• Q4 revenues up 22 percent
• FY 2003 EPS is $4.29
• Cash flow exceeds expectations
• Company enters water disinfection market

ITT Industries, Inc. continued its revenue, earnings and cash flow growth trends, reporting today fourth quarter 2003 net income of $108.1 million, up $13 million or 14 percent over the period in 2002, including the impact of one time items. Diluted earnings per share (EPS) for the quarter, including the net benefit of special items, was $1.15 up $0.14 per share from reported EPS in the fourth quarter 2002. During the fourth quarter 2003, the company realized a $0.20 per share benefit from several tax items, which was partially offset by $0.01 per share of costs for discontinued operations and $0.09 per share in restructuring costs. The net effect of these special items was a $0.10 increase in reported EPS for the fourth quarter. Adjusting results to exclude the benefit of these special items, earnings for the fourth quarter 2003 were $1.05, up 5 percent over the comparable adjusted figure of $1.00 for the period in 2002.

"Our focus on new product development and continuous process improvement are clearly paying off, giving us 14 percent organic revenue growth during the quarter and continued outstanding cash flow, with 2003 marking the 5th consecutive year of earnings growth for ITT Industries," said Lou Giuliano, Chairman, President and Chief Executive Officer. "After a very good 2003, ITT enters the new year with positive momentum, better positioned than we were even a few months ago to take advantage of any improvements in our various markets. The recent performance in orders, sales, operational improvement and cash flow give me added confidence for continued growth going into 2004. This is a tribute to our management team and their ability to improve their competitive positions throughout the economic cycle."

Fourth quarter 2003 segment operating income was $161.9 million, up $6.4 million from the period in 2002, including charges related to restructuring. Fourth quarter revenues were up 22 percent to $1.52 billion, attributable mostly to revenue gains in Defense and Fluid Technology, and the positive impact of foreign currency translation.

Full Year 2003 Results
Reported net income for the full year 2003 was $403.9 million and EPS was $4.29, both up 6 percent over the full year 2002. The comparison includes the $0.65 per share favorable impact of tax refunds, settlements and discontinued operations, all of which were offset by $0.22 per share net restructuring costs during the year. Excluding the net $0.43 per share benefit of these special items, earnings for 2003 were $3.86 per share, up 4 percent over the adjusted EPS of $3.70 for 2002.

Full year 2003 revenues were $5.63 billion, up 13 percent driven by increased sales in the Defense, Fluid Technology and Motion & Flow Control segments and the positive impact of foreign currency translation. Excluding acquisitions and currency translation, organic revenue growth was 5 percent. Full year segment operating income was $603.2 million, up $4.9 million over 2002. The company said cash from operations was $576 million, which includes a $200 million voluntary pre-funding of the company's U.S. salaried pension plan. Free cash flow (defined as cash from operations before pension pre-funding, minus capital spending) of $622 million grew 27 percent over the prior year, especially noteworthy given the revenue increase.

"Three of our four segments performed better than expected through the year, particularly our Defense business, which posted 18 percent organic revenue growth due to significant new contract wins," Giuliano said. "Our water business continues to grow, as we fill out our water treatment portfolio by entering the high-growth disinfection market, most recently with the acquisitions of WEDECO and Hengtong, which give us the disinfection technology and global reach we've needed to grow this dynamic business. In Motion & Flow Control, orders, sales and profitability are better than we had expected, due to strength in selected end markets. Through the introduction of new products and customer service improvements, our Electronic Components group finished the year in a much improved position and is seeing encouraging orders and sales increases."

2003 Milestones
ITT Industries' Defense business continued its record of winning new contracts, contributing to a more than 18 percent annual increase in revenues and a record backlog of $3.2 billion in 2003. New contracts announced during the year include a $74 million order for air traffic control radars for Taiwan, a $40 million order for systems engineering support to NASA's Goddard Space Flight Center, and a $274 million initial 5-year contract to provide technical support for NASA's Deep Space Network program, with options for an additional 5 years worth up to $306 million, bringing the total potential value to $580 million over ten years.

ITT Industries continued to execute its strategy of building on strong core businesses through acquisitions. ITT just completed its tender offer for more than 88 percent of the shares of WEDECO, the world's leading provider of ultraviolet and ozone water disinfection technology. This acquisition, together with the recent purchase of Hengtong, a China-based water filtration company, continues the repositioning of ITT's water treatment business to include all key water treatment technologies in all regions of the world to take advantage of significant growth potential in this area. In the first quarter 2003, the company acquired VEAM, a global producer of electrical connectors, and Wellpoint Uniserve, a provider of submersible pumps. Together, ITT's recent acquisitions are expected to account for more than $200 million in annualized revenues.

ITT Industries' improvement in operating performance was evident in the dramatic improvement in working capital, particularly in the fourth quarter when working capital was a source of cash. Strong cash flow performance enabled the company to reduce net debt to under $200 million and fund acquisitions in the company's core businesses. Additionally, the company voluntarily pre-funded its U.S. salaried pension plan by $200 million in 2003, and $100 million in early 2004.

ITT Industries Value-Based Six Sigma and Value-Based Product Development initiatives spread further through the organization. Value-Based Six Sigma is a key component of the ITT Management System and is the overarching discipline for operational excellence, improving processes, accelerating new product introductions and developing management talent. To date, more than 3 thousand people have been trained at ITT in the use of these improvement tools.

Outlook for 2004
Looking ahead, the company reaffirmed previous guidance for revenue and earnings growth in 2004. Giuliano said he anticipates first quarter 2004 EPS between $0.85 and $0.89. He reiterated full year 2004 earnings expectations between $4.05 and $4.25. Full year 2004 revenues, adjusting for the recent acquisitions, are expected to be $5.8 - $6.0 billion.

"We expect to see ongoing benefits of our continuous improvement initiatives to enhance our operating performance in all areas of the company," Giuliano said. "We're positioned to continue our growth trend this year based on current conditions. If the economic recovery broadens, we would expect our growth rate to accelerate."

Primary Business Results