Friday, July 27, 2007
WHITE PLAINS, N.Y., Jul. 27, 2007 (PR Newswire delivered by Newstex) -- ITT Corporation (NYSE: ITT) today reported second quarter 2007 earnings from continuing operations of $199 million, or $169 million adjusted to exclude special items including a tax settlement benefit, on revenue of $2.2 billion. Adjusted earnings were up 21 percent or $0.16 to $0.92 per share over the comparable quarter a year earlier, driven by growth in all segments and margin expansion in the Defense Electronics & Services segment. Top-line revenue for the quarter increased 13 percent on a year-over-year basis, with strong international sales growth in ITT's commercial businesses.
ITT also announced today the completion of the sale of its Switches business to Littlejohn & Co. LLC, a private equity firm based in Greenwich, Conn. The divestiture was announced in May.
'Many factors contributed to the strong quarter, including another remarkable operating performance from our Defense segment and strong global sales in Fluid Technology,' said Steve Loranger, chairman, president and chief executive officer, ITT Corp. 'Ultimately, it's the ongoing commitment of our employees worldwide to exceed customer expectations that enabled us to record double-digit order expansion and achieve significant organic revenue growth during the quarter.'
Loranger added, 'During the quarter, we also saw the continued execution of our strategy to refine our portfolio with the sale of our Switches business and planned acquisition of International Motion Control, the Buffalo, N.Y.- based manufacturer of motion control products. We believe the stronger-than- expected overall performance of our business will offset anticipated dilution from the acquisition, enabling us to maintain our current earnings guidance of $3.44 to $3.50.'
The company forecasts full-year revenue of approximately $8.6 billion, representing expected year-over-year revenue growth of 10 percent.
Primary Business Highlights Fluid Technology -- Second quarter revenue for Fluid Technology was $879 million, led by strong international sales with particular strength in the Industrial Process business. This represents a 15 percent increase over the comparable quarter last year. -- Organic revenue for the quarter was up 10 percent compared to the second quarter of 2006 and organic order activity was up 13 percent. -- Operating income for the segment grew eight percent to $110 million on a comparable basis, including the impact of restructuring costs. Excluding those costs, operating income for the quarter was $120 million, a gain of 16 percent. -- During the quarter, ITT announced it would realign the Fluid Technology segment to combine market-facing businesses to take advantage of scale, process and market leadership. As a result, the segment is now represented by three value centers: Residential & Commercial Water, Water & Wastewater and Industrial Process. Much of the former Advanced Water Treatment value center was joined with the former Wastewater value center and renamed Water & Wastewater. Defense Electronics & Services -- The Defense segment reported second quarter revenues of $1.02 billion - its first ever $1 billion quarter. The record three-month period represents 11 percent growth over the second quarter of 2006. -- Operating income for the segment grew more than 29 percent to $130 million, including the impact of restructuring costs, resulting from strong performance on several fixed-price contracts operating at peak levels. Excluding restructuring costs, operating income was $134 million, a gain of 32 percent on a comparable basis. -- ITT's Advanced Engineering & Sciences business continued its growth trend, with revenues up 55 percent on a year-over-year basis. -- In July, ITT announced it was awarded the LOGCAP IV program in partnership with Fluor. The Fluor/ITT team is one of three contractor teams selected by the U.S. Army to deliver a broad range of essential logistics support services during combat, peacekeeping, humanitarian and training operations. Motion & Flow Control -- The Motion & Flow Control segment reported second quarter revenues of $330 million, up 16 percent over the same period last year. Growth was well balanced across all businesses in the segment. -- Organic revenue increased 11 percent for the segment year-over-year, with particular strength in the Aerospace Controls business, which was up 16 percent on a comparable basis. -- Including the impact of restructuring costs, operating income for the quarter grew to $54 million. Excluding restructuring, operating income was up 11 percent over the second quarter of 2006 to $55 million. -- During the quarter, ITT announced the planned acquisition of International Motion Control (IMC). The IMC acquisition will add a complementary mix of products to expand the Motion & Flow Control segment's core capabilities in specialty energy absorption and motion control applications. The transaction is expected to close late in the third quarter.
Investor Call Today
ITT's senior management will host a conference call for investors today at 9:00 a.m. Eastern Daylight Time to review second quarter performance and answer questions. The briefing can be monitored live via webcast at the following address on the company's Web site: www.itt.com/ir.
