ITT Tops Second-Quarter Revenue and Adjusted Earnings Forecasts on Commercial Growth; Raises Full-Year Revenue Forecast; ITT Exelis and Xylem Spinoff Transactions Are on Track
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ITT Tops Second-Quarter Revenue and Adjusted Earnings Forecasts on Commercial Growth; Raises Full-Year Revenue Forecast; ITT Exelis and Xylem Spinoff Transactions Are on Track

WHITE PLAINS, N.Y. — (BUSINESS WIRE) — July 29, 2011 — ITT Corporation (NYSE: ITT) today reported 2011 second-quarter revenue of $3 billion. Income from continuing operations was $168 million, down 26 percent from the prior-year period, primarily due to spinoff-related costs to create independent companies from its defense and water businesses. Excluding the impact of these costs, income from continuing operations for the quarter was $220 million, or $1.18 per share, representing 4 percent year-over-year growth.

“We are exceedingly pleased with our strong overall results and solid revenue across all our businesses this quarter,” said Steve Loranger, ITT’s chairman, president and chief executive officer. “We delivered robust growth in our commercial businesses, held defense revenue steady despite market uncertainty and continued to grow our global project pipeline. These impressive results were achieved while the organization successfully continued executing our strategic separation into three independent companies.”

Second-Quarter Segment Results

Defense and Information Solutions

Fluid Technology

Motion and Flow Control

ITT Transformation

Efforts to separate ITT into three independent publicly traded companies continued to progress toward completion prior to the end of 2011. The company recently announced that, upon completion of the spinoffs, the future defense company will be named ITT Exelis, and the future water company will be named Xylem. In addition, the company filed Form 10 registration statements with the SEC on July 11, 2011.

Anticipated pre-spin costs associated with the transformation remain in line with previously provided guidance. After-tax transformation charges incurred during the second quarter included $46 million in advisory, tax and other costs. Further information on the ITT Transformation, including summaries of each new company’s initial registration statements, can be found at www.itt.com/transformation.

Guidance

The company is raising its total revenue outlook for the full year 2011 to $11.5 billion, due to recent defense services contract wins and strength at Fluid Technologies. ITT is maintaining its 2011 full-year adjusted earnings per share guidance range of $4.70 to $4.82, with the midpoint at $4.76 per share.

Full-year revenue for Defense and Information Solutions is now expected to be between $5.6 billion and $5.7 billion, up from the previous forecast. Fluid Technology revenue is now expected to grow 17 percent, with organic revenue forecasted to grow 6 percent. Motion and Flow Control revenue is expected to grow 10 percent, and organic revenue growth for the business is projected at approximately 6.5 percent.

Third-quarter adjusted earnings for the company are expected to be in the range of $1.10 to $1.14 per share on revenues of $2.9 billion.

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/investors.

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 2010 revenue of $11 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. These forward-looking statements include, but are not limited to, statements about the separation of ITT Corporation (the “Company”) into three independent publicly-traded companies (the “companies”), the terms and the effect of the separation, the nature and impact of such a separation, capitalization of the companies, future strategic plans and other 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 or implied in, or reasonably inferred from, such forward-looking statements. Factors that could cause results to differ materially from those anticipated include, but are not limited to: 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 revenue 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, 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 to refinance our existing indebtedness and availability of liquidity sufficient to meet our needs; changes in the value of goodwill or intangible assets; our ability to achieve stated synergies or cost savings from acquisitions or divestitures; the number of personal injury claims filed against the company or the degree of liability; uncertainties with respect to our estimation of asbestos liability exposures, third party recoveries, and net cash flow; our ability to effect restructuring and cost reduction programs and realize savings from such actions; government regulations and compliance therewith, including compliance with and costs associated with new Dodd-Frank legislation; 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, 2010 and our other filings with the Securities and Exchange Commission. In addition, there are risks and uncertainties relating to the planned tax-free spinoffs of our Water and Defense businesses, including the timing and certainty of the completion of those transactions, whether those transactions will result in any tax liability, the operational and financial profile of the Company or any of its businesses after giving effect to the spinoff transactions and the ability of each business to operate as an independent entity. The guidance for full-year 2011 is based on the Company’s current structure and does not give effect to the separation of our Water and Defense businesses into newly independent public companies.

