Fitch Affirms ITT Industries at 'A-/F2'; Rating Outlook Changed to Stable.

Business Editors

CHICAGO--(BUSINESS WIRE)--Feb. 9, 2004

Fitch Ratings has affirmed ITT Industries, Inc.'s (ITT) senior unsecured debt and commercial paper ratings at 'A-'/'F2', respectively. The ratings affect approximately $600 million of debt securities. The Rating Outlook has been changed to Stable from Positive.

ITT earlier today announced its agreement to acquire Eastman Kodak's Remote Sensing Systems (RSS) business for $725 million in cash. The acquisition will be a division of ITT's defense segment and is intended to augment ITT's existing aerospace/communications business by expanding its space payload and imaging capabilities.

The change in the Rating Outlook reflects the increase in ITT's debt and leverage once the acquisition has been completed. Combined with the impact from the recent WEDECO acquisition, ITT's pro forma debt will be significantly above recent levels. As a result, Fitch estimates ITT's pro forma debt/EBITDA (including RSS and WEDECO) will return to the high end of its historical range of 1.5 times (x)-2.0x. The company can easily absorb the new debt given its favorable performance record and forecasted free cash flow for 2004 of $400-$450 million. ITT has ample liquidity, with $414 million of cash on hand at Dec. 31, 2003 and a $1 billion bank facility maturing in 2005 that backs commercial paper which made up the majority of short-term debt totaling $141 million at year-end. Interest coverage is expected to remain strong, exceeding 10x. Both the RSS and WEDECO acquisitions complement ITT's existing businesses and are expected to generate favorable margins and EBITDA.

The 'A-' rating incorporates ITT's solid cash flow and operating performance, conservative financial policies, financial flexibility and strategy of making acquisitions that can be readily assimilated and contribute relatively quickly to profitability and cash flow. Future reduction of debt from free cash flow can be expected to be supported by modest capital expenditures, limited share repurchases, effective management of pension contributions and a long term focus on controlling costs. Concerns include cyclicality in the company's end-markets and the potential for any additional debt funded acquisitions that would further raise leverage. In addition, the current CEO has announced his decision to retire. While the transition to his successor should proceed smoothly, the possibility exists that some modification could eventually be made to ITT's operating and financial strategies.