consolidated financial position, results of operations, or cash flows.
EURO CONVERSION ISSUE: The Company is addressing issues raised by the
conversion to the Euro, such as assessing whether cross-border price
transparency will affect price structures for similar products and adapting its
information technology systems. The Company's efforts to adapt its systems
differ at its various European operations. All operations are able to
accommodate Euro-denominated invoicing and purchasing transactions. The
Company's European operations are formulating plans to accommodate all
Euro-denominated transactions and triangulation conventions by January 1, 2002,
and some of these operations have already implemented the utilization of the
Euro as a transactional currency. The Company anticipates that its costs in
connection with the Euro conversion will not be material. Further, the Company
does not anticipate that the conversion from the legacy currencies to the Euro
will have a material adverse impact on its consolidated financial position,
results of operations, or cash flows.
22
<PAGE> 24
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document, including within this
Management's Discussion and Analysis of Financial Condition and Results of
Operations (most particularly, material presented under "Liquidity and Capital
Resources," "Market Risk Exposures," and "Risks and Uncertainties"), that are
not historical facts, constitute "Forward-Looking Statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements, in general, predict, forecast, indicate or imply future results,
performance or achievements and generally use words so indicative. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results or performance of the Company
and its businesses to be materially different from that expressed or implied by
such forward-looking statements. Such factors may be described or referred to
from time to time in filings made by the Company with the Securities and
Exchange Commission. Included in those factors are the following: general
economic and business conditions; foreign currency exchange rates; political,
social and economic conditions and local regulations in the countries in which
the Company conducts its businesses; government regulations and compliance
therewith; demographic changes; sales and revenues mix; pricing levels; changes
in sales and revenues to, or the identity of, significant customers; changes in
technology; industry capacity and production rates; ability of outside third
parties to comply with their commitments; competition; capacity constraints;
availability of raw materials and adequate labor; availability of appropriate
professional expertise; availability of liquidity sufficient to meet the
Company's needs; the ability to adapt to changes resulting from acquisitions and
divestitures and to effect cost reduction programs and various other factors
referenced in this Management's Discussion and Analysis. In some areas the
availability of energy sources may affect our production processes or customer
demand for our products or services. In addition to these factors, our business
segments may be affected by the more specific factors referred to below.
Our Pumps & Complementary Products business will be affected by factors
including global economic conditions; governmental funding levels; international
demand for fluid management products; the ability to successfully expand into
new geographic markets; weather conditions; and continued demand for replacement
parts and servicing.
Our Defense Products & Services business will be affected by factors
including the level of defense funding by domestic and foreign governments; our
ability to receive contract awards; and our ability to develop and market
products and services for customers outside of traditional markets.
Our Specialty Products business will be affected by the cyclical nature of
the transportation industries; strikes at major auto producers; and
international demand for marine and leisure products.
Our Connectors & Switches business will be affected by the economic
conditions in foreign markets, both those in which we currently participate, and
those that we are trying to enter and the cyclical nature of the industry.
The Company assumes no obligation to update forward-looking statements to
reflect actual results or changes in or additions to the factors affecting such
forward-looking statements.
23
<PAGE> 25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by Item 7A is provided under the caption "Market
Risk Exposures" in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and in Note 16, "Financial Instruments", to
"Notes to Consolidated Financial Statements" herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Schedule herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by Item 10 with respect to directors is
incorporated herein by reference to the definitive proxy statement involving the
election of directors filed or to be filed by ITT Industries with the Securities
and Exchange Commission pursuant to Regulation 14A within 120 days after the end
of the fiscal year covered by this Form 10-K Annual Report.
The information called for by Item 10 with respect to executive officers is
set forth above in Part I under the caption "Executive Officers of the
registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated herein by reference
to the definitive proxy statement referred to above in Item 10.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item 12 is incorporated herein by reference
to the definitive proxy statement referred to above in Item 10.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item 13 is incorporated herein by reference
to the definitive proxy statement referred to above in Item 10.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
1. See Index to Consolidated Financial Statements and Schedule
appearing on page F-1 for a list of the financial statements and schedule
filed as a part of this report.
2. See Exhibit Index appearing on pages II-2, II-3 and II-4 for a list
of the exhibits filed or incorporated herein as a part of this report.
(b) On November 20, 2000, ITT Industries reported on Form 8-K that on
November 10, 2000, it entered into a five-year Competitive Advance and Revolving
Credit Facility Agreement with twenty banks for an aggregate amount of $1
billion.
24
<PAGE> 26
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Management........................................ F-2
Report of Independent Public Accountants.................... F-3
Consolidated Income Statements for the three years ended
December 31, 2000......................................... F-4
Consolidated Statements of Comprehensive Income for the
three years ended December 31, 2000....................... F-5
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... F-6
Consolidated Statements of Cash Flows for the three years
ended December 31, 2000................................... F-7
Consolidated Statements of Changes in Shareholders' Equity
for the three years ended December 31, 2000............... F-8
Notes to Consolidated Financial Statements.................. F-9
Business Segment Information................................ F-24
Geographical Information.................................... F-25
Sales and Revenues by Product Category...................... F-25
Quarterly Results for 2000 and 1999......................... F-27
Valuation and Qualifying Accounts........................... S-1
</TABLE>
F-1
<PAGE> 27
ITT INDUSTRIES, INC. AND SUBSIDIARIES
REPORT OF MANAGEMENT
The management of ITT Industries, Inc. is responsible for the preparation
and integrity of the information contained in the consolidated financial
statements and other sections of this document. The consolidated financial
statements are prepared in accordance with accounting principles generally
accepted in the United States and, where necessary, include amounts that are
based on management's informed judgments and estimates. Other information herein
is consistent with the consolidated financial statements.
ITT Industries' consolidated financial statements are audited by Arthur
Andersen LLP, independent public accountants, whose appointment is ratified by
the shareholders. Management has made ITT Industries' financial records and
related data available to Arthur Andersen LLP, and believes that the
representations made to the independent public accountants are valid and
complete.
ITT Industries' system of internal controls is a major element in
management's responsibility to assure that the consolidated financial statements
present fairly the Company's financial condition. The system includes both
accounting controls and the internal auditing program, which are designed to
provide reasonable assurance that the Company's assets are safeguarded, that
transactions are properly recorded and executed in accordance with management's
authorization, and that fraudulent financial reporting is prevented or detected.
ITT Industries' internal controls provide for the careful selection and
training of personnel and for appropriate divisions of responsibility. The
controls are documented in written codes of conduct, policies, and procedures
that are communicated to ITT Industries' employees. Management continually
monitors the system of internal controls for compliance. In addition, based upon
management's assessment of risk, both operational and financial, special reviews
are performed by contracted auditors to periodically test the effectiveness of
selected controls. The independent public accountants also evaluate internal
controls and perform tests of procedures and accounting records to enable them
to express their opinion on ITT Industries' consolidated financial statements.
They also make recommendations for improving internal controls, policies, and
practices. Management takes appropriate action in response to each
recommendation.
The Audit Committee of the Board of Directors, composed of non-employee
directors, meets periodically with management and with the independent public
accountants and contracted auditors to evaluate the effectiveness of the work
performed by them in discharging their respective responsibilities.
/s/ LOUIS J. GIULIANO
- ------------------------------------------------------
Louis J. Giuliano
Chairman, President and
Chief Executive Officer
/s/ DAVID J. ANDERSON
- ------------------------------------------------------
David J. Anderson
Senior Vice President and
Chief Financial Officer
F-2
<PAGE> 28
ITT INDUSTRIES, INC AND SUBSIDIARIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of ITT Industries, Inc.:
We have audited the consolidated financial statements of ITT Industries,
Inc. (an Indiana corporation) and subsidiaries as of December 31, 2000 and 1999,
and for each of the three years in the period ended December 31, 2000, as set
forth on the accompanying Index to Consolidated Financial Statements and
Schedule. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ITT Industries, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Consolidated Financial Statements and Schedule is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
STAMFORD, CONNECTICUT
JANUARY 22, 2001
F-3
<PAGE> 29
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
2000 1999 1998
---- ---- ----
(in millions, except per share amounts)
<S> <C> <C> <C>
Sales and revenues................................ $4,829.4 $4,632.2 $4,492.7
Costs of sales and revenues....................... 3,195.3 3,265.8 3,165.9
Selling, general and administrative expenses...... 749.8 691.4 734.4
Research, development and engineering expenses.... 391.2 264.4 267.6
Restructuring and other special items............. -- (4.6) 399.4
-------- -------- --------
Total costs and expenses.......................... 4,336.3 4,217.0 4,567.3
-------- -------- --------
Operating income (loss)........................... 493.1 415.2 (74.6)
Interest expense, net............................. (75.2) (46.8) (82.4)
Miscellaneous income (expense).................... 2.0 1.3 (3.0)
-------- -------- --------
Income (loss) from continuing operations before
income taxes.................................... 419.9 369.7 (160.0)
Income tax (expense) benefit...................... (155.4) (136.8) 62.4
-------- -------- --------
Income (loss) from continuing operations.......... 264.5 232.9 (97.6)
Discontinued operations:
Operating income, net of tax of $53.1........... -- -- 83.2
Gain on sales of ITT Automotive, net of tax of
$835.0....................................... -- -- 1,546.9
-------- -------- --------
Net income........................................ $ 264.5 $ 232.9 $1,532.5
======== ======== ========
EARNINGS (LOSS) PER SHARE
Income (loss) from continuing operations
Basic........................................... $ 3.01 $ 2.61 $ (.86)
Diluted......................................... $ 2.94 $ 2.53 $ (.86)
Discontinued operations
Basic........................................... $ -- $ -- $ 14.41
Diluted......................................... $ -- $ -- $ 14.41
Net income
Basic........................................... $ 3.01 $ 2.61 $ 13.55
Diluted......................................... $ 2.94 $ 2.53 $ 13.55
AVERAGE COMMON SHARES -- BASIC.................... 87.9 89.2 113.1
AVERAGE COMMON SHARES -- DILUTED.................. 90.0 92.0 113.1
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of the above statements.
F-4
<PAGE> 30
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
2000 1999 1998
------ ------ --------
(in millions)
<S> <C> <C> <C>
Net income.................................................. $264.5 $232.9 $1,532.5
Other income (loss):
Foreign currency translation:
Adjustments arising during period...................... (69.1) (23.3) 18.0
Reclassifications included in net income............... (5.6) -- (182.7)
Unrealized loss on investment securities.................. (1.6) (0.2) (2.1)
Minimum pension liability................................. (20.4) -- --
------ ------ --------
Total other loss, before tax......................... (96.7) (23.5) (166.8)
------ ------ --------
Income tax (expense) benefit related to other
comprehensive loss..................................... 15.7 (11.6) (19.1)
Total other loss, after tax....................... (81.0) (35.1) (185.9)
------ ------ --------
Comprehensive income........................................ $183.5 $197.8 $1,346.6
====== ====== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of the above statements.
F-5
<PAGE> 31
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------
2000 1999
---------- ----------
(in millions, except per
share amounts)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 88.7 $ 181.7
Receivables, net.......................................... 814.9 834.7
Inventories, net.......................................... 531.3 545.8
Other current assets...................................... 71.4 66.1
-------- --------
Total current assets................................... 1,506.3 1,628.3
Plant, property and equipment, net.......................... 865.4 847.0
Deferred income taxes....................................... 384.4 373.6
Goodwill, net............................................... 1,373.0 1,206.0
Other assets................................................ 482.3 474.9
-------- --------
Total non-current assets............................... 3,105.1 2,901.5
-------- --------
TOTAL ASSETS........................................... $4,611.4 $4,529.8
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 386.0 $ 383.1
Accrued expenses.......................................... 823.9 753.1
Accrued taxes............................................. 392.9 364.9
Notes payable and current maturities of long-term debt.... 629.9 609.3
-------- --------
Total current liabilities.............................. 2,232.7 2,110.4
Pension benefits............................................ 195.8 170.8
Postretirement benefits other than pensions................. 195.4 211.3
Long-term debt.............................................. 408.4 478.8
Other liabilities........................................... 367.9 459.4
-------- --------
Total non-current liabilities.......................... 1,167.5 1,320.3
-------- --------
TOTAL LIABILITIES...................................... 3,400.2 3,430.7
Shareholders' Equity:
Common stock: Authorized -- 200,000,000 shares, $1 par
value per share
Outstanding -- 87,914,595 shares.......................... 87.9 87.9
Retained earnings......................................... 1,306.9 1,113.8
Accumulated other comprehensive loss...................... (183.6) (102.6)
-------- --------
Total shareholders' equity............................. 1,211.2 1,099.1
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $4,611.4 $4,529.8
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of the above statements.
F-6
<PAGE> 32
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
2000 1999 1998
------- ------- ---------
(in millions)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 264.5 $ 232.9 $ 1,532.5
Discontinued operations:
Operating income........................................ -- -- (83.2)
Gain on sales of ITT Automotive......................... -- -- (1,546.9)
------- ------- ---------
Income (loss) from continuing operations.................. 264.5 232.9 (97.6)
Adjustments to income (loss) from continuing operations:
Depreciation............................................ 150.6 144.3 157.5
Amortization............................................ 51.2 36.8 38.1
Restructuring and other special items................... -- (4.6) 430.5
Payments made for restructuring and other special items... (25.9) (60.0) (25.1)
Change in receivables, inventories, accounts payable, and
accrued expenses........................................ (26.9) 4.5 (112.5)
Change in accrued and deferred taxes...................... 44.2 43.4 (136.4)
Other, net................................................ (43.1) (54.1) (66.0)
------- ------- ---------
Net Cash -- operating activities........................ 414.6 343.2 188.5
------- ------- ---------
INVESTING ACTIVITIES
Additions to plant, property and equipment................ (180.6) (227.9) (212.9)
Acquisitions.............................................. (192.0) (544.8) (79.6)
Proceeds from sale of assets and businesses............... 47.6 107.7 3,745.1
Other, net................................................ (1.3) 4.5 3.9
------- ------- ---------
Net Cash -- investing activities........................ (326.3) (660.5) 3,456.5
------- ------- ---------
FINANCING ACTIVITIES
Short-term debt, net...................................... (43.5) 426.0 (1,419.8)
Long-term debt repaid..................................... (21.1) (83.8) (61.4)
Long-term debt issued..................................... 0.9 3.1 9.0
Repurchase of common stock................................ (54.0) (402.6) (830.8)
Dividends paid............................................ (52.9) (55.5) (70.5)
Other, net................................................ 26.6 29.8 39.5
------- ------- ---------
Net Cash -- financing activities........................ (144.0) (83.0) (2,334.0)
------- ------- ---------
EXCHANGE RATE EFFECTS ON CASH AND CASH EQUIVALENTS........ (28.0) (14.5) 2.4
NET CASH -- DISCONTINUED OPERATIONS....................... (9.3) (284.4) (624.7)
------- ------- ---------
Increase (decrease) in cash and cash equivalents.......... (93.0) (699.2) 688.7
Cash and cash equivalents -- beginning of year............ 181.7 880.9 192.2
------- ------- ---------
CASH AND CASH EQUIVALENTS -- END OF YEAR.................. $ 88.7 $ 181.7 $ 880.9
======= ======= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest................................................ $ 82.3 $ 76.4 $ 121.8
Income taxes............................................ $ 108.6 $ 42.1 $ 107.1
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of the above statements.
F-7
<PAGE> 33
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Shares Outstanding Dollars
------------------- ------------------------------
YEAR ENDED DECEMBER 31, 2000 1999 1998 2000 1999 1998
- ----------------------- ---- ---- ----- -------- -------- --------
(amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK
Beginning balance.......................... 87.9 96.0 118.4 $ 87.9 $ 96.0 $ 118.4
Stock incentive plans.................... 1.7 2.2 1.3 1.7 2.2 1.3
Repurchases.............................. (1.7) (2.2) (1.3) (1.7) (2.2) (1.3)
Stock repurchase program................. -- (8.1) (22.4) -- (8.1) (22.4)
---- ---- ----- -------- -------- --------
Ending balance........................... 87.9 87.9 96.0 $ 87.9 $ 87.9 $ 96.0
---- ---- ----- -------- -------- --------
CAPITAL SURPLUS
Beginning balance.......................... $ -- $ -- $ 397.0
Stock incentive plans.................... -- -- 28.7
Repurchases.............................. -- -- (46.9)
Stock repurchase program................. -- -- (378.8)
-------- -------- --------
Ending balance........................... $ -- $ -- $ --
-------- -------- --------
RETAINED EARNINGS
Beginning balance.......................... $1,113.8 $1,271.5 $ 188.5
Net income............................... 264.5 232.9 1,532.5
Common stock dividend declared -- $.60,
$.60 and $.60......................... (52.9) (53.4) (68.1)
Repurchases.............................. (18.5) (337.2) (381.4)
-------- -------- --------
Ending balance........................... $1,306.9 $1,113.8 $1,271.5
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS):
Unrealized Loss on Investment Securities
Beginning balance..................... $ (0.7) $ (0.5) $ 1.6
Unrealized loss....................... (1.6) (0.2) (2.1)
-------- -------- --------
Ending balance........................ $ (2.3) $ (0.7) $ (0.5)
-------- -------- --------
Minimum Pension Liability
Beginning balance..................... $ -- $ -- $ --
Recognition of minimum pension
liability........................... (12.9) -- --
-------- -------- --------
Ending balance........................ $ (12.9) $ -- $ --
-------- -------- --------
Cumulative Translation Adjustments
Beginning balance..................... $ (101.9) $ (67.0) $ 116.8
Translation of foreign currency
financial statements................ (66.5) (34.9) 21.0
Sale of net foreign investments....... -- -- (204.8)
-------- -------- --------
Ending balance........................ $ (168.4) $ (101.9) $ (67.0)
-------- -------- --------
Total accumulated other comprehensive
loss.................................. $ (183.6) $ (102.6) $ (67.5)
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY................. $1,211.2 $1,099.1 $1,300.0
======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of the above statements.
F-8
<PAGE> 34
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 1 ACCOUNTING POLICIES
CONSOLIDATION PRINCIPLES: The consolidated financial statements include the
accounts of ITT Industries, Inc. (the "Company") and all majority owned
subsidiaries. Investments in unconsolidated companies where management exercises
significant influence are accounted for using the equity method. All significant
intercompany transactions have been eliminated.
