ITT Corporation (NYSE: ITT) today reported 2010 second-quarter
revenue of $2.7 billion and income from continuing operations of
$226 million, or $1.22 per share. Excluding special items, income
from continuing operations for the quarter was $211 million, or
$1.14 per share, representing 9 percent year-over-year growth.
Special items resulted from the completion of a tax audit.
“We are pleased with ITT’s strong productivity and solid
operating margins this quarter, and we are making substantial
progress realigning our portfolio of essential products and
services to drive future growth,” said Steve Loranger, ITT’s
chairman, president and chief executive officer. “Our Motion &
Flow Control business once again delivered exceptional performance
with significant increases in revenue and operating income. Our
Defense & Information Solutions business delivered improved
productivity and lower expenses driven by its business
transformation. Our Fluid Technology team posted solid margin
expansion with outstanding productivity. We are growing in emerging
markets and seeing market recovery in some of our commercial
businesses, driving significant growth in organic orders. All in,
it adds up to a great first half.”
During the quarter the company announced that it acquired
Canberra Pumps in Brazil and that it signed a definitive agreement
to acquire Godwin Pumps as part of ITT’s portfolio repositioning
strategy. These businesses will be included in the Fluid Technology
segment. The company also today announced its plans to divest CAS,
Inc., a systems engineering and technical assistance (SETA)
component of the Defense & Information Solutions segment.
“Our strategies for long-term sustainable growth include
increasing our presence in emerging markets, rebalancing our
revenue mix and strengthening the portion of our business that is
aligned with global macro trends, including the need for fresh
water and modernized infrastructure, and we made good progress in
the second quarter. The purchase of Godwin will build our global
position in water, wastewater and industrial process, and Canberra
Pumps expands our position in Latin America and enables us to
sharpen our focus on the growing oil and gas market,” Loranger
said. “Our plans to divest CAS will reduce the potential for
perceived organizational conflicts of interest for ITT as a
top-tier defense contractor. CAS is an outstanding business;
however, as we continue to grow our Defense & Information
Solutions business revenues in adjacent platforms, we believe CAS
would be better positioned for growth with another company.”
CAS is being classified as a discontinued operation, including
full-year 2009 revenues of $230 million; and taken together with
the Godwin and Canberra acquisitions, the 2010 full-year dilutive
impact of these portfolio repositioning activities is expected to
be $0.11. The company projects this will be offset by strong
operational performance.
“Notwithstanding the one-time impact of our repositioning
strategy on our full-year outlook, we are poised for double-digit
earnings growth in 2010, building on a best-in-class earnings
performance in 2009. The focused execution of our global teams,
combined with improving conditions in certain end markets, gives us
confidence in our ability to deliver a strong second half and raise
our outlook for the full year -- and we are well positioned for
sustainable growth over the long term,” Loranger said.
Second-Quarter Segment Results
Defense & Information Solutions
- Second-quarter 2010 revenue for
the Defense segment was $1.5 billion, down 3 percent compared to
the year-ago period. Backlog at the end of the quarter was $4.1
billion. Second-quarter volume declines from strong prior-year
results for tactical radios and counter improvised explosive device
units were partially offset by growth in special purpose jammers,
radar, composite structures, increased activity under the Automatic
Dependent Surveillance-Broadcast (ADS-B) air-traffic control
program and strong international night vision goggle revenues.
Organic orders declined 49 percent from a very strong prior-year
period due to deferral of an international radio order and delayed
award timing of service contracts and jammer upgrades.
- Significant wins during the
quarter included a $1.4 billion Systems Engineering 2020 award
under the FAA’s next generation air transportation system, and a
NASA range operations contract. The company also recently won two
independent contracts, totaling up to $800 million, from the U.S.
Army Corps of Engineers to provide operations and maintenance
support for the Afghanistan National Security Forces.
- Strong productivity and cost
reductions in the segment were offset by costs related to the
business transformation that was implemented in the first quarter,
higher pension costs, and lower volumes, resulting in a 2 percent
decline in second-quarter operating income to $194 million.
Fluid Technology
- Second-quarter 2010 Fluid
Technology revenue of $878 million was up 1 percent on a
year-over-year basis, primarily driven by the acquisition of Nova
Analytics. Organic revenue (defined as total revenue excluding
foreign exchange, acquisition and divestiture impacts) was down 4
percent, as improvement in residential markets and strength in U.S.
treatment and global dewatering was offset by municipal weakness in
Europe and a decline versus a strong year-ago period in oil and
mining projects. Organic orders for the segment were up 15 percent,
largely driven by solid demand in industrial aftermarket services,
strong mining, oil and gas projects, and a strong U.S. municipal
market.
