ITT Corporation (NYSE: ITT) today reported 2010 first-quarter
revenue of $2.6 billion and income from continuing operations of
$146 million, or $0.79 per share. Excluding special items, income
from continuing operations for the quarter was $156 million, or
$0.84 per share, representing 17 percent year-over-year growth.
Special items in the year-ago period included a $54 million
tax-related gain, compared with a $10 million expense in the first
quarter of 2010, primarily related to the recent U.S. healthcare
reform legislation.
“Promising organic growth combined with ITT’s focused execution
got us off to a great start in 2010. Our Motion & Flow Control
business delivered significant increases in revenue and operating
income. Our Defense & Information Solutions business made great
progress on its strategic realignment, and significant productivity
gains drove margin improvements in both our Fluid Technology and
Motion & Flow Control businesses,” said Steve Loranger, ITT’s
chairman, president and chief executive officer.
The company also raised its full-year 2010 adjusted earnings per
share guidance from its previously announced forecast of $3.90 to
$4.10 to a new forecast of $4.05 to $4.20. Revenue guidance for the
year is revised from the company’s previously announced forecast of
three percent growth to a new forecast of four percent growth.
Organic revenue (defined as total revenue excluding foreign
exchange and merger and acquisition impacts) is expected to grow
three percent, compared with a previous forecast of two percent
growth.
“Our global teams delivered results above expectations, and we
are seeing improving conditions in certain end markets, giving us
confidence in raising our full-year earnings outlook,” said
Loranger. “We also delivered higher than expected free cash flow,
and our strong financial position enabled us to announce an 18
percent dividend increase in the quarter, while we continued to
advance our cash deployment and portfolio strategy through ITT’s
acquisition of Nova Analytics.
“We believe our strategies to align the portfolio with enduring
human needs, while delivering organic growth and focused execution,
will continue to drive excellent, sustainable growth -- as ITT has
demonstrated this quarter and over the past five years.”
First-Quarter Segment Results
Defense & Information Solutions
- First-quarter 2010 revenue for
the Defense segment was $1.5 billion, down four percent compared to
the year-ago period. Volume declines from strong prior-year results
for tactical radios and counter improvised explosive device units
were partially offset by growth in service contracts, special
purpose jammers and very strong international night vision goggle
revenues.
- Strong productivity in the
segment was more than offset by increased costs related to the
business’ strategic realignment, higher pension costs, and lower
volumes, resulting in an 11 percent decline in operating income to
$146 million.
- Backlog at the end of the
quarter was $5 billion, and significant orders during the quarter
included international night vision goggles, airborne integrated
defensive electronic countermeasures, Saudi Arabia tactical radios
and next generation satellite radios. ITT was also selected by the
U.S. Air Force Space and Missile Systems to provide components and
services for the next generation of the Global Positioning System
(GPS).
Fluid Technology
- First-quarter 2010 Fluid
Technology revenue of $801 million was up eight percent on a
year-over-year basis. Organic revenue was flat, as growth in
residential markets was offset by a decline versus the strong
year-ago period in industrial projects. Organic orders for the
segment were up three percent, largely driven by stabilizing
residential market conditions and strong mining, oil and gas
projects.
- First-quarter segment operating
income was $91 million, up 32 percent from the comparable
prior-year period, driven by exceptional productivity and lower
restructuring and realignment costs.
- Key recent achievements include
an award to create an energy-efficient water system in Chongqing,
China; a full suite of treatment equipment to upgrade a water
reclamation plant in Maryland with ITT’s Flygt, Leopold, WEDECO and
Sanitaire product lines; a desalination award in Saudi Arabia; and
the start-up of the one of the largest dissolved air flotation
water treatment systems in North America. The company also
completed the acquisition of Nova Analytics, establishing a new
growth platform for ITT in the $6 billion analytical
instrumentation market.
Motion & Flow Control
- First-quarter 2010 revenue for
the Motion & Flow Control segment grew 26 percent on a
comparable basis to $387 million. Organic revenue was up 25
percent, driven by the 2009 European auto stimulus programs, share
gains in rail and beverage in emerging markets, restocking in the
marine and connectors markets and recovering industrial markets.