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 Six Months Ended
June 30,     June 30,
2011   2010 2011   2010
 
Revenue $ 3,024 $ 2,739 $ 5,784   $ 5,317
 
Costs of revenue 2,184 1,958 4,159 3,818
Selling, general and administrative expenses 429 375 859 753
Research and development expenses 70 60 131 123
Transformation costs 62 - 147 -
Asbestos-related costs, net 16 12 32 27
Restructuring and asset impairment charges, net   3   10   8     27
Total costs and expenses 2,764 2,415 5,336 4,748
 
Operating income 260 324 448 569
Interest and non-operating expenses, net   12   19   29     45
Income from continuing operations before

income tax expense

248

305

419

524

Income tax expense   80   79   125     154
Income from continuing operations 168 226 294 370
Income (loss) from discontinued operations, net of tax   -   12   ( 2 )   14
Net income $ 168 $ 238 $ 292   $ 384
 
Earnings (Loss) Per Share
Basic:
Continuing operations $ 0.91 $ 1.23 $ 1.59 $ 2.01
Discontinued operations   -   0.06   (0.01 )   0.08
Net Income $ 0.91 $ 1.29 $ 1.58 $ 2.09
Diluted:
Continuing operations $ 0.90 $ 1.22 $ 1.58 $ 2.00
Discontinued operations   -   0.06   (0.02 )   0.07
Net Income $ 0.90 $ 1.28 $ 1.56 $ 2.07
 
Average common shares — basic 185.3 184.0 185.1 183.6
Average common shares — diluted 186.8 185.5 186.6 185.2

 
 

ITT CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions)

(Unaudited)

         
June 30, December 31,
2011 2010
 
Assets
Current Assets:
Cash and cash equivalents $ 1,160 $ 1,032
Receivables, net 2,200 1,944
Inventories, net 980 856
Other current assets   678   562
Total current assets 5,018 4,394
 
Plant, property and equipment, net 1,242 1,205
Goodwill 4,340 4,277
Other intangible assets, net 741 766
Asbestos-related assets 924 930
Other non-current assets   835   866
Total assets $ 13,100 $ 12,438
 
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 1,115 $ 1,020
Accrued liabilities 1,714 1,714
Short-term debt and current maturities of long-term debt   131   11

Total current liabilities

2,960 2,745
 
Postretirement benefits 1,740 1,733
Long-term debt 1,297 1,354
Asbestos-related liabilities 1,576 1,559
Other non-current liabilities   551   542
Total liabilities 8,124 7,933
 
Shareholders' equity   4,976   4,505
Total liabilities and shareholders' equity $ 13,100 $ 12,438

 
 

ITT CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

     
Six Months Ended
June 30,
2011     2010

Operating Activities

Net income

$

292

$

384

Less: Income from discontinued operations   (2 )   14  
Income from continuing operations 294 370
 
Adjustments to income from continuing operations:
Depreciation and amortization 172 140
Stock-based compensation 15 16
Transformation costs 55 -
Change in receivables (215 ) (121 )
Change in inventories (99 ) 2
Change in accounts payable 112 23
Other, net   (130 )   (74 )
Net Cash — Operating Activities   204     356  
 
Investing Activities

Capital expenditures

(123

)

(106

)

Acquisitions, net of cash acquired (1 ) (401 )
Other, net   25     3  
Net Cash — Investing Activities   (99 )   (504 )
 
Financing Activities

Short-term debt, net

64

34

Proceeds from issuance of common stock 41 9
Dividends paid (138 ) (130 )
Other, net   (10 )   (61 )
Net Cash — Financing Activities   (43 )   (148 )
 
Exchange rate effects on cash and cash equivalents   67     (85 )
 