SALES AND REVENUE RECOGNITION: The Company recognizes revenues as services
are rendered and recognizes sales as products are shipped to customers. Our
Defense Products & Services business recognizes sales and revenues based on unit
of delivery, milestone achievement, completion of contract or based on costs
incurred for cost reimbursable contracts, depending on the type of contract and
contract terms and conditions. Expected losses on long-term contracts are
recognized when events and circumstances indicate that a loss will be incurred.
RESEARCH, DEVELOPMENT AND ENGINEERING: Significant costs are incurred each
year in connection with research, development, and engineering ("RD&E") programs
that are expected to contribute to future earnings. Such costs are charged to
income as incurred, except to the extent recoverable under existing contracts.
Approximately 74.6%, 57.8% and 67.4% of total RD&E costs were expended pursuant
to customer contracts for each of the three years ended December 31, 2000, 1999,
and 1998, respectively.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
INVENTORIES: Most inventories are valued at the lower of cost (first-in,
first-out or "FIFO") or market. A full absorption procedure is employed using
standard cost techniques that are customarily reviewed and adjusted annually.
Potential losses from obsolete and slow-moving inventories are provided for when
identified. Domestic inventories valued under the last-in, first-out ("LIFO")
method represent 13.0% and 11.3% of total 2000 and 1999 inventories,
respectively. There would not have been a material difference in the value of
inventories, if the FIFO method had been used by the Company to value all
inventories.
ASSET IMPAIRMENT LOSSES: The Company records impairment losses on
long-lived assets used in operations when events and circumstances indicate that
the assets may be impaired and the undiscounted net cash flows estimated to be
generated by those assets are less than their carrying amounts.
PLANT, PROPERTY AND EQUIPMENT: Plant, property and equipment, including
capitalized interest applicable to major project expenditures, are recorded at
cost. The Company normally claims the maximum depreciation deduction allowable
for tax purposes. In general, for financial reporting purposes, depreciation is
provided on a straight-line basis over the useful economic lives of the assets
involved as follows: buildings and improvements -- 5 to 40 years, machinery and
equipment -- 2 to 10 years, and other -- 5 to 40 years. Gains or losses on sale
or retirement of assets are included in income.
GOODWILL: The excess of cost over the fair value of net assets acquired is
amortized on a straight-line basis over periods not exceeding 40 years. Goodwill
is reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable.
FOREIGN CURRENCY TRANSLATION: Balance sheet accounts are translated at the
exchange rate in effect at each year-end and income accounts are translated at
the average rates of exchange prevailing during the year. The national
currencies of the foreign companies are generally the functional currencies.
Gains from foreign currency transactions are reported currently in selling,
general and administrative expenses and were $2.5, $2.8 and $2.2 in 2000, 1999,
and 1998, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS: The Company uses a variety of derivative
financial instruments, including interest rate swaps and foreign currency
forward contracts and/or swaps, as a means of hedging exposure to interest rate
and foreign currency risks.
F-9
<PAGE> 35
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in the spot rate of instruments designated as hedges of the net
investment in a foreign subsidiary are reflected in the cumulative translation
adjustment component of shareholders' equity. The Company and its subsidiaries
are end-users and do not utilize these instruments for speculative purposes. The
Company has rigorous standards regarding the financial stability and credit
standing of its major counterparties.
Interest rate swaps involve the periodic exchange of payments without the
exchange of underlying principal or notional amounts. Net payments are
recognized as an adjustment to interest. Should the swap be terminated,
unrealized gains or losses are deferred and amortized over the shorter of the
remaining original term of the hedging instrument or the remaining life of the
underlying debt instrument.
ENVIRONMENTAL REMEDIATION COSTS: Accruals for environmental matters are
recorded on a site by site basis when it is probable that a liability has been
incurred and the amount of the liability can be reasonably estimated, based on
current law and existing technologies. The Company's estimated liability is
reduced to reflect the anticipated participation of other potentially
responsible parties in those instances where it is probable that such parties
are legally responsible and financially capable of paying their respective
shares of the relevant costs. These accruals are adjusted periodically as
assessment and remediation efforts progress or as additional technical or legal
information becomes available. Actual costs to be incurred at identified sites
in future periods may vary from the estimates, given inherent uncertainties in
evaluating environmental exposures. Accruals for environmental liabilities are
generally included in the balance sheet as "Other liabilities" at undiscounted
amounts and exclude claims for recoveries from insurance companies or other
third parties. Recoveries from insurance companies or other third parties are
recorded as "Other assets" when it is probable that a claim will be realized.
EARNINGS PER SHARE: Basic earnings per share is based on the weighted
average number of common shares outstanding. Diluted earnings per share is based
on the weighted average number of common shares outstanding and potentially
dilutive common shares, which include stock options. Potential common shares are
not included in the computation of any diluted per share amount when a loss from
continuing operations exists, even when the Company reports net income.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS: Certain amounts in the prior years' consolidated
financial statements have been reclassified to conform with the current year
presentation.
NOTE 2 CHANGES IN ACCOUNTING POLICIES
The Company will adopt Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133")
beginning January 1, 2001. SFAS No. 133, as amended by SFAS No. 138, establishes
accounting and reporting standards that require every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 also requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement and requires companies to formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. The adoption of
SFAS No. 133 will not have a material impact on the Company's consolidated
results of operations, financial position, or cash flows.
Effective October 1, 2000, the Company adopted Staff Accounting Bulletin
No. 101
F-10
<PAGE> 36
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides
guidance on the recognition, presentation, and disclosure of revenue in the
financial statements. The adoption of SAB 101 did not have a material impact on
the Company's consolidated results of operations, financial condition, or cash
flow.
Effective October 1, 2000, the Company adopted Emerging Issues Task Force
Issue No. 00-10 "Accounting for Shipping and Handling Fees and Costs" ("EITF
00-10"). EITF 00-10 requires that all shipping and handling costs billed to
customers be recorded as sales. Sales and cost of sales in 2000 increased by
approximately $16 due to the adoption of EITF 00-10. The adoption of EITF 00-10
had no effect on operating income, net income, EPS, financial condition or cash
flow of the Company. The Company did not restate sales and cost of sales for
years prior to 2000, since it was impractical to do so.
In January 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires the disclosure of comprehensive income, which
includes, in addition to net income, other comprehensive income consisting of
unrealized gains and losses which bypass the traditional income statement and
are recorded directly into a separate section of shareholders' equity on the
balance sheet. The components of other comprehensive income for the Company
consist of unrealized gains and losses relating to the translation of foreign
currency financial statements, as adjusted by hedges of net foreign investments,
certain investment securities, and an additional minimum pension liability
adjustment.
NOTE 3 ACQUISITIONS
On November 3, 2000 the Company acquired Man-Machine Interface ("MMI"), a
mobile phone switch producer, from TRW Inc. for $61.9. The purchase price
exceeded the fair value of the net assets acquired by $43.5 and the excess has
been recorded as goodwill, which is being amortized over a 25 year period. MMI
is a technology leader and produces a wide array of the latest switches and
keypads for mobile phones. Annual sales of MMI approximate $53.
On June 26, 2000 the Company acquired C&K Components Inc.("C&K") a
privately held company, for $106.9, net of cash acquired. The purchase price
exceeded the fair value of net assets acquired by $116.2 and the excess has been
recorded as goodwill, which is being amortized over a 30 year period. C&K has
annual sales of approximately $113, and is a worldwide leader in the design and
manufacture of switches for the telecommunications, computer and electronic
equipment markets.
On December 14, 1999 the Company completed the purchase of Stanford
Telecommunications Inc.'s ("Stel") space and defense communications businesses
for $192.7. The purchase price exceeded the fair value of the net assets
acquired by $160.6 and the excess has been recorded as goodwill, which is being
amortized over a 40 year period. These units of Stel have annual sales of
approximately $142 and are leading designers, manufacturers and marketers of
advanced digital communication products and systems.
On October 29, 1999 the Company completed the purchase of STX Pte. Ltd.
("STX") from Singapore-based San Teh, Ltd., for $119.4. The purchase price
exceeded the fair value of the net assets acquired by $82.1 and the excess has
been recorded as goodwill, which is being amortized over a 40 year period. STX
manufactures conductive rubber switches used in keypads for mobile telephones,
high-end remote control units, and keyless entry systems. STX has annual sales
of approximately $64.
On September 10, 1999 the Company acquired Flojet Corporation ("Flojet"), a
privately held company, for $141.0, consisting of $131.0 in cash and $10.0 in
notes payable. The purchase price exceeded the fair value of the net assets
acquired by $103.3 and the excess has been recorded as goodwill, which is being
amortized over a 40 year period. Flojet manufactures air and electric driven
pumps, motors, and dispensing equipment for a variety of industries, including
beverage, general industrial equipment, agricultural/lawn and garden,
recreational vehicle, leisure marine, and water purification. Flojet has annual
sales of approximately $50.
During 2000, the Company also completed several small acquisitions for a
combined total
F-11
<PAGE> 37
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of $23.2. In 1999 the Company also acquired Sanitaire Corporation, Hydro Air
Industries, K and M Electronics, Inc., and the assets of Energy Machine Service,
Inc., and made an equity investment in EarthWatch, for a total of $101.7.
All acquisitions were accounted for using the purchase method. The purchase
price allocations for the 2000 acquisitions 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 pro forma effect
on the Company's net income and earnings per share for these acquisitions, as
though the acquisitions occurred as of January 1 of each year, is not material.
NOTE 4 RESTRUCTURING AND OTHER SPECIAL ITEMS
During 1998, the Company recorded restructuring and other special items of
$20.1 in the first quarter, $10.7 in the second quarter, and $368.6 in the
fourth quarter. The actions taken affected all four segments. Restructuring and
other special items for the year ended December 31, 1998 are detailed in the
following table:
<TABLE>
<CAPTION>
Restructuring Write-offs Other Total
------------- ---------- ----- ------
<S> <C> <C> <C> <C>
Connectors & Switches...................................... $ 61.2 $ 41.2 $ -- $102.4
Defense Products & Services................................ 20.5 49.1 -- 69.6
Pumps & Complementary Products............................. 94.7 52.9 -- 147.6
Specialty Products......................................... 4.2 1.5 3.3 9.0
Corporate and Other........................................ 5.0 35.6 30.2 70.8
------ ------ ----- ------
TOTAL 1998 CHARGES......................................... $185.6 $180.3 $33.5 $399.4
====== ====== ===== ======
</TABLE>
The 1998 charges related to restructuring activities which involved the
closure of facilities, sales offices and distribution centers worldwide;
facility consolidations; the discontinuance of product lines; and reductions in
workforce to reduce cost and improve profitability. In Connectors & Switches,
several labor intensive operations in Europe have, or are being consolidated
into a low wage facility in Eastern Europe and other site consolidations
occurred to eliminate duplication of process and to relocate to lower cost
areas. Defense Products & Services exited two facilities in the United States.
In Pumps & Complementary Products, twenty facilities, including distribution
centers, sales offices and manufacturing locations, have, or are being closed
and eight product lines were discontinued. Costs not directly related to exit
activities and which are expected to benefit future periods, such as costs to
relocate and train employees were expensed as incurred. Estimated severance
costs included in restructuring were $92.5.
Asset write-offs were taken when current events and circumstances indicated
that asset values were impaired using the criteria of SFAS No. 121. Write-offs
at Connectors & Switches related to assets which were idle or taken out of
service, because sales volumes did not materialize, and assets which were deemed
to be impaired because their net book values exceeded the estimated future cash
flows to be generated by those assets. The majority of the idle assets had no
value because of their specialized nature or because of their poor condition and
have been written off. The impaired assets were written down to estimated fair
values. Write-offs also included certain capitalized software costs which had no
future utility since the business chose to implement a new software platform.
Goodwill in the amount of $6.6, which was related to two products, was also
written off. Assets in Defense Products & Services that were expected to be sold
were written down to fair value. Pumps & Complementary Products undertook a
review of certain of its operations where current events and circumstances
indicated that asset values may be impaired. It was determined that goodwill of
$22.5 related to operations in Venezuela and Mexico had no value, and that
assets of the Richter business were overvalued by approximately $9.1. Also
included in the charge were write-offs of $11.1 related to information systems
which were no longer used due to migrations to new information system platforms,
and other asset write-downs of $10.2. At Corporate,
F-12
<PAGE> 38
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company wrote the net assets held for sale of three non-core businesses down
to fair value.
Other at Corporate of $30.2 included a charge of $44.2, net of expected
future recoveries, for anticipated costs to remediate certain environmental
sites and gains on the sale of two non-core businesses. Additional environmental
charges of $3.3 were recorded in Specialty Products.
During the fourth quarter of 1999, the Company assessed its 1998
restructuring reserves, determined that activities related to those reserves
would be completed for $44.8 less than originally estimated, and reversed the
related reserve into income. The excess was primarily the result of favorable
experience in employee separations and asset disposal costs that were not
required. As of December 31, 2000, the Company had closed 19 of the planned 25
facilities, discontinued all of the planned 19 product lines, and reduced the
workforce by 2,136, or approximately 93% of the revised planned aggregate
reduction of approximately 2,300 persons. The remaining 1998 restructuring
activities will be completed in early 2001.
During 1999, in connection with carrying out the aforementioned
restructuring programs, the Company identified other facilities to be shutdown
and relocated to lower cost areas or consolidated into existing facilities. In
the fourth quarter of 1999, the Company also identified asset impairments at two
facilities. Restructuring and other special items for the year ended December
31, 1999 are detailed in the following table:
<TABLE>
<CAPTION>
Restructuring Write-offs Total
------------- ---------- -----
<S> <C> <C> <C>
Connectors & Switches....................................... $ 6.8 $ -- $ 6.8
Defense Products & Services................................. 0.3 4.4 4.7
Pumps & Complementary Products.............................. 9.6 15.6 25.2
Specialty Products.......................................... 3.5 -- 3.5
----- ----- -----
TOTAL 1999 CHARGES.......................................... $20.2 $20.0 $40.2
===== ===== =====
</TABLE>
The 1999 restructuring activities involved the closure of facilities and
sales offices and reduction of workforce. In Connectors & Switches, a factory
will be closed with a portion of the business being relocated. In Defense
Products & Services, several positions at two divisions were eliminated in 2000.
Pumps & Complementary Products closed two facilities and related service offices
and also consolidated the operations of one warehouse into existing facilities.
In Specialty Products, a workforce reduction occurred at one facility. Among the
business segments, $8.7 of the estimated $12.1 severance costs have been
incurred as of December 31, 2000. These costs were associated with a workforce
reduction of 226 of the revised plan of 324 persons.
Pumps & Complementary Products wrote down $15.6 of goodwill at an
unprofitable Far East operation based on the management's future cash flow
projections of the business. Defense Products & Services wrote off $4.4 of
goodwill related to a product line sold in January 2000.
The following table displays a rollforward of the restructuring reserves:
<TABLE>
<CAPTION>
Balance Payments 1999 Balance Payments Balance
December and Cash December and December
31, 1998 Other Reversals Charges 31, 1999 Other 31, 2000
-------- -------- --------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Connectors & Switches...... $ 42.7 $(13.4) $(16.5) $ 5.7 $18.5 $ (5.7) $12.8
Defense Products &
Services................. 15.1 (3.6) (8.6) 0.3 3.2 (1.3) 1.9
Pumps & Complementary
Products................. 73.8 (43.5) (19.7) 6.4 17.0 (14.5) 2.5
Specialty Products......... 1.8 (0.7) -- 2.4 3.5 (3.2) 0.3
Corporate and Other........ 5.0 (2.5) -- -- 2.5 (1.5) 1.0
------ ------ ------ ----- ----- ------ -----
TOTAL...................... $138.4 $(63.7) $(44.8) $14.8 $44.7 $(26.2) $18.5
====== ====== ====== ===== ===== ====== =====
</TABLE>
F-13
<PAGE> 39
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 DISCONTINUED OPERATIONS
On September 28, 1998, the Company closed the sale of its automotive
Electrical Systems business to Valeo, SA of France for approximately $1,700.
This transaction followed the sale of the Company's Brake and Chassis unit to
Continental AG of Germany for approximately $1,930 completed on September 25,
1998. As a result of the sales, these two units, as well as several other small
previously sold automotive units, have been accounted for as discontinued
operations.
The Company received notifications of claims from Valeo, SA and Continental
AG requesting post-closing adjustments to the purchase price under the
provisions of the sales contracts, based upon a number of accounting issues
relating to the calculation of the net worth of the businesses sold. Those
claims have been submitted to arbitration. After a thorough review, the Company
believes that the claims have little merit and is vigorously disputing them.
Although it cannot be determined at this time whether or to what extent, if any,
there will be post-closing adjustments of the purchase price as a result of the
arbitration, management does not believe such adjustments would have a material
adverse effect on the cash flow, results of operations or financial condition of
the Company on a consolidated basis.
NOTE 6 INCOME TAXES
Income tax data from continuing operations is as follows:
<TABLE>
<CAPTION>
For the years ended
December 31,
-----------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Pretax income (loss)
U.S. ..................................................... $ 171.2 $ 154.4 $(142.0)
Foreign................................................... 248.7 215.3 (18.0)
------- ------- -------
$ 419.9 $ 369.7 $(160.0)
======= ======= =======
(Provision) benefit for income tax
Current
U.S. federal.............................................. $ (58.1) $ 3.8 $ 14.8
State and local........................................... (8.3) (15.2) (7.3)
Foreign................................................... (93.2) (107.9) 15.7
------- ------- -------
(159.6) (119.3) 23.2
------- ------- -------
Deferred
U.S. federal.............................................. 3.1 (52.1) 48.0
State and local........................................... -- 6.4 (0.1)
Foreign................................................... 1.1 28.2 (8.7)
------- ------- -------
4.2 (17.5) 39.2
------- ------- -------
Total income tax (expense) benefit.......................... $(155.4) $(136.8) $ 62.4
======= ======= =======
</TABLE>
A reconciliation of the tax (provision) benefit at the U.S. statutory rate
to the effective income tax (expense) benefit rate as reported is as follows:
<TABLE>
<CAPTION>
For the years ended
December 31,
-----------------------
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Tax (provision) benefit at U.S. statutory rate.............. (35.0)% (35.0)% 35.0%
Foreign tax rate differential............................... (1.5) 9.0 2.0
Taxes on repatriation of foreign earnings................... 0.3 (6.9) 5.7
State income taxes, net of federal benefit.................. (1.3) (1.5) (3.0)
Goodwill.................................................... (1.9) (4.5) (5.3)
Research & development credit............................... 1.5 1.3 3.9
Tax benefit of foreign sales corporation.................... 0.6 0.5 0.8
Other....................................................... 0.3 0.1 (0.1)
----- ----- -----
Effective income tax (expense) benefit rate................. (37.0)% (37.0)% 39.0%
===== ===== =====
</TABLE>
F-14
<PAGE> 40
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes are established for all temporary differences between
the amount of assets and liabilities recognized for financial reporting purposes
and for tax purposes.
