ITT Industries Reports Net Income Up 14.1 Percent in 1997
27 January 1998
ITT Industries Reports Net Income Up 14.1 Percent in 1997
- Diluted EPS is $0.60 for 4th Quarter, $2.10 for Year
- A Year of Change Reflected in Improved Results
WHITE PLAINS, N.Y., Jan. 27 -- ITT Industries, Inc.
today announced that full year 1997 net income rose 14.1 percent
to $253.9 million, excluding special charges taken in the third quarter.
Diluted EPS of $2.10 per share was $0.25 per share ahead of the $1.85 per
share reported in 1996. Full year operating income from ongoing segments,
excluding the special charges, reached $594.9 million, up $34.4 million or
6.1 percent for the year. Full year 1997 sales from ongoing segments were
$8.59 billion, up from $8.37 billion reported in 1996.
In the fourth quarter, net income was $72.3 million, or $0.60 per share.
Fourth quarter operating income from ongoing segments was $167.1 million, up
6.4 percent from the period last year, representing an overall operating
margin improvement. Sales from ongoing segments in the fourth quarter were
$2.26 billion, or 4.5 percent higher than the fourth quarter 1996.
"During 1997, we met our commitment to double digit earnings growth
despite unfavorable foreign exchange rate movements and challenging conditions
in a number of the markets we serve," said Travis Engen, Chairman, President
and Chief Executive of ITT Industries. "The year was marked by a number of
strategic actions as we continue to direct our capital to maximize shareholder
value. We have refocused our company through the purchase of Goulds Pumps and
Kaman Sciences, and through the divestiture of a number of non-strategic
assets. Together with the operational restructuring announced in the third
quarter, these actions position the company to deliver another solid year
in 1998."
During 1997, the company achieved some significant milestones, including
the following:
-- ITT Industries purchased Goulds Pumps for its Fluid Technology business
area in May, adding more than $750 million in annual sales and making
ITT Industries the world's largest pump manufacturer. Assimilation of
Goulds' operations began immediately, and sales improvements, product
rationalization and cost-savings initiatives are now well underway.
Goulds' operations had a positive impact on ITT Industries' earnings
per share in 1997.
-- ITT Industries purchased Kaman Sciences, the high technology services
arm of Kaman Corporation, for its Defense & Electronics business area
in December. The purchase added approximately $150 million in annual
sales in a high growth market. It increases the scope of services that
ITT Industries can provide for the U.S. military as the military
accelerates its outsourcing of services.
-- Full year free cash flow from operations was $319.9 million, nearly
double that of 1996. This was driven by improved cash flow from
working capital.
-- Through its Defense & Electronics unit, ITT Industries established a
40 percent share in a joint venture that will supply a state-of-the-art
tactical communications system to the British military. The program's
initial value is $3.2 billion, and provides opportunity for additional
international sales of more than $1 billion.
-- ITT Automotive secured contracts to supply a new electronic stability
program (ESP) to a number of auto manufacturers, including
Mercedes-Benz for its M-Class sport utility vehicle, the M L 430. ESP
will offer drivers enhanced vehicle stability during acceleration,
cornering and braking.
-- In the third quarter, ITT Industries announced a series of actions to
further improve financial performance. The actions included a
restructuring of the Automotive unit, integrating Goulds' operations,
and writing down assets related to planned divestitures. As a result,
the company took an after-tax charge of $145.8 million.
Primary Business Results
Automotive
Automotive recorded 1997 operating income of $311.0 million before special
charges taken in the third quarter, compared to $337.1 million in 1996. Sales
for 1997 were $5.17 billion, compared to $5.49 billion last year. Foreign
currency translation and the divestiture of several non-core businesses had a
significant impact on 1997 results. These items accounted for most of the
decline in operating income. Adjusting for these factors, 1997 sales were up
3.3 percent over 1996, despite continuing industry price pressure. Automotive
saw promising volume gains across the business. During the year, the company
launched a campaign to increase awareness and sales of its four-wheel
anti-lock brakes in North America.