- Recent key achievements include
a treatment project order in Qatar and a dewatering project in
Norway. ITT also signed a memorandum of understanding with the PUB,
Singapore's national water agency, to establish a joint research
and technology testing program to further develop energy-efficient
water and wastewater treatment solutions.
- Second-quarter segment operating
income was $130 million, up 16 percent from the comparable
prior-year period, driven by exceptional productivity and lower
restructuring and realignment costs.
Motion & Flow Control
- Second-quarter 2010 revenue for
the Motion & Flow Control segment grew 17 percent on a
comparable prior-year basis to $361 million. Organic revenue was up
21 percent, driven by improvements in auto, connectors, marine,
beverage and growth in emerging markets. Organic orders were up 17
percent on strong demand for connectors, improving aerospace
demand, emerging market growth in beverage, general industrial
strength and global wins in high-speed rail.
- Key business achievements during
the quarter included brake pad orders for the new BMW “5 series,”
Renault and Opel models. The business also experienced increased
demand for its PulpJet Pump, which is used in fast food chains to
dispense smoothie beverages.
- Operating income of $42 million
was up 27 percent, driven by increased revenue as well as strong
productivity and a reduction in restructuring charges.
Guidance
For the third quarter of 2010, taking into account customer
order patterns and the expected dilutive impact of the portfolio
repositioning actions on the quarter, ITT projects adjusted
earnings per share will be down 6 percent compared with the
year-ago period, in the range of $0.94 to $0.98. Revenue for the
third quarter is expected to be up 1 percent to approximately $2.7
billion.
For the full year, taking into account the expected $0.11 impact
of acquisitions and discontinued operations, the company projects
2010 adjusted continuing earnings per share guidance will be $4.08
to $4.18. The midpoint of $4.13 represents 11 percent growth
compared with the prior year.
Revenue for the full year is expected to grow approximately 3
percent to $11 billion. Organic revenue is expected to grow 2
percent, compared with a previous forecast of 3 percent growth.
Based on current order patterns, the company now projects 2010
Defense & Information Solutions revenue for the full year to be
flat, versus a previous forecast of 3 percent growth. Fluid
Technology revenue is expected to grow 6 percent, from a previously
announced forecast of 5 percent growth, and organic revenue for the
segment is expected to be flat. Based on improving market
conditions, total revenue growth guidance for Motion & Flow
Control is increased to 14 percent from the previous forecast of 6
percent growth, and organic revenue is expected to grow 18
percent.
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 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 reported 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 SUBSIDIARIESCONSOLIDATED CONDENSED INCOME
STATEMENTS(In millions, except per
share)(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30, 2010
2009 2010
2009 Revenue
$
2,739
$
2,719
$
5,317
$
5,225
Costs of revenue 1,958 1,950 3,818 3,796 Selling, general
and administrative expenses 375 389 753 767 Research and
development expenses 60 57 123 110 Asbestos-related costs, net 12 -
27 - Restructuring and asset impairment charges, net
10 20
27 31 Total costs
and expenses 2,415 2,416 4,748 4,704 Operating income 324
303 569 521 Interest expense 23 23 48 49 Interest income 8 4 11 8
Miscellaneous expense, net
4
3 8
6
Income from continuing operations
before income tax expense
305
281
524
474
Income tax expense
79
81 154
90 Income from continuing operations 226 200
370 384 Income from discontinued operations, net of tax
12 1
14 1 Net income
$ 238 $
201 $ 384
$ 385 Earnings (Loss)
Per Share Basic: Continuing operations $ 1.23 $ 1.09 $ 2.01 $
2.10 Discontinued operations
0.06
0.01 0.08
0.01 Net Income $ 1.29 $ 1.10 $ 2.09 $ 2.11
Diluted: Continuing operations $ 1.22 $ 1.09 $ 2.00 $ 2.09
Discontinued operations
0.06
0.01 0.07
0.01 Net Income $ 1.28 $ 1.10 $ 2.07 $ 2.10
Average common shares — basic 184.0 182.5 183.6 182.3