Deferred tax assets (liabilities), for which no valuation allowances have
been provided, include the following:
<TABLE>
<CAPTION>
December 31,
----------------
2000 1999
------ ------
<S> <C> <C>
Employee benefits........................................... $ 32.5 $ 30.0
Accelerated depreciation.................................... (13.3) (19.6)
Reserves.................................................... 298.7 285.5
Long-term contracts......................................... 4.6 9.0
Uniform capitalization...................................... 12.3 7.2
Loss carryforward........................................... 14.4 --
Other....................................................... 18.4 44.7
------ ------
$367.6 $356.8
====== ======
</TABLE>
No provision was made for U.S. taxes payable on accumulated undistributed
foreign earnings of certain subsidiaries amounting to approximately $110.9,
since these amounts are permanently reinvested.
As of December 31, 2000 the Company has approximately $2.5 of foreign tax
credit carryforwards available to reduce future tax liabilities. The credit
carryforwards will expire as follows: $1.0, December 31, 2001, $1.2, December
31, 2002 and $0.3, December 31, 2004.
Shareholders' equity at December 31, 2000 and 1999 reflects tax benefits
related to the exercise of stock options of approximately $8.1 and $11.5,
respectively.
NOTE 7 EARNINGS PER SHARE
A reconciliation of the data used in the calculation of basic and diluted
earnings per share computations for income from continuing operations is as
follows:
<TABLE>
<CAPTION>
For the years ended
December 31,
--------------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Basic Earnings (Loss) Per Share
Income (loss) from continuing operations available to
common shareholders..................................... $264.5 $232.9 $(97.6)
Average common shares outstanding......................... 87.9 89.2 113.1
------ ------ ------
Basic earnings (loss) per share............................. $ 3.01 $ 2.61 $ (.86)
====== ====== ======
Diluted Earnings (Loss) Per Share
Income (loss) from continuing operations available to
common shareholders..................................... $264.5 $232.9 $(97.6)
Average common shares outstanding......................... 87.9 89.2 113.1
Add: Stock options........................................ 2.1(1) 2.8(2) --(3)
------ ------ ------
Average common shares outstanding on a diluted basis...... 90.0 92.0 113.1
------ ------ ------
Diluted earnings (loss) per share........................... $ 2.94 $ 2.53 $ (.86)
====== ====== ======
</TABLE>
(1) Options to purchase 3,429,883 shares of common stock at an average price of
$36.34 per share were outstanding at December 31, 2000 but were not included
in the computation of diluted EPS, because the options' exercise prices were
greater than the annual average market price of the common shares. These
options expire between 2008 and 2010.
(2) Options to purchase 1,559,201 shares of common stock at an average price of
$39.54 per share were outstanding at December 31, 1999 but were not included
in the computation of diluted EPS, because the options' exercise prices were
greater than the annual average market price of the common shares. These
options expire in 2009.
(3) Stock options of 3,291,544 at the end of 1998 were not included in the
computation of diluted earnings per share, because the Company had a loss
from continuing operations and inclusion of the options would be
antidilutive.
F-15
<PAGE> 41
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 RECEIVABLES, NET
Receivables consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------
2000 1999
------ ------
<S> <C> <C>
Trade....................................................... $820.0 $738.5
Accrued for completed work.................................. -- 32.3
Other....................................................... 15.9 86.0
Less -- reserves............................................ (21.0) (22.1)
------ ------
$814.9 $834.7
====== ======
</TABLE>
NOTE 9 INVENTORIES, NET
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
2000 1999
------ -------
<S> <C> <C>
Finished goods.............................................. $181.6 $ 186.5
Work in process............................................. 183.5 263.1
Raw materials............................................... 210.0 209.1
Less -- progress payments................................... (43.8) (112.9)
------ -------
$531.3 $ 545.8
====== =======
</TABLE>
NOTE 10 OTHER CURRENT ASSETS
At December 31, 2000 and 1999, other current assets consist primarily of
advance payments on contracts, prepaid expenses and capitalized tooling costs.
NOTE 11 PLANT, PROPERTY AND EQUIPMENT, NET
Plant, property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
Land and improvements....................................... $ 59.3 $ 66.1
Buildings and improvements.................................. 370.8 343.4
Machinery and equipment..................................... 1,202.0 1,186.0
Construction work in progress............................... 99.8 86.3
Other....................................................... 393.7 368.9
--------- ---------
2,125.6 2,050.7
Less -- accumulated depreciation and amortization........... (1,260.2) (1,203.7)
--------- ---------
$ 865.4 $ 847.0
========= =========
</TABLE>
NOTE 12 GOODWILL, NET
Goodwill consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Goodwill.................................................... $1,474.7 $1,271.1
Less -- accumulated amortization............................ (101.7) (65.1)
-------- --------
$1,373.0 $1,206.0
======== ========
</TABLE>
F-16
<PAGE> 42
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 OTHER ASSETS
At December 31, 2000 and 1999, other assets primarily consists of prepaid
pension and employee benefit plan costs, equity investments, and expected
recoveries from third parties in relation to environmental and other claims.
NOTE 14 LEASES AND RENTALS
The Company leases certain offices, manufacturing buildings, land,
machinery, automobiles, computers, and other equipment. Such leases expire at
various dates and may include renewals and escalations. The Company often pays
maintenance, insurance, and tax expense related to leased assets. Rental
expenses under operating leases were $55.5, $51.8 and $45.3 for 2000, 1999 and
1998, respectively. Future minimum operating lease payments under long-term
operating leases as of December 31, 2000 are shown below.
<TABLE>
<S> <C>
2001........................................................ $ 55.0
2002........................................................ 44.0
2003........................................................ 32.5
2004........................................................ 25.8
2005........................................................ 22.5
2006 and thereafter......................................... 110.8
------
Total minimum lease payments................................ $290.6
======
</TABLE>
NOTE 15 DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------
2000 1999
------ ------
<S> <C> <C>
Commercial paper............................................ $473.0 $512.6
Short-term loans............................................ 83.1 85.1
Current maturities of long-term debt........................ 73.8 11.6
------ ------
Notes payable and current maturities of long-term debt...... $629.9 $609.3
====== ======
</TABLE>
<TABLE>
<CAPTION>
Interest
Long-term debt Maturity rate 2000 1999
-------------- -------- -------- ---- ----
<S> <C> <C> <C> <C>
Notes and debentures: 7/1/2001 6.500% $ 58.6 $ 58.6
8/1/2001 8.250% 13.6 13.6
6/15/2003 8.875% 13.5 13.5
2/1/2008 8.875% 13.2 13.2
5/1/2011 6.500% 31.7 31.7
7/1/2011 7.500% 37.4 37.4
2/15/2021 9.750% 19.1 19.1
4/15/2021 9.500% 13.6 13.6
11/15/2025 7.400% 250.0 250.0
8/25/2048 (1) 41.0 42.7
Other....................................................... 2000--2014 (2) 21.3 31.2
------ ------
Subtotal notes and debentures............................... 513.0 524.6
Less -- unamortized discount................................ (30.8) (36.8)
Capital leases.............................................. -- 2.6
------ ------
Long-term debt.............................................. 482.2 490.4
Less -- current maturities.................................. (73.8) (11.6)
------ ------
Net long-term debt.......................................... $408.4 $478.8
====== ======
</TABLE>
(1) The interest rate for the note/debenture was 6.60% and 6.195% at December
31, 2000 and 1999, respectively.
(2) The weighted average interest rate was 6.797% and 6.974% at December 31,
2000 and 1999, respectively.
F-17
<PAGE> 43
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Principal payments required on long-term debt for the next five years are:
<TABLE>
<CAPTION>
2001 2002 2003 2004 2005
- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
$73.8 $4.4 $14.6 $1.0 $3.2
- ----- ---- ----- ---- ----
</TABLE>
The weighted average interest rate for short-term borrowings was 7.10% and
6.70% at December 31, 2000 and 1999, respectively. The fair value of the
Company's short-term loans approximates carrying value. The fair value of the
Company's long-term debt is estimated based on current rates indicated to the
Company for debt with similar remaining maturities. As of December 31, 2000, the
fair value of the long-term debt was $560.0, compared to the fair value of
$484.9, at December 31, 1999. The year to year increase in fair value reflects
the decline in interest rates experienced during 2000.
In November 2000, the Company entered into a revolving credit agreement,
which expires in November 2005, with 20 domestic and foreign banks providing
aggregate commitments of $1.0 billion. The interest rate for borrowings under
these agreements is generally based on the London Interbank Offered Rate
("LIBOR"), plus a spread which reflects the Company's debt rating. The
provisions of these agreements require that the Company maintain certain
financial ratios. At December 31, 2000 the Company was in compliance with all
financial covenants. The commitment fee on the revolving credit agreement is
.125% of the total commitment, based on the Company's current debt ratings. This
agreement replaced the prior revolving credit agreement, which expired in
November 2000. The revolving credit agreement serves as backup for the
commercial paper program.
On August 1, 1999, the Company redeemed all of its outstanding 9 1/4%
senior debentures with a maturity date of July 15, 2001 and a value at maturity
of $18.9, and it redeemed all of its 8 3/4% senior debentures with a maturity
date of March 1, 2006 and a value at maturity of $7.8. Both were redeemed in
conformity with relevant call provisions.
Assets pledged to secure indebtedness (including mortgage loans) amount to
approximately $35.4 as of December 31, 2000.
NOTE 16 FINANCIAL INSTRUMENTS
The Company uses a variety of derivative financial instruments, including
interest rate swaps, foreign currency forward contracts and/or swaps, and on a
limited basis, commodity collar contracts, as a means of hedging exposure to
interest rate, foreign currency, and commodity price risks.
The Company's credit risk associated with these derivative contracts is
generally limited to the unrealized gain on those contracts with a positive fair
market value, reduced by the effects of master netting agreements, should any
counterparty fail to perform as contracted. The counterparties to the Company's
derivative contracts consist of a number of major international financial
institutions. The Company continually monitors the credit quality of these
financial institutions and does not expect non-performance by any counterparty.
FINANCING STRATEGIES AND INTEREST RATE RISK MANAGEMENT: The Company
maintains a multi-currency debt portfolio to fund its operations. The Company at
times uses interest rate swaps to manage the Company's debt portfolio, the
related financing costs, and interest rate structure.
At December 31, 2000, the Company had interest rate swaps outstanding with
notional values totaling $421.7. The swaps were designed to manage the interest
rate exposure associated with certain short and long-term debt. The swaps,
mature at various dates through 2025 and effectively convert the aforementioned
debt from fixed to variable rate borrowings. The variable interest rates are
based on 3 month LIBOR rates plus a spread, which reflects the Company's debt
rating, and the coupon of the underlying long-term obligations. The weighted
average variable and fixed interest rates were 6.47% and 7.35% at December 2000.
At December 31, 1999, the Company had interest rate swaps outstanding with
notional
F-18
<PAGE> 44
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
values totaling 150 million Deutsche Marks. These swaps were designed to manage
the interest exposure of the Company's short-term debt. The interest rate swap
agreements matured in March and April of 2000 and required the Company to pay
interest at fixed rates averaging 6.96% and receive interest at floating rates
based on the Frankfurt Interbank Offered Rate ("FIBOR"), which averaged 3.29%
over the terms of the contracts.
FOREIGN CURRENCY RISK MANAGEMENT: The Company has significant foreign
operations and conducts business in various foreign currencies. The Company may
periodically hedge net investments in currencies other than its own functional
currency and non-functional currency cash flows and obligations, including
intercompany financings. Changes in the spot rate of debt instruments designated
as hedges of the net investment in a foreign subsidiary are reflected in the
cumulative translation adjustment component of shareholders' equity. The Company
regularly monitors its foreign currency exposures and ensures that hedge
contract amounts do not exceed the amounts of the underlying exposures.
At December 31, 2000 and 1999, the Company held foreign currency forward
contracts with notional amounts totaling approximately $60 and $79,
respectively, to hedge various foreign currency exposures. The contracts
outstanding at December 31, 2000 will mature during the first quarter of 2001.
FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS: The fair values of the
Company's derivative financial instruments are as follows:
<TABLE>
<CAPTION>
(Payable)/Receivable
--------------------------------------
DEC. 31, 2000 DEC. 31, 1999
----------------- -----------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Interest rate swaps......................................... $2.8 $42.5 $(2.3) $(2.3)
Currency forwards/swaps..................................... (0.8) (0.6) 1.9 2.6
==== ===== ===== =====
</TABLE>
The following methods and assumptions were used to estimate the fair value
of these derivative financial instruments:
INTEREST RATE SWAP AGREEMENTS: The fair value of interest rate swap
agreements is estimated based on quotes from the market makers of these
instruments and represents the estimated amounts that the Company would expect
to receive or pay to terminate the agreements at the reporting date.
Receivable or payable amounts are accrued monthly based on the interest
rate differentials of derivatives and are reflected in interest expense as a
hedge of interest on outstanding debt.
FOREIGN CURRENCY EXCHANGE CONTRACTS: The fair values associated with the
foreign currency contracts have been estimated by valuing the net position of
the contracts using the applicable spot rates and forward rates as of the
reporting date.
NOTE 17 EMPLOYEE BENEFIT PLANS
PENSION PLANS: The Company sponsors numerous defined benefit pension plans.
The Company funds employee pension benefits, except in some countries outside
the U.S. where funding is not required. The plans' assets are comprised of a
broad range of domestic and foreign securities, fixed income investments and
real estate. In addition to Company sponsored pension plans, certain employees
of the Company participate in multi-employer pension plans sponsored by local or
national unions. The Company's contribution to such plans amounted to $1.5,
$1.3, and $1.1 for the years ended 2000, 1999, and 1998, respectively.
POSTRETIREMENT HEALTH AND LIFE: The Company provides health care and life
insurance benefits for certain eligible retired employees. The Company has
pre-funded a portion of the health care and life insurance obligations, where
such prefunding can be accomplished on a tax effective basis. The plans' assets
are comprised of a broad range of domestic and foreign
F-19
<PAGE> 45
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
securities, fixed income investments, and real estate.
INVESTMENT AND SAVINGS PLANS: The Company sponsors numerous defined
contribution savings plans which allow employees to contribute a portion of
their pretax and/or after-tax income in accordance with specified guidelines.
Several of the plans require the Company to match a percentage of the employee
contributions up to certain limits. Matching contributions charged to income
amounted to $19.1, $18.2, $17.9 for the years ended 2000, 1999, and 1998,
respectively.
The first table below contains a reconciliation of the changes in the
benefit obligations, the changes in plan assets, and the weighted average
assumptions for the periods ending December 31, 2000 and 1999, respectively. The
second table below contains the components of net periodic benefit cost for the
years ended 2000, 1999, and 1998, respectively.
<TABLE>
<CAPTION>
Pension Other Benefits
-------------------- ------------------
2000 1999 2000 1999
-------- -------- ------- -------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year................... $3,091.0 $3,334.1 $ 425.1 $ 469.2
Service cost.............................................. 56.7 70.9 4.3 5.1
Interest cost............................................. 241.4 216.7 33.2 30.6
Amendments made during the year........................... 0.9 4.6 (10.3) --
Actuarial (gain) loss..................................... 280.3 (294.9) 54.9 (40.5)
Obligations of acquired companies......................... 19.8 -- -- --
Effect of plan curtailment................................ -- -- -- (3.1)
Benefits paid............................................. (232.4) (229.5) (36.7) (36.2)
Effect of currency translation............................ (15.4) (10.9) -- --
-------- -------- ------- -------
Benefit obligation at end of year......................... $3,442.3 $3,091.0 $ 470.5 $ 425.1
======== ======== ======= =======
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year............ $3,859.5 $3,382.2 $ 255.7 $ 203.8
Actual return on plan assets.............................. (9.8) 692.0 (0.7) 31.7
Assets of acquired companies.............................. 23.3 -- -- --
Employer contributions.................................... 6.9 5.9 -- 25.5
Employee contributions.................................... 0.7 0.8 -- --
Benefits paid............................................. (218.4) (217.6) (13.9) (5.3)
Effect of currency translation............................ (10.1) (3.8) -- --
-------- -------- ------- -------
Fair value of plan assets at end of year.................. $3,652.1 $3,859.5 $ 241.1 $ 255.7
======== ======== ======= =======
Funded status............................................. $ 209.8 $ 768.5 $(229.4) $(169.4)
Unrecognized net transition asset......................... 0.7 (5.4) -- --
Unrecognized net actuarial (gain) loss.................... (188.0) (779.2) 58.8 (21.5)
Unrecognized prior service cost........................... 42.1 48.8 (24.8) (20.4)
Minimum pension liability adjustment...................... (25.2) -- -- --
-------- -------- ------- -------
Prepaid (accrued) benefit cost recognized in the balance
sheet................................................... $ 39.4 $ 32.7 $(195.4) $(211.3)
======== ======== ======= =======
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31,
Discount rate............................................. 7.39% 7.60% 7.50% 7.75%
Expected return on plan assets............................ 9.73% 9.62% 9.75% 9.75%
Rate of future compensation increase...................... 4.90% 4.90% 5.00% 5.00%
</TABLE>
<TABLE>
<CAPTION>
Pension Other Benefits
----------------------------- --------------------------
2000 1999 1998 2000 1999 1998
------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost.............................. $ 56.7 $ 70.9 $ 58.4 $ 4.3 $ 5.1 $ 4.8
Interest cost............................. 241.4 216.7 215.4 33.2 30.6 31.2
Expected return on plan assets............ (302.8) (270.8) (252.4) (24.0) (19.4) (18.1)
Amortization of transitional asset........ (5.8) (5.8) (5.9) -- -- --
Amortization of net actuarial (gain)
loss.................................... 1.7 9.8 6.4 (0.7) 0.2 (0.7)
Amortization of prior service cost........ 8.6 8.3 10.7 (5.9) (4.7) (4.7)
Effect of plan curtailment................ -- -- -- -- (3.1) --
------- ------- ------- ------ ------ ------
Net periodic benefit cost................. $ (0.2) $ 29.1 $ 32.6 $ 6.9 $ 8.7 $ 12.5
------- ------- ------- ------ ------ ------
</TABLE>
The assumed rate of future increases in the per capita cost of health care
(the health care trend rate) was 6.5% for 2000. It has been assumed that the
rate will be 8.0% for 2001, decreasing ratably to 6.0% in 2006. Increasing the
table of health care trend rates by one percent per year would have the effect
of increasing the benefit obligation by $25.9 and
F-20
<PAGE> 46
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the aggregate service and interest cost components by $2.3; a decrease of one
percent in the trend rate would reduce the benefit obligation by $22.1 and the
aggregate service and interest cost components by $2.0. To the extent that
actual experience differs from the inherent assumptions, the effect will be
amortized over the average future service of the covered active employees.