Cash from (used for) discontinued operations:
Operating Activities (1 ) 9
 
Net change in cash and cash equivalents 128 (372 )
Cash and cash equivalents — beginning of year   1,032     1,216  
Cash and Cash Equivalents — end of period $ 1,160   $ 844  

 
 
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). Divestitures include sales of insignificant portions of our business that did not meet the criteria for classification as a discontinued operation. 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, spin transaction costs 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 2011 & 2010

 
($ Millions)
                 
(As Reported - GAAP) (As Adjusted - Organic)
                       
(A) (B) (C) (D) (E) = B+C+D (F) = E / A

Acquisition /

Change % Change

Divestitures

FX Contribution Change % Change
3M 2011 3M 2010 2011 vs. 2010 2011 vs. 2010 3M 2011 3M 2011 Adj. 11 vs. 10 Adj. 11 vs. 10
 

Revenues

ITT Corporation - Consolidated 3,024 2,739 285 10% (90) (94) 101 4%
 
Defense & Information Solutions 1,503 1,503 0 0% (3) (2) (5) 0%
Electronic Systems 384 630 (246) -39% 0 (1) (247) -39%
Geospatial Systems 299 298 1 0% (2) 0 (1) 0%
Information Systems 828 580 248 43% (1) 0 247 43%
 
 
Fluid Technology 1,108 877 231 26% (87) (66) 78 9%
Industrial Process 201 167 34 20% (2) (4) 28 16%
Residential and Commercial Water Group 327 286 41 14% 0 (15) 26 9%
Water & WasteWater 602 444 158 36% (85) (50) 23 5%
 
Motion & Flow Control 414 362 52 14% 0 (26) 26 7%
Motion Technologies 165 134 31 23% 0 (18) 13 10%
Interconnect Solutions 109 102 7 7% 0 (5) 2 2%
Control Technologies 83 68 15 23% 0 (1) 15 22%
Flow Control 59 60 (1) -2% 0 (3) (4) -7%
 
 
 

Orders

Total Segment Orders 2,699 2,064 635 31% (100) (95) 440 21%
 
Defense & Information Solutions 1,135 767 368 48% (5) (2) 361 47%
 
Fluid Technology 1,158 938 220 23% (95) (70) 55 6%
 
Motion & Flow Control 408 361 47 13% 0 (24) 23 6%
 
 
New Companies (A)
 

Revenues

Future ITT 555 469 86 18% (2) (27) 57 12%
Xylem 971 775 196 25% (85) (65) 46 6%
ITT Exelis 1,503 1,503 (0) 0% (3) (2) (5) 0%
 

Orders

Future ITT 572 481 91 19% (4) (25) 62 13%
Xylem 998 823 175 21% (91) (69) 15 2%
ITT Exelis 1,135 767 368 48% (5) (2) 361 47%
 
 
(A) New Companies exclude Form 10 adjustments
Note: Excludes intercompany eliminations.

 
 
ITT Corporation
Reported vs Adjusted Segment Operating Income & OI Margin
Second Quarter of 2011 & 2010
 
($ Millions)
                                   
Q2 2011 Q2 2011 Q2 2011 Q2 2010 % Change % Change
As Reported Spin Costs As Adjusted As Reported As Reported 11 vs. 10 Adj for Spin 11 vs. 10
 
Revenue:
Defense & Information Solutions 1,503 1,503 1,503 0.0 % 0.0 %
Fluid Technology 1,108 1,108 877 26.4 % 26.4 %
Motion & Flow Control 414 414 362 14.4 % 14.4 %
Intersegment eliminations (1 ) (1 ) (3 ) -66.7 % -66.7 %
Total Revenue 3,024   3,024   2,739   10.4 % 10.4 %
 
Operating Margin:
Defense & Information Solutions 9.4 % 9.5 % 12.9 % (350 ) BP (340 ) BP
Fluid Technology 14.5 % 14.8 % 14.8 % (30 ) BP - BP
Motion & Flow Control 13.8 % 13.8 % 11.6 % 220   BP 220   BP
Total Operating Segments 11.9 % 12.0 % 13.4 % (150 ) BP (140 ) BP
 
