ITT CorporationQ1 2012 Earnings CallMay 4, 2012 y ,
Safe HarborSafe Harbor Statement under the Private Securities Litigation Reform Act of 1995 (the “Act”): Certain material presented herein includesforward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of1995. These forward-looking statements include, but are not limited to, future strategic plans and other statements that describe the company’sbusiness strategy, outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance. Wheneverused, words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "target" and other terms of similar meaning areintended to identify such forward-looking statements. Forward-looking statements are uncertain and to some extent unpredictable, and involveknown and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed orimplied in, or reasonably inferred from, such forward-looking statements. Factors that could cause results to differ materially from thoseanticipated include, but are not limited to:• Uncertainties with respect to our estimation of asbestos liability f • O ability to achieve stated synergies or cost savings from acquisitions or Our f exposures, third-party recoveries and net cash flow; divestitures;• Economic, political and social conditions in the countries in which we • The number of personal injury claims filed against the Company or the degree of conduct our businesses; liability;• Changes in U.S. or International sales and operations; • Our ability to effect restructuring and cost reduction programs and realize savings• Contingencies related to actual or alleged environmental contamination, from such actions; claims and concerns; • Changes in our effective tax rate as a result in changes in the geographic• D li i consumer spending; Decline in di earnings mix, valuation allowances, t examinations or di i i l ti ll tax i ti disputes, t authority t tax th it• Sales and revenues mix and pricing levels; rulings or changes in applicable tax laws;• Availability of adequate union and non-union labor, commodities, supplies • Intellectual property matters; and raw materials; • Governmental investigations;• Interest and foreign currency exchange rate fluctuations; changes in local • Potential future postretirement benefit plan contributions and other employment government regulations and compliance therewith; and pension matters;• Competition, industry capacity & production rates; declines in orders or • Susceptibility to market fluctuations and costs as a result of becoming a smaller, sales as a result of industry or geographic downturn; more focused company after the spin off; spin-off;• Ability of third parties, including our commercial partners, counterparties, • Changes in generally accepted accounting principles; and financial institutions and insurers, to comply with their commitments to us; • Other factors set forth in our Annual Report on Form 10−K for the fiscal year• Our ability to borrow and availability of liquidity sufficient to meet our ended December 31, 2011 and our other filings with the Securities and Exchange needs; Commission.• Changes in the recoverability of goodwill or intangible assets; The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. May 4, 2012 P2
Q1 2012 OverviewQ1 Results Exceeded ExpectationsOutperformed Q1 Topline Expectations +9% Q1 Organic Revenue 9% O i R $226M - Industrial Process Shipment Record +22% Emerging Market Growth +11% North American GrowthBook-to-Bill 1.06x – All Businesses >1x Record Industrial Process BacklogSolid Operating Results While Absorbing Spin Costs and Investing in Growth $0.39 Adjusted EPS Including: $5M Recurring Spin Dis-Synergy Costs ($0.06) $3M Negative FX Impact Strategic Organic Growth Investments Results Lower Connectors Volume & Negative Mix Exceeded Expectations Q1 2012 Earnings – All Results are Unaudited May 4, 2012 P3 For non-GAAP reconciliations, refer to appendix and www.itt.com/ir.
Q1 2012 Key Strategic Highlights Strategic Growth DriversFocused Emerging Market Expansion $6M API Petrochemical Industrial Pumps (Saudi Arabia) $5M API Oil & Gas Industrial Pumps (Russia) $2.5M Rail Damper Order (India) $2M Auto Friction Win (China)Aftermarket Capture $6M Multi-Year Mining Service Contract (Chile)Investment in New Product Technology and R&D Mining Pump Named “Technical Innovation of the Year” UL Approval of Electric Vehicle Charging Connector Seismic Damper Order for Vincent Thomas BridgePremier Customer Experience Delivering on Improvement in On-Time-Delivery and Quality at All 4 Our Profitable Businesses Growth Drivers Q1 2012 Earnings – All Results are Unaudited May 4, 2012 P4 For non-GAAP reconciliations, refer to appendix and www.itt.com/ir.
