ITT Flygt annual report

Transcription

1 ITT Flygt annual report 1999

2 About the photographs: Our own employees are pictured throughout this annual report, in this order: Per Rehn, Anna Högberg, Jasmin Sabanac, Alexander Hahn, Per Hedmark, Olof Lennartsson, Therese Bergmyren, Lars Sundberg, Maria Blom, Mats Karlén, Yvonne Marichal, Lars-Olof Mårtensson, Peter Franzén, Lennart Hartman

3 Contents The submersible advantage ITT Flygt 4 President s report 6 ITT Flygt: the year in review 8 On the world scene 10 Research and development 12 Human resources 14 Information technology 16 Manufacturing and logistics 18 Environment, Safety & Health ESH 20 Financial report Auditor s report 33 Group executive management 34 Addresses 36 3

4 The submersible advantage ITT Flygt Half a century ago, ITT Flygt invented the world s first submersible drainage pump for pumping contaminated water. Today, the company is the world s leading manufacturer and supplier of submersible pumps, mixers and aeration systems. These submersible products offer significant economic and environmental advantages because they require neither special housing nor a superstructure. The motor and hydraulics are integrated into a single, compact unit, making them easier and less expensive to install than traditional pumps while ensuring dependability. Applications include sewage systems and wastewater treatment plants, irrigation and aqua-agriculture, construction and mining, and the processing and manufacturing industry. The world is our marketplace. The No. 1 market in 1999 was Europe, accounting for 63% of sales, followed by North America (27%), Asia Pacific (7%), South America (2%) and Africa/Middle East (1%). Headquartered in Sweden, ITT Flygt has sales and service facilities in more than 130 countries. With around 4,000 employees, ITT Flygt had a turnover in 1999 in excess of USD 600 million. ITT Flygt is a wholly-owned subsidiary of ITT Industries, White Plains, New York. With 37,000 employees across the world, ITT Industries had a turnover in 1999 of USD 4.6 billion. ITT Flygt provides a durable and cost-effective slurry pumping system.flygt slurry pumps are made of hardened high-chrome cast iron providing complete wear protection. Our propeller pumps are designed to handle large flows and are suitable for many applictions such as storm water stations and water attractions. Centrifugal pumps are used in many applications, such as pumping sewage in treatment plants as well as irrigation, industrial effluent, process water, and aqua-agriculture. 4

5 Mixed-flow pumps are designed primarily for screened wastewater and storm water applications, as well as irrigation, industrial effluent, process water and raw water. Submersible mixers are used in numerous applications which include solids suspension, liquid blending and destratification. Customers often ask for a complete solution rather than a specific mixer, which means that our know-how in fluid dynamics is as important as the product itself. The Bibo drainage pump is ideal in mines and construction sites where liquids contain high percentages of solids such as clay. The Ready is a lightweight pump that is effective in handling abrasive and corrosive liquids. Fine bubble aeration systems play a key role in sewage treatment in transfering oxygen to the liquid through porous discs. We produce monitoring and control systems for a wide range of pumps and mixers. Our systems offer reliability, long life, low maintenance costs and reduced energy consumption. As well as supplying the hardware, we also provide software for running the systems. 5