Average common shares — diluted 185.5 183.6 185.2 183.4
ITT CORPORATION AND
SUBSIDIARIESCONSOLIDATED CONDENSED BALANCE SHEETS(In
millions)(Unaudited)
June 30, December
31, 2010 2009 Assets Current
Assets: Cash and cash equivalents
$
844
$
1,216
Receivables, net 1,829 1,754 Inventories, net 813 802 Current
Assets of Discontinued Operations 137 141 Deferred income taxes 233
232 Other current assets (a)
237
206 Total current assets 4,093 4,351
Plant, property and equipment, net 1,037 1,050 Deferred income
taxes 504 583 Goodwill 3,953 3,788 Other intangible assets, net 616
501 Asbestos-related assets 579 604 Other non-current assets
233 252 Total assets
$ 11,015 $
11,129 Liabilities and Shareholders'
Equity Current Liabilities: Accounts payable $ 1,208 $ 1,273
Accrued expenses (b) 985 1,020 Accrued taxes 13 103 Short-term debt
and current maturities of long-term debt 106 75 Postretirement
benefits 73 73 Current Liabilities of Discontinued Operations 47 44
Deferred income taxes
42
36 Total current liabilities 2,474 2,624
Postretirement benefits 1,754 1,788 Long-term debt 1,363 1,431
Asbestos-related liabilities 864 867 Other non-current liabilities
538 541 Total
liabilities 6,993 7,251 Shareholders' equity
4,022 3,878 Total
liabilities and shareholders' equity
$
11,015 $ 11,129
(a) Includes asbestos-related assets of $62 for both periods
presented.
(b) Includes asbestos-related liabilities of $67 for 2010 and
$66 for 2009.
ITT CORPORATION AND
SUBSIDIARIESCONSOLIDATED CONDENSED STATEMENTS OF CASH
FLOWS(In millions)(Unaudited)
Six Months Ended June 30,
2010 2009 Operating Activities
Net income
$ 384 $ 385 Less: Income from discontinued operations
14 1 Income from
continuing operations 370 384 Adjustments to income from
continuing operations: Depreciation and amortization 140 140
Stock-based compensation 16 16 Asbestos-related costs, net 27 -
Restructuring and asset impairment charges, net 27 31 Payments for
restructuring (32 ) (46 ) Contributions to pension plans (6 ) (11 )
Change in receivables (121 ) 78 Change in inventories 2 (49 )
Change in accounts payable and accrued expenses (19 ) 47 Change in
accrued and deferred taxes (41 ) (13 ) Change in other assets 2 (24
) Change in other liabilities (16 ) (9 ) Other, net
7 2 Net Cash —
Operating Activities
356
546 Investing Activities
Capital expenditures
(106
)
(87
)
Acquisitions, net of cash acquired (401 ) (35 ) Proceeds from sale
of assets and businesses 2 14 Other, net
1
4 Net Cash — Investing Activities
(504 )
(104 )
Financing Activities
Short-term debt, net
34
(1,323
)
Long-term debt repaid (70 ) (4 ) Long-term debt issued - 992
Proceeds from issuance of common stock 9 2 Dividends paid (130 )
(70 ) Tax impact from equity compensation activity 3 (1 ) Other,
net
6 2 Net
Cash — Financing Activities
(148 )
(402 ) Exchange rate effects on cash and
cash equivalents
(85 )
15
Cash from (used for) discontinued operations:
Operating Activities 9 (1 ) Net change in cash and cash
equivalents (372 ) 54 Cash and cash equivalents — beginning of year
1,216 965
Cash and Cash Equivalents — end of period $
844 $ 1,019
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 Second 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 2,739 2,719 20 0.7%
(47) 19 (8) -0.3% Defense & Information Solutions 1,503
1,544 (41) -2.7% 0 1 (40) -2.6% Electronic Systems 630 719 (89)
-12.4% 0 1 (88) -12.3% Geospatial Systems 298 261 37 14.2% 0 0 37
14.2% Information Systems 579 562 17 3.0% 0 0 17 3.0%
Fluid Technology 878 869 9 1.0% (47) 5 (33) -3.8% Industrial
Process 167 195 (28) -14.4% 0 (2) (30) -15.5% Residential and
Commercial Water Group 286 280 6 2.2% (7) 6 5 1.6% Water &
WasteWater 445 413 32 7.8% (39) 3 (4) -1.1% Motion &
Flow Control 361 308 53 17.2% 0 13 66 21.4% Motion Technologies 134
120 14 11.6% 0 9 23 19.4% Interconnect Solutions 102 83 19 22.8% 0
2 21 25.0% Control Technologies 68 62 6 9.9% 0 0 6 10.2% Flow
Control 59 45 14 30.0% 0 1 15 32.8% 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 767 1,506 (739) -49.1% 0
0 (739) -49.1% Fluid Technology 941 791 150 19.0% (43) 11
118 14.9% Motion & Flow Control 359 315 44 14.0% 0 9 53
16.8% Total Segment Orders 2,064 2,611 (547) -20.9% (43) 20
(570) -21.8% Note: Excludes intercompany eliminations.