Organic orders were up 32 percent.
- Operating income of $55 million
was up 96 percent, driven by strong productivity, volume and
mix.
- Key business achievements during
the quarter included a locomotive damper order for a rail project
in China, European automotive platform wins, and a five-year fuel
valve award in the aerospace sector. The business also garnered
emerging market share gains in beverage.
Guidance
For the second quarter of 2010, ITT projects adjusted earnings
per share will be flat compared with the year-ago period, in the
range of $1.05 to $1.07. ITT’s new full-year 2010 adjusted earnings
per share guidance range is now $4.05 to $4.20 per share. At the
midpoint, this represents nine percent growth from 2009.
For the full year, ITT revenue is now expected to grow four
percent, compared with prior revenue guidance of three percent
growth. Organic revenue growth for the full year is now forecast at
three percent compared with a prior forecast of two percent.
Based on expected timing of orders and customer fielding plans,
the company projects 2010 Defense & Information Solutions
revenue growth of three percent. Fluid Technology revenue is
expected to grow five percent, from a previously announced forecast
of two percent growth, due to the Nova acquisition. Total revenue
growth guidance for Motion & Flow Control is increased to six
percent from the previous forecast of one percent growth. On an
organic basis, revenue growth of seven percent is now forecast at
Motion & Flow Control compared to the flat prior guidance.
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
first-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 is a high-technology engineering and
manufacturing company operating on all seven continents in three
vital markets: water and fluids management, global defense and
security, and motion and flow control. With a heritage of
innovation, ITT partners with its customers to deliver
extraordinary solutions that create more livable environments,
provide protection and safety and connect our world. Headquartered
in White Plains, N.Y., the company generated 2009 revenue of $10.9
billion. www.itt.com
Safe Harbor Statement
Certain material presented herein includes forward-looking
statements intended to qualify for the safe harbor from liability
established by the Private Securities Litigation Reform Act of 1995
(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 include: Economic, political and social
conditions in the countries in which we conduct our businesses;
Changes in U.S. or international government defense budgets;
Decline in consumer spending; Sales and revenues mix and pricing
levels; Availability of adequate labor, commodities, supplies and
raw materials; Interest and foreign currency exchange rate
fluctuations and changes in local government regulations;
Competition and industry capacity and production rates; Ability of
third parties, including our commercial partners, counterparties,
financial institutions and insurers, to comply with their
commitments to us; Our ability to borrow or refinance our existing
indebtedness and availability of liquidity sufficient to meet our
needs; Changes in the value of goodwill or intangible assets;
Acquisitions or divestitures; Personal injury claims; Uncertainties
with respect to our estimation of asbestos liability exposure and
related insurance recoveries; Our ability to effect restructuring
and cost reduction programs and realize savings from such actions;
Government regulations and compliance therewith; Changes in
technology; Intellectual property matters; Governmental
investigations; Potential future employee benefit plan
contributions and other employment and pension matters;
Contingencies related to actual or alleged environmental
contamination, claims and concerns; Changes in generally accepted
accounting principles; Other factors set forth in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2009 and our
other 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 CORPORATION AND
SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME
STATEMENTS
(In millions, except per
share)
(Unaudited)
Three Months Ended March 31,
2010 2009
Revenue $
2,636
$
2,557 Costs of revenue 1,908 1,888
Selling, general and administrative expenses 383 383 Research and
development expenses 63 53 Asbestos-related costs, net 15 -
Restructuring and asset impairment charges, net
17 11 Total costs
and expenses 2,386 2,335 Operating income 250 222 Interest