6 President s report The 20th century closed on a very positive note from an ITT Flygt perspective. The financial results for 1999 were very satisfactory, with an operating profit of USD 70.4 million representing 12.3% of sales. Sales grew by 3.8% over the previous year. After corrections for acquisitions, divestitures and currency effects, sales increased by 0.4%. Even though sales and orders in general developed well we did see weaker demand from the wastewater sector than originally anticipated. This segment, representing over 50% of our total turnover, has for over a decade grown consistently faster than the pump market ingeneral. The slow recovery in the Far East and difficult business conditions in Russia were also among the disappointments. On the other hand, North America developed very favourably, and so did a number of European markets. These areas account for over 60% of sales and play an important role in our result, even though markets elsewhere grew faster. The slower demand from the municipal wastewater segment was compensated by a substantial growth in the construction business, especially in Europe. The single most important event of the year was the acquisition of Sanitaire Corporation, earlier known as WPCC. Headquartered in Milwaukee, Wisconsin, USA, Sanitaire is the world leader in fine bubble aeration the fastest growing aeration technology in wastewater treatment. Apart from being a successful and well managed operation, Sanitaire brings additional products and skills into the ITT Flygt organisation in the wastewater treatment area. Sanitaire will be the hub and nucleus for our future expansion in this core segment. Another matter of great strategic importance is the favourable market and customer reaction to our new N-pump line. It is very encouraging to see how readily this new energy-saving impeller design has been accepted. The design concept will be gradually expanded into other new products in the Flygt range. We are consistently trying to improve the environmental performance of our products as well as our operations. Calculation of the environmental load and impact (LCA) has therefore been made a standard procedure in the product development process. In keeping with our strategy to streamline physical distribution and further improve customer service, the Supply and Distribution Center for Central Europe became operational in Important and positive marketing developments are the establishment of Flygt Korea, Flygt Hong Kong and Flygt Venezuela. Flygt Hong Kong is a fully-owned subsidiary, Flygt Korea is majority-owned while 55% of Flygt Venezuela is held by local partners. Looking into the year 2000, we foresee more favourable overall market development compared with 1999; and with the investments made and underway in market coverage, product development and logistics, we are in a strong position for another good year and for accomplishing the ambitious long term goals we have set for ourselves. I have worked at ITT Flygt for 18 years, including the past eight years as President. I am now retiring with considerable confidence in this company and its future, as well as in Anders Hallberg, my successor as President. At age 49, Mr. Hallberg has very broad management experience that ranges from technology and production to marketing and sales. Before joining ITT Flygt four years ago, he was president of IMO AB for seven very successful years. As Director Business Development and Regional Director Europe, Mr. Hallberg assumed the presidency January 1, In Anders Hallberg, we have a highly qualified leader who knows this company and the pump business exceptionally well. I am pleased with his appointment, and know it will benefit ITT Flygt as well as our customers. Leif E. Carlsson, President, ITT Flygt 6

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8 ITT Flygt: the year in review The 20th century will surely be remembered by historians for all the advances made in technology. At ITT Flygt, it will be remembered for the birth of the company in 1901, and later for the invention of the submersible pump and mixer. In the closing years of the century, the next revolution in submersible technology got underway with the introduction of the N-pump. January June The start of 1999 saw the purchase of Water Pollution Control Corporation (WPCC) in Milwaukee, Wisconsin, USA, a leader in innovative aeration technologies for the wastewater treatment industry. With the acquisition of WPCC, since then renamed Sanitaire Corporation, ITT Flygt can now offer complete systems of submersible is designed for portability, and is an excellent choice for contractors, industrial plants, utilities, fire brigades and rental businesses. The Japanese sales company was divested in a management buyout. Flygt Nippon K.K. is now the exclusive ITT Flygt distributor in Japan. The Stockholm Water Prize, of which ITT Flygt is a founder, was awarded in 1999 to Professors Werner Stumm of Switzerland and James J. Morgan of the United States. pumps, mixers and aeration products, including service and technical competence for municipal as well as industrial customers worldwide. This opens considerable opportunities for ITT Flygt in the world s USD 250 million aeration market. A new drainage pump from the Ready series was launched. The Ready 16 is available as 1.7kW and 2.0kW, replacing two existing Ready pumps. The Ready series They were cited for outstanding contributions in aquatic chemistry leading to developments of techniques for treatment of wastewater and drinking water. The Stockholm Junior Water prize was awarded to three female Spanish students for their project involving echinoderms as biological indicators of water quality in the Alborán Sea coast. This prize has ITT Industries as its sole sponsor. ITT Flygt sponsored the national prizes in France, Sweden and The Netherlands. The new Supply and Distribution Center in Metz, France, which was built to improve delivery services as well as asset and cost performance was officially inaugurated in May. This center serves our sales companies in Austria, France, Great Britain and Ireland, and will also soon serve Belgium, Germany, Italy, Spain and The Netherlands. A decision was made in June to modernise the motor winding shop at the Lindås factory in Sweden. When the project is completed at the end of 2002, average product lead-time will be reduced by 60%, while emissions to air will be totally eliminated. 8