Note: Percents may not calculate due to
rounding. ITT Corporation Segment Operating
Income & OI Margin Second Quarter of 2010 & 2009
($ Millions) Q2 2010As
Reported Q2 2009As Reported %Change 10 vs. 09
Revenue: Defense & Information Solutions 1,503 1,544
-2.7 % Fluid Technology 878 869 1.0 % Motion & Flow Control 361
308 17.2 % Intersegment eliminations (3 ) (2 ) 50.0 % Total Revenue
2,739 2,719 0.7 %
Operating Margin:
Defense & Information Solutions 12.9 % 12.8 % 10 BP Fluid
Technology 14.8 % 12.9 % 190 BP Motion & Flow Control 11.6 %
10.7 % 90 BP Total Operating Segments 13.4 % 12.6 % 80
BP
Income: Defense & Information
Solutions 194 197 -1.5 % Fluid Technology 130 112 16.1 % Motion
& Flow Control 42 33 27.3 % Total Segment
Operating Income 366 342 7.0 %
ITT
Corporation Non-GAAP Reconciliation Reported vs. Adjusted
Income from Continuing Operations & Adjusted EPS Second
Quarter of 2010 & 2009
($ Millions, except EPS and
shares)
Q2 2010As Reported
Q2 2010Adjustments Q2 2010As Adjusted Q2 2009As Reported Q2
2009Adjustments Q2 2009As Adjusted Change2010 vs. 2009As Adjusted
Percent Change2010 vs. 2009As Adjusted
Segment Operating Income 366 366
342 342 Interest Income
(Expense) (15 ) (9 ) #A (24 ) (19 ) (2 ) #B (21 ) Other Income
(Expense) (4 ) (4 ) (3 ) (3 ) Corporate (Expense) (42 ) 0
(42 ) (39 ) (39 )
Income from Continuing Operations before Tax 305 (9 ) 296
281 (2 ) 279
Income Tax Expense (79 ) (6 ) #A (85 ) (81 )
(5 ) #C (86 ) Income from
Continuing Operations 226 (15 ) 211 200 (7 )
193 Diluted
EPS from Continuing Operations 1.22 (0.08 ) 1.14 1.09
(0.04 ) 1.05 $ 0.09 8.6 % #A - Interest
income and reversal of tax reserves related to the 2nd Quarter
closure of a tax audit. #B - Reversal of interest payable related
to prior year tax items. #C - Primarily represents a benefit for
tax adjustments related to prior years.
ITT
Corporation Non-GAAP Reconciliation Net Cash - Operating
Activities vs. Free Cash Flow Second Quarter of 2010 &
2009 ($ Millions)
6M 2010 6M 2009
Net Cash - Operating
Activities 356 546 Capital Expenditures
(106 ) (87 )
Free Cash Flow 250
459 Income from Continuing Operations
370 384 Free Cash Flow
Conversion 68 % 120 %
Non-Cash Special Tax Items 5 (58 ) Income from
Continuing Operations, Excluding Non-Cash Special Tax Items
375 326 Adjusted Free Cash
Flow Conversion 67 % 141 %
ITT Corporation Debt Coverage Ratios 2010 &
2009 ($ Millions)
June 30, 2010 December 30, 2009
Net Debt/Net Capitalization 13.4 % 7.0 % Total Debt/Total
Capitalization 26.8 % 28.0 % Short Term Debt 106 75
Long Term Debt 1,363 1,431 Total Debt 1,469 1,506
Cash & Cash equivalents 844 1,216 Net Debt 625
290 Total Shareholders' Equity 4,022 3,878 Net Debt
625 290 Net Capitalization 4,647 4,168
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