expense 25 26 Interest income 3 4 Miscellaneous expense, net
5 3 Income from
continuing operations before
income tax expense
223
197
Income tax expense
77
10 Income from continuing operations 146 187
Loss from discontinued operations, net of tax
-
(3 ) Net income
$
146 $ 184
Earnings (Loss) Per Share Basic: Continuing
operations $ 0.80 $ 1.02 Discontinued operations
- (0.01 ) Net Income $ 0.80
$ 1.01 Diluted: Continuing operations $ 0.79 $ 1.02 Discontinued
operations
- (0.01 )
Net Income $ 0.79 $ 1.01 Average common shares — basic 183.3
182.0 Average common shares — diluted 184.9 183.2
ITT CORPORATION AND
SUBSIDIARIESCONSOLIDATED CONDENSED BALANCE SHEETS(In
millions)(Unaudited)
March 31, December 31,
2010 2009 Assets Current Assets: Cash
and cash equivalents $
880
$
1,216
Receivables, net 1,853 1,797 Inventories, net 821 802 Deferred
income taxes 235 234 Other current assets (a)
238 207 Total
current assets 4,027 4,256 Plant, property and equipment,
net 1,049 1,051 Deferred income taxes 546 583 Goodwill 4,071 3,864
Other intangible assets, net 664 519 Asbestos-related assets 584
604 Other non-current assets
259
252 Total assets
$
11,200 $ 11,129
Liabilities and Shareholders' Equity Current
Liabilities: Accounts payable $ 1,207 $ 1,291 Accrued expenses (b)
970 1,035 Accrued taxes 93 105 Short-term debt and current
maturities of long-term debt 289 75 Postretirement benefits 73 73
Deferred income taxes
35
37 Total current liabilities 2,667 2,616
Postretirement benefits 1,775 1,788 Long-term debt 1,365 1,431
Asbestos-related liabilities 860 867 Other non-current liabilities
614 549 Total
liabilities 7,281 7,251 Shareholders' equity
3,919 3,878 Total
liabilities and shareholders' equity
$
11,200 $ 11,129
(a) Includes asbestos-related assets of $62 for both
periods presented. (b) Includes asbestos-related liabilities of $66
for both periods presented.
ITT CORPORATION AND
SUBSIDIARIES
CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended March 31, 2010
2009 Operating Activities
Net income
$
146
$
184
Less: Loss from discontinued operations
-
3 Income from continuing
operations 146 187 Adjustments to income from continuing
operations: Depreciation and amortization 69 66 Stock-based
compensation 8 8 Asbestos-related costs, net 15 - Restructuring and
asset impairment charges, net 17 11 Payments for restructuring (16
) (26 ) Contributions to pension plans (2 ) (5 ) Change in
receivables (68 ) 76 Change in inventories 3 (44 ) Change in
accounts payable and accrued expenses (73 ) (17 ) Change in accrued
and deferred taxes 7 (4 ) Change in other assets (22 ) (46 ) Change
in other liabilities (11 ) (2 ) Other, net
4
9 Net Cash — Operating Activities
77 213
Investing Activities
Capital expenditures
(52
)
(48
)
Acquisitions, net of cash acquired (391 ) (1 ) Proceeds from sale
of assets and businesses 1 10 Other, net
1
2 Net Cash — Investing Activities
(441 )
(37 )
Financing Activities
Short-term debt, net
151
(166
)
Long-term debt repaid (1 ) (3 ) Proceeds from issuance of common
stock 5 2 Dividends paid (85 ) (32 ) Tax impact from equity
compensation activity 1 (1 ) Other, net
5
- Net Cash — Financing Activities
76 (200 )
Exchange rate effects on cash and cash equivalents
(48 )
(30 ) Net change in cash and
cash equivalents (336 ) (54 ) Cash and cash equivalents — beginning
of year
1,216 965
Cash and Cash Equivalents — end of period
$ 880 $
911 Key Performance Indicators
and Non-GAAP Measures Management reviews key performance
metrics including sales and revenues, segment operating income and
margins, earnings per share, orders growth, and backlog, among
others, in connection with its management of our business. In
addition, we consider the following non-GAAP measures to be key
performance indicators for purposes of this REG-G reconciliation:
Organic Sales and Revenues defined as reported GAAP
sales and revenues excluding the impact of foreign currency
fluctuations and contributions from acquisitions and divestitures
(for the first 12 months). The Company believes that Organic Sales
and Revenues provide a useful measure of the operation's underlying
revenue performance after adjusting for foreign exchange,
acquisitions and divestitures that may impact comparability. The
Company utilizes Organic Sales and Revenues to measure, evaluate
and manage the Company's revenue performance. The Company's
definition of Organic Sales and Revenue may not be comparable to
similar measures utilized by other companies.