NOTE 18 SHAREHOLDERS' EQUITY
CAPITAL STOCK: The Company has authority to issue an aggregate of
250,000,000 shares of capital stock, of which 200,000,000 have been designated
as "Common Stock" having a par value of $1 per share and 50,000,000 have been
designated as "Preferred Stock" not having any par or stated value. Of the
shares of Preferred Stock, 300,000 shares have initially been designated as
"Series A Participating Cumulative Preferred Stock" (the "Series A Stock"). Such
Series A Stock is issuable pursuant to the provisions of a Rights Agreement
dated as of November 1, 1995 between the Company and The Bank of New York, as
Rights Agent (the "Rights Agreement"). Capitalized terms herein not otherwise
defined are as defined in the Rights Agreement.
The rights issued pursuant to the Rights Agreement (the "Rights") are
currently attached to, and trade with, the Common Stock. The Rights Agreement
provides, among other things, that if any person acquires more than 15% of the
outstanding Common Stock, the Rights will entitle the holders other than the
Acquiring Person (or its Affiliates or Associates) to purchase Series A Stock at
a significant discount to its market value. Rights beneficially owned by the
Acquiring Person, including any of its Affiliates or Associates, become null and
void and nontransferable. Rights generally are exercisable at any time after the
Distribution Date and at, or prior to, the earlier of the 10th anniversary of
the date of the Rights Agreement or the Redemption Date. The Company may,
subject to certain exceptions, redeem the Rights as provided for in the Rights
Agreement. Each 1/1,000th of a share of Series A Stock would be entitled to vote
and participate in dividends and certain other distributions on an equivalent
basis with one share of Common Stock. Under certain circumstances specified in
the Rights Agreement, the Rights become nonredeemable for a period of time and
the Rights Agreement may not be amended during such period.
As of December 31, 2000 and 1999, 57,243,719 shares of Common Stock were
held in treasury.
STOCK INCENTIVE PLANS: The Company's stock option incentive plans provide
for the awarding of options on common shares to employees, exercisable over
ten-year periods. Certain options become exercisable upon the attainment of
specified market price appreciation of the Company's common shares or at nine
years after the date of grant. Other options become exercisable upon the earlier
of the attainment of specified market price appreciation of the Company's common
shares or over a three-year period commencing with the date of grant. The
exercise price per share is the fair market value on the date each option is
granted. In 2000, 1999, and 1998, the Company made shares available for the
exercise of stock options by purchasing shares in the open market.
A summary of the status of the Company's stock option incentive plans as of
December 31, 2000, 1999, and 1998, and changes during the years then ended is
presented below (shares in thousands):
<TABLE>
<CAPTION>
2000
------------------------- 1999 1998
WEIGHTED- ------------------------- -------------------------
AVERAGE Weighted-Average Weighted-Average
SHARES EXERCISE PRICE Shares Exercise Price Shares Exercise Price
------ ---------------- ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year.... 11,752 $23.95 12,175 $21.24 11,457 $19.31
Granted................ 1,938 33.13 1,835 39.22 2,108 31.18
Exercised.............. (1,737) 18.89 (2,166) 21.06 (1,255) 19.62
Canceled or expired.... (97) 29.06 (92) 38.23 (135) 28.11
------ ------ ------ ------ ------ ------
</TABLE>
F-21
<PAGE> 47
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
2000
------------------------- 1999 1998
WEIGHTED- ------------------------- -------------------------
AVERAGE Weighted-Average Weighted-Average
SHARES EXERCISE PRICE Shares Exercise Price Shares Exercise Price
------ ---------------- ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at end of
year................. 11,856 $26.15 11,752 $23.95 12,175 $21.24
====== ====== ====== ====== ====== ======
Options exercisable at
year-end............. 8,721 $22.81 10,030 $21.34 10,347 $19.47
====== ====== ====== ====== ====== ======
Weighted-average fair
value of options
granted during the
year................. $18.22 $17.78 $11.68
====== ====== ======
</TABLE>
The Company accounts for these plans using the intrinsic value method
pursuant to Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," under which no compensation cost has been recognized. Had
compensation cost for these plans been determined based on the fair value at the
grant dates consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and earnings per share would have been
reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
2000 1999 1998
------ ------ --------
<S> <C> <C> <C>
Net income
As reported............................................... $264.5 $232.9 $1,532.5
Pro forma................................................. 245.5 217.2 1,520.1
Basic earnings per share
As reported............................................... $ 3.01 $ 2.61 $ 13.55
Pro forma................................................. 2.79 2.44 13.44
Diluted earnings per share
As reported............................................... $ 2.94 $ 2.53 $ 13.55
Pro forma................................................. 2.73 2.36 13.44
</TABLE>
Because the method of accounting prescribed by SFAS No. 123 is not required
to be applied to options granted prior to January 1, 1995, the resulting pro
forma effect may not be representative of that expected in future years.
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model and the following weighted-average
assumptions for grants in 2000, 1999, and 1998: dividend yield of 1.99%, 2.01%,
and 2.14% respectively; expected volatility of 63%, 51%, and 38%, respectively;
expected life of six years; and risk-free interest rates of 6.73%, 4.82%, and
5.66%, respectively.
The following table summarizes information about the Company's stock
options at December 31, 2000 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------- --------------------------
Weighted-Average
Range of Remaining Weighted-Average Weighted-Average
Exercise Prices Number Contractual Life Exercise Price Number Exercise Price
- --------------- ------ ---------------- ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C>
$ 8.72.................... 466 1.0 years $ 8.72 466 $ 8.72
15.39 -- 17.91........... 2,367 3.3 years 15.72 2,367 15.72
20.32 -- 28.38........... 3,810 5.1 years 23.15 3,810 23.15
30.31 -- 40.00........... 5,213 8.1 years 34.63 2,078 33.40
------ --------- ------ ------ ------
11,856 8,721
------ ------
</TABLE>
As of December 31, 2000, 6,161,146 shares were available for future grants.
Effective January 1, 2001, option shares available for future grants increased
by 2,177,375 as a result of the annual limitation formula established in the
1994 ITT Industries Incentive Stock Plan. The incentive stock plan also provides
for awarding restricted stock subject to a restriction period in which the stock
cannot be sold, exchanged, or pledged. During 2000, 1999 and 1998, 0, 30,000,
and 44,500 shares of re-
F-22
<PAGE> 48
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stricted stock were awarded under this plan respectively.
During 2000, 1999, and 1998, pursuant to the ITT Industries, 1996
Restricted Stock Plan for Non-Employee Directors, the Company awarded 13,626,
10,248, and 10,688 restricted shares with five-year restriction periods,
respectively, in payment of the annual retainer for such directors. Restrictions
may lapse earlier depending on certain circumstances.
NOTE 19 COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal actions including those related to
government contracts and environmental matters. Some of these actions include
claims for substantial amounts. Reserves have been established where the outcome
is probable and can be reasonably estimated. While the ultimate results of these
legal actions and related claims cannot be determined, the Company does not
expect that they will have a material adverse effect on its consolidated
financial position, results of operations, or cash flows.
In the ordinary course of business, and similar to other industrial
companies, the Company is subject to extensive and changing federal, state,
local, and foreign environmental laws and regulations. As of December 31, 2000,
the Company is responsible, or is alleged to be responsible for environmental
investigation and remediation at sites in various countries. The Company has
received notice that it is considered a potentially responsible party (PRP) at a
number of those sites by the United States Environmental Protection Agency (EPA)
and/or a similar state agency under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA or Superfund) or its state equivalent. In
many of these proceedings, the Company's liability is considered de minimis. In
Glendale, California, the Company has been involved in an environmental
proceeding relating to the San Fernando Valley aquifer. The Company is one of
numerous PRPs who are alleged by the EPA to have contributed to the
contamination of the aquifer. In January 1999, the EPA filed a complaint in the
United States District Court for the Central District of California against the
Company and Lockheed Martin Corporation, United States v. ITT Industries, Inc.
and Lockheed Martin Corp. CV99-00552 SVW AIJX, to recover costs it has incurred
in connection with the foregoing. In May 1999, the EPA and the PRPs, including
the Company and Lockheed Martin, reached a settlement, and a consent decree
requiring the PRPs to perform additional remedial activities was entered in
August 2000.
In a suit filed several years ago by the Company, in the California
Superior Court, Los Angeles County, ITT Corporation, et al. v. Pacific Indemnity
Corporation et al. against its insurers, the Company is seeking recovery of
costs it incurred in connection with the Glendale case and other environmental
matters. In April 1999, the Superior Court granted partial summary judgment
under California law, dismissing certain claims in the California action. The
California Court of Appeals has accepted the Company's petition for review of
the Superior Court's order. Argument was scheduled for August 1999; however, it
has now been continued to an indefinite date pending further developments in
other similar cases in California to which the Company is not a party. In April
1999, the Company initiated a new coverage action in New Jersey, ITT Industries,
Inc. et al. v. Federal Ins. Co. et al., (Middlesex County, No. L-1919-99),
involving new environmental insurance claims as well as claims pending but
dormant before the Court in California. The Company's insurers challenged the
convenience of New Jersey as the forum for this action. In its ruling on the
motion, the Court dismissed the non-New Jersey claims, deferred action on
certain New Jersey claims and retained jurisdiction over one New Jersey claim.
The Company has negotiated settlements with certain defendant insurance
companies, is engaged in negotiations with others, and is prepared to pursue its
legal remedies where reasonable negotiations are not productive.
The Company has accrued for environmental remediation costs associated with
identified sites consistent with the policy set forth in Note 1, "Accounting
Policies." In management's opinion, the total amounts accrued and related
receivables are appropriate based on existing facts and circumstances. It is
difficult to estimate the total costs of investigation and
F-23
<PAGE> 49
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
remediation due to various factors, including incomplete information regarding
particular sites and other potentially responsible parties, uncertainty
regarding the extent of contamination and the Company's share, if any, of
liability for such problems, the selection of alternative remedies, and changes
in clean-up standards. In the event that future remediation expenditures are in
excess of amounts accrued, management does not anticipate that they will have a
material adverse effect on the consolidated financial position, results of
operations, or liquidity of the Company.
NOTE 20 BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
Pumps & Defense Dispositions,
Complementary Products & Specialty Connectors & Other &
Products Services Products Switches Eliminations Corporate Total
------------- ---------- --------- ------------ ------------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
2000
Sales and revenues.......... $1,752.2 $1,334.6 $972.4 $774.6 $ (4.4) $ -- $4,829.4
Operating income............ 194.5 117.3 136.0 99.0 (0.4) (53.3) 493.1
Earnings (loss) of companies
on an equity basis........ (0.5) 2.2 1.8 -- -- -- 3.5
-------- -------- ------ ------ ------ -------- --------
Total segment profit........ 194.0 119.5 137.8 99.0 (0.4) (53.3) 496.6
Net interest expense........ (75.2)
Miscellaneous expense(a).... (1.5)
--------
Income before income tax
expense................... 419.9
========
Long-lived assets........... 331.5 138.8 209.9 160.9 1.2 23.1 865.4
Investment in companies on
an equity basis........... 6.9 37.2 7.6 0.4 -- -- 52.1
Total assets................ 1,616.0 861.0 717.1 751.8 78.8 586.7 4,611.4
Gross plant additions....... 52.9 35.1 47.3 45.8 -- (0.5) 180.6
Depreciation................ 52.9 26.1 33.6 35.7 -- 2.3 150.6
Amortization................ 18.1 8.5 8.6 10.0 -- 6.0 51.2
-------- -------- ------ ------ ------ -------- --------
1999
Sales and revenues.......... $1,735.0 $1,413.9 $959.5 $516.0 $ 7.8 $ -- $4,632.2
Operating income:
Before restructuring and
other special items..... 164.4 108.8 132.9 62.1 0.5 (58.1) 410.6
Restructuring and other
special items........... (5.5) 3.9 (3.5) 9.7 -- -- 4.6
-------- -------- ------ ------ ------ -------- --------
After restructuring and
other special items..... 158.9 112.7 129.4 71.8 0.5 (58.1) 415.2
Earnings (loss) of companies
on an equity basis........ (0.2) 2.1 1.2 -- -- -- 3.1
-------- -------- ------ ------ ------ -------- --------
Total segment profit........ 158.7 114.8 130.6 71.8 0.5 (58.1) 418.3
Net interest expense........ (46.8)
Miscellaneous expense(a).... (1.8)
--------
Income before income tax
expense................... $ 369.7
========
Long-lived assets........... 334.7 146.0 202.0 137.0 1.3 26.0 847.0
Investment in companies on
an equity basis........... 8.5 29.9 6.2 0.5 -- -- 45.1
Total assets................ 1,670.3 839.1 741.7 463.6 24.2 790.9 4,529.8
Gross plant additions....... 70.4 55.7 45.3 55.7 0.4 0.4 227.9
Depreciation................ 54.0 26.0 33.8 28.1 0.3 2.1 144.3
Amortization................ 18.2 3.1 7.2 0.8 2.1 5.4 36.8
-------- -------- ------ ------ ------ -------- --------
</TABLE>
F-24
<PAGE> 50
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
Pumps & Defense Dispositions,
Complementary Products & Specialty Connectors & Other &
Products Services Products Switches Eliminations Corporate Total
------------- ---------- --------- ------------ ------------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1998
Sales and revenues.......... $1,770.0 $1,293.4 $849.3 $527.9 $ 52.1 $ -- $4,492.7
Operating income:
Before restructuring and
other special items..... 145.5 97.9 90.9 52.7 5.4 (67.6) 324.8
Restructuring and other
special items........... (147.6) (69.6) (9.0) (102.4) 31.0 (101.8) (399.4)
-------- -------- ------ ------ ------ -------- --------
After restructuring and
other special items..... (2.1) 28.3 81.9 (49.7) 36.4 (169.4) (74.6)
Earnings (loss) of companies
on an equity basis........ 0.5 (1.6) 0.3 (0.3) -- -- (1.1)
-------- -------- ------ ------ ------ -------- --------
Total segment profit
(loss).................... (1.6) 26.7 82.2 (50.0) 36.4 (169.4) (75.7)
Net interest expense........ (82.4)
Miscellaneous expense(a).... (1.9)
--------
Loss from continuing
operations before income
tax....................... $ (160.0)
========
Long-lived assets........... 347.3 122.8 206.8 128.3 156.5 29.9 991.6
Investment in companies on
an equity basis........... 11.9 13.2 5.1 0.1 -- 0.5 30.8
Total assets................ 1,741.1 644.8 588.3 333.1 252.6 1,488.9 5,048.8
Gross plant additions....... 75.1 26.4 53.5 39.2 5.1 13.6 212.9
Depreciation................ 56.6 25.3 34.3 33.9 5.3 2.1 157.5
Amortization................ 20.6 3.1 7.3 1.0 6.1 -- 38.1
======== ======== ====== ====== ====== ======== ========
</TABLE>
(a) Excludes earnings of companies on an equity basis
<TABLE>
<CAPTION>
Net Sales and Revenues Long-Lived Assets
-------------------------------- --------------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
GEOGRAPHICAL INFORMATION
United States........................... $2,830.4 $2,696.1 $2,570.4 $497.3 $504.1 $639.0
Western Europe.......................... 1,216.2 1,194.7 1,227.8 297.2 282.0 312.3
Asia Pacific............................ 362.1 339.7 280.5 46.7 48.5 22.6
Other................................... 420.7 401.7 414.0 24.2 12.4 17.7
-------- -------- -------- ------ ------ ------
Total Segments.......................... $4,829.4 $4,632.2 $4,492.7 $865.4 $847.0 $991.6
======== ======== ======== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
SALES AND REVENUES BY PRODUCT CATEGORY
Pumps & Complementary Products............................ $1,793.9 $1,732.0 $1,767.8
Connectors & Switches..................................... 760.1 510.5 532.6
Defense Products.......................................... 730.3 844.4 765.7
Defense Services.......................................... 588.4 554.5 527.7
Fluid Handling............................................ 425.6 442.8 362.2
Engineered Valves......................................... 160.5 116.2 116.5
Brakes.................................................... 140.0 157.4 150.6
Shock Absorbers........................................... 82.6 90.3 91.5
Marine Products........................................... 80.3 114.9 87.8
Network Systems & Services................................ 40.6 39.8 45.1
Measuring Devices......................................... -- -- 17.3
Other..................................................... 27.1 29.4 27.9
-------- -------- --------
Total..................................................... $4,829.4 $4,632.2 $4,492.7
======== ======== ========
</TABLE>
Defense Products & Services had sales and revenues from the United States
government of $1,023.6, $1,054.0, and $1,008.6, for 2000, 1999, and 1998,
respectively. Apart from the
F-25
<PAGE> 51
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
United States government, no other government or commercial customer accounted
for 10% or more of sales and revenues for the Company.
CONNECTORS & SWITCHES: This business consists of the Company's products
marketed under the Cannon(R) brand. These products include connectors, switches
and cabling used in telecommunications, computing, aerospace and industrial
applications as well as network services. The Connectors & Switches segment
represents about 16.0% of the Company's sales and revenues and 20.1% of its
operating income for 2000.
DEFENSE PRODUCTS & SERVICES: The businesses in this segment are those that
directly serve the military and government agencies with products and services.
These include air traffic control systems, jamming devices that guard military
planes against radar guided missiles, digital combat radios, night vision
devices and satellite instruments. Approximately 43.1% of the sales and revenues
in this segment are generated through contracts for technical and support
services which the Company provides for the military and other government
agencies. Approximately 77%, 75%, and 78% of 2000, 1999, and 1998 Defense
Products & Services sales and revenues, respectively, were to the U.S.
government. The Defense Products & Services segment represents about 27.6% of
the Company's sales and revenues and 23.8% of its operating income in 2000.