9 July December The second half of the year began with the establishment of a new joint venture in South Korea and the inauguration of a new sales company in Hong Kong. ITT Flygt holds 75% of the shares in Flygt Korea Ltd. and the managing director of the former ITT Flygt distributor holds 25%, whereas the Hong Kong company is a fully-owned subsidiary. In South America a joint venture was established in Venezuela, Flygt de Venezuela S.A., with three former employees of a previous distributor that represented ITT Flygt in the country for many years. The revolutionary N-pump was named Pump of the Year at the Processing Pumps & Systems Awards ceremony, sponsored by the British Pump Manufacturers Association. The pump was also the object of the IWEX Innovation Award in 1999, which is sponsored by the Turret Rai company. Whilst in Poznan, Poland, at the Poleko International Environmental Fair, ITT Flygt was cited for showing the foremost improvement for protecting the environment, the N-pump. The 5,500 square metre Supply and Distribution Center in Lindås, Sweden, which serves all countries outside of central Europe was inaugurated. Products are shipped directly to customers in the United States and Scandinavia. At the year s end, Anders Hallberg was named to succeed Leif E. Carlsson as President of ITT Flygt from January 1, Carlsson is retiring from the company after 18 years of service. Hallberg, 49, joined ITT Flygt in 1996 as Director of Business Development. A new corporate web site was launched in the autumn. It gives easy access from the homepage to all ITT Flygt sales companies with Internet web sites. Two new stainless steel mixers were launched. They combine light design with efficient mixing while expanding the product range of the Flygt family. 9

10 On the world scene Olympian pumping operation In 1999, ITT Flygt succeeded in securing an order for six high volume propeller pumps for the artificial canoeing and kayaking course at the 2000 Summer Olympics in Sydney, Australia. The course, at Penrith Whitewater Stadium, is located in the city of Penrith about 22 km from Sydney. This contract is the second time in the past eight years that ITT Flygt was selected to power an artificial olympic whitewater course. Experience gained as pump provider at the Barcelona olympic course in 1992 undoubtedly gave ITT Flygt enhanced credibility. The U-shaped Sydney course is 300 metres long and between eight and 14 metres wide, with an elevation drop of seven metres between start and finish. Water depth will range between 0.8 and 1.2 metres. The Flygt propeller pumps, each capable of moving 2.8 cubic metres of water per second, will pump water from the end of the course to a pool near the starting line, where the gravity-fed cascade begins. The technical challenge was to produce a pumping function with a very low profile, so that the ride surface would be visible without an excessively high spectator area. Since the ride had to be easily transportable, it was also important that the entire attraction including pumps, sumps and waterways would be as compact as possible. This was achieved by using Flygt submersible propeller pumps installed horizontally. The pumps and pump controls had to operate at both 50 Hz and 60Hz and from both grid power and a generator, as it was going to be used in different environments around the world. Wave Loch Corporation also wanted to be able to manipulate the shape of the waves at the touch of a button. So a variable frequency drive was incorporated into the system to provide this extra feature. The project was completed and unveiled in June, 1999, and was a great success at a four-day event in Munich, Germany. The course took 12 months to construct and works in a similar fashion to a pump station. It is the first to be shaped like a horseshoe, so that all spectators can enjoy good visibility. It is also the first time a competition course has been designed that is not associated with a river. California concept becomes reality Back in 1998, the Wave Loch Corporation in California, as inventor and worldwide supplier of artificial surfing attractions, discussed developing a portable attraction with ITT Flygt. The idea was to design a ride that could be erected at a temporary location and put into operation for a short period of time and then dismantled quickly and transported to the next destination. 10 Cleanup in St Tropez The Mediterranean coastal town of St Tropez in southern France conjures images of beautiful people and a beautiful sea. However, one of the marinas was rampant with waste, mostly algae, and was unusable. A decision was therefore made in 1999 to clean it up. A dredging company leased a Flygt submersible compact mixer and propeller pump to recirculate the material that had settled on the bottom of the marina. At the same time, it was understood that a permanent solution had to be found. In the course of dredging, ITT Flygt and an independent consultant carried out counter current agitation trials with Flygt products, to try and avoid the situation occurring again.