About ITT Corporation
ITT Corporation (www.itt.com) supplies advanced technology products and services in several growth markets. ITT is a global leader in the transport, treatment and control of water, wastewater and other fluids. The company plays a vital role in international security through its defense communications and electronics products; space surveillance and intelligence systems; and advanced engineering and related services. It also serves the growing leisure marine and electrical connectors markets with a wide range of products. Headquartered in White Plains, N.Y., the company generated $7.8 billion in 2006 sales. In addition to the New York Stock Exchange, ITT Corporation stock is traded on the Euronext and Frankfurt exchanges.
'Safe Harbor Statement' under the Private Securities Litigation Reform Act of 1995 ('the Act'):
Certain material presented herein includes forward-looking statements intended to qualify for the safe harbor from liability established by the Act. These forward-looking statements include statements that describe the Company's business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance. Whenever used, words such as 'anticipate,' 'estimate,' 'expect,' 'project,' 'intend,' 'plan,' 'believe,' 'target' and other terms of similar meaning are intended to identify such forward-looking statements. Forward-looking statements are uncertain and to some extent unpredictable, and involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed in, or implied from, such forward-looking statements. Factors that could cause results to differ materially from those anticipated by the Company include general global economic conditions, decline in consumer spending, interest and foreign currency exchange rate fluctuations, availability of commodities, supplies and raw materials, competition, acquisitions or divestitures, changes in government defense budgets, employment and pension matters, contingencies related to actual or alleged environmental contamination, claims and concerns, intellectual property matters, personal injury claims, governmental investigations, tax obligations, and changes in generally accepted accounting principles. Other factors are more thoroughly set forth in Item 1. Business, Item 1A. Risk Factors, and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements in the ITT Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and other of its filings with the Securities and Exchange Commission. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
ITT believes that investors' understanding of the Company's operating performance is enhanced by the use of certain non-GAAP financial measures, including adjusted GAAP net income and adjusted GAAP EPS, which Management considers useful in providing insight into operating performance, as it excludes the impact of special items that cannot be expected to recur on a quarterly basis. Management also believes that investors can better analyze the Company's revenue and order growth by utilizing organic revenue and organic order growth measures that exclude the effect of foreign exchange translation and the effect of recent acquisitions. In addition, Management considers the use of free cash flow to be an important indication of the Company's ability to make acquisitions, fund pension obligations, buy back outstanding shares and service debt. Free cash flow, adjusted net income, adjusted EPS, organic revenue and organic orders are not financial measures under GAAP, should not be considered as substitutes for cash from operating activities, EPS, net income or revenue as defined by GAAP, and may not be comparable to similarly titled measures reported by other companies. A reconciliation to the GAAP equivalents of these non-GAAP measures is set forth in the attached unaudited financial information.