PUMPS & COMPLEMENTARY PRODUCTS: This segment contains the Company's pump
businesses, including brands such as Flygt,(R) Goulds,(R) Bell and Gossett,(R)
A-C Pump,(R) Lowara(R) and Vogel,(R) making the Company the world's largest pump
producer. Businesses within this segment also supply mixers, heat exchangers and
related products with brand names such as McDonnell & Miller(R) and ITT
Standard(R) in addition to those mentioned above. This segment represents
approximately 36.3% of the Company's sales and revenues and approximately 39.4%
of its operating income for 2000.
SPECIALTY PRODUCTS: Businesses in the Specialty Products segment produce
engi-neered valves and switches for industrial and aerospace applications,
products for the marine and leisure markets, fluid handling materials such as
tubing systems and connectors for various automotive and industrial markets, and
specialty shock absorbers and brake friction materials for the transportation
industry. The Specialty Products segment accounts for approximately 20.1% of the
Company's sales and revenues and approximately 27.6% of its operating income for
2000.
DISPOSITIONS AND OTHER: This includes the operating results and assets of
units other than "Discontinued Operations," including other non-core businesses
and other businesses which have been sold.
CORPORATE: This primarily includes the operating results and assets of
corporate headquarters.
F-26
<PAGE> 52
ITT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 21 QUARTERLY RESULTS FOR 2000 AND 1999
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Year
-------- -------- -------- -------- --------
In millions, except per share amounts; (unaudited)
<S> <C> <C> <C> <C> <C>
2000
Sales and revenues(a)............................ $1,210.0 $1,227.5 $1,176.7 $1,215.2 $4,829.4
Costs of sales and revenues(a)(b)................ 911.0 915.9 873.5 886.1 3,586.5
Income from continuing operations................ 51.3 70.2 64.9 78.1 264.5
Net income....................................... 51.3 70.2 64.9 78.1 264.5
Income from continuing operations per share
-- Basic....................................... $ .58 $ .80 $ .74 $ .89 $ 3.01
-- Diluted..................................... $ .57 $ .78 $ .72 $ .87 $ 2.94
Net income per share
-- Basic....................................... $ .58 $ .80 $ .74 $ .89 $ 3.01
-- Diluted..................................... $ .57 $ .78 $ .72 $ .87 $ 2.94
Common stock information
Price range:
High........................................... $ 34.94 $ 36.19 $ 34.94 $ 39.63 $ 39.63
Low............................................ $ 22.38 $ 28.63 $ 29.63 $ 29.75 $ 22.38
Close.......................................... $ 31.06 $ 30.38 $ 32.44 $ 38.75 $ 38.75
Dividends per share.............................. $ .15 $ .15 $ .15 $ .15 $ .60
1999
Sales and revenues............................... $1,091.7 $1,191.7 $1,106.4 $1,242.4 $4,632.2
Costs of sales and revenues(b)................... 840.9 908.5 844.2 936.6 3,530.2
Income from continuing operations(c)............. 42.5 63.3 54.4 72.7 232.9
Net income....................................... 42.5 63.3 54.4 72.7 232.9
Income from continuing operations per share
-- Basic(d).................................... $ .46 $ .72 $ .62 $ .83 $ 2.61
-- Diluted(d).................................. $ .45 $ .70 $ .60 $ .80 $ 2.53
Net income per share
-- Basic....................................... $ .46 $ .72 $ .62 $ .83 $ 2.61
-- Diluted..................................... $ .45 $ .70 $ .60 $ .80 $ 2.53
Common stock information
Price range:
High........................................... $ 40.88 $ 41.50 $ 40.00 $ 36.25 $ 41.50
Low............................................ $ 35.00 $ 34.88 $ 30.50 $ 31.38 $ 30.50
Close.......................................... $ 35.38 $ 38.13 $ 31.81 $ 33.44 $ 33.44
Dividends per share.............................. $ .15 $ .15 $ .15 $ .15 $ .60
</TABLE>
(a) Due to the adoption of EITF 00-10, the first, second, and third quarters
were restated to increase sales and cost of sales by approximately $4 per
quarter. Prior year amounts were not restated since it was impractical to do
so.
(b) Includes research, development, and engineering expenses.
(c) 1999 income from continuing operations includes restructuring and other
special income of $2.9 after-tax.
(d) Quarterly and full year earnings per share amounts were calculated
independently based on the average common shares and potentially dilutive
shares applicable to each period. Because of the repurchase of common stock
in the first quarter 1999, the sum of the four quarters does not equal the
calculation for the full year 1999.
The above table reflects the range of market prices of the Company's common
stock for 2000 and 1999. The prices are as reported in the consolidated
transaction reporting system of the New York Stock Exchange, the principal
market in which the Company's common stock is traded, under the symbol "ITT".
The Company's common stock is listed on the following exchanges: Frankfurt,
London, Midwest, New York, Pacific, and Paris.
During the period from January 1, 2001 through February 28, 2001, the high
and low reported market prices of the Company's common stock were $44.25 and
$36.38. The Company declared dividends of $0.15 per common share in the first
quarter of 2001. There were approximately 36,917 holders of record of the
Company's common stock on February 28, 2001.
F-27
<PAGE> 53
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE CHARGED TO WRITE-OFF/
AT COSTS AND TRANSLATION PAYMENTS/ BALANCE AT
JANUARY 1 EXPENSES ADJUSTMENT OTHER DECEMBER 31
--------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 2000
Trade Receivables -- Allowance for
doubtful accounts................ $ 22.1 $ 9.0 $(0.9) $ (9.2) $ 21.0
Restructuring...................... 44.7 -- -- (26.2) 18.5
YEAR ENDED DECEMBER 31, 1999
Trade Receivables -- Allowance for
doubtful accounts................ $ 22.7 $ 5.0 $(1.3) $ (4.3) $ 22.1
Restructuring...................... 138.4 (4.6) -- (89.1) 44.7
YEAR ENDED DECEMBER 31, 1998
Trade Receivables -- Allowance for
doubtful accounts................ $ 19.0 $ 9.5 $ 0.2 $ (6.0) $ 22.7
Restructuring...................... 22.2 185.6 -- (69.4) 138.4
</TABLE>
S-1
<PAGE> 54
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 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, AND BY THE UNDERSIGNED IN THE
CAPACITY INDICATED.
ITT INDUSTRIES, INC.
By /s/ EDWARD W. WILLIAMS
-----------------------------------
EDWARD W. WILLIAMS
VICE PRESIDENT AND CORPORATE
CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
March 26, 2001
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LOUIS J. GIULIANO Chairman, President and Chief March 6, 2001
- ------------------------------------------ Executive Officer and Director
LOUIS J. GIULIANO
(PRINCIPAL EXECUTIVE OFFICER)
/s/ DAVID J. ANDERSON Senior Vice President and Chief March 6, 2001
- ------------------------------------------ Financial Officer
DAVID J. ANDERSON
(PRINCIPAL FINANCIAL OFFICER)
/s/ RAND V. ARASKOG Director March 6, 2001
- ------------------------------------------
RAND V. ARASKOG
/s/ CURTIS J. CRAWFORD Director March 6, 2001
- ------------------------------------------
CURTIS J. CRAWFORD
/s/ MICHEL DAVID-WEILL Director March 6, 2001
- ------------------------------------------
MICHEL DAVID-WEILL
/s/ TRAVIS ENGEN Director March 6, 2001
- ------------------------------------------
TRAVIS ENGEN
/s/ CHRISTINA A. GOLD Director March 6, 2001
- ------------------------------------------
CHRISTINA A. GOLD
/s/ JOHN J. HAMRE Director March 6, 2001
- ------------------------------------------
JOHN J. HAMRE
/s/ RAYMOND W. LEBOEUF Director March 6, 2001
- ------------------------------------------
RAYMOND W. LEBOEUF
/s/ EDWARD C. MEYER Director March 6, 2001
- ------------------------------------------
EDWARD C. MEYER
/s/ LINDA S. SANFORD Director March 6, 2001
- ------------------------------------------
LINDA S. SANFORD
</TABLE>
II-1
<PAGE> 55
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
<C> <C> <S> <C>
3
(a) ITT Industries, Inc.'s Restated
Articles of Incorporation........... Incorporated by reference to Exhibit
3(i) to ITT Industries' Form 10-Q for
the quarterly period ended June 30,
1997 (CIK No. 216228, File No.
1-5627).
(b) Form of Rights Agreement between ITT
Indiana, Inc. and The Bank of New
York, as Rights Agent............... Incorporated by reference to Exhibit 1
to ITT Industries' Form 8-A dated
December 20, 1995 (CIK No. 216228,
File No. 1-5627).
(c) ITT Industries, Inc.'s By-laws, as
amended............................. Incorporated by reference to Exhibit
3(c) to ITT Industries' Form 10-K for
the fiscal year ended December 31,
1999 (CIK No. 216228, File No.
1-5627).
4 Instruments defining the rights of security
holders, including indentures.............. Not required to be filed. The
Registrant hereby agrees to file with
the Commission a copy of any
instrument defining the rights of
holders of long-term debt of the
Registrant and its consolidated
subsidiaries upon request of the
Commission.
9 Voting Trust Agreement..................... None.
10 Material contracts
(a) ITT Industries 1997 Long-Term
Incentive Plan...................... Incorporated by reference to Appendix
II to ITT Industries' Proxy Statement
dated March 26, 1997 (CIK No.
216228, File No. 1-5627).
(b) ITT Industries 1997 Annual Incentive
Plan for Executive Officers......... Incorporated by reference to Appendix
I to ITT Industries' Proxy Statement
dated March 26, 1997 (CIK No.
216228, File No. 1-5627).
(c) Form of group life insurance plan for
non-employee members of the Board of
Directors........................... Incorporated by reference to exhibits
to ITT Delaware's Form 10-K for the
fiscal year ended December 31, 1983
(CIK No. 216228, File No. 1-5627).
(d) ITT Industries 1986 Incentive Stock
Plan................................ Incorporated by reference to ITT
Delaware's Registration Statement on
Form S-8 (Registration No. 33-5412)
(CIK No. 216228, File No. 1-5627).
(e) Form of indemnification agreement with
directors........................... Incorporated by reference to Exhibit
10(h) to ITT Industries' Form 10-K
for the fiscal year ended December
31, 1996 (CIK No. 216228, File No.
1-5627).
(f) ITT Industries, Inc. Senior Executive
Severance Pay Plan.................. Incorporated by reference to Exhibit
10.15 to ITT Industries' Form 8-B
dated December 20, 1995 (CIK No.
216228, File No. 1-5627).
</TABLE>
II-2
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
<C> <C> <S> <C>
(g) ITT Industries Special Senior
Executive Severance Pay Plan........ Incorporated by reference to Exhibit
10(j) to ITT Industries' Form 10-K
for the fiscal year ended December
31, 1996 (CIK No. 216228, File No.
1-5627).
(h) 1994 ITT Industries Incentive Stock
Plan................................ Incorporated by reference to Appendix
A to ITT Delaware's Proxy Statement
dated March 28, 1994 (CIK No.
216228, File No. 1-5627).
(i) ITT Industries 1996 Restricted Stock
Plan for Non-Employee Directors, as
amended............................. Incorporated by reference to Exhibit
10(a) to ITT Industries' Form 10-Q
for the quarterly period ended
September 30, 2000 (CIK No. 216228,
File No. 1-5627).
(j) Distribution Agreement among ITT
Corporation, ITT Destinations, Inc.
and ITT Hartford Group, Inc......... Incorporated by reference to Exhibit
10.1 to ITT Industries' Form 8-B dated
December 20, 1995 (CIK No. 216228,
File No. 1-5627).
(k) Intellectual Property License
Agreement between and among ITT
Corporation, ITT Destinations, Inc.
and ITT Hartford Group, Inc......... Incorporated by reference to Exhibit
10.2 to ITT Industries' Form 8-B dated
December 20, 1995 (CIK No. 216228,
File No. 1-5627).
(l) Tax Allocation Agreement among ITT
Corporation, ITT Destinations, Inc.
and ITT Hartford Group, Inc......... Incorporated by reference to Exhibit
10.3 to ITT Industries' Form 8-B dated
December 20, 1995 (CIK No. 216228,
File No. 1-5627).
(m) Employee Benefit Services and
Liability Agreement among ITT
Corporation, ITT Destinations, Inc.
and ITT Hartford Group, Inc......... Incorporated by reference to Exhibit
10.7 to ITT Industries' Form 8-B dated
December 20, 1995 (CIK No. 216228,
File No. 1-5627).
(n) Five-year Competitive Advance and
Revolving Credit Facility Agreement
dated as of November 10, 2000....... Incorporated by reference to Exhibit
10 to ITT Industries' Form 8-K Current
Report dated November 20, 2000 (CIK
No. 216228, File No. 1-5627).
(o) ITT Industries Enhanced Severance Pay
Plan................................ Incorporated by reference to Exhibit
10(s) to ITT Industries' Form 8-K
Current Report dated June 5, 1997
(CIK No. 216228, File No. 1-5627).
(p) Agreement with Valeo SA with respect
to the sale of the Automotive
Electrical Systems Business......... Incorporated by reference to Exhibit
10(b) to ITT Industries' Form 10-Q
Quarterly Report for the quarterly
period ended June 30, 1998 (CIK No.
216228, File No. 1-5627).
</TABLE>
II-3
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
<C> <C> <S> <C>
(q) Agreement with Continental AG with
respect to the sale of the
Automotive Brakes and Chassis
Business............................ Incorporated by reference to Exhibit
2.1 to ITT Industries' Form 8-K
Current Report dated October 13,
1998 (CIK No. 216228, File No.
1-5627).
(r) ITT Industries Deferred Compensation
Plan................................ Filed herewith.
11 Statement re computation of per share
earnings................................. Not required to be filed.
12 Statement re computation of ratios......... Filed herewith.
13 Annual report to security holders, Form
10-Q or quarterly report to security Not required to be filed.
holders..................................
16 Letter re change in certifying None.
accountant.................................
18 Letter re change in accounting None.
principles.................................
21 Subsidiaries of the Registrant............. Filed herewith.
22 Published report regarding matters
submitted to vote of security holders.... Not required to be filed.
23 Consent of Arthur Andersen LLP............. Filed herewith.
24 Power of attorney.......................... None.
99 Additional exhibits........................ None.
</TABLE>
II-4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.R
<SEQUENCE>2
<FILENAME>y42903ex10-r.txt
<DESCRIPTION>DEFERRED COMPENSATION PLAN
<TEXT>
<PAGE> 1
Exhibit 10(r)
ITT INDUSTRIES
DEFERRED COMPENSATION PLAN
Effective as of January 1, 1995
including amendments through November 1, 2000
<PAGE> 2
ITT INDUSTRIES DEFERRED COMPENSATION PLAN
The ITT Deferred Compensation Plan (the "Plan") was established by ITT
Corporation, a Delaware corporation ("Former ITT"), effective January 1, 1995.
The purpose of the Plan is to provide each Participant with a means of deferring
compensation in accordance with the terms of the Plan.
Effective as of December 19, 1995, Former ITT split into three separate
companies -- ITT Hartford Group, Inc., ITT Corporation, a Nevada corporation,
and ITT Industries, Inc. an Indiana corporation (the "Corporation"), which is
the successor to Former ITT.
Under the Employee Benefits Service and Liability Agreement dated November 1,
1995 (the "Agreement") the Corporation agreed to continue the Plan for eligible
employees of the Corporation or of any of its subsidiaries and to transfer the
liabilities attributable to participants who become employees of ITT
Corporation, a Nevada corporation, on December 19, 1995 to ITT Corporation.
Effective as of January 1, 1996, the Plan was amended to accept the liabilities
under the ITT Industries Excess Savings Plan attributable to salary deferrals,
excess matching contributions, and excess floor contributions credited with
respect to Base Salary deferred under this Plan and hold such amounts hereunder
in accordance with the provisions of the ITT Industries Excess Savings Plan as
set forth in Appendix A, attached hereto and made part hereof.
Effective as of October 1, 1997, January 1, 1998, April 1, 1998, January 1,
1999, and November 1, 2000, the Plan was further amended to make certain
administration changes and to unify the form and timing of Plan distributions,
respectively.
All benefits payable under this Plan, which constitutes a nonqualified, unfunded
deferred compensation plan for a select group of management or
highly-compensated employees under Title I of ERISA, shall be paid out of the
general assets of the Company.
<PAGE> 3
ITT INDUSTRIES DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS.................................................. 1
ARTICLE 2. PARTICIPATION................................................ 4
ARTICLE 3. DEFERRALS.................................................... 5
ARTICLE 4. MAINTENANCE OF ACCOUNTS...................................... 8
ARTICLE 5. PAYMENT OF BENEFITS.......................................... 10
ARTICLE 6. AMENDMENT OR TERMINATION..................................... 14
ARTICLE 7. GENERAL PROVISIONS........................................... 15
ARTICLE 8. ADMINISTRATION............................................... 19
APPENDIX A
<PAGE> 4
ARTICLE 1. DEFINITIONS
1.01 "ACCELERATION EVENT" shall mean an event which shall occur if:
(a) a report on Schedule 13D shall be filed with the Securities and
Exchange Commission pursuant to Section 13(d) of the Securities
Exchange Act of 1934 (the "Act") disclosing that any person (within the
meaning of Section 13(d) of the Act), other than the Corporation or a
subsidiary of the Corporation or any employee benefit plan sponsored by
the Corporation or a subsidiary of the Corporation, is the beneficial
owner directly or indirectly of twenty percent or more of the
outstanding common stock of the Corporation;
(b) any person (within the meaning of Section 13(d) of the Act), other than
the Corporation or a subsidiary of the Corporation or any employee
benefit plan sponsored by the Corporation or a subsidiary of the
Corporation, shall purchase shares pursuant to a tender offer or
exchange offer to acquire any common stock of the Corporation (or
securities convertible into such common stock) for cash, securities or
any other consideration, provided that after consummation of the offer,
the person in question is the beneficial owner (as such term is defined
in Rule 13d-3 under the Act), directly or indirectly, of fifteen
percent or more of the outstanding common stock of the Corporation
(calculated as provided in paragraph (d) of Rule 13d-3 under the Act in
the case of rights to acquire common stock);
(c) the stockholders of the Corporation shall approve (i) any consolidation
or merger of the Corporation in which the Corporation is not the
continuing or surviving corporation or pursuant to which shares of
common stock of the Corporation would be converted into cash,
securities or other property, other than a merger of the Corporation in
which holders of common stock of the Corporation immediately prior to
the merger have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger as immediately
before, or (ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all the assets of the Corporation; or
(d) there shall have been a change in a majority of the members of the
Board of Directors of the Corporation within a 12-month period, unless
the election or nomination for election by the Corporation's
stockholders of each new director during such 12-month period was
approved by the vote of two-thirds of the directors then still in
office who were directors at the beginning of such 12-month period.