Q1 2012 ITT Results Continuing Operations g p ( (unaudit ed) ) Q Q1 $ millions, except per share amounts 2012 vs 2011 Revenue $577 +8% Adjusted Segment Operating Income $65 (-12%) Adjusted EPS $0.39 (-13%)* Orders $614 +1% Q1 2012 Results+9% Organic Revenue (-12%) Adjusted Segment Operating Income Mining, Oil & Gas and Chemical Growth Recurring Spin Dis-Synergy Costs Market Share Gains in Automotive C Connectors V l t Volume & Mi Mix Strong Emerging Market Growth Mix Shift to Large Projects at Industrial Process Global Connectors & Customer Market Share Loss (-13%) Adjusted Pro Forma EPS Difficult PY Compares ($4M PY Rail Seats) Negative FX+2% Organic Orders Higher Tax Rate & Share Count 1.06x Book-to-Bill Lower Interest Expense Oil & Gas, Chemical, Auto and Rail Strength Global Connectors and PY China Rail Seats ($13M) *Adjusted EPS growth rate includes pro forma adjustments in 2011 results. Pro Forma adjustments reflect the elimination of interest expense on debt extinguished in connection with the transformation and interest income on cash distribution to the spun-off companies as if the distribution occurred at beginning of the period. Q1 2012 Earnings – All Results are Unaudited May 4, 2012 P5 For non-GAAP reconciliations, refer to appendix and www.itt.com/ir.
Q1 2012 Total Revenue Growth by Market +50% Revenue Q1 2012 vs Q1 2011 Energy & +25% Organic +9% Mining Total +8% +22% +20% Industrial Processing Emerging MarketsQ1 2012 vs. Q1 2011 2 +15% Growth +10% General +5% Industrial Aerospace & Defense Auto, Rail & Transportation T t ti 0% $25M $50M $75M $100M $125M $150M $175M $200M All (-25%) Other Q1 2012 Revenue End Markets Above Include Emerging Market Results Q1 2012 Earnings – All Results are Unaudited May 4, 2012 P6 For non-GAAP reconciliations, refer to appendix and www.itt.com/ir.
Q1 2012 Revenue by Major Geographies North America +11% Europe +1% Emerging Markets +22% Strong Growth Solid Performance Impressive Results Industrial Pump Automotive Market Share Latin America Mining Strength in General Gains Pumps Industry, Chemical, Mining and Eastern Europe Oil & Gas p China Auto OEM Oil & Gas Strength Eastern Europe Oil & Auto Market Gains Connector Declines Gas and Auto Gains General Industrial “Limited Run” China Strength Rail Seat Program Connector Declines Note: W. Europe (-3%); E Europe +36% W ( 3%); E. Excludes foreign exchange impacts Solid Global Results Q1 2012 Earnings – All Results are Unaudited May 4, 2012 P7 For non-GAAP reconciliations, refer to appendix and www.itt.com/ir.
Q1 2012 Segment Operating Margins (-270) bps Decline Connector Volume DeclinesQ1 2011 Adjusted Segment Operating Margin 14.0% Incremental Investments Volume, Mix, Operating Productivity & Other -1.2% Large Project Mix Shift Growth Investments -0.6% 0 6% FX -0.2% Pricing: Recurring Spin Dis-Synergy Costs -0.4% Large Industrial Projects Acquisition/Disposition -0.3% 0 3% General IndustryQ1 2012 Adjusted Segment Operating Margin 11.3% +140bps Net Operating Productivity: Lean Six Sigma & Global Sourcing Commodity Cost Increases Q1 2012 Earnings – All Results are Unaudited May 4, 2012 P8 For non-GAAP reconciliations, refer to appendix and www.itt.com/ir.
Capital OverviewStrong Balance Sheet Supports Long-Term Growth Geography of Cash Balances $728M Cash & Cash Equivalents at 3/31/12 < 5% Cash in US $23 Short-Term Debt +166% Adjusted Free Cash Flow ConversionQ1 Strategic Capital Deployment APAC Europe $36M Gross Share Repurchases • $74M A il YTD April • Share Repurchase YTD Activity In-Line with Full-Year Expected Share Count $32M Pension Contribution • Includes $15M Discretionary Funding $9M Strategic Investments • Wuxi, China Automotive Facility Expansion • Advanced Front-End Capabilities Disciplined & • Expanded Aftermarket Reach & Capabilities Building M&A Pipeline BalancedOther Uses of Cash in Q1 Capital $30M Transformation Costs $9M Dividend Payment Deployment Q1 2012 Earnings – All Results are Unaudited May 4, 2012 P9 For non-GAAP reconciliations, refer to appendix and www.itt.com/ir.