Income:
Defense & Information Solutions 142 1 143 194 -26.8 % -26.4 %
Fluid Technology 161 3 164 130 23.8 % 26.2 %
Motion & Flow Control 57   - 57   42   35.7 % 35.7 %
Total Segment Operating Income 360   4 364   366   -1.6 % -0.6 %

   
 
ITT Corporation Non-GAAP Reconciliation
Reported vs. Adjusted Income from Continuing Operations & Adjusted EPS
Second Quarter of 2011 & 2010
($ Millions, except EPS and shares)
                             
Change Percent Change
Q2 2011 Q2 2011 Q2 2011 Q2 2010 Q2 2010 Q2 2010 2011 vs. 2010 2011 vs. 2010
As Reported Adjustments As Adjusted As Reported Adjustments As Adjusted As Adjusted As Adjusted
 
           
Segment Operating Income 360   4   #A 364   366     366  
 
 
Interest Income (Expense) (19 ) - (19 ) (15 ) (9 ) #C (24 )
Other Income (Expense) - - - (4 ) - (4 )
Gain on sale of Assets 7 - 7 - - -
Corporate (Expense) (100 ) 58   #A (42 ) (42 ) -   (42 )
           
Income (loss) from Continuing Operations before Tax 248   62   310   305   (9 ) 296  
 
           
Income Tax (Expense) Benefit (80 ) (10 ) #B (90 ) (79 ) (6 ) #C (85 )
           
Income from Continuing Operations 168   52   220   226   (15 ) 211  
 
 
Diluted EPS from Continuing Operations 0.90   0.28   #D 1.18   1.22   (0.08 ) #D 1.14   0.04 4 %
 
 
#A - Transformation Costs related to planned spinoffs of defense and water businesses.
#B - Tax benefit related to Transformation Costs and tax adjustment related to prior years

#C - Interest income and reversal of tax reserves related to the 2nd Quarter closure of a tax audit.

 
#D Diluted EPS from Continuing Operations
Transformation Costs, net of related tax benefit. 0.25 -
Tax adjustments 0.03 -

Interest income and reversal of tax reserves related to the 2nd Quarter closure of a tax audit.

-   (0.08 )
Adjustments to EPS from Continuing Operations 0.28   (0.08 )

 
 
ITT Corporation Non-GAAP Reconciliation
Net Cash - Operating Activities vs. Free Cash Flow
Second Quarter 2011 & 2010
 

($ Millions)

           
6M 2011 6M 2010
 
Net Cash - Operating Activities 204 356
 
Capital Expenditures (123) (106)
 
Free Cash Flow, including Transformation 81 250
 
Transformation Spending (Cash Paid incl Capex) 72 -
 
Free Cash Flow, Excluding Transformation 153 250
 
Income from Continuing Operations 294 370
 
 
Free Cash Flow Conversion, including Transformation 28% 68%
 
 
Special Items (including Transformation Costs) 108 5
 
Income from Continuing Operations, Excluding
Special Items 402 375
 
 
Adjusted Free Cash Flow Conversion 38% 67%

 
 
ITT Corporation
Debt Coverage Ratios 2011 & 2010
($ Millions)
           
June 30, 2011 December 31, 2010
 
Net Debt/Net Capitalization 5.1 % 6.9 %
Total Debt/Total Capitalization 22.3 % 23.3 %
 
 
Short Term Debt 131 11
Long Term Debt 1,297   1,354  
Total Debt 1,428 1,365
Cash & Cash equivalents 1,160   1,032  
Net Debt 268 333
 
 
Total Shareholders' Equity 4,976 4,505
Net Debt 268   333  
Net Capitalization 5,244 4,838


Contact:

ITT Corporation
Investors:
Thomas Scalera, +1 914-641-2030
Email Contact
or
Media:
Jenny Schiavone, +1 914-641-2160
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