ITT is a company committed
to the advancement of
human progress. When you
see our people and products
in action, it is obvious that
our commitment is a central
theme in all that we do.
Right now, in Fort Wayne, Indiana, there are ITT scientists in a lab designing
space-based sounders and imagers that will enable more accurate weather forecasts.
In Bangkok, Thailand, construction workers are installing ITT fire pumps
to help protect a subway system that will transport 10 million riders a year. In
Europe, an ITT product engineer is meeting with municipal water treatment
operators to discuss how our treatment systems can help make wastewater
safe for reuse by industry or consumers.
The 41,000 employees of ITT provide solutions to problems that matter to
all of us. As we say, ITT is Engineered for life, and our focus on human progress
has always been a hallmark of this company.
It is particularly rewarding to celebrate our 10th anniversary as an independent
company with our best operating year ever. We saw double-digit
growth in organic revenue, double-digit growth in adjusted earnings from operations,
and strong cash flows*.
Just as important, we focused on accelerating change, making progress
on our four strategies: growth, operating excellence, resource optimization and
leadership. We translated these strategies into discrete, crisp execution plans
with an improved strategic and operating planning process, managing our
portfolio to maximize market leadership, profitability and cash flow, with particular
emphasis on our key platforms of water and defense.
We trained our top 1,000 leaders around the world in Value-Based
Goal Deployment, and we now perform monthly reviews at every value center.
The Value-Based Goal Deployment process provides a way for our business and
project leaders to establish and prioritize key breakthrough objectives, allocate
resources to the highest priorities and set metrics to track progress. In short,
Value-Based Goal Deployment enables us to translate our strategic and operating
plans into consistent business results.
We completed an extensive analysis of the entire ITT business portfolio — using our Value-Based Management process as a guide — to help us deploy
our resources and attention to create the most value. The process helped us
identify our key growth platforms of the future: Water, Wastewater, Advanced
Water Treatment, Defense Communications & Electronics, Advanced
Engineering & Services, Space & Intelligence Systems and Leisure Marine. The
portfolio analysis also allowed us to earmark those businesses which do not
augment our long-term strategy. As a result, we sold our automotive tubing
business for approximately $205 million, and began the process of preparing
our electronic switches business for sale.
We realigned the senior leadership team to advance our future strategy,
further strengthening our talent pipeline in several key positions and
creating new capabilities by adding new leaders to the organization. In addition,
we rolled out a comprehensive Value-Based Leadership Development
(VBLD) program focused on leadership assessment and accelerated talent
development.
We conducted a lean fulfillment program in many of our business
units and established a global sourcing group, bringing on world-class supply
chain experts from other premier organizations to develop a team of people
that know how to execute global sourcing.
We simplified our corporate structure, reducing the number of value
centers from 26 to 15 to align customer focus around growth platforms and
maximize efficiency.
We emphasized a single ITT organizational identity to better leverage
the strength and breadth of our global reach and accelerate our business performance.
Building on our Engineered for life philosophy and showcasing our
distinct product brands, a unified ITT identity will help differentiate us from
competitors, allow us to compete more effectively as a solutions provider in the
global marketplace and assist us in recruiting and retaining top talent.
In addition, we have improved our management fundamentals through
broader use of our ITT Management System. This "flight manual" provides all
of our businesses with a common set of world-class practices and value-based
processes. As a whole, the ITT Management System provides us with the
underlying fuel to achieve sustained and consistent results, and propels us
forward on our path to premier.
The impact of these improvements was evident in the strong financial results we recorded in 2005. Annual revenues in 2005 increased by 17 percent to $7.43 billion, driven by substantial new contracts in our Defense business and continued organic growth in our Fluid Technology group. We have now reported 15 consecutive quarters of revenue growth and two years of double-digit organic growth. Additionally, we are seeing success in generating cash through good attention to working capital.
Reported net income for 2005 was $360 million and full year EPS was
$1.91, including the impact of special items primarily related to an impairment
charge in our Electronic Components segment and restructuring charges.
Excluding special items, income from continuing operations as adjusted
was $494 million or $2.62 per share, up 20 percent over 2004. We are on a clear
path to meet our long-term earnings commitments. Investor confidence in our performance
is reflected in the improvement of our price-to-earnings (PE) ratio, making
us one of the top-performing multi-industry companies. The PE improvement
also paved the way for the ITT Board of Directors to approve the company's first
2-for-1 stock split since becoming an independent company, and to increase our
annual dividend by 22 percent.
One component of our success has been a strong, diversified portfolio of businesses with solid positions in growing, attractive markets.
Our Fluid Technology segment has a long track record of growth and
market fundamentals that point to sustained future progress. The Earth's population
will expand by more than 2.5 billion people in the next 40 years, and
nearly all of these people will live in areas that are already scarce in water.
As a company, we offer both large- and small-scale products and technologies,
and our systems solutions approach in the water, wastewater, water
treatment and industrial markets enabled our Fluid Technology segment to
generate $2.8 billion in revenues in 2005, up 9 percent over the prior year.
Our Defense segment is similarly well positioned. ITT provides products
and services for high-priority areas of national security — including surveillance
and intelligence, battlefield management, night vision, data processing, electronic
warfare technology, and advanced engineering solutions for security and
communications.
In 2005, we won several substantial programs, including a sole-source
contract for night vision goggles worth a potential $560 million and a five-year
contract to operate and maintain communications and information systems for
the U.S. Army in southwest Asia and Africa. As a result, revenues for our Defense
segment rose 34 percent to $3.2 billion, of which 21 percent was organic, all
while maintaining a backlog near its historic peak.
Our Motion & Flow Control segment continues to generate growth
through the pursuit of innovative products and operational excellence. We
introduced a new line of submersible refueling pumps, and our friction
materials business is an industry leader in the area of continuous improvement.
Our ongoing businesses within the Motion & Flow Control segment grew full
year revenues by 6 percent to $670 million.
Full-year revenues in our Electronic Components segment grew 2 percent
to $709 million. However, operating performance was short of what we had
planned for and attributable to ongoing challenges in our switches business.
We believe our decision to dispose of the switches business will allow us to
focus on the remaining connectors businesses that are more closely aligned
with our other strategies.
ITT is a global company, and we now have a team in place to take advantage of the significant opportunities that present themselves through global sourcing. Today, less than 10 percent of our sourcing is from low-cost regions, and we have established a program to help us increase that percentage considerably in the future.
ITT has enjoyed strong sales growth in the Asia-Pacific region, and it is
clear that this region presents an attractive opportunity for significant sales
growth in the future. We are developing broader sales capabilities, integrating
value centers and leveraging infrastructure throughout the Asia-Pacific region.
We intend to accelerate the company's capabilities to execute lean manufacturing.
There are some good examples of lean techniques throughout the
company, and we are doing more every day to reap additional benefits from
lean process focus.
Leadership development is one of our strategic priorities. Through our
Value-Based Leadership Development and Accelerated Talent Development
initiatives, we will continue to build a deep pool of strong leaders with broad
exposure to new experiences and challenging opportunities.
There is a strong sense of optimism about ITT — reflected in our recent stock split and dividend increase — and much of it is due to our current cadre of sharp and talented leaders.
In 2005, George Minnich was named Chief Financial Officer, joining us
from United Technologies, where he held a series of senior financial positions.
George replaced Edward Williams, who retired in 2005 following a productive
and distinguished 18-year career with ITT.
Another newcomer to ITT was John Williamson, who was driving efforts
in global supply chain and lean management for Danaher and is now enabling
ITT to take advantage of the significant opportunities that present themselves
through strategic global sourcing.
We also saw a number of our strongest leaders accept new challenges
within the organization. Hank Driesse, who directed the dramatic growth of
our Defense business, was named to lead our Fluid Technology business, and
Steve Gaffney, who had led our dynamic Defense Systems business, was promoted
to head the Defense group. Nick Hill, head of our Motion & Flow Control
group, was given the additional responsibility of leading our Electronic
Components businesses when Brenda Reichelderfer was named Chief
Technology Officer, responsible for advancing our forward momentum in the
areas of engineering excellence, new product innovation and engineering
career development.
Finally, Usha Wright, who was instrumental in bringing world-class
processes to ITT's Environment, Safety and Health program over the last 10 years,
was tapped to produce the same results for our diversity and inclusion efforts
as Director of Global Workforce Strategy.
Our leaders help chart the course for future success, but it's our people
who make it happen and define the culture of excellence that is part of working
at ITT. I have been privileged to witness some extraordinary acts of selflessness,
caring, innovative thinking and integrity during my tenure at the company. One
was a group of concerned employees doing whatever it took to donate and
install surface- and seawater-purifying equipment in Sri Lanka, bringing fresh
water to thousands of tsunami survivors within weeks of the disaster. Another
team successfully tripled our production rate of much needed battlefield radios
without missing a step. These efforts and many more like them helped land ITT
again on lists like Forbes "Best Managed Companies" and Governance Metrics
International and Institutional Shareholder Services´ best performers in the area
of corporate governance.
ITT people the world over have given the very best of themselves — on the
job and off — to help serve humanity in countless ways. They hold themselves
accountable for serving the customers, creating value and, as our strong Code
of Conduct emphasizes, for "doing the right thing — always." The future of ITT
is much brighter thanks to the diligence and focus of all of our employees who
bring Engineered for life to life.
By staying the course, building on our strong portfolio, adhering to the
ITT Management System and the Code of Conduct, I'm confident that ITT will
continue to be a company that can attract the best employees and customers,
and reward its investors. One strategic step at a time, we will become a better,
smarter, more disciplined version of the company we are today.
Steven R. Loranger
Chairman, President and
Chief Executive Officer
* Download the 2005 At A Glance or see "Highlights" in the "ITT At a Glance" section for reported and adjusted summary financial information and refer to itt.com/ir for detailed reconciliations of reported and adjusted segment results.
Right now, in Fort Wayne, Indiana, there are ITT scientists in a lab designing
space-based sounders and imagers that will enable more accurate weather forecasts.
In Bangkok, Thailand, construction workers are installing ITT fire pumps
to help protect a subway system that will transport 10 million riders a year. In
Europe, an ITT product engineer is meeting with municipal water treatment
operators to discuss how our treatment systems can help make wastewater
safe for reuse by industry or consumers.The 41,000 employees of ITT provide solutions to problems that matter to
all of us. As we say, ITT is Engineered for life, and our focus on human progress
has always been a hallmark of this company.It is particularly rewarding to celebrate our 10th anniversary as an independent
company with our best operating year ever. We saw double-digit
growth in organic revenue, double-digit growth in adjusted earnings from operations,
and strong cash flows*.Just as important, we focused on accelerating change, making progress
on our four strategies: growth, operating excellence, resource optimization and
leadership. We translated these strategies into discrete, crisp execution plans
with an improved strategic and operating planning process, managing our
portfolio to maximize market leadership, profitability and cash flow, with particular
emphasis on our key platforms of water and defense.We trained our top 1,000 leaders around the world in Value-Based
Goal Deployment, and we now perform monthly reviews at every value center.
The Value-Based Goal Deployment process provides a way for our business and
project leaders to establish and prioritize key breakthrough objectives, allocate
resources to the highest priorities and set metrics to track progress. In short,
Value-Based Goal Deployment enables us to translate our strategic and operating
plans into consistent business results.We completed an extensive analysis of the entire ITT business portfolio — using our Value-Based Management process as a guide — to help us deploy
our resources and attention to create the most value. The process helped us
identify our key growth platforms of the future: Water, Wastewater, Advanced
Water Treatment, Defense Communications & Electronics, Advanced
Engineering & Services, Space & Intelligence Systems and Leisure Marine. The
portfolio analysis also allowed us to earmark those businesses which do not
augment our long-term strategy. As a result, we sold our automotive tubing
business for approximately $205 million, and began the process of preparing
our electronic switches business for sale.We realigned the senior leadership team to advance our future strategy,
further strengthening our talent pipeline in several key positions and
creating new capabilities by adding new leaders to the organization. In addition,
we rolled out a comprehensive Value-Based Leadership Development
(VBLD) program focused on leadership assessment and accelerated talent
development.We conducted a lean fulfillment program in many of our business
units and established a global sourcing group, bringing on world-class supply
chain experts from other premier organizations to develop a team of people
that know how to execute global sourcing.We simplified our corporate structure, reducing the number of value
centers from 26 to 15 to align customer focus around growth platforms and
maximize efficiency.We emphasized a single ITT organizational identity to better leverage
the strength and breadth of our global reach and accelerate our business performance.
Building on our Engineered for life philosophy and showcasing our
distinct product brands, a unified ITT identity will help differentiate us from
competitors, allow us to compete more effectively as a solutions provider in the
global marketplace and assist us in recruiting and retaining top talent.In addition, we have improved our management fundamentals through
broader use of our ITT Management System. This "flight manual" provides all
of our businesses with a common set of world-class practices and value-based
processes. As a whole, the ITT Management System provides us with the
underlying fuel to achieve sustained and consistent results, and propels us
forward on our path to premier.The impact of these improvements was evident in the strong financial results we recorded in 2005. Annual revenues in 2005 increased by 17 percent to $7.43 billion, driven by substantial new contracts in our Defense business and continued organic growth in our Fluid Technology group. We have now reported 15 consecutive quarters of revenue growth and two years of double-digit organic growth. Additionally, we are seeing success in generating cash through good attention to working capital.
Reported net income for 2005 was $360 million and full year EPS was
$1.91, including the impact of special items primarily related to an impairment
charge in our Electronic Components segment and restructuring charges.
Excluding special items, income from continuing operations as adjusted
was $494 million or $2.62 per share, up 20 percent over 2004. We are on a clear
path to meet our long-term earnings commitments. Investor confidence in our performance
is reflected in the improvement of our price-to-earnings (PE) ratio, making
us one of the top-performing multi-industry companies. The PE improvement
also paved the way for the ITT Board of Directors to approve the company's first
2-for-1 stock split since becoming an independent company, and to increase our
annual dividend by 22 percent.One component of our success has been a strong, diversified portfolio of businesses with solid positions in growing, attractive markets.
Our Fluid Technology segment has a long track record of growth and
market fundamentals that point to sustained future progress. The Earth's population
will expand by more than 2.5 billion people in the next 40 years, and
nearly all of these people will live in areas that are already scarce in water.As a company, we offer both large- and small-scale products and technologies,
and our systems solutions approach in the water, wastewater, water
treatment and industrial markets enabled our Fluid Technology segment to
generate $2.8 billion in revenues in 2005, up 9 percent over the prior year.Our Defense segment is similarly well positioned. ITT provides products
and services for high-priority areas of national security — including surveillance
and intelligence, battlefield management, night vision, data processing, electronic
warfare technology, and advanced engineering solutions for security and
communications.In 2005, we won several substantial programs, including a sole-source
contract for night vision goggles worth a potential $560 million and a five-year
contract to operate and maintain communications and information systems for
the U.S. Army in southwest Asia and Africa. As a result, revenues for our Defense
segment rose 34 percent to $3.2 billion, of which 21 percent was organic, all
while maintaining a backlog near its historic peak.Our Motion & Flow Control segment continues to generate growth
through the pursuit of innovative products and operational excellence. We
introduced a new line of submersible refueling pumps, and our friction
materials business is an industry leader in the area of continuous improvement.
Our ongoing businesses within the Motion & Flow Control segment grew full
year revenues by 6 percent to $670 million.Full-year revenues in our Electronic Components segment grew 2 percent
to $709 million. However, operating performance was short of what we had
planned for and attributable to ongoing challenges in our switches business.
We believe our decision to dispose of the switches business will allow us to
focus on the remaining connectors businesses that are more closely aligned
with our other strategies.ITT is a global company, and we now have a team in place to take advantage of the significant opportunities that present themselves through global sourcing. Today, less than 10 percent of our sourcing is from low-cost regions, and we have established a program to help us increase that percentage considerably in the future.
ITT has enjoyed strong sales growth in the Asia-Pacific region, and it is
clear that this region presents an attractive opportunity for significant sales
growth in the future. We are developing broader sales capabilities, integrating
value centers and leveraging infrastructure throughout the Asia-Pacific region.We intend to accelerate the company's capabilities to execute lean manufacturing.
There are some good examples of lean techniques throughout the
company, and we are doing more every day to reap additional benefits from
lean process focus.Leadership development is one of our strategic priorities. Through our
Value-Based Leadership Development and Accelerated Talent Development
initiatives, we will continue to build a deep pool of strong leaders with broad
exposure to new experiences and challenging opportunities.There is a strong sense of optimism about ITT — reflected in our recent stock split and dividend increase — and much of it is due to our current cadre of sharp and talented leaders.
In 2005, George Minnich was named Chief Financial Officer, joining us
from United Technologies, where he held a series of senior financial positions.
George replaced Edward Williams, who retired in 2005 following a productive
and distinguished 18-year career with ITT.Another newcomer to ITT was John Williamson, who was driving efforts
in global supply chain and lean management for Danaher and is now enabling
ITT to take advantage of the significant opportunities that present themselves
through strategic global sourcing.We also saw a number of our strongest leaders accept new challenges
within the organization. Hank Driesse, who directed the dramatic growth of
our Defense business, was named to lead our Fluid Technology business, and
Steve Gaffney, who had led our dynamic Defense Systems business, was promoted
to head the Defense group. Nick Hill, head of our Motion & Flow Control
group, was given the additional responsibility of leading our Electronic
Components businesses when Brenda Reichelderfer was named Chief
Technology Officer, responsible for advancing our forward momentum in the
areas of engineering excellence, new product innovation and engineering
career development.Finally, Usha Wright, who was instrumental in bringing world-class
processes to ITT's Environment, Safety and Health program over the last 10 years,
was tapped to produce the same results for our diversity and inclusion efforts
as Director of Global Workforce Strategy.Our leaders help chart the course for future success, but it's our people
who make it happen and define the culture of excellence that is part of working
at ITT. I have been privileged to witness some extraordinary acts of selflessness,
caring, innovative thinking and integrity during my tenure at the company. One
was a group of concerned employees doing whatever it took to donate and
install surface- and seawater-purifying equipment in Sri Lanka, bringing fresh
water to thousands of tsunami survivors within weeks of the disaster. Another
team successfully tripled our production rate of much needed battlefield radios
without missing a step. These efforts and many more like them helped land ITT
again on lists like Forbes "Best Managed Companies" and Governance Metrics
International and Institutional Shareholder Services´ best performers in the area
of corporate governance.ITT people the world over have given the very best of themselves — on the
job and off — to help serve humanity in countless ways. They hold themselves
accountable for serving the customers, creating value and, as our strong Code
of Conduct emphasizes, for "doing the right thing — always." The future of ITT
is much brighter thanks to the diligence and focus of all of our employees who
bring Engineered for life to life.By staying the course, building on our strong portfolio, adhering to the
ITT Management System and the Code of Conduct, I'm confident that ITT will
continue to be a company that can attract the best employees and customers,
and reward its investors. One strategic step at a time, we will become a better,
smarter, more disciplined version of the company we are today.Steven R. Loranger
Chairman, President and
Chief Executive Officer
* Download the 2005 At A Glance or see "Highlights" in the "ITT At a Glance" section for reported and adjusted summary financial information and refer to itt.com/ir for detailed reconciliations of reported and adjusted segment results.