Defense & Electronics
Defense & Electronics increased its operating income by 15.5 percent in
1997 to $127.2 million, representing an increase in operating margin. Sales
were up 6.1 percent for the year to $1.67 billion, reflecting increased orders
in both the defense and interconnect segments of the business. The defense
business increased its international sales by 13.6 percent over 1996, marking
the sixth straight year of double digit growth in that segment.
In the interconnect area, ITT Cannon saw continued strong growth in sales
and margins within its information systems and military/aerospace markets.
Adjusting for negative foreign currency translation, ITT Cannon increased
sales by 11.4 percent for the year. Operating income increased by
18.7 percent, and ITT Cannon continues its track record of double-digit
operating income growth year over year since 1992.
Fluid Technology
Fluid Technology reported 1997 operating income of $156.7 million
excluding special charges reported in the third quarter, up 38.4 percent from
1996. Annual sales increased 34.9 percent to $1.76 billion. These results
reflect the acquisition of Goulds Pumps in May and strong performance in the
ITT Flygt submersible pump business. Fluid Technology sees significant
opportunities to continue expanding its business through increased integration
with Goulds units. Among a number of "combination orders" received by former
Goulds and Fluid Technology units during the fourth quarter were: AC Pump and
Goulds Pumps for a refinery in the Middle East; ITT Flygt and Vogel Pumps for
a wastewater treatment plant in China, and in the submersible drainage pump
business, an order for the huge Oresundsbron -- the bridge and tunnel project
between Sweden and Denmark.
ITT Industries Fourth Quarter and Full Year Financial Results, 1997
(in millions, except EPS)
Fourth Quarter Full Year
1997 1996 1997(A) 1996
Total Sales $2,299.2 $2,231.2 $8,777.1 $8,718.1
Operating Income $150.0 $141.8 $525.6 $508.4
Net Income $72.3 $71.2 $253.9 $222.6
Shares, Diluted 121.5 120.5 121.0 120.4
Diluted EPS (B) $0.60 $0.59 $2.10 $1.85
(A) Adjusted to exclude one-time charges of $145.8 after-tax or $1.21 per
share.
(B) Diluted EPS for 1997 and 1996 is consistent with SFAS No. 128
ITT Industries ( http://www.ittind.com ) is a leading worldwide
diversified manufacturing company, with 1997 sales of $8.8 billion in its
three primary business segments: Automotive, Defense & Electronics, and Fluid
Technology. ITT Automotive is one of the largest independent suppliers of
systems and components to automotive manufacturers. ITT Defense & Electronics
is a leader in the design, manufacture and support of high technology
electronic systems and components for defense and commercial markets. ITT
Fluid Technology is the world's leading manufacturer of pumps, systems and
services for the movement, measurement and control of fluids.
In addition to the New York Stock Exchange, ITT Industries' stock is
traded under the symbol ("IIN") on the Midwest, Pacific, London, Frankfurt and
Paris exchanges.