2012 Financial Outlook Guidance Maintained +5-7% Organic Revenue Revenue Range • Strong Emerging Market Q1 Performance2012 Organic 5% to 7% • Late Cycle Strength (Oil & Gas and Mining) • Market Share Gains Adjusted Segment Operating Margin +10% Emerging Market Growth2012 Margins g ~13.6% +40 bps vs 2011 p • Oil & Gas Growth in Middle East & Mining in Latin America 2012 Adjusted EPS Range • Auto & Rail Expansion in China and E. Europe $1.62 to $1.72 Adjusted Segment Operating Margin j g p g g +4% vs 2011 Adjusted Pro Forma EPS Expectations+13% vs 2011 Adjusted PF (ex Spin Dis-Synergies) • Productivity Offsets Inflation and Fuels Investments Adjusted Free Cash Flow Conversion • +80bps Adjusted Segment Operating Margin Excluding Spin Dis-Synergies M i E l di S i Di S i2012 Adjusted FCF Conversion >105% of Net Income • Limited Visibility in Connectors Market +13% Adjusted Pro Forma EPS Excluding Spin Dis-Synergies Q1 2012 Earnings – All Results are Unaudited May 4, 2012 P10 For non-GAAP reconciliations, refer to appendix and www.itt.com/ir.
Q1 2012 ITT Segment Performance Industrial Motion Interconnect Control New Process Technologies Solutions Technologies ITTQ1 2012 Total Revenue vs PY 34.5% -2.2% -13.9% 1.3% 8.3% FX -0.4% 4.5% 0.8% -0.1% 1.5% Acquisition/Disposition -4.5% 0.0% 1.0% 0.0% -1.2%Q1 2012 O Organic R i Revenue vs PY 29.6% 29 6% 2.3% 2 3% -12.1% 12 1% 1.2% 1 2% 8.6% 8 6%Q1 2011 Adjusted Operating Margin 12.6% 15.1% 10.4% 18.5% 14.0% Volume, Mix, Operating Productivity & -0.4% 1.1% -7.5% -0.3% -1.2% Other Growth Investments -0.8% -0.6% 0.2% -1.1% -0.6% FX -0.1% -0.3% -0.1% -0.1% -0.2% Recurring Spin Dis-Synergy Costs -0.8% -0.1% 0.0% -0.3% -0.4% Acquisition/Disposition -0.6% 0.0% -0.4% 0.0% -0.3%Q1 2012 Adjusted Operating Margin 9.9% 15.2% 2.6% 16.7% 11.3% Q1 2012 Earnings – All Results are Unaudited May 4, 2012 P12 For non-GAAP reconciliations, refer to appendix and www.itt.com/ir.
Q1 2012 Industrial Process Continuing Operations (unaudited) Q1 $ millions 2012 vs 2011 Revenue $226 +35% Adjusted Segment Operating Income $23 +7% Q1 Results+30% Organic Revenue +7% Adjusted Operating Income Record Shipment Quarter Higher Volumes & Strong Operating Productivity Strength in All Regions and All End-Markets Mining and Oil & Gas Recurring Spin Dis-Synergy Costs General Industry Ge e a dust y Chemical Mix Shift to Lower Margin Large ProjectsBook-to-Bill Ratio = 1.09x Significant Expansion of Global Installed Base Record Backlog Strong AM Order Growth (+13%) Q4 Bl k Blakers A Acquisition & G i iti Growth I th Investments t t Q1 2012 Earnings – All Results are Unaudited May 4, 2012 P13 For non-GAAP reconciliations, refer to appendix and www.itt.com/ir.
Q1 2012 Motion Technologies Continuing Operations (unaudited) Q1 $ millions 2012 vs 2011 Revenue $180 (-2%) Adjusted Segment Operating Income $27 (-1%) Q1 Results+2% Organic Revenue (-1%) Adjusted Operating Income M k t Share G i i Gl b l OEM A t M k t Market Sh Gains in Global Auto Market N Negative FX I ti Impact ($2M) t +32% Emerging Market Growth Primarily in Auto Incremental Growth Investments in China Auto Facility Start-Up Lower Shock Absorber Volume in Transportation Productivity Gains Partially Off-Set byBook-to-Bill Ratio = 1.03x Higher Commodity Costs +10% Organic Orders Emerging Market Rail Orders OEM Global Auto Wins Q1 2012 Earnings – All Results are Unaudited May 4, 2012 P14 For non-GAAP reconciliations, refer to appendix and www.itt.com/ir.