11 In 1999, a solution was provided by ITT Flygt. The Vietnamese Ministry of Agriculture funded a project to replace all ten of the Hai Dong pumps with five Flygt submersible pumps. Following the trials, the best solution proved to be a stainless steel submersible compact mixer, which was placed on the bottom of the marina. The mixer, which is controlled by an anemometer and a current meter, was encased in a protective cage with fixed legs, so that it could be installed without a superstructure, stay in place, but still be easily removable. The installation was completed with two stainless steel submersible propeller pumps and an algae-free sea water intake outside the marina. New pumps for irrigation in Vietnam The Xuan Phu pump station about 40 km from Hanoi was built in 1989 along the Red River for irrigating 1800 hectares of rice paddies. A total of ten Hai Duong horizontal pumps, which could pump 8000 cubic metres per hour, were used. During the rainy season the pumps had to be raised from their normal positions to avoid flooding when water levels would rise and returned to their original positions when water levels fell. But in the course of ten years, seven of these pumps were inoperational, due to the heavy monsoon season. This left only three pumps operational, which in turn meant that only one third of the area could be irrigated. Never a gamble with the N-pump The casino in the Canadian city of Hull in Quebec welcomes over 4,000 visitors every week. With so many guests, a pump station had to be built solely for the casino. Shortly after its completion, city engineers and operators began to worry about its capabilities. Serious clogging problems in 1997 meant that the pumps had to be cleaned 15 times that year, costing time and money. Normally, two ordinary pumps would have worked, but the pump station also had to deal with local industrial sewage. Plastic bags and twine dumped directly into the city sewer system found their way to the casino pump station and got entangled around the pumps impellers. ITT Flygt then offered the city of Hull a trial of the new N-pump. Since the N-pump was installed, the station has only needed to be cleaned twice. There was a 23% increase in overall efficiency at the station and a completely odourless environment for casino clients. A second N-pump was installed in the pump station in A new hotel complex will be built in 2000 with its own pump station, using three N-pumps. 11

12 Research and development A key factor in research and development is being able to identify customer needs and then provide solutions that surpass their expectations. As the world leader in submersible pumping, mixing and aerating technologies, customers link the ITT Flygt brand to technical breakthroughs in the field. By employing QFD (Quality Function Deployment) methodologies, the translation of customer requirements into product features becomes much more effective. An important part of the process is the identification of all individual procedures needed to ensure that all requirements are met. Modular design ITT Flygt has implemented a modular design approach to the R&D process. This means that parts and components can be used in many types of products, allowing more and deeper research to be carried out for each such part and component as costs are spread on larger volumes. Motors An important element in any submersible pump or mixer is, of course, the motor. Because ITT Flygt develops them in-house, the company can guarantee that they are designed and built to meet the specific requirements. Research in motor designs and the introduction of new production techniques led to improved production and product quality. One such technique, introduced in 1999, is trickle stator impregnation. A new solvent-free, high viscosity, environmentally adopted resin replaces the slower dip impregnation method. Emissions into the atmosphere will be reduced to zero. In coming years, all motors from 0.75 kw up to 600 kw will be produced using this technique. Seals One of the most critical components of a submersible pump or mixer is the seal. For almost 50 years, ITT Flygt patented seals have been designed, tested and manufactured in-house. They are manufactured solely for Flygt submersible products and are constantly being refined to achieve better performance. All new ITT Flygt products will be fitted with Plug-in seals. These comprise an inner and outer mechanical seal pre-assembled in one unit, with seal faces protected from abuse. The Plug-in concept not only protects the seal face unit, but also makes product service easier, faster and safer. From customer requirements to customer applications The global launch in 1999 of the new patented N-pump has provided solutions to many problematic sewage pumping applications, and treatment plants, at significantly reduced energy costs. The secret behind the N-pump success story is the selfcleaning impeller, which is complemented by a special relief groove. 12

13 It won the award for the best pump of the year at the 1999 Processing Pumps & Systems Awards ceremony in the UK. At the Poleko International Environmental Fair in Poland, ITT Flygt was cited for exhibiting the best improvement to environmental protection with its N-pump. Standards for pump requirements in the process and wastewater industry are under review in light of the breakthroughs achieved by the N-pump. Cost savings for customer and environment The launch of the N-pump was followed by the launch of the N-pump upgrade kit, which is a spare parts package that allows customers to convert existing Flygt pumps into N-pumps. This means that customers can improve the efficiency of their pumps by up to 50% at a much reduced cost, compared to buying a new pump. Upgrading to the N-pump means prolonged life rather than disposal of old pumps and, of course, reduced energy consumption. New drainage pumps In 1999, ITT Flygt extended its smaller drainage pump range with the introduction of the Ready 16 pump. New technology in the latest composite materials, combined with stainless steel, means that the Ready 16 is not only a very light pump, but also very robust and corrosionresistant. New mixers ITT Flygt launched two new mixers in 1999 in response to market demand for more stainless steel mixers. They combine light design and efficient mixing, thanks to a new design concept, that reduces the weight by half, without losing any power output. The entire system A new grinder pump and a new grinder pump controller FGC were released in 1999, which can be integrated with AquaView, a software program for the monitoring and control of wastewater treatment plants and entire pump station systems. The FGC controller works with one or two grinder pumps and includes new vital functions. Environment ITT Flygt is consistently trying to improve the environmental performance of its products and calculation of the environmental load and impact is a standard procedure in the product development process. This calculation, known as the Life Cycle Assessment (LCA), includes the three phases of a products life cycle: production, use, and end of life. To calculate the LCA, ITT Flygt uses the Environmental Priority Strategies (EPS) methodology. Life Cycle Costs - LCC One of ITT Flygt s long term strategies has been the minimisation of customer costs through an LCC perspective. Higher efficiency of an application and much less necessity for service, dramatically reduce customer s operation costs. Flygt s N-pump is a good example of this as it requires less energy to run than a standard pump, and existing Flygt wastewater pumps can be easily updated to an N-pump. The implementation of LCA has strengthened the LCC concept at ITT Flygt. Both environmental concerns and economics are taken into consideration as a product with higher efficiency benefits the environment and reduces customers operating costs. 13