1.02 "ADMINISTRATIVE COMMITTEE" shall mean the person or persons appointed
to administer the Plan as provided in Section 8.01.
1.03 "ASSOCIATED COMPANY" shall mean any division, subsidiary or affiliated
company of the Corporation which is an Associated Company, as defined
in the ITT Industries Salaried Retirement Plan (formerly known as the
Retirement Plan for Salaried Employees of ITT Corporation).
1.04 "BASE SALARY" shall mean the annual base fixed compensation paid
periodically during the calendar year, determined prior to any pre-tax
contributions under a "qualified cash or deferred arrangement" (as
defined under Code Section 401(k) and its applicable regulations) or
under a
<PAGE> 5
Page 2
"cafeteria plan" (as defined under Code Section 125 and its applicable
regulations) and any deferrals under Article 3, Appendix A or another
unfunded deferred compensation plan maintained by the Corporation, but
excluding any overtime, bonuses, foreign service allowances or any
other form of compensation, except to the extent otherwise deemed "Base
Salary" for purposes of the Plan under rules as are adopted by the
Compensation and Personnel Committee.
1.05 "BENEFICIARY" shall mean the person or persons designated by a
Participant pursuant to the provisions of Section 5.07 in a time and
manner determined by the Administrative Committee to receive the
amounts, if any, payable under the Plan upon the death of the
Participant.
1.06 "BONUS" shall mean the cash amount, if any, awarded to an employee of
the Company under the Company's executive bonus program, or other
compensation program designated by the Compensation and Personnel
Committee as a bonus hereunder.
1.07 "BOARD OF DIRECTORS" OR "BOARD" shall mean the Board of Directors of
the Corporation.
1.08 "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
1.09 "COMPANY" shall mean the Corporation, and any successor thereto, with
respect to its employees and any Associated Company authorized by the
Compensation and Personnel Committee to participate in the Plan, with
respect to their employees.
1.10 "COMPENSATION AND PERSONNEL COMMITTEE" shall mean the Compensation and
Personnel Committee of the Board of Directors.
1.11 "CORPORATION" shall mean ITT Industries, Inc., an Indiana corporation
(successor to ITT Corporation, a Delaware corporation), or any
successor by merger, purchase, or otherwise.
1.12 "DEFERRAL ACCOUNT" shall mean the bookkeeping account maintained for
each Participant to record the amount of Bonus and/or Base Salary such
Participant has elected to defer in accordance with Article 3, adjusted
pursuant to Article 4.
1.13 "DEFERRAL AGREEMENT" shall mean the completed agreement, including any
amendments, attachments and appendices thereto, in such form approved
by the Administrative Committee, between an Eligible Executive and the
Company, under which the Eligible Executive agrees to defer a portion
of his Bonus and/or his Base Salary.
1.14 "DEFERRALS" shall mean the amount of deferrals credited to a
Participant pursuant to Section 3.02.
1.15 "EFFECTIVE DATE" shall mean January 1, 1995.
1.16 "ELIGIBLE EXECUTIVE" shall mean an Employee who is eligible to
participate in the Plan as provided in Section 2.01.
1.17 "EMPLOYEE" shall mean a person who is employed by the Company.
<PAGE> 6
Page 3
1.18 "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
1.19 "PARTICIPANT" shall mean, except as otherwise provided in Article 2,
each Eligible Executive who has executed a Deferral Agreement pursuant
to the requirements of Section 2.02 and is credited with an amount
under Section 3.03.
1.20 "PLAN" shall mean the ITT Industries Deferred Compensation Plan (which
was formerly known as the ITT Deferred Compensation Plan for 1995, the
ITT Industries Deferred Compensation Plan for 1996, and the ITT
Industries Deferred Compensation Plan for 1997) as set forth in this
document and the appendices and schedules thereto, as it may be amended
from time to time.
1.21 "PLAN YEAR" shall mean the calendar year.
1.22 "REPORTING DATE" shall mean the last business day of each calendar
month following the Effective Date, or such other day as the
Administrative Committee may determine. For this purpose, a "business
day" is any day on which the New York Stock Exchange is open.
1.23 "RETIREMENT" shall mean (i) with respect to an Eligible Executive, any
termination of employment by an Eligible Executive after the date the
Eligible Executive is eligible for an early, normal or late retirement
benefit under the ITT Industries Salaried Retirement Plan (formerly
known as the ITT Corporation Retirement Plan for Salaried Employees),
or would have been eligible had he been a participant in such Plan.
<PAGE> 7
Page 4
ARTICLE 2. PARTICIPATION
2.01 ELIGIBILITY
(a) With respect to Plan Years commencing prior to January 1, 2001, an
Eligible Executive shall be an Employee designated as eligible to
participate in this Plan by the Compensation and Personnel Committee or
its delegate.
(b) Effective as of November 1, 2000, an Employee whose Base Salary as of
October 31 of a calendar year equals or exceeds $200,000 shall be an
Eligible Executive with respect to the Plan Year following such
calendar year and thereby eligible to participate in this Plan and
execute a Deferral Agreement under this Plan with respect to Bonus
and/or Base Salary which would be payable in the Plan Year following
such October 31.
2.02 IN GENERAL
(a) An individual who is determined to be an Eligible Executive with
respect to a Plan Year and who desires to have deferrals credited on
his behalf pursuant to Article 3 for such Plan Year must execute a
Deferral Agreement with the Administrative Committee authorizing
Deferrals under this Plan for such year in accordance with the
provisions of Sections 3.01 and 3.02.
(b) The Deferral Agreement shall be in writing and be properly completed
upon a form approved by the Administrative Committee, which shall be
the sole judge of the proper completion thereof. Such Deferral
Agreement shall provide, subject to the provisions of Section 3.02, for
the deferral of a portion of the Eligible Executive's Bonus and/or Base
Salary earned after the effective date of the election and shall
include such other provisions as the Administrative Committee deems
appropriate.
2.03 TERMINATION OF PARTICIPATION
(a) Participation shall cease when all benefits to which a Participant is
entitled to hereunder are distributed to him.
(b) If a former Participant who has terminated employment with the Company
and whose participation in the Plan ceased under Section 2.03(a) is
reemployed as an Eligible Executive, the former Participant may again
become a Participant in accordance with the provisions of Section 2.02.
<PAGE> 8
Page 5
ARTICLE 3. DEFERRALS
3.01 FILING REQUIREMENTS
(a) Prior to the close of business on the date or dates specified by the
Administrative Committee in a Plan Year and except as otherwise
provided below, an Eligible Executive may elect, subject to Section
3.02(a), to defer a portion of his Bonus payable in the next calendar
year and/or a portion of his Base Salary that is otherwise earned and
payable in the next calendar year by filing a Deferral Agreement with
the Administrative Committee.
(b) A Participant's election to defer a portion of his Bonus or Base Salary
for any calendar year shall become irrevocable on the last day the
deferral of such Bonus or Base Salary may be elected under Section
3.01(a), except as otherwise provided in Section 3.02(c) or 3.05. A
Participant may revoke or change his election to defer a portion of
Bonus or Base Salary at any time prior to the date the election becomes
irrevocable. Any such revocation or change shall be made in a form and
manner determined by the Administrative Committee.
(c) A Participant's Deferral Agreement shall only apply to a Bonus
determined after the Deferral Agreement is filed with the
Administrative Committee under Section 3.01(a). A Participant's
Deferral Agreement shall apply only with respect to Base Salary earned
in the calendar year following the Plan Year in which the Deferral
Agreement is filed with the Administrative Committee under Section
3.01(a). Subject to the provisions of Section 3.02, an Eligible
Executive must file, in accordance with the provisions of Section
3.01(a), a new Deferral Agreement for each calendar year the Eligible
Executive is eligible for and elects to defer a portion of his Bonus or
Base Salary.
(d) If a Participant ceases to be an Eligible Executive but continues to be
employed by the Company, he shall continue to be a Participant and his
Deferral Agreement currently in effect for the Plan Year shall remain
in force for the remainder of such Plan Year, but such Participant
shall not be eligible to defer any portion of his Bonus or Base Salary
earned in a subsequent Plan Year until such time as he shall once again
become an Eligible Executive.
(e) Notwithstanding the foregoing, effective as of January 1, 1999, an
Eligible Executive shall not be permitted under the provisions of this
Plan to make an election to defer Base Salary earned on or after
January 1, 1999.
3.02 AMOUNT OF DEFERRAL
(a) (i) The Compensation and Personnel Committee or its delegate
may determine prior to October 31 of a calendar year that an
Eligible Executive may defer all or a portion of his Bonus
that is otherwise payable in the next Plan Year. An Eligible
Executive shall be given written notice of the opportunity to
defer all or a portion of his Bonus at least ten business days
prior to the date the Deferral Agreement for the applicable
Plan Year must be submitted to the Administrative Committee.
(ii) With respect to calendar years commencing prior to January 1,
1999, the Compensation and Personnel Committee or its delegate
may determine prior to October 31 of a calendar
<PAGE> 9
Page 6
year that an Eligible Executive may defer a portion of his
Base Salary that is otherwise earned and payable in the next
Plan Year. An Eligible Executive shall be given written notice
of the opportunity to defer a portion of his Base Salary at
least ten business days prior to the date the Deferral
Agreement for the applicable Plan Year must be submitted to
the Administrative Committee. Notwithstanding any Plan
provisions to the contrary, effective as of January 1, 1999,
deferrals of Base Salary earned on or after January 1, 1999
shall not be permitted under the provisions of this Plan.
(b) The Administrative Committee may establish maximum or minimum limits on
the amount of any Bonus or Base Salary which may be deferred and/or the
timing of such deferral. Eligible Executives shall be given written
notice of any such limits at least ten business days prior to the date
they take effect.
(c) Notwithstanding anything in this Plan to the contrary, if an Eligible
Executive:
(i) receives a withdrawal of deferred cash contributions on
account of hardship from any plan which is maintained by the
Company or an Associated Company and which meets the
requirements of Code Section 401(k) (or any successor
thereto); and
(ii) is precluded from making contributions to such 401(k) plan for
at least 12 months after receipt of the hardship withdrawal,
no amounts shall be deferred under this Plan under the Eligible
Executive's Deferral Agreement with respect to Bonus or Base Salary
until such time as the Eligible Executive is again permitted to
contribute to such 401(k) plan. Any Bonus or Base Salary payment which
would have been deferred pursuant to a Deferral Agreement but for the
application of this Section 3.02(c) shall be paid to the Eligible
Executive as if he had not entered into the Deferral Agreement.
3.03 CREDITING TO DEFERRAL ACCOUNT
The amount of Deferrals shall be credited to such Participant's
Deferral Account on the day such Bonus or Base Salary would have
otherwise been paid to the Participant in the absence of a Deferral
Agreement. Deferrals credited to a Participant's Deferral account which
are deemed invested in a Corporation phantom stock fund will be
credited based on the fair market value of the Corporation's common
stock on that day.
3.04 VESTING
A Participant shall at all times be 100% vested in his Deferral
Account.
3.05 HARDSHIP
Notwithstanding the foregoing provisions of this Article 3, a
Participant may completely cease Deferrals made under all Deferral
Agreements then in effect with respect to the Participant upon the
Participant providing the Compensation and Personnel Committee with
such evidence of severe financial hardship as the Compensation and
Personnel Committee may deem appropriate. In the event the Compensation
and Personnel Committee finds the Participant has incurred a
<PAGE> 10
Page 7
severe financial hardship, the Participant's Deferrals shall cease as
of the first practicable payroll period following the Compensation and
Personnel Committee's decision. In the event the Participant wishes to
recommence Deferrals starting in a subsequent calendar year, the
Participant may do so by duly completing, executing, and filing the
appropriate Deferral Agreement with the Administrative Committee in
accordance with Section 3.01, provided said Participant is an Eligible
Executive at that time.
<PAGE> 11
Page 8
ARTICLE 4. MAINTENANCE OF ACCOUNTS
4.01 ADJUSTMENT OF ACCOUNT
(a) As of each Reporting Date, each Deferral Account shall be credited or
debited with the amount of earnings or losses with which such Deferral
Account would have been credited or debited, assuming it had been
invested in one or more investment funds, or earned the rate of return
of one or more indices of investment performance, designated by the
Administrative Committee and elected by the Participant pursuant to
Section 4.02 for purposes of measuring the investment performance of
his Deferral Account. Any portion of a Participant's Deferral Account
deemed invested in a Corporation phantom stock fund shall be credited
with dividend equivalents, as and when dividends are paid on the
Corporation's common stock, which shall be deemed invested in
additional shares of such phantom stock.
(b) The Administrative Committee shall designate at least one investment
fund or index of investment performance and may designate other
investment funds or investment indices (including a Corporation phantom
stock fund) to be used to measure the investment performance of a
Participant's Deferral Account. The designation of any such investment
funds or indices shall not require the Company to invest or earmark
their general assets in any specific manner. The Administrative
Committee may change the designation of investment funds or indices
from time to time, in its sole discretion, and any such change shall
not be deemed to be an amendment affecting Participants' rights under
Section 6.02.
4.02 INVESTMENT PERFORMANCE ELECTIONS
In the event the Administrative Committee designates more than one
investment fund or index of investment performance under Section 4.01,
each Participant shall file an investment election with the
Administrative Committee with respect to the investment of his Deferral
Account within such time period and on such form as the Administrative
Committee may prescribe. The election shall designate the investment
fund or funds or index or indices of investment performance which shall
be used to measure the investment performance of the Participant's
Deferral Account.
4.03 CHANGING INVESTMENT ELECTIONS
In the event the Administrative Committee designates more than one
investment fund or index of investment performance under Section 4.01,
a Participant may change his election of the investment fund or funds
or index or indices of investment performance used to measure the
future investment performance of both his future Deferrals and his
existing account balance, by filing an appropriate written notice with
the Administrative Committee or its delegate at least 15 days, or such
other period as determined by the Administrative Committee, in advance
of the date such election is effective. The election shall be effective
as of the first business day of the calendar quarter following the
month in which the notice is filed. Notwithstanding the foregoing,
effective as of October 1, 1997, the election shall be effective as of
the first business day of the last month in the calendar quarter
following the month in which the notice is filed, or, effective as of
May 1, 2000, such earlier date as prescribed by the Administrative
Committee on a basis uniformly applicable to all Participants similarly
situated.
<PAGE> 12
Page 9
4.04 INDIVIDUAL ACCOUNTS
The Administrative Committee shall maintain, or cause to be maintained
on its books, records showing the individual balance of each
Participant's Deferral Account. At least once a year each Participant
shall be furnished with a statement setting forth the value of his
Deferral Account.
4.05 VALUATION OF ACCOUNTS
(a) The Administrative Committee shall value or cause to be valued each
Participant's Deferral Account at least quarterly. On each Reporting
Date there shall be allocated to the Deferral Account of each
Participant the appropriate amount determined in accordance with
Section 4.01.
(b) Whenever an event requires a determination of the value of a
Participant's Deferral Account, the value shall be computed as of the
Reporting Date immediately preceding the date of the event, except as
otherwise specified in this Plan.
<PAGE> 13
Page 10
ARTICLE 5. PAYMENT OF BENEFITS
5.01 COMMENCEMENT OF PAYMENT
(a) The following provisions shall apply with respect to an Eligible
Executive who becomes a Participant prior to January 1, 1998:
(i) Except as otherwise provided in paragraph (d) below, the
distribution of the portion of the Participant's Deferral
Account attributable to deferrals of Bonus or Base Salary
which would otherwise be payable on or after January 1, 1998
shall commence, pursuant to Section 5.02, on or as soon as
practicable after the occurrence of any distribution event
made available under procedures established from time to time
by the Administrative Committee and as designated by the
Participant on his first Deferral Agreement filed with respect
to Bonus or Base Salary payable on and after January 1, 1998
("Common Distribution Date").
(ii) Except as otherwise provided in paragraph (d) below, the
distribution of the portion of the Participant's Deferral
Account attributable to deferrals of Bonus or Base Salary
which would have otherwise been paid prior to January 1, 1998
shall commence on or as soon as practicable after the
occurrence of the distribution event designated by the
Participant on his Deferral Agreement applicable to each
particular deferral election ("Distribution Event Date(s)"),
unless the Participant makes an election by duly completing,
executing and filing with the Administrative Committee prior
to October 31, 1997 the appropriate forms to have the
deferrals made with respect to 1995, 1996 or 1997 paid on his
Common Distribution Date.
(b) Except as otherwise provided in paragraph (d) below, with respect to an
Eligible Executive who first becomes a Participant on or after January
1, 1998, the distribution of the Participant's Deferral Account shall
commence, pursuant to Section 5.02, on or as soon as practicable after
the occurrence of any distribution event made available under
procedures established from time to time by the Administrative
Committee and as designated by the Participant on his initial Deferral
Agreement ("Common Distribution Date").
(c) In the event a Participant elects pursuant to paragraphs (a) or (b)
above to defer to a specific calendar date in a specific calendar year,
he may not elect a calendar date which occurs prior to the close of the
calendar year following the calendar year in which he executed the
Deferral Agreement.
(d) Notwithstanding the foregoing, in the event a Participant terminates
employment for reasons other than Retirement prior to his Common
Distribution Date and/or any Distribution Event Date(s) applicable to
deferrals made with respect to 1995, 1996, or 1997, the distribution of
his Deferral Account shall commence, pursuant to Section 5.02, as soon
as practicable after his termination of employment; provided, however,
if a Participant whose employment terminates on or after April 1, 1998
has prior to the date of his termination of employment, in accordance
with the procedures prescribed by the Administrative Committee, made a
special termination election, the distribution of his Deferral Account
shall commence, pursuant to Section 5.02, as soon as practicable after
the occurrence of the termination distribution date designated by the
Participant on the appropriate special termination election form
prescribed by the Administrative Committee ("Special Effective
Termination Distribution Date"). However for a special termination
election
<PAGE> 14
Page 11
to be effective it must be made in a calendar year prior to the
calendar year in which any portion of the Participant's Deferral
Account is first to become payable after taking this election into
account and a full six months must pass between the date the
Participant duly makes this election and the date on which any portion
of the Participant's Deferral Account is first to become payable after
taking this election into account.
(e) A Participant shall not change his designation of the distribution
event which entitles him to a distribution of his Deferral Account,
except as otherwise provided in Section 5.03 below.