ITT CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED INCOME STATEMENTS (In millions, except per share) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 Sales and revenues $2,223.1 $1,964.0 $4,293.4 $3,755.5 Costs of sales and revenues 1,580.7 1,413.0 3,066.8 2,721.7 Selling, general and administrative expenses 330.9 284.1 650.9 547.2 Research and development expenses 42.8 39.3 83.1 77.9 Restructuring and asset impairment charges, net 17.5 10.4 23.9 22.3 Total costs and expenses 1,971.9 1,746.8 3,824.7 3,369.1 Operating income 251.2 217.2 468.7 386.4 Interest expense 19.1 21.5 42.9 41.4 Interest income 10.2 4.8 18.4 8.5 Miscellaneous expense, net 2.1 4.3 6.0 9.5 Income from continuing operations before income taxes 240.2 196.2 438.2 344.0 Income tax expense 41.0 61.7 102.2 106.6 Income from continuing operations 199.2 134.5 336.0 237.4 Discontinued operations, net of tax 14.5 6.4 17.7 59.4 Net income $213.7 $140.9 $353.7 $296.8 Earnings Per Share: Income from continuing operations: Basic $1.11 $0.73 $1.86 $1.29 Diluted $1.08 $0.72 $1.82 $1.27 Discontinued operations: Basic $0.08 $0.03 $0.10 $0.32 Diluted $0.08 $0.03 $0.10 $0.31 Net income: Basic $1.19 $0.76 $1.96 $1.61 Diluted $1.16 $0.75 $1.92 $1.58 Average Common Shares - Basic 180.3 184.3 180.9 184.4 Average Common Shares - Diluted 183.7 187.2 184.2 187.5 ITT CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In millions) (Unaudited) June 30, December 31, 2007 2006 Assets Current Assets: Cash and cash equivalents $1,113.3 $937.1 Receivables, net 1,429.2 1,288.9 Inventories, net 752.9 726.5 Assets of discontinued businesses held for sale 183.6 183.2 Deferred income taxes 83.9 79.8 Other current assets 116.0 102.8 Total current assets 3,678.9 3,318.3 Plant, property and equipment, net 826.1 833.0 Deferred income taxes 190.1 136.1 Goodwill, net 2,348.0 2,336.8 Other intangible assets, net 199.8 213.2 Other assets 664.0 563.2 Total assets $7,906.9 $7,400.6 Liabilities and Shareholders' Equity Current Liabilities: Accounts payable $984.4 $929.4 Accrued expenses 772.6 839.4 Accrued taxes 99.4 105.6 Notes payable and current maturities of long-term debt 962.6 597.0 Pension and postretirement benefits 68.9 68.9 Liabilities of discontinued businesses held for sale 94.1 96.7 Deferred income taxes 0.8 0.2 Total current liabilities 2,982.8 2,637.2 Pension and postretirement benefits 715.8 735.5 Long-term debt 486.0 500.4 Other liabilities 673.3 658.1 Total liabilities 4,857.9 4,531.2 Shareholders' equity 3,049.0 2,869.4 Total liabilities and shareholders' equity $7,906.9 $7,400.6 ITT CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In millions) (Unaudited) Six Months Ended June 30, 2007 2006 Operating Activities Net income $353.7 $296.8 Less: Income from discontinued operations (17.7) (59.4) Income from continuing operations 336.0 237.4 Adjustments to income from continuing operations: Depreciation and amortization 88.8 84.2 Stock-based compensation 18.7 10.8 Restructuring and asset impairment charges, net 23.9 22.3 Payments for restructuring (25.6) (25.5) Change in receivables (130.6) (117.3) Change in inventories (29.4) (50.1) Change in accounts payable and accrued expenses 4.4 61.7 Change in accrued and deferred taxes (58.5) (35.2) Change in other current and non-current assets (82.0) (95.5) Change in other non-current liabilities (11.8) 0.6 Other, net 5.5 4.5 Net cash - operating activities 139.4 97.9 Investing Activities Additions to plant, property and equipment (66.3) (60.9) Acquisitions, net of cash acquired (4.4) (74.0) Proceeds from sale of assets and businesses 2.6 230.1 Other, net 0.2 (6.3) Net cash - investing activities (67.9) 88.9 Financing Activities Short-term debt, net 353.1 147.3 Long-term debt repaid (2.0) (0.9) Long-term debt issued 0.3 0.1 Repurchase of common stock (287.6) (130.2) Proceeds from issuance of common stock 49.0 50.9 Dividends paid (45.8) (37.0) Tax benefit from stock option exercises 11.0 12.7 Other, net - 0.1 Net cash - financing activities 78.0 43.0 Exchange Rate Effects on Cash and Cash Equivalents 