UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 6, 2006
ITT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Indiana 1-5672 13-5158950
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
4 West Red Oak Lane
White Plains, New York 10604
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (914) 641-2000
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (See General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Not Applicable
(Former name or former address, if changed since last report)
ITEM 1.01 - ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On March 6, 2006, the Compensation and Personnel Committee of the Board of
Directors of ITT Industries, Inc. (the "Committee") approved annual incentive
awards for performance year 2005, and annual incentive opportunities, long-term
incentive awards, and base salaries for 2006 for the individuals expected to be
named executive officers in our Proxy Statement for our 2006 Annual Meeting of
Shareholders (the "2006 Annual Meeting"). Additional information with respect to
the compensation arrangements for the named executive officers will be set forth
in the Proxy Statement for the 2006 Annual Meeting.
Annual Incentive Awards and Opportunities
For 2005, the named executive officers participated in the ITT Industries
1997 Annual Incentive Plan for Executive Officers (the "AIP") approved by ITT
Industries' shareholders in 1997. Bonus amounts to be paid under the plan are
based on the financial performance of ITT Industries and its businesses during
the performance year as compared with the annual performance goals established
and approved by the Committee at the beginning of the performance year. Under
the AIP, the Committee has the authority to modify the award to reflect
individual performance in accordance with the terms of the AIP. The Committee
also may award supplemental bonus payments separate from the AIP in its
discretion in recognition of additional performance factors.
For performance year 2005 the approved annual performance goals were based
60% on Return on Invested Capital ("ROIC"), 20% on Revenues, and 20% on
Quarterly Cash Targets. The Company considers ROIC an easily understood
measurement of capital utilization in the Company's businesses. Additionally,
the Committee established individual award targets which varied by position as a
percentage of base salary, with the award targets for the Chief Executive
Officer and the other named executive officers ranging from a minimum of 60% to
a maximum of 100%. Actual payment under the AIP for 2005 could range from 0-200%
of the target. On March 6, 2006, the Committee approved the following 2005
bonuses under the AIP for the named executive officers: Mr. Loranger,
$1,363,500; Mr. Driesse, $700,000; Mr. Gaffney, $492,000; Mr. Maffeo, $400,000;
and Mr. Minnich, $475,000. Mr. Williams received a bonus award of $545,400 for
performance year 2005 and Mr. Ayers received a bonus award of $435,344.
The Committee also determined that bonus opportunities for 2006 under the
AIP will be dependent on the same basic performance metrics (ROIC, Revenues and
Quarterly Cash Targets) with the same weighting as set forth above except that
for named executive officers in ITT Industries' commercial businesses (which
exclude the defense industry businesses) Operating Margin rate is added as an
additional metric and for ITT Industries Corporate Headquarters named executive
officers Earnings Before Interest and Taxes ("EBIT") margin rate is added as
additional metric. For named executive officers in the commercial businesses,
ROIC is set at 40% and 20% is dependent on Operating Margin rate performance and
for ITT Industries' Corporate Headquarters named executive officers ROIC is set
at 40% and 20% is dependent on EBIT margin rate performance. This formula change
is based on the Committee's determination that Operating Margin rate is an
appropriate measure for the performance of ITT Industries' commercial businesses
and EBIT margin rate is an appropriate measure for Corporate Headquarters.
Operating Margin rate has not been employed in the defense industry businesses
because margin rates in these businesses are often contractually limited.
For performance year 2006, the Committee determined award targets for the
Chief Executive Officer and the other named executive officers ranging from a
minimum of 65% to a maximum of 110% of the individual's base salary. In order
for payment to be earned under the AIP for 2006 ("Base Bonus"), achievement of
90% or more of the approved targets at ITT Corporate Headquarters or at the
relevant
management company must be achieved. Additionally, the AIP includes a 2006 Bonus
Multiplier ("Bonus Multiplier") which becomes effective based on a growth
threshold determined by corporate earnings per share from continuing operations
for 2006 over 2005. The Bonus Multiplier will be applied to the individual's
calculated Base Bonus amount under the AIP. The Bonus Multiplier feature is
designed to place additional emphasis on achieving premier earnings growth at
the overall enterprise level while encouraging focus on management company and
business unit performance. Actual individual payments under the AIP for 2006 are
completely discretionary. The combination of the Base Bonus and Bonus Multiplier
amount may range from zero (0) to a maximum of 250% of target. Discretionary
factors may be considered by the Committee when determining the amounts paid for
2006. For example, the Committee may make adjustments to awards and increase or
decrease payment values based upon events or circumstances, including but not
limited to acquisitions, divestitures, or changes in accounting principles.
Long Term Incentive Awards and Opportunities
For the named executive officers, the ITT Industries' Long-Term Incentive
Program total award value is determined individually based on the competitive
market, individual performance and business performance and is split as follows:
50% in target cash based on total shareholder return; 25% in non-qualified stock
options and 25% in restricted shares.