(f) Notwithstanding any Plan provision to the contrary, the distribution to
a Participant who is an "insider" (as defined in Section 16 of the Act)
and who has elected to have any portion of his Deferral Account
invested in the Corporation phantom stock fund, shall be subject to the
advance approval of the Compensation and Personnel Committee.
5.02 METHOD OF PAYMENT
(a) Except as otherwise provided in paragraphs (b) and (c) below:
(i) at the time a Participant makes an election of his
distribution event pursuant to the provisions of Sections
5.01(a) or (b), the Participant shall elect that the portion
of his Deferral Account to which such distribution event is
applicable shall be made payable as of such distribution event
under one of the following methods of payment:
(1) ratable annual cash installments for a period of
years, not to exceed 15 years, designated by the
Participant on his Deferral Agreement,
(2) a single lump sum cash payment, or
(3) any other form of payment approved by the
Compensation and Personnel Committee; and
(ii) at the time a Participant makes an election of a Special
Effective Termination Distribution Date pursuant to the
provisions of Section 5.01(d), the Participant shall elect
that his Deferral Account shall be made payable as of such
Special Effective Termination Distribution Date under one of
the following methods of payment:
(1) ratable annual cash installments for a period of five
years, or
(2) a single lump sum cash payment.
During an installment payment period, the Participant's Deferral
Account shall continue to be credited with earnings or losses as
described in Section 4.01. The first installment or lump sum payment
shall be made as soon as administratively practicable following the
Reporting Date coincident with or preceding the distribution event
designated pursuant to Section 5.01 or 5.03. Subsequent installments,
if any, shall be paid as soon as administratively practicable following
the anniversary of said distribution event in the following calendar
year and each subsequent year of the installment period. The amount of
each installment shall equal the balance in the Participant's Deferral
Account as of each Reporting Date of determination divided by the
number of remaining installments (including the installment being
determined).
<PAGE> 15
Page 12
(b) Notwithstanding the foregoing, in the event payment is to be made
pursuant to Section 5.01(d) to a Participant who does not have a
Special Effective Termination Distribution Date election in effect as
of his date of termination of employment, a lump sum payment shall be
made as soon as administratively practicable following the Reporting
Date coincident with or next following the Participant's termination of
employment.
(c) If a Participant dies before payment of the entire balance of his
Deferral Account, an amount equal to the unpaid portion thereof as of
the date of his death shall be payable in one lump sum to his
Beneficiary as soon as practicable after the Reporting Date coincident
with or next following the Participant's date of death.
(d) A Participant shall not change his method of payment, except as
otherwise provided in Section 5.03.
5.03 CHANGE OF DISTRIBUTION ELECTION
A Participant may change his elections of a Common Distribution Date or
a Special Effective Termination Distribution Date under Section 5.01 or
the method of payment under Section 5.02 applicable to the portion of
his Deferral Account payable at said dates each October by duly
completing, executing, and filing with the Administrative Committee
prior to such distribution date a new election on an appropriate form
designated by the Administrative Committee; provided however, that for
any such change of election to be effective it must be made in the
calendar year prior to the calendar year during which any portion of
the Participant's Deferral Account is first to become payable after
taking the change into account and a full six months must pass between
the date the Participant duly makes the change of election and the date
on which any portion of the Participant's Deferral Account is first to
become payable after taking the change into account.
5.04 HARDSHIP
Payment of a Participant's Deferral Account shall not commence prior to
a Participant's designated distribution date, except that the
Compensation and Personnel Committee may, if it determines a severe
unforeseeable financial hardship exists which cannot be met from other
sources, approve a request by the Participant for a withdrawal from his
Deferral Account. Such request shall be made in a time and manner
determined by the Administrative Committee. The payment made from a
Participant's Deferral Account pursuant to the provisions of this
Section 5.04 shall not be in excess of the amount necessary to meet
such financial hardship of the Participant, including amounts necessary
to pay any federal, state or local income taxes.
5.05 PAYMENT UPON THE OCCURRENCE OF AN ACCELERATION EVENT
Notwithstanding the foregoing provisions of this Article 5, upon the
occurrence of an Acceleration Event, every Participant who is an
Eligible Executive or a former Eligible Executive shall automatically
receive the entire balance of his Deferral Accounts in a single lump
sum payment. Such lump sum payment shall be made as soon as practicable
on or after the Acceleration Event. If such Participant dies after such
Acceleration Event, but before receiving such payment, it shall be made
to his Beneficiary.
<PAGE> 16
Page 13
5.06 TAX INCREASES
Notwithstanding the provisions of Section 5.01, in the event a
Participant's Deferral Account is being paid in installment payments
under Section 5.02, and during said payout period Federal personal
income tax rates for the highest marginal tax rate are scheduled to
increase by 5 or more percentage points, at the direction of the
Administrative Committee, any remaining installment payments to be paid
after the effective date of such increase shall be paid in one lump sum
prior to said effective date.
5.07 DESIGNATION OF BENEFICIARY
Each Participant shall file with the Administrative Committee a written
designation of one or more persons as the Beneficiary who shall be
entitled to receive the amount, if any, payable under the Plan upon his
death pursuant to Section 5.02(b) or 5.05. A Participant may, from time
to time, revoke or change his Beneficiary designation without the
consent of any prior Beneficiary by filing a new designation with the
Administrative Committee. The last such designation received by the
Administrative Committee shall be controlling; provided, however, that
no designation, or change or revocation thereof, shall be effective
unless received by the Administrative Committee prior to the
Participant's death, and in no event shall it be effective as of a date
prior to such receipt. If no such Beneficiary designation is in effect
at the time of a Participant's death, or if no designated Beneficiary
survives the Participant, the Participant's surviving spouse, if any,
shall be his Beneficiary, otherwise the person designated as
beneficiary by the Participant under the ITT Industries Salaried Group
Life Insurance Plan shall be his Beneficiary, and shall receive the
payment of the amount, if any, payable under the Plan upon his death;
provided, however, that if the life insurance benefit has been
assigned, the Beneficiary shall be the Participant's estate.
5.08 DEBITING ACCOUNTS
Any amounts debited from a Participant's Deferral Account by reason of
a distribution, withdrawal, or otherwise under this Article 5, shall be
debited from the Participant's Deferral Account and the investment
options under which such amount is credited, and such other accounts,
subaccounts, options, or other allocations in the same proportion that
the Participant's entire Deferral Account is credited at the time such
debit is made, as determined by the Administrative Committee.
<PAGE> 17
Page 14
ARTICLE 6. AMENDMENT OR TERMINATION
6.01 RIGHT TO TERMINATE
Notwithstanding any Plan provision to the contrary, the Corporation
may, by action of the Board of Directors, terminate this Plan and the
related Deferral Agreements at any time. In the event the Plan and
related Deferral Agreements are terminated, each Participant or
Beneficiary shall receive a single sum payment in cash equal to the
balance of the Participant's Deferral Account. The single sum payment
shall be made as soon as practicable following the date the Plan is
terminated and shall be in lieu of any other benefit which may be
payable to the Participant or Beneficiary under this Plan.
6.02 RIGHT TO AMEND
The Compensation and Personnel Committee or its delegate may amend or
modify this Plan and the related Deferral Agreements in any way either
retroactively or prospectively. However, except that without the
consent of the Participant or Beneficiary, if applicable, no amendment
or modification shall reduce or diminish such person's right to receive
any benefit accrued hereunder prior to the date of such amendment or
modification, and after the occurrence of an Acceleration Event, no
modification or amendment shall be made to Section 5.05 or Section 6.01
under Appendix A, attached hereto and made part hereof. A change in any
investment fund or index under Section 4.01 shall not be deemed to
adversely affect any Participant's rights to his Deferral Account.
Notice of an amendment or modification to the Plan shall be given in
writing to each Participant and Beneficiary of a deceased Participant
having an interest in the Plan.
<PAGE> 18
Page 15
ARTICLE 7. GENERAL PROVISIONS
7.01 FUNDING
All amounts payable in accordance with this Plan shall constitute a
general unsecured obligation of the Company. Such amounts, as well as
any administrative costs relating to the Plan, shall be paid out of the
general assets of the Company. The Administrative Committee may decide
that a Participant's Deferral Account may be reduced to reflect
allocable administrative expenses.
7.02 NO CONTRACT OF EMPLOYMENT
The Plan is not a contract of employment and the terms of employment of
any Participant shall not be affected in any way by this Plan or
related instruments, except as specifically provided therein. The
establishment of the Plan shall not be construed as conferring any
legal rights upon any person for a continuation of employment, nor
shall it interfere with the rights of the Company to discharge any
person and to treat him without regard to the effect which such
treatment might have upon him under this Plan. Each Participant and all
persons who may have or claim any right by reason of his participation
shall be bound by the terms of this Plan and all Deferral Agreements
entered into pursuant thereto.
7.03 UNSECURED INTEREST
Neither the Company nor the Compensation and Personnel Committee nor
the Administrative Committee in any way guarantees the performance of
the investment funds or indices a Participant may designate under
Article 4. No special or separate fund shall be established, and no
segregation of assets shall be made, to assure the payments thereunder.
No Participant hereunder shall have any right, title, or interest
whatsoever in any specific assets of the Company. Nothing contained in
this Plan and no action taken pursuant to its provisions shall create
or be construed to create a trust of any kind or a fiduciary
relationship between the Company and a Participant or any other person.
To the extent that any person acquires a right to receive payments
under this Plan, such right shall be no greater than the right of any
unsecured creditor of the Company.
7.04 FACILITY OF PAYMENT
In the event that the Administrative Committee shall find that a
Participant or Beneficiary is incompetent to care for his affairs or is
a minor, the Administrative Committee may direct that any benefit
payment due him, unless claim shall have been made therefor by a duly
appointed legal representative, be paid on his behalf to his spouse, a
child, a parent or other relative, and any such payment so made shall
thereby be a complete discharge of the liability of the Company and the
Plan for that payment.
7.05 WITHHOLDING TAXES
The Company shall have the right to deduct from each payment to be made
under the Plan any required withholding taxes.
<PAGE> 19
Page 16
7.06 NONALIENATION
Subject to any applicable law, no benefit under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any attempt to do so
shall be void, nor shall any such benefit be in any manner liable for
or subject to garnishment, attachment, execution or levy, or liable for
or subject to the debts, contracts, liabilities, engagements or torts
of a person entitled to such benefits.
7.07 TRANSFERS
(a) Notwithstanding any Plan provision to the contrary, in the event the
Corporation (i) sells, causes the sale of, or sold the stock or assets
of any employing company in the controlled group of the Corporation to
a third party or (ii) distributes or distributed to the holders of
shares of the Corporation's common stock all of the outstanding shares
of common stock of a subsidiary or subsidiaries of the Corporation and,
as a result of such sale or distribution, such company or its employees
are no longer eligible to participate hereunder, the Compensation and
Personnel Committee, in its sole discretion, may treat such event as
not constituting a termination of employment and direct that the
liabilities with respect to the benefits accrued under this Plan for a
Participant who, as a result of such sale or distribution, is no longer
eligible to participate in this Plan, shall (with the approval of the
new employer), be transferred to a similar plan of such new employer
and become a liability thereunder provided that no provisions of such
new plan or amendment thereof shall reduce the balance of the
Participants' Deferral Accounts as of the date of such transfer, as
adjusted for investment gains or losses. Upon such transfer (and
acceptance thereof), the liabilities for such transferred benefits
shall become the obligation of the new employer and the liability under
this Plan for such benefits shall cease.
(b) Notwithstanding any Plan provision to the contrary, at the discretion
and direction of the Corporation, liabilities with respect to benefits
accrued by a Participant under a plan maintained by such Participant's
former employer may be transferred to this Plan and upon such transfer
become the obligation of the Company.
7.08 CLAIMS PROCEDURE
(a) Submission of Claims
Claims for benefits under the Plan shall be submitted in writing to the
Administrative Committee or to an individual designated by the
Administrative Committee for this purpose.
(b) Denial of Claim
If any claim for benefits is wholly or partially denied, the claimant
shall be given written notice within 90 days following the date on
which the claim is filed, which notice shall set forth the following:
(i) the specific reason or reasons for the denial;
(ii) specific reference to pertinent Plan provisions on which the
denial is based;
<PAGE> 20
Page 17
(iii) a description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary;
and
(iv) an explanation of the Plan's claim review procedure.
If special circumstances require an extension of time for processing
the claim, written notice of an extension shall be furnished to the
claimant prior to the end of the initial period of 90 days following
the date on which the claim is filed. Such an extension may not exceed
a period of 90 days beyond the end of said initial period.
If the claim has not been granted and written notice of the denial of
the claim or that an extension has been granted is not furnished within
90 days following the date on which the claim is filed, the claim shall
be deemed denied for the purpose of proceeding to the claim review
procedure.
(c) Claim Review Procedure
The claimant or his authorized representative shall have 60 days after
receipt of written notification of denial of a claim to request a
review of the denial by making written request to the Administrative
Committee, and may review pertinent documents and submit issues and
comments in writing within such 60-day period.
Not later than 60 days after receipt of the request for review, the
Administrative Committee shall render and furnish to the claimant a
written decision, which shall include specific reasons for the decision
and shall make specific references to pertinent Plan provisions on
which it is based. If special circumstances require an extension of
time for processing, the decision shall be rendered as soon as
possible, but not later than 120 days after receipt of the request for
review, provided that written notice and explanation of the delay are
given to the claimant prior to commencement of the extension. Such
decision by the Administrative Committee shall not be subject to
further review. If a decision on review is not furnished to a claimant
within the specified time period, the claim shall be deemed to have
been denied on review.
(d) Exhaustion of Remedy
No claimant shall institute any action or proceeding in any state or
federal court of law or equity or before any administrative tribunal or
arbitrator for a claim for benefits under the Plan until the claimant
has first exhausted the procedures set forth in this section.
7.09 PAYMENT OF EXPENSES
All administrative expenses of the Plan and all benefits under the Plan
shall be paid from the general assets of the Company, except as
otherwise may be provided herein.
<PAGE> 21
Page 18
7.10 CONSTRUCTION
(a) The Plan is intended to constitute an unfunded deferred compensation
arrangement for a select group of management or highly compensated
employees and, therefore, is exempt from the requirements of parts 2, 3
and 4 of Subtitle B of Title I of ERISA (pursuant to Sections 201(2),
301(a)(3) and 401(a)(1) of ERISA), and all rights hereunder shall be
governed by ERISA. Subject to the preceding sentence, the Plan shall be
construed, regulated and administered in accordance with the laws of
the State of New York, subject to the provisions of applicable federal
laws.
(b) The masculine pronoun shall mean the feminine wherever appropriate.
(c) The illegality of any particular provision of this document shall not
affect the other provisions, and the document shall be construed in all
respects as if such invalid provision were omitted.
<PAGE> 22
Page 19
ARTICLE 8. ADMINISTRATION
8.01
(a) The Administrative Committee appointed from time to time by the
Compensation and Personnel Committee to serve at the pleasure of the
Compensation and Personnel Committee shall have the exclusive
responsibility and complete discretionary authority to control the
operation, management and administration of the Plan, with all powers
necessary to enable it properly to carry out such responsibilities,
including, but not limited to, the power to interpret the Plan and any
related documents, to establish procedures for making any elections
called for under the Plan, to make factual determinations regarding any
and all matters arising hereunder, including, but not limited to, the
right to determine eligibility for benefits, the right to construe the
terms of the Plan, the right to remedy possible ambiguities,
inequities, inconsistencies or omissions, and the right to resolve all
interpretive, equitable or other questions arising under the Plan. The
decisions of the Administrative Committee or such other party as is
authorized under the terms of any grantor trust on all matters shall be
final, binding and conclusive on all persons to the extent permitted by
law.
(b) To the extent permitted by law, all agents and representatives of the
Administrative Committee shall be indemnified by the Corporation and
held harmless against any claims and the expenses of defending against
such claims, resulting from any action or conduct relating to the
administration of the Plan, except claims arising from gross
negligence, willful neglect or willful misconduct.
<PAGE> 23
APPENDIX A
SPECIAL PROVISIONS APPLICABLE TO CERTAIN PARTICIPANTS WHO DEFERRED
BASE SALARY UNDER THIS PLAN
This Appendix A is applicable only with respect to a Participant who deferred
all or a portion of his Base Salary under the provisions of this Plan and who
(i) lost matching or other employer contributions under the ITT Industries
Investment and Savings Plan for Salaried Employees (or any predecessor plan) due
to the deferral of his Base Salary under this Plan, or (ii) had salary deferrals
attributable to such Base Salary credited on his behalf to the ITT Industries
Excess Savings Plan (or a predecessor plan) prior to January 1, 1996.
SECTION 1. - DEFINITIONS
1.01 "ACCOUNTS" shall mean the Deferred Account, Floor Contribution Account
and the Matching Contribution Account.
1.02 "DEFERRED ACCOUNT" shall mean the bookkeeping account maintained for
each Participant covered under this Appendix A to record the portion of
Base Salary deferred under this Plan which was credited as a Salary
Deferral under the ITT Industries Excess Savings Plan (or any
predecessor plan) prior to January 1, 1996.
1.03 "MATCHING CONTRIBUTION ACCOUNT" shall mean the bookkeeping account
maintained for each Participant covered under this Appendix A to record
the Excess Matching Contribution (as defined under the ITT Industries
Excess Savings Plan) credited on such Participant's behalf due to his
deferral of Base Salary under this Plan.
1.04 "FLOOR CONTRIBUTION ACCOUNT" shall mean the bookkeeping account
maintained for each Participant covered under this Appendix A to record
the Excess Floor Contributions (as defined under the ITT Industries
Excess Savings Plan) credited on such Participant's behalf due to his
deferral of Base Salary under this Plan.
SECTION 2. - INVESTMENT OF ACCOUNTS
2.01 A Participant shall have no choice or election with respect to the
investments of his Accounts. There shall be credited or debited an
amount of earnings or losses on the balance of the Participant's
Accounts which would have been credited had the Participant's Accounts
been invested in the Stable Value Fund maintained under the ITT
Industries Investment and Savings Plan for Salaried Employees.
<PAGE> 24
Page 2
SECTION 3. - VESTING OF ACCOUNTS
3.01 A Participant shall be fully vested in his Deferred Account and Floor
Contribution Account. The Participant shall vest in the amounts
credited to his Matching Contribution Account at the same rate and
under the same conditions at which such contributions would have vested
under the ITT Industries Investment and Savings Plan for Salaried
Employees had they been contributed thereunder. In the event the
Participant terminates employment prior to vesting in all or any part
of the amount credited on his behalf to his Matching Contribution
Account, such contributions and earnings thereon shall be forfeited and
shall not be restored in the event the Participant is subsequently
reemployed by the Company.