14 Human resources Relations between employees as well as between employees and management play a vital role in the success of any business. The ITT Flygt human resources vision is to combine personal commitment, motivation and continuous learning with business development and technological leadership. In 1999, the human resources strategy continued to focus on three key areas: Competence development ITT Flygt as an attractive employer Information and communication Competence development Employee development and commitment to work are considered as important as any business area. Investment in employee education is therefore essential, because it leads to better job performance. In 1999, the three major training areas at ITT Flygt were information technology (32% of all training hours), Environment, Safety and Health (ESH) (25%) and technical (16%). In addition, English language training was offered to employees who do not have English as their mother tongue. English is the corporate language of ITT Flygt. Management continued to set goals, strategies and related actions for competence development in strategically important areas. They included information technology, finance, marketing and sales, management, technical and product development. A management development project was initiated in Sweden in 1999, identifying and analysing the gap between a manager s defined roles and duties and actual behaviour. Once potential improvements are identified, an individual development program is designed for each manager. The project is to be extended worldwide and will result in enhanced leadership capabilities, thus yielding increased personnel satisfaction and better results for the entire company. 14

15 ITT Flygt as an attractive employer ITT Flygt continued its information programs towards schools and universities during 1999, and also supported various work experience programs, masters theses and scholarships. ITT Flygt employees also serve as guest speakers at technical colleges, universities and high schools. Another round of employee attitude surveys was carried out in This included seven ITT Flygt sales companies and representative offices around the world. The survey results were generally favourable, especially in terms of job satisfaction, pride and commitment to quality. Areas that merited improvement were identified as internal communication, employee development, rewards and recognition. Weak areas identified in the 1998 surveys were effectively tackled in 1999 improvement action plans. Among the changes made were new or modified benefit packages, sales incentives and bonus systems. These changes have created a more attractive compensation system while also encouraging a higher degree of recognition. Information and communication One important tool for improving communication is the Planning and Follow-up Dialogue, a well-prepared annual discussion between manager and employee. This gives the employee the opportunity to give and receive feedback on achievements to set goals and objectives and to discuss their viewpoints about the company, the department, or their individual duties. The dialogue also serves as a tool to analyse individual needs for competence development. In 1999, 70 % of ITT Flygt s employees had such a dialogue with their manager. The goal is 100%. 15

16 Information technology In 1999, the corporate intranet which is in both English and Swedish, increased dramatically in size and number of users. In addition, the corporate Internet site and several software programs were revamped and relaunched. On the web... The ITT Flygt corporate Internet site () was revamped in The site, which contains general information about the company, worldwide contact information and a news section, sets a global tone for the company image. The new corporate site serves as an ITT Flygt global entry point. Technical product information, meantime, is being incorporated into ITT Flygt Internet sites around the world. Users can download technical specifications, dimensional drawings, care and maintenance brochures and parts lists for almost any Flygt pump or mixer. Y2k as a non-event A smooth transition into the new millennium was secured without any millennium bug disruptions to business operations. This was thanks to a three-year project, involving all functional areas and every unit in the entire ITT Flygt organisation. Customer assistance Several updated software programs were released in CREST (Chemical RESistance Table) is a database with 2,300 liquids, 60 types of material and almost the entire product range, which is used to determine whether a product is suitable for usage in a specific liquid. SECAD Lite (Systems Engineering Computer Aided Design Lite), is a Windows program that helps engineers find the right dimensional drawing or product view from a database of Flygt products. 16

17 FLYPS 2.0, available in ten languages, is a Windowsbased comprehensive tool for helping engineers analyse and design a pump system. It features pump selection modules and several pump system tools, such as pipe system design, variable speed analysis, pump performance analysis, outline dimensional drawings and product data sