ITT Industries Forecasts FY2001 EPS to Grow 4-6 Percent Before One-time Items

18.12.2001

2002 Outlook Shows Continued Earnings, Cash Growth

- FY2001 operating margin expected to increase despite lower volume

- FY2001 free cash flow to exceed $250 million

- Outlook for 2002 assumes no near-term economic upturn

- Management actions will support strong margins, cash flow

WHITE PLAINS, N.Y., Dec. 14 /PRNewswire/ -- ITT Industries, Inc.(NYSE: ITT) today announced that it expects to report full-year 2001 diluted EPS between $3.07 and $3.11, equating to earnings growth of 4 to 6 percent over last year and in line with earlier guidance, before one-time items. While full-year revenues are expected to be off approximately 4 percent from

2000, primarily due to weakness in commercial electronics end-markets, the company expects full-year 2001 operating margins to increase 20 to 50 basis points, the result of process improvements and continuing cost control actions underway across the company. Full-year 2001 free cash flow is expected to exceed $250 million, or 5.5 percent of sales.

"Our management team has done an outstanding job anticipating the economic slowdown and taking quick actions to continue growing earnings this year," said Lou Giuliano, Chairman, President and Chief Executive Officer of ITT Industries. "Additionally, through our continued focus on cash generation, we expect to show record full-year free cash flow."

"While our defense and water/wastewater businesses are doing well, the Connectors & Switches segment has been hit hard by the industry-wide drop-off in demand," Giuliano said. "Looking into 2002, we expect continued weakness in the global economy, with difficult conditions in all geographic regions and many of our served markets. As we did in 2001, we are aggressively preparing for these conditions, and have plans in place to continue growing earnings and

cash flow in a difficult environment."

Included in those plans are the realignment of production facilities, selective workforce reductions and rationalization of products. The company plans to take a before-tax charge of approximately $100 million ($65 million after-tax) or $0.72 per share in the fourth quarter 2001, most of which relates to actions in the Connectors & Switches segment.

The charge will be partially offset by income from discontinued operations resulting from a reversal of reserves related to the 1998 sale of ITT's automotive components businesses. During the fourth quarter, the company determined that obligations associated with the wind-down of these divested businesses are expected to be completed for approximately $60 million (after-tax) less than recorded reserves. This item will have a positive impact of $0.66 per share. The net effect of the restructuring and discontinued operations actions will be a 6 cent reduction in EPS in the fourth quarter and full-year 2001, resulting in full-year reported EPS between $3.01-$3.05.

2002 Outlook

Due to the assumption of continued economic weakness, Giuliano said the company expects full-year 2002 revenues to be flat to slightly down from 2001. Specifically, the company anticipates revenue in the Pumps segment to be flat, and revenue in the Specialty Products and Connectors & Switches segments to decline. On the other hand, the Defense segment is forecast to grow in 2002, driven by record current backlog and additional recent contract wins.

Effective January 1, 2002, ITT Industries will adopt accounting standard FAS 142, "Goodwill and Other Intangible Assets." As a result, the company will no longer amortize goodwill to earnings, resulting in an estimated increment of $0.39 to full-year 2002 EPS. With the accounting change, Giuliano said full-year 2002 EPS is expected to be in the range of $3.45 to

$3.65 per share, corresponding to an increase of up to 5 percent from a goodwill-adjusted 2001 earnings per share.

For comparison purposes, the following chart shows 2001 forecast results including one-time items, with and without the impact of FAS 142, as well as the company's 2002 outlook.

FY2001FY2001FY2002
Forecastw/FAS 142Outlook
Revenues$4,630-4,660$4,630-4,660$4,550-4,650
Operating Margin11.5-11.8%12.3-12.6%12.3-12.6%
EPS$3.01-$3.05*$3.40-3.44*$3.45-3.65
Free Cash Flow$250+$250+$265+

*includes net impact of one time items of ($0.06)

New Reporting Segments Effective 2002

To better reflect the nature of its businesses, and to match reporting segment names with internal realignments, ITT Industries today announced that starting in the first quarter 2002, it will adopt the following business segment names:

Fluid Technology (formerly "Pumps & Complementary Products")

ITT is the world's largest producer of pumps, and is a leading manufacturer of mixers and valves used in the moving of water, wastewater and other fluids. Starting in 2002, the company will transfer the Engineered Valves unit into this segment. Previously, Engineered Valves results were part of the Specialty Products segment. Engineered Valves expects to generate full-year revenues of approximately $100 million in 2001. With the new make-

up, Fluid Technology will comprise approximately 39 percent of ITT's revenues.

Defense Electronics & Services (formerly "Defense Products & Services")

ITT Industries is a leading supplier of sophisticated military technology to the U.S. and allied governments, including secure communication equipment, space payloads, high technology services, electronic radar jamming devices for aircraft, night vision goggles and mobile air-traffic radar systems. The Defense Electronics & Services segment will comprise approximately 30 percent of company revenues.

Motion & Flow Control (formerly "Specialty Products")

Businesses within the newly named Motion & Flow Control segment include ITT's automotive tubing business, along with aerospace controls, leisure marine, whirlpool and spa, shock absorber and friction materials businesses. The Motion & Flow Control segment is expected to generate approximately 19 percent of ITT Industries revenues.

Electronic Components (formerly "Connectors & Switches")

ITT Industries is a leading provider of electronic interconnects and switches used in telecommunications, industrial, aerospace and medical applications. It is the world's largest producer of conductive rubber keypads used in handheld electronic and remote control devices. Electronic Components revenues are expected to comprise approximately 12 percent of the company's total.

About ITT Industries

ITT Industries, Inc. (http://www.itt.com) supplies advanced technology products and services in key markets including: electronic interconnects and switches; defense communications, opto-electronics, information technology and services; fluid and water management; and motion and flow control products. Headquartered in White Plains, NY, the company generated $4.8 billion in 2000 sales.

Certain material presented herein consists of forward-looking statements which 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. Such factors include general economic conditions, foreign currency exchange rates, competition and other factors all as more thoroughly set forth in Item 1. Business and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Forward-Looking Statements in the ITT Industries, Inc. Form 10-K Annual Report for the fiscal year ended December 31, 2000, and other of its filings with the Securities and Exchange

Commission.

In addition to the New York Stock Exchange, ITT Industries stock is traded on the Midwest, Pacific, London, Paris and Frankfurt exchanges.

Source: ITT Inc.

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