25.3 28.6 Net Cash - Discontinued Operations: Operating Activities 4.4 51.3 Investing Activities (2.3) (5.5) Financing Activities (0.7) (0.2) Net change in cash and cash equivalents 176.2 304.0 Cash and cash equivalents - beginning of year 937.1 451.0 Cash and Cash Equivalents - end of period $1,113.3 $755.0 ITT Corporation Non-GAAP Reconciliation Reported vs. Organic Revenue / Orders Growth Second Quarter 2007 & 2006 ($ Millions) (As Reported - GAAP) Sales & Sales & Revenues Revenues Change % Change 2007 vs. 2007 vs. 3M 2007 3M 2006 2006 2006 ITT Corporation - Consolidated 2,223.1 1,964.0 259.1 13.2% Defense Electronics & Services 1,017.4 918.5 98.9 10.8% ACD - Tactical Radios 203.4 173.3 30.1 17.4% Space Systems 152.7 149.6 3.1 2.1% Advanced Engineering & Sciences 110.6 71.3 39.3 55.1% Electronic Systems 97.6 98.4 (0.8) -0.8% Night Vision 109.0 113.2 (4.2) -3.7% Systems 347.3 314.3 33.0 10.5% Fluid Technology 879.5 765.3 114.2 14.9% Industrial Process 174.7 143.4 31.3 21.8% Residential and Commercial Water Group 305.4 285.6 19.8 6.9% Water & WasteWater 410.6 346.9 63.7 18.4% Motion & Flow Control 329.5 284.6 44.9 15.8% Aerospace Controls 25.2 20.7 4.5 21.7% Marine & Leisure 67.3 59.6 7.7 12.9% Friction Materials 99.6 84.0 15.6 18.6% Koni Shocks 27.7 23.7 4.0 16.9% Connectors 109.7 96.6 13.1 13.6% % Change Change 2007 Orders Orders 2007 vs. vs. 3M 2007 3M 2006 2006 2006 Defense Electronics & Services 742.8 636.3 106.5 17% Fluid Technology 937.9 798.0 139.9 18% Motion & Flow Control 330.6 295.9 34.7 12% Total Segment Orders 2,007.8 1,727.9 279.9 16% (As Adjusted - Organic) Acqui- sition FX Sales & Contr- Contr- Adj. Sales Revenues ibution ibution & Revenues 3M 2007 3M 2007 3M 2007 3M 2007 ITT Corporation - Consolidated 2,223.1 (14.2) (38.9) 2,170.0 Defense Electronics & Services 1,017.4 0.0 (0.1) 1,017.3 ACD - Tactical Radios 203.4 0.0 0.0 203.4 Space Systems 152.7 0.0 (0.1) 152.6 Advanced Engineering & Sciences 110.6 0.0 0.0 110.6 Electronic Systems 97.6 0.0 0.0 97.6 Night Vision 109.0 0.0 0.0 109.0 Systems 347.3 0.0 0.0 347.3 Fluid Technology 879.5 (13.0) (27.1) 839.4 Industrial Process 174.7 0.0 (1.1) 173.6 Residential and Commercial Water Group 305.4 (0.9) (6.7) 297.8 Water & WasteWater 410.6 (12.1) (19.8) 378.7 Motion & Flow Control 329.5 (1.2) (11.8) 316.5 Aerospace Controls 25.2 (1.2) 0.0 24.0 Marine & Leisure 67.3 0.0 (2.1) 65.2 Friction Materials 99.6 0.0 (6.3) 93.3 Koni Shocks 27.7 0.0 (1.5) 26.2 Connectors 109.7 0.0 (1.9) 107.8 Acqui- sition FX Contri- Contri- Adj. Orders bution bution Orders 3M 2007 3M 2007 3M 2007 3M 2007 Defense Electronics & Services 742.8 0.0 (0.1) 742.7 Fluid Technology 937.9 (11.5) (28.8) 897.6 Motion & Flow Control 330.6 (0.4) (11.7) 318.5 Total Segment Orders 2,007.8 (11.9) (40.5) 1,955.4 (As Adjusted - Organic) Sales & Change % Change Revenues Adj. 07 Adj. 07 3M 2006 vs. 06 vs. 06 ITT Corporation - Consolidated 1,964.0 206.0 10.5% Defense Electronics & Services 918.5 98.8 10.8% ACD - Tactical Radios 173.3 30.1 17.4% Space Systems 149.6 3.0 2.0% Advanced Engineering & Sciences 71.3 39.3 55.1% Electronic Systems 98.4 (0.8) -0.8% Night Vision 113.2 (4.2) -3.7% Systems 314.3 33.0 10.5% Fluid Technology 765.3 74.1 9.7% Industrial Process 143.4 30.2 21.1% Residential and Commercial Water Group 285.6 12.2 4.3% Water & WasteWater 346.9 31.8 9.2% Motion & Flow Control 284.6 31.9 11.2% Aerospace Controls 20.7 3.3 15.9% Marine & Leisure 59.6 5.6 9.4% Friction Materials 84.0 9.3 11.1% Koni Shocks 23.7 2.5 10.5% Connectors 96.6 11.2 11.6% Change % Change Orders Adj. 07 Adj. 07 3M 2006 vs. 06 vs. 06 Defense Electronics & Services 636.3 106.4 16.7 % Fluid Technology 798.0 99.6 12.5 % Motion & Flow Control 295.9 22.6 7.6 % Total Segment Orders 1,727.9 227.5 13.2 % Note: Excludes intercompany eliminations. ITT Corporation Non-GAAP Reconciliation Segment Operating Income & OI Margin Adjusted for Restructuring Second Quarter of 2007 & 2006 ($ Millions) Q2 2007 Q2 2006 % As As Change 07 Reported Reported vs. 06 Sales and Revenues: Defense Electronics & Services 1,017.4 918.5 Fluid Technology 879.5 765.3 Motion & Flow Control 329.5 284.6 Intersegment eliminations (3.3) (4.4) Total Sales and Revenues 2,223.1 1,964.0 Operating Margin: Defense Electronics & Services 12.8% 11.0% Fluid Technology 12.5% 13.2% Motion & Flow Control 16.4% 14.9% Total Ongoing Segments 13.2% 12.4% Income: Defense Electronics & Services 129.8 100.6 29.0% Fluid Technology 109.5 101.3 8.1% Motion & Flow Control 54.0 42.5 27.1% Total Segment Operating Income 293.3 244.4 20.0% Q2 2007 Adjust for 2007 Q2 2007 As As Reported Restructuring Adjusted Sales and Revenues: Defense Electronics & Services 1,017.4 1,017.4 Fluid Technology 879.5 879.5 Motion & Flow Control 329.5 329.5 Intersegment eliminations (3.3) (3.3) Total Sales and Revenues 2,223.1 2,223.1 Operating Margin: Defense Electronics & Services 12.8% 13.2% Fluid Technology 12.5% 13.6% Motion & Flow Control 16.4% 16.8% Total Ongoing Segments 13.2% 13.9% Income: Defense Electronics & Services 129.8 4.3 134.1 Fluid Technology 109.5 10.2 119.7 Motion & Flow Control 54.0 1.3 55.3 Total Segment Operating Income 293.3 15.8 309.1 Adjust for Q2 2006 2006 Q2 2006 % Change As Restruc- As Adj. 07 Reported turing Adjusted vs. 06 Sales and Revenues: Defense Electronics & Services 918.5 918.5 Fluid Technology 765.3 765.3 Motion & Flow Control 284.6 284.6 Intersegment eliminations (4.4) (4.4) Total Sales and Revenues 1,964.0 1,964.0 Operating Margin: Defense Electronics & Services 11.0% 11.0% 220 BP Fluid Technology 13.2% 13.5% 10 BP Motion & Flow Control 14.9% 17.5% (70) BP Total Ongoing Segments 12.4% 13.0% 90 BP Income: Defense Electronics & Services 100.6 0.8 101.4 32.2% Fluid Technology 101.3 1.9 103.2 16.0% Motion & Flow Control 42.5 7.4 49.9 10.8% Total Segment Operating Income 244.4 10.1 254.5 21.5% ITT Corporation Non-GAAP Reconciliation Reported vs. Adjusted Net Income & EPS Second Quarter of 2007 & 2006 ($ Millions, except EPS and shares) Q2 2007 Q2 2007 Q2 2007 As Reported Adjustments As Adjusted Segment Operating Income 293.3 15.8 #A 309.1 Interest Income (Expense) (8.9) (7.0)#B (15.9) Other Income (Expense) (2.1) - (2.1) Corporate (Expense) (42.1) 1.7 #A (40.4) Income from Continuing Operations before Tax 240.2 10.5 250.7 Income Tax Items 34.8 (34.8)#C - Income Tax Expense (75.8) (5.7)#D (81.5) Total Tax Expense (41.0) (40.5) (81.5) Income from Continuing Operations 199.2 (30.0) 169.2 Diluted EPS from Continuing Operations 1.08 (0.16) 0.92 Percent Change Change 2007 vs. 2007 vs. Q2 2006 Q2 2006 Q2 2006 2006 2006 As Adjust- As As As Reported ments Adjusted Adjusted Adjusted Segment Operating Income 244.4 10.1 #E 254.5 Interest Income (Expense) (16.7) - (16.7) Other Income (Expense) (4.3) - (4.3) Corporate (Expense) (27.2) 0.3 #E (26.9) Income from Continuing Operations before Tax 196.2 10.4 206.6 Income Tax Items - 1.0 #F 1.0 Income Tax Expense (61.7) (3.2)#G (64.9) Total Tax Expense (61.7) (2.2) (63.9) Income from Continuing Operations 134.5 8.2 142.7 Diluted EPS from Continuing Operations 0.72 0.04 0.76 $0.16 21.1% #A - Remove Restructuring Expense of $15.8M and $1.7M. #B - Remove Interest Adjustment on Tax Audit Settlement of ($7.0M). #C - Remove Tax Benefit re Audit Settlement of ($44.3M), tax expense on interest adjustment related to settlement of $2.5M, and other special items of $7.0M . #D - Remove Tax Benefit on restructuring of ($5.7M). #E - Remove Restructuring Expense of $10.1M & $0.3M. #F - To apply Structural Tax Rate $1.0M. #G - Remove Tax Benefit on restructuring of ($3.2M). ITT Corporation Non-GAAP Reconciliation Cash From Operating Activities vs. Free Cash Flow Second Quarter of 2007 & 2006 ($ Millions) 2nd Qtr.07 2nd Qtr.06 Cash from Operations 139.4 97.9 Capital Expenditures (66.3) (60.9) Pension Pre-funding, net of tax 50.0 91.0 Free Cash Flow 123.1 128.0
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