Q1 2012 Interconnect Solutions Continuing Operations (unaudit ed) Q1 $ millions 2012 vs 2011 Revenue $93 (-14%) Adjusted Segment Operating Income $2 (-79%) Q1 Results(-12%) Organic Revenue (-79%) Adjusted Operating Income Global Connector Markets Lower Volumes & Negative Mix Shift Global Communications End-Market Net Operating Productivity General Industrial Growth in North AmericaBook-to-Bill Ratio = 1.05x Q1 2012 Earnings – All Results are Unaudited May 4, 2012 P15 For non-GAAP reconciliations, refer to appendix and www.itt.com/ir.
Q1 2012 Control Technologies Continuing Operations (unaudit ed) Q1 $ millions 2012 vs 2011 Revenue $79 +1% Adjusted Segment Operating Income $13 (-10%) Q1 Results+1% Organic Revenue (-10%) Adjusted Operating Income Commercial Aerospace Valves & Switches Incremental Growth Investments General Industrial Growth in North America Negative Mix Shift to General Industrial Lower Defense Higher Volume, Pricing and Net Operational Productivity Prior Year “Limited Run” High Speed Rail Seats ($4M)Book to BillBook-to-Bill Ratio = 1 09x 1.09x Q1 2012 Earnings – All Results are Unaudited May 4, 2012 P16 For non-GAAP reconciliations, refer to appendix and www.itt.com/ir.
Key Performance Indicators and Non-GAAP MeasuresManagement reviews key performance metrics including revenue, segment operating income and margins, earnings pershare orders growth and backlog among others in connection with the management of our business Managementshare, growth, backlog, others, business.believes that the following metrics are useful to investors when evaluating operating performance for all the periodspresented, and provide a tool for evaluating our ongoing operations and our management of assets held from period toperiod. These metrics, however, are not a measure of financial performance under GAAP and should not be considered asubstitute for measures determined in accordance with GAAP. We consider the following non-GAAP measures, whichmay not be comparable to similarly titled measures reported by other companies, to be key performance indicators forpurposes of this REG G reconciliation: REG-GOrganic Revenues and Orders are defined as revenues and orders excluding the impact of foreign currency fluctuationsand contributions from acquisitions and divestitures made during the current year. Divestitures include sales ofinsignificant portions of our business that did not meet the criteria for presentation as a discontinued operation. Theperiod-over-period change resulting from foreign currency fluctuations assumes no change in exchange rates from thep o period.prior pe odBook-to-Bill is defined as organic orders divided by organic revenue.Adjusted Segment Operating Income and Adjusted Segment Operating Margin are defined as segment operatingincome and operating margin, adjusted for special items. Special items represent significant charges or credits that impactcurrent results, but may not be related to the Companys ongoing operations and p y p y g g p performance, such as transformationcosts and restructuring charges.Adjusted Pro Forma Income from Continuing Operations and Adjusted Pro Forma EPS from ContinuingOperations are defined as reported income from continuing operations and reported income from continuing operationsper diluted share, adjusted to exclude special items and include pro forma adjustments. Special items may include, butare not limited to, transformation and repositioning costs, asbestos, restructuring costs, income tax settlements oradjustments and other unusual and infrequent non-operating items. Special items represent significant charges or creditsthat impact current results, but may not be related to the Company’s ongoing operations and performance. Pro Formaadjustments in 2011 reflect the elimination of interest expense as if repayment of $1,250M of long term debt occurredJanuary 1 and elimination of interest income as if $400M of aggregate cash was distributed to the spun-off companies onJanuary 1.Adjusted Free Cash Flow is defined as net cash provided by operating activities less capital expenditures, cashpayments for transformation costs, net asbestos cash flows and other special items. Due to other financial obligationsand commitments, the entire free cash flow amount may not be available for discretionary purposes. Q1 2012 Earnings – All Results are Unaudited May 4, 2012 P18