3.02 Notwithstanding any provisions of this Plan or Appendix A to the
contrary, upon the occurrence of an Acceleration Event, (as such term
is defined in Article I of the Plan) a Participant shall become fully
vested in the amounts credited to his Matching Contribution Account.
SECTION 4. - COMMENCEMENT OF PAYMENT
4.01 A Participant shall be entitled to receive payment of his Deferred
Account, Floor Contribution Account and the vested portion of his
Matching Contribution Account, as determined under Section 3.01, upon
his termination of employment for any reason, other than death. The
distribution of such Accounts shall be made as soon as practicable
following such termination of employment.
4.02. In the event of the death of a Participant prior to the full payment of
his Accounts, the unpaid portion of his Accounts shall be paid to his
Beneficiary (as defined in Section 1.05 of the Plan) as soon as
practicable following his date of death.
SECTION 5. - METHOD OF PAYMENT
5.01 Payment of a Participant's Deferred Account, Floor Contribution
Account, and the vested portion of his Matching Contribution Account
shall be made in a single lump sum payment.
SECTION 6. - PAYMENT UPON THE OCCURRENCE OF AN ACCELERATION EVENT
6.01 Upon the occurrence of an Acceleration Event, all Participants shall
automatically receive the entire balance of their Accounts in a single
lump sum payment. Such lump sum payment shall be made as soon as
practicable on or after the Acceleration Event. If the Participant dies
after such Acceleration Event, but before receiving such payment, it
shall be made to his Beneficiary.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>3
<FILENAME>y42903ex12.txt
<DESCRIPTION>STATEMENT RE COMPUTATION OF RATIOS
<TEXT>
<PAGE> 1
EXHIBIT 12
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CALCULATION OF RATIO OF EARNINGS TO TOTAL FIXED CHARGES
AND CALCULATION OF EARNINGS TO TOTAL FIXED CHARGES AND
PREFERRED DIVIDEND REQUIREMENTS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Earnings:
Income (loss) from continuing
operations.............................. $264.5 $232.9 $ (97.6) $ 11.9 $ 66.4
Add (deduct):
Adjustment for distributions in excess
of (less than) undistributed equity
earnings and losses(a)............... (3.5) (3.1) 1.1 2.1 (0.8)
Income taxes (benefits)................. 155.4 136.8 (62.4) 7.6 44.3
------ ------ ------- ------ ------
416.4 366.6 (158.9) 21.6 109.9
------ ------ ------- ------ ------
Fixed Charges:
Interest and other financial charges.... 93.1 84.8 125.8 133.2 169.0
Interest factor attributable to
rentals(b)........................... 18.5 17.3 15.1 17.7 15.8
------ ------ ------- ------ ------
111.6 102.1 140.9 150.9 184.8
------ ------ ------- ------ ------
Earnings, as adjusted, from continuing
operations.............................. $528.0 $468.7 $ (18.0) $172.5 $294.7
====== ====== ======= ====== ======
Fixed Charges:
Fixed charges above..................... $111.6 $102.1 $ 140.9 $150.9 $184.8
Interest capitalized.................... -- -- -- 1.1 1.1
------ ------ ------- ------ ------
Total fixed charges.................. 111.6 102.1 140.9 152.0 185.9
Dividends on preferred stock
(pre-income tax basis).................. -- -- -- -- --
------ ------ ------- ------ ------
Total fixed charges and preferred
dividend requirements.............. $111.6 $102.1 $ 140.9 $152.0 $185.9
====== ====== ======= ====== ======
Ratios:
Earnings, as adjusted, from continuing
operations to total fixed
charges(c)........................... 4.73 4.59 -- 1.13 1.59
====== ====== ======= ====== ======
Earnings, as adjusted, from continuing
operations to total fixed charges and
preferred dividend requirements(c)... 4.73 4.59 -- 1.13 1.59
====== ====== ======= ====== ======
</TABLE>
- ---------------
Notes:
a) The adjustment for distributions in excess of (less than) undistributed
equity earnings and losses represents the adjustment to income for 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 the interest
factor in rental expense.
c) No ratios are shown for those periods in which earnings were insufficient to
cover fixed charges and combined fixed charges and preferred stock dividends.
As a result of the net loss incurred for the year ended December 31, 1998,
earnings were inadequate to cover fixed charges and preferred stock dividends
by $158.9 million.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>4
<FILENAME>y42903ex21.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Set forth below are the names of subsidiaries, divisions and related
organizations of ITT Industries, Inc., the respective jurisdiction in which each
was organized (in the case of subsidiaries), and the name under which each does
business (if other than the name of the entity itself).
<TABLE>
<CAPTION>
JURISDICTION IN NAME UNDER WHICH
NAME WHICH ORGANIZED DOING BUSINESS
---- --------------- ----------------
<S> <C> <C>
ITT Industries, Inc. .......................... Indiana
CONNECTORS & SWITCHES
C & K Components, Inc. ........................ Massachusetts
C & K Components (Hong Kong) Ltd. ............. Hong Kong
C & K Components SA ........................... Costa Rica
C & K Holdings (Hong Kong) Ltd. ............... Hong Kong
C & K Holdings (United Kingdom) Ltd. .......... United Kingdom
C & K Switches Ltd. ........................... United Kingdom
CableCom Electronics (Shenzhen)Co., Ltd. ...... Taiwan
CableCom International Limited................. Hong Kong
Great American Gumball Corporation............. California ITT Cannon Santa Clara
ITT Cannon Division............................ N/A ITT Cannon/MobileCom,
ITT Cannon RF Products,
ITT Cannon Switch Products
and Cannon SanTeh
ITT Cannon GmbH................................ Germany
ITT Cannon (Hong Kong) Ltd..................... Hong Kong
ITT Cannon International, Inc. ................ Delaware ITT Cannon/Network
Systems & Services
ITT Cannon Italy S.p.A. ....................... Italy
ITT Cannon, Ltd. .............................. Japan
ITT Cannon Mexico, Inc. ....................... Delaware
ITT Cannon de Mexico S.A. de C.V. ............. Mexico
ITT Cannon (Zhenjiang) Electronics, Ltd. ...... China
ITT Datacommunications Limited................. United Kingdom ITT Cannon Network Systems
& Services
ITT Industries Hungary Manufacturing and
Trading Limited Liability Company............ Hungary
ITT Industries SAS............................. France
ITT Schadow Division........................... N/A
Man Machine Interface Division................. N/A
Nantong San Teh Coating Technology Co. Ltd. ... China
Nantong San Teh Xing Electronic Industry Co.
Ltd. ........................................ China
Nantong San Teh Xing Precision Mechanical
Engineering Co. Ltd. ........................ China
Rudolf Schadow GmbH............................ Germany
San Teh Precision Engineering Pte. Ltd. ....... Singapore
San Teh Products Co. Ltd. ..................... Hong Kong
San Teh Xing (China) Group Co. Ltd. ........... China
San Teh Xing (Tian Jin) Industrial Co.,
Ltd. ........................................ China
STX PTE. LTD. ................................. Singapore
Xiamen San Teh Precision Mechanical Engineering
Co. Ltd. .................................... China
Xiamen San Teh Xing Electronic & Science
Technology Industry Co. ..................... China
DEFENSE PRODUCTS & SERVICES
Advanced Engineering & Sciences Division....... N/A
Felec Services, Inc. .......................... Delaware
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
JURISDICTION IN NAME UNDER WHICH
NAME WHICH ORGANIZED DOING BUSINESS
---- --------------- ----------------
<S> <C> <C>
Gilcron Corporation............................ Delaware
ITT Aerospace/Communications Division.......... N/A
ITT Antarctic Services, Inc. .................. Delaware
ITT Arctic Services, Inc. ..................... Delaware
ITT Avionics Division.......................... N/A
ITT Avionics Systems International, Inc. ...... Delaware
ITT Commercial Services, Inc. ................. Delaware
ITT Defence Ltd. .............................. United Kingdom
ITT Defense Division........................... N/A
ITT Defense International, Inc. ............... Delaware
ITT Employment and Training Systems, Inc. ..... Delaware
ITT Federal Services Arabia Ltd. .............. Saudi Arabia
ITT Federal Services Corporation............... Delaware
ITT Federal Services GmbH...................... Germany
ITT Federal Services International
Corporation.................................. Delaware
ITT Federal Services International, Ltd. ...... Cayman Islands
ITT FSC Investment Corporation................. Delaware
ITT FSC Management Corporation................. Delaware
ITT Gilfillan Division......................... N/A
ITT Gilfillan Inc. ............................ Delaware
ITT Job Training Services, Inc. ............... Delaware
ITT Night Vision Division...................... N/A
ITT Systems Division........................... N/A
ITT Systems & Sciences Corporation............. Delaware
K and M Electronics, Inc. ..................... Massachusetts
PUMPS AND COMPLEMENTARY PRODUCTS
AC Custom Pumps Division....................... N/A
Anadolu Flygt Pompa Sanayi Ve Ticaret.......... Turkey
Avis Werberg GmbH.............................. Austria
Bombas Goulds de Argentina..................... Argentina Goulds
Bombas Goulds de Mexico........................ Mexico Goulds
Bombas Goulds de Venezuela, C.A. .............. Venezuela Goulds
Distribuidora Arbos, C.A. ..................... Venezuela
Flygt Argentina SA............................. Argentina Flygt
Flygt do Brazil................................ Brazil Flygt
Flygt Chile.................................... Chile Flygt
Flygt Hellas SA................................ Greece Flygt
Flygt Huolto OY................................ Finland Flygt
Flygt Korea Ltd................................ Korea Flygt
Flygt Portugal Technologia Agua do Ambiente.... Portugal Flygt
Flygt Pumpet OY................................ Finland Flygt
Goulds Pumps Canada, Inc. ..................... Canada Goulds
Goulds Pumps Delaware Inc. .................... Delaware Goulds
Goulds Pumps Europe BV......................... The Netherlands Goulds
Goulds Pumps Financial Services Ltd. .......... Ireland Goulds
Goulds Pumps Holdings Inc. .................... Delaware Goulds
Goulds Pumps, Incorporated..................... Delaware Goulds
Goulds Pumps Investments Inc................... Canada Goulds
Goulds Pumps (IPG) Inc. ....................... Delaware Goulds
Goulds Pumps (Ireland) Limited................. Ireland Goulds
Goulds Pumps Korea Co., Ltd. .................. Korea Goulds
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
JURISDICTION IN NAME UNDER WHICH
NAME WHICH ORGANIZED DOING BUSINESS
---- --------------- ----------------
<S> <C> <C>
Goulds Pumps (NY) Inc. ........................ New York Goulds
Goulds Pumps (PA) Inc. ........................ Delaware Goulds
Goulds Pumps (Philippines), Inc. .............. Philippines Goulds
Goulds Pumps Polska Co. Ltd. .................. Poland Goulds
Goulds Pumps (TX), L.P. ....................... Texas Goulds
Goulds Pumps World Sales (VI) Ltd. ............ Virgin Islands Goulds
Grindex AB..................................... Sweden
ITT Bell & Gosset Division..................... N/A Bell & Gosset
ITT Fluid Technology Asia Pte Ltd. ............ Singapore
ITT Fluid Technology Division.................. N/A
ITT Fluid Technology International............. Delaware
ITT Fluid Technology International Asia Pacific
Pte Ltd. .................................... Singapore
ITT Fluid Technology International Hong Kong... Hong Kong
ITT Fluid Technology International, Pty........ Australia
ITT Fluid Technology International (Thailand),
Ltd. ........................................ Thailand
ITT Fluid Technology SA........................ Chile
ITT Flygt AB................................... Sweden Flygt
ITT Flygt ApS.................................. Denmark Flygt
ITT Flygt A/S.................................. Norway Flygt
ITT Flygt B.V. ................................ The Netherlands Flygt
ITT Flygt BVBA................................. Belgium Flygt
ITT Flygt Corporation.......................... Delaware Flygt
ITT Flygt GmbH................................. Austria Flygt
ITT Flygt HK Ltd. ............................. Hong Kong Flygt
ITT Flygt Kft.................................. Hungary Flygt
ITT Flygt Limited.............................. Australia Flygt
ITT Flygt Lituanica............................ Lithuania Flygt
ITT Flygt Ltd. ................................ Ireland Flygt
ITT Flygt Ltd. ................................ United Kingdom Flygt
ITT Flygt Pumpen GmbH.......................... Germany Flygt
ITT Flygt (PTY) Ltd. .......................... S. Africa Flygt
ITT Flygt SAS.................................. France Flygt
ITT Flygt SDC SAS.............................. France Flygt
ITT Flygt Srl.................................. Italy Flygt
ITT Flygt sp zoo............................... Poland Flygt
ITT Flygt (Shenyang) Pumps Ltd................. China Flygt
ITT Flygt Werk GmbH............................ Germany Flygt
ITT Goulds Benelux BV.......................... The Netherlands Goulds
ITT Grindex Pumps Division..................... N/A
ITT Heat Transfer Division..................... N/A
ITT Industrieholding GmbH & Co. Kg............. Germany
ITT Industries Holding AB...................... Sweden
ITT McDonnell & Miller Division................ N/A McDonnell & Miller
Lowara Deutschland GmbH........................ Germany Lowara
Lowara France S.A. ............................ France Lowara
Lowara (Ireland) Limited....................... Ireland Lowara
Lowara Nederland B.V. ......................... The Netherlands Lowara
Lowara Portugal................................ Portugal Lowara
Lowara Srl .................................... Italy Lowara
Lowara UK Limited.............................. England Lowara
Nanjing Goulds Pumps Ltd. ..................... China Goulds
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
JURISDICTION IN NAME UNDER WHICH
NAME WHICH ORGANIZED DOING BUSINESS
---- --------------- ----------------
<S> <C> <C>
OY Flygt Nova AB............................... Finland Flygt
PT Sam McCoy................................... Indonesia
Pumpenfabrik Ernst Vogel GmbH.................. Austria Vogel
Sam McCoy Engineering Pte Ltd. ................ Singapore
Sam McCoy Engineering SDN BHD.................. Malaysia
Sam McCoy Manufacturing SDN BHD................ Malaysia
Sanitaire Division............................. Delaware Sanitaire
Shanghai Goulds Pumps Co. Ltd. ................ China
Tecnicas de Filtracion Bombeo SA............... Spain
Trimate Industries Ltd. ....................... New Zealand
Vogel Pumpen Drv............................... Hungary
SPECIALTY PRODUCTS
AGJ Holding AB................................. Sweden
A.G. Johansons Metallfabrik AB................. Sweden
Flojet Division................................ California
Flojet (Europe) Limited........................ England
Fulton-Rohr GmbH & Co. KG ..................... Germany
Hisan do Brasil LTDA........................... Brazil
Hisan, Inc. ................................... Michigan
Hisan of Canada, Ltd. ......................... Ontario
Hydro Air Industries Division.................. N/A
ITT Aerospace Controls Division................ N/A
ITT Automotive Europe Beteiligungs GmbH........ Germany
ITT Automotive Europe GmbH & Co. KG............ Germany
ITT Automotive Fluid Handling Systems,
S.A. de C.V.................................. Mexico
ITT Automotive, Inc............................ Delaware
ITT Automotive Italy S.r.l..................... Italy
ITT Conoflow Division.......................... N/A
ITT Engineered Valves Division................. N/A
ITT Industries Fluid Handling Do Brasil
Limitada..................................... Brazil
ITT Industries Galfer S.r.l.................... Italy
ITT Industries Italia S.r.l.................... Italy
ITT Industries Vermoegensverwaltungs GmbH...... Germany
ITT Jabsco Division............................ N/A Jabsco
ITT Pure-Flo (UK) Ltd. ........................ United Kingdom
ITT Specialty Products Division................ N/A
Jabsco GmbH.................................... Germany Jabsco
Koni B.V....................................... The Netherlands Koni
Koni France SARL............................... France Koni
NHK Jabsco..................................... Japan Jabsco
Rule Industries, Inc. ......................... Massachusetts Rule
S.S.L. S.r.l................................... Italy
OTHER
Admiral Corporation............................ Florida Admiral
Carbon Industries, Inc. ....................... West Virginia Carbon
Computer & Equipment Leasing Corporation....... Wisconsin
Corporp A&F, Inc. ............................. Delaware
Howard Corporation............................. North Carolina
International Standard Electric Corporation.... Delaware
ITT AES Enterprises, Inc. ..................... Delaware
ITT Automotive Enterprises, Inc................ Delaware
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
JURISDICTION IN NAME UNDER WHICH
NAME WHICH ORGANIZED DOING BUSINESS
---- --------------- ----------------
<S> <C> <C>
ITT Benefits Management, Inc................... Delaware
ITT Canada Company............................. Nova Scotia
ITT Community Development Corporation.......... Delaware
ITT Delaware Investments, Inc. ................ Delaware
ITT Gesellschaft fur Beteiligungen mbH......... Germany
ITT Industriebeteiligungsgesellschaft mbH...... Germany
ITT Industries (China) Investment Company,
Limited...................................... China
ITT Industries Holding SARL.................... Luxembourg
ITT Industries Limited......................... United Kingdom
ITT Industries Luxembourg SARL................. Luxembourg
ITT Industries NV.............................. Belgium
ITT Industries World Sales Limited............. Bermuda
ITT Industries of Canada Ltd. ................. Canada
ITT Manufacturing Enterprises, Inc. ........... Delaware
ITT Remediation Management, Inc................ Delaware
ITT Resource Development Corporation........... Delaware
ITT Transportation Distribution Services
Division..................................... N/A
Paul N. Howard Company......................... North Carolina
Sunsport Recreation, Inc. ..................... Florida
Winifrede Railroad Corporation................. West Virginia
</TABLE>
- ---------------
Note: The names of certain subsidiaries have been omitted since, considered in
the aggregate, they would not constitute a "significant subsidiary" as of
the end of the year covered by this report.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>5
<FILENAME>y42903ex23.txt
<DESCRIPTION>CONSENT OF ARTHUR ANDERSEN LLP
<TEXT>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ITT Industries, Inc.:
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously filed
Registration Statements on (i) Form S-3 (File No. 33-45756) and (ii) Form S-8
(File Nos. 33-53771, 333-1109, 333-64161, 333-66293, 333-84917, 333-41806, and
333-41808).
ARTHUR ANDERSEN LLP
Stamford, Connecticut
March 26, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----