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(In millions, except per share)
Three Months Ended Years Ended
December 31, December 31,
1997 1996 1997 1996
(Unaudited) (Unaudited)
Net sales $2,299.1 $ 2,231.2 $8,777.1 $ 8,718.1
Cost of sales 1,908.1 1,912.7 7,413.3 7,483.6
Gross margin 391.0 318.5 1,363.8 1,234.5
Selling, general,
and administrative
expenses 224.2 194.9 805.3 739.4
Other operating
(income) expenses 16.8 (18.2) 32.9 (13.3)
Operating income(A) 150.0 141.8 525.6 508.4
Interest expense (31.8) (45.6) (133.2) (169.0)
Interest income 5.4 17.1 17.5 32.7
Miscellaneous income
(expense), net 4.2 3.6 15.5 (1.1)
Income before income
taxes, special charges
and cumulative effect
of accounting change (A)127.8 116.9 425.4 371.0
Income tax expense (49.9) (45.7) (165.9) (148.4)
Income before special
charges and cumulative
effect of
accounting change (A) 77.9 71.2 259.5 222.6
Special charges,
net of tax -- -- (145.8) --
Cumulative effect of
accounting change,
net of tax benefit
of $3.6 (5.6) -- (5.6) --
Net income (reported) $72.3 $71.2 $108.1 $222.6
Earnings Per Share:
Net income
Diluted (A) $.60 $.59 $2.10 $1.85
Diluted (reported) $.60 $.59 $.89 $1.85
Basic (reported) $.61 $.60 $.91 $1.89
Average Common Equivalent
Shares - Diluted 121.4 120.5 121.0 120.4
Average Common Equivalent
Shares - Basic 118.4 118.3 118.4 117.9
(A) Excludes special charges of $239.0 pre-tax and $145.8 after-tax
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions, except for shares and per share)
December 31,December 31,
1997 1996
Assets
Current Assets:
Cash and cash equivalents $192.2 $121.9
Receivables, net 1,252.4 1,189.8
Inventories, net 812.8 856.9
Other current assets 120.0 120.5
Total current assets 2,377.4 2,289.1
Plant, property, and equipment, net 2,024.3 2,166.7
Deferred U.S. income taxes 258.8 205.1
Goodwill, net 1,116.5 349.8
Other assets 443.5 480.5
$6,220.5 $5,491.2
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $848.3 $731.8
Accrued expenses 884.3 874.2
Accrued taxes 161.5 96.8
Notes payable and current maturities
of long-term debt 1,656.7 835.6
Total current liabilities 3,550.8 2,538.4
Pension and postretirement costs 870.6 1,126.7
Long-term debt 526.3 583.2
Deferred foreign, state and local income taxes 31.6 109.5
Other liabilities 418.9 334.2
5,398.2 4,692.0
Shareholders' Equity:
Cumulative Preferred Stock:
Authorized 50,000,000 shares,
no par value, none issued -- --
Common stock:
Authorized 200,000,000 shares, $1 par value
per share Outstanding 118,445,259 shares
and 118,436,579 shares 118.4 118.4
Capital surplus 397.0 418.2
Unrealized gain (loss) on investment securities 1.6 --
Cumulative translation adjustments 116.8 111.2
Retained earnings 188.5 151.4
822.3 799.2
$6,220.5 $5,491.2
The accompanying notes to consolidated condensed financial statements are
an integral part of the above balance sheet.
ITT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Twelve Months Ended
December 31,
1997 1996
Operating Activities
Net income $108.1 $222.6
Adjustments to net income:
Special charges, net of tax 145.8 --
Depreciation 377.7 399.4
Amortization 58.7 33.6
Change in receivables, inventories,
accounts payable, and accrued expenses 129.8 (136.5)
Change in accrued and deferred taxes 20.2 78.1
Other, net (57.2) (.5)
Cash from continuing operations 783.1 596.7
Cash used for discontinued operations -- (123.8)
Cash from (used for) operating activities 783.1 472.9
Investing Activities
Additions to plant, property, and equipment (459.7) (406.3)
Proceeds from sale of assets 167.8 200.4
Acquisitions (1,103.9) --
Other, net (3.5) (16.7)
Cash used for investing activities (1,399.3) (222.6)
Financing Activities
Short-term debt, net 1,058.6 (111.4)
Long-term debt repaid (259.7) (66.5)
Long-term debt issued 1.4 1.1
Repurchase of common stock (67.8) (11.4)
Dividends paid (71.1) (53.4)
Other, net 36.0 31.1
Cash from financing activities 697.4 (210.5)
Exchange Rate Effects on Cash and
Cash Equivalents (10.9) (12.1)
Increase in cash and cash equivalents 70.3 27.7
Cash and cash equivalents - beginning of period121.9 94.2
Cash and cash equivalents - end of period $192.2 $121.9
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SOURCE ITT Industries, Inc.