ITT Corporation Reported vs Adjusted Segment Operating Income & OI Margin First Quarter of 2012 & 2011 ($ Millions) 3M 2012 3M 2012 3M 2012 3M 2012 3M 2011 3M 2011 3M 2011 3M 2011 % Change % Change As Reported 12 As Adjusted As Reported Spin Costs Restructuring As Adjusted As Reported Spin Costs Restructuring As Adjusted vs. 11 12 vs. 11Revenue:Industrial Process 226 226 168 168 35.0% 35.0%Motion Technologies 180 180 184 184 -1.9% -1.9%Interconnect Solutions 93 93 108 108 -14.3% -14.3%Control Technologies 79 79 78 78 1.0% 1.0%Intersegment eliminations (1) (1) (5) (5) -80.0% -80.0% Total Revenue 577 577 533 533 7.5% 7.5%Operating Margin:Industrial Process 9.6% 30 BP - BP 9.9% 12.5% - BP 10 BP 12.6% (290) BP (270) BPMotion Technologies 15.2% - BP - BP 15.2% 15.1% - BP - BP 15.1% 10 BP 10 BPInterconnect Solutions 2.0% 60 BP - BP 2.6% 10.4% - BP - BP 10.4% (840) BP (780) BPControl Technologies 16.5% - BP 20 BP 16.7% 17.1% - BP 140 BP 18.5% (60) BP (180) BP Total Operating Segments 11.1% 20 BP - BP 11.3% 13.7% - BP 30 BP 14.0% (260) BP (270) BPIncome:Industrial Process 22 1 0 23 21 - 0 21 3.8% 6.6%Motion Technologies 27 - - 27 28 - - 28 -1.4% -1.4%Interconnect Solutions 2 0 - 2 11 - - 11 -83.2% -78.8%Control Technologies 13 - 0 13 13 - 1 14 -3.0% -9.6% Total Segment Operating Income 64 1 0 65 73 - 1 74 -12.8% -12.2%Note: Immaterial differences due to rounding. All Results are Unaudited May 4, 2012 P20
ITT Corporation Non-GAAP Reconciliation Reported vs. Adjusted Income from Continuing Operations & Adjusted EPS First Quarter of 2012 & 2011 (Unaudited) ($ Millions, except EPS and shares) Change Percent Change Q1 2012 Non-GAAP Q1 2012 Q1 2011 Non-GAAP Pro Forma Q1 2011 2012 vs. 2011 2012 vs. 2011 As Reported Adjustments As Adjusted As Reported Adjustments Adjustments As Adjusted As Adjusted As AdjustedSegment Operating Income 64 1 #A 65 73 1 #A - 74Interest Income (Expense) (1) - (1) (24) - 17 #D (7)Other Income (Expense) (1) - (1) (1) - - (1)Corporate (Expense) (27) 17 #B (10) (83) 76 #C - (7)(Loss) Income from Continuing Operations before Tax 35 18 53 (35) 77 17 59Income Tax Benefit (Expense) (25) 9 #E (16) 13 (24) (6) (17)(Loss) Income from Continuing Operations 10 27 37 (22) 53 11 42EPS from Continuing Operations 0.11 0.28 #F 0.39 (0.23) 0.57 #F 0.11 #F 0.45 (0.06) -13%#A - Segment operating income in 2012 includes Transformation costs ($1M) and in 2011 Restructuring costs of ($1M).#B - Primarily transformation costs ($4M); Quarterly asbestos provision ($13M).#C - Transformation costs ($60M); Quarterly asbestos provision ($16M)#D - Pro forma adjustment reflects elimination of interest expense as if repayment of $1,250M of long term debt occurred January 1 and elimination of interest income as if $400M of aggregate cash was distributed to Exelis and Xylem on January 1#E - Includes valuation allowance on US deferred tax assets.#F - Adjustments to EPS from Continuing Operations Restructuring, Restructuring net of related tax benefit - 0.01 0 01 Transformation costs, net of related tax benefit 0.04 0.43 Asbestos, net of related tax benefit 0.08 0.13 Valuation allowance on US deferred tax assets. 0.15 - Pro forma interest expense adjustments, net of tax benefit - 0.11 Other 0.01 - Adjustments to EPS from Continuing Operations 0.28 0.68Note: Immaterial differences due to rounding g All Results are Unaudited May 4, 2012 P21
ITT Corporation Non-GAAP ReconciliationNet Cash - Operating Activities vs. Adjusted Free Cash Flow Conversion First Quarter 2012 & 2011 ($ Millions) 3M 2012 3M 2011 Net Cash - Operating Activities 18 (45) Capital Expenditures (13) (15) Free Cash Flow, including Transformation 5 (60) Transformation Capex 1 0 Transformation Cash Payments 30 15 Net Asbestos Cash Payments N tA b t C hP t 16 7 Discretionary Pension Contributions, net of tax 9 0 Free Cash Flow 61 (38) Income from Continuing Operations 10 (22) Special Items (including Transformation Costs) 27 64 Income from Continuing Operations, Excluding Special Items 37 42 Adjusted Free Cash Flow Conversion 166% NA All Results are Unaudited May 4, 2012 P22