Organic
Orders are Non-GAAP performance measures that may provide
useful information related to the Company's future revenue
performance. Organic Orders exclude the impact of foreign currency
fluctuations and contributions from acquisitions and divestitures
(for the first 12 months). The Company's definition of Organic
Orders may not be comparable to similar measures utilized by other
companies.
Adjusted Income from Continuing Operations
and
Adjusted EPS are defined as reported GAAP Income from
Continuing Operations and reported GAAP Diluted Earnings Per Share,
adjusted to exclude Special items. Special items that may include,
but are not limited to, unusual and infrequent non-operating items
and non-operating tax settlements or adjustments related to prior
periods. These items are not a substitute for GAAP measures.
Special items represent significant charges or credits that impact
current results, but may not be related to the Company’s ongoing
operations and performance. The Company uses Adjusted Income from
Continuing Operations and Adjusted EPS to measure, evaluate and
manage the Company. The Company believes that results excluding
Special Items provide a useful analysis of ongoing operating
trends. The Company's definitions of Adjusted Income from
Continuing Operations and Adjusted EPS may not be comparable to
similar measures utilized by other companies.
Free Cash
Flow is defined as GAAP Net Cash - Operating Activities less
Capital Expenditures and other Special Items. Free Cash Flow should
not be considered a substitute for income or cash flow data
prepared in accordance with GAAP. The Company's definition of Free
Cash Flow may not be comparable to similar measures utilized by
other companies. Management believes that Free Cash Flow is an
important measure of performance and it is utilized as one measure
of the Company's ability to generate cash. Note that due to other
financial obligations and commitments, the entire Free Cash Flow
amount may not be available for discretionary purposes.
Management believes that the above metrics are useful to investors
evaluating our operating performance for the periods presented, and
provide a tool for evaluating our ongoing operations and our
management of assets held from period to period. These metrics,
however, are not a measure of financial performance under GAAP and
should not be considered a substitute for sales and revenue growth
(decline), or cash flows from operating, investing and financing
activities as determined in accordance with GAAP and may not be
comparable to similarly titled measures reported by other
companies.
ITT Corporation Non-GAAP
Reconciliation Reported vs. Organic Revenue / Order
Growth First Quarter 2010 & 2009
($ Millions)
(As Reported -
GAAP) (As Adjusted - Organic) (A) (B) (C) (D) (E)
= B+C+D (F) = E / A
Revenue3M 2010
Revenue3M 2009
Change2010 vs. 2009
% Change2010 vs. 2009
Acquisition /Divestitures3M
2010
FX Contribution3M 2010
ChangeAdj. 10 vs. 09
% ChangeAdj. 10 vs. 09 ITT Corporation - Consolidated
2,636 2,557 79 3.1% (13) (50) 16 0.6% Defense &
Information Solutions 1,450 1,508 (58) -3.8% 0 0 (58) -3.8%
Electronic Systems 508 676 (168) -24.9% 0 0 (168) -24.9% Geospatial
Systems 297 275 22 8.0% 0 0 22 8.0% Information Systems 651 575 76
13.2% 0 0 76 13.2% Fluid Technology 801 744 57 7.7% (16)
(42) (1) -0.1% Water & WasteWater 378 344 34 9.9% (4) (32) (2)
-0.6% Residential and Commercial Water Group 267 238 29 12.2% (12)
(6) 11 4.6% Industrial Process 172 184 (12) -6.5% 0 (5) (17) -9.2%
Motion & Flow Control 387 306 81 26.5% 3 (8) 76 24.8%
Motion Technologies 169 113 56 49.6% 0 (5) 51 45.1% Interconnect
Solutions 98 87 11 12.6% 0 (2) 9 10.3% Control Technologies 66 64 2
3.1% 1 0 3 4.7% Flow Control 54 43 11 25.6% 2 (1) 12 27.9%
Orders3M 2010
Orders3M 2009
Change2010 vs. 2009
% Change2010 vs. 2009
AcquisitionContribution3M 2010
FX Contribution3M 2010 ChangeAdj. 10 vs. 09 % ChangeAdj. 10 vs. 09
Defense & Information Solutions 1,256 1,504 (248) -16.5%
0 0 (248) -16.5% Fluid Technology 890 802 88 11.0% (17) (47)
24 3.0% Motion & Flow Control 374 281 93 33.1% 3 (6) 90
32.0% Total Segment Orders 2,518 2,586 (68) -2.6% (14) (53)
(135) -5.2% Note: Excludes intercompany eliminations.
ITT Corporation Segment Operating Income & OI
Margin First Quarter of 2010 & 2009
($ Millions)
Q1 2010
Q1 2009
%
Change 10 vs.
As Reported As Reported
09
Revenue: Defense & Information Solutions 1,450
1,508 -3.8 % Fluid Technology 801 744 7.7 % Motion & Flow
Control 387 306 26.5 % Intersegment eliminations (2 ) (1 ) 100.0 %
Total Revenue 2,636 2,557 3.1 %
Operating
Margin: Defense & Information Solutions 10.1 % 10.9 % (80 )
BP Fluid Technology 11.4 % 9.3 % 210 BP Motion & Flow Control
14.2 % 9.2 % 500 BP Total Operating Segments 11.1 % 10.2 %
90 BP
Income: Defense & Information
Solutions 146 164 -11.0 % Fluid Technology 91 69 31.9 % Motion
& Flow Control 55 28 96.4 % Total Segment
Operating Income 292 261 11.9 %
ITT
Corporation Non-GAAP Reconciliation Reported vs. Adjusted
Income from Continuing Operations & Adjusted EPS First
Quarter of 2010 & 2009
($ Millions, except EPS and shares)
Q1 2010As Reported
Q1 2010Adjustments Q1 2010As Adjusted Q1 2009As Reported Q1
2009Adjustments Q1 2009As Adjusted Change2010 vs. 2009As Adjusted
Percent Change2010 vs. 2009As Adjusted
Segment Operating Income 292 292
261 261 Interest Income
(Expense) (22 ) (1 )
#A
(23 ) (22 ) (22 ) Other Income (Expense) (5 ) (5 ) (3 ) (3 )
Corporate (Expense) (42 ) (42 ) (39 ) (39 )
Income from Continuing
Operations before Tax 223 (1 ) 222 197
197 Income
Tax Expense (77 ) 11
#B
(66 ) (10 ) (54 )
#C
(64 ) Income from
Continuing Operations 146 10 156 187
(54 ) 133
Diluted EPS from Continuing Operations 0.79 0.05 0.84
1.02 (0.30 ) 0.72
$0.12
16.7 % #A - Interest refund related to prior year tax
settlement. #B - Primarily related to a reduction of deferred tax
assets associated with the U.S. Patient Protection and Affordable
Care Act (the Healthcare Reform Act). #C - Primarily the reversal
of a deferred tax liability no longer required as a result of the
restructuring of certain international legal entities.
ITT Corporation Non-GAAP Reconciliation Net Cash -
Operating Activities vs. Free Cash Flow First Quarter of
2010 & 2009
($ Millions)
3M 2010 3M 2009
Net Cash - Operating
Activities 77 213 Capital Expenditures
(52) (48)
Free Cash Flow 25 165
Income from Continuing Operations 146 187
Free Cash Flow Conversion 17% 88%
Non-Cash Special Tax Items 11 (58) Income from
Continuing Operations, ExcludingNon-Cash Special Tax Items
157 129 Adjusted Free Cash Flow
Conversion 16% 128% ITT
Corporation Debt Coverage Ratios 2010 & 2009 ($
Millions) March 30, 2010
December 30, 2009 Net Debt/Net Capitalization 16.5 %
7.0 % Total Debt/Total Capitalization 29.7 % 28.0 %
Short Term Debt 289 75 Long Term Debt 1,365 1,431
Total Debt 1,654 1,506 Cash & Cash equivalents 880 1,216
Net Debt 774 290 Total Shareholders' Equity
3,919 3,878 Net Debt 774 290 Net Capitalization 4,693
4,168
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