Stock-Based Awards
Effective March 6, 2006, the Committee approved the following stock option
grants to the named executive officers under the ITT Industries Inc. 2003 Equity
Incentive Plan approved by ITT Industries shareholders in 2003(the "2003 Plan"):
Mr. Loranger, 83,612; Mr. Driesse, 20,067; Mr. Gaffney, 17,071; Mr. Maffeo,
13,378; and Mr. Minnich, 18,395. The exercise price of the options is $52.68 per
share. The options granted to Messrs. Loranger, Driesse, Maffeo and Minnich will
vest and become exercisable three years from the date of grant. The options for
Mr. Gaffney vest in one-third cumulative annual installments on the 1st, 2nd,
and 3rd anniversary of the grant date. The term for all options is seven years.
Each of the options also provides for accelerated vesting upon change in control
events that are defined in the 2003 Plan, and accelerated vesting on a pro rata
basis upon retirement. Unvested options under this award expire upon termination
of employment or due to resignation. These options constitute 25% of the long
term incentive value for the named executive officers.
Effective March 6, 2006, the Committee approved the following restricted
stock grants to the named executive officers under the 2003 Plan: Mr. Loranger,
23,706; Mr. Driesse, 5,689; Mr. Gaffney, 4,267; Mr. Maffeo, 3,793; and Mr.
Minnich, 5,215. The restricted shares granted to the named executive officers
will vest three years from the date of grant. The vesting of these restricted
shares accelerates upon change in control events that are defined in the 2003
Plan and accelerates on a pro rata basis upon retirement. Unvested restricted
shares under this award expire upon termination of employment or due to
resignation. These restricted shares constitute 25% of the long term incentive
value for the named executive officers.
Long-Term Incentive Plan
The ITT Industries 1997 Long-Term Incentive Plan ("LTIP") approved by
shareholders in 1997 authorizes performance awards to be made to key employees
of ITT Industries at the discretion of the Committee. Awards granted under this
plan are expressed as target cash awards and comprise one-half of the total
long-term incentive value for the named executive officers.
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The LTIP provides that the Committee shall determine the size and
frequency of awards, performance measures, performance goals and performance
periods. Payment, if any, of target cash awards generally will be made at the
end of the applicable performance period and are based on ITT Industries'
performance as compared with the performance measures approved by the Committee
prior to the performance period. Payment, if any, of awards may be made in whole
or in part, at the discretion of the Committee, in the form of cash and/or
common stock of ITT Industries. The Committee determined that payment for the
awards granted in 2003, and payable in 2006, be made wholly in cash. It is
anticipated that future payments under the plan will continue to be made
entirely in cash.
Messrs. Loranger, Driesse, Gaffney, and Maffeo received grants of awards
in 2003 under the LTIP. These awards were subject to a three-year performance
period ending December 31, 2005 and were subject to achievement of
pre-established goals, as approved by the Committee in 2003, measuring ITT
Industries' total shareholder return ("TSR") performance relative to the
performance of the other S&P(R) Industrial companies. LTIP payments were made in
strict accordance with the plan as measured for the period January 1, 2003
through December 31, 2005. Based on the Company's performance at the 59.53%
percent rank of the S&P(R) Industrial companies, payout was at 131.77% of
target, which was in accordance with the approved formula.
On March 6, 2006, the Committee granted target awards under the LTIP for
the three-year period beginning January 1, 2006 to the named executive officers
as follows: Mr. Loranger, $2,000,000; Mr. Driesse, $600,000; Mr. Gaffney,
$450,000; Mr. Maffeo, $400,000; and Mr. Minnich, $550,000. The ultimate value,
if any, of each of these awards will be determined in accordance with the
established performance measurement formula for the target awards granted in
2006. The Committee designated a minimum 35th percentile performance level at
which a 50% payout would be earned and a maximum performance payment of 200%
earned for performance at or above the 80th percentile. The award amounts set
forth above would be the amounts earned and payable if the TSR results in
payment at the 100% level. Payment, if any, with respect to the 2006 target
awards will be based on the Company's TSR performance compared with the other
S&P(R) Industrial companies. Mr. Loranger also received a target 2006 Phantom
LTIP award of $500,000, subject to the same performance thresholds and
conditions as awards under the LTIP.
Base Salary for 2006
The Committee approved new annual base salaries, effective March 1, 2006, for
the named executive officers as follows: Mr. Loranger, $1,000,000; Mr.
Driesse, $520,000; Mr. Gaffney, $425, 000; Mr. Maffeo, $440,000; and Mr.
Minnich; $480,000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ITT INDUSTRIES, INC.
By: /s/ Kathleen S. Stolar
-----------------------
Kathleen S. Stolar
Its: Vice President, Secretary
and Associate General Counsel
Date: March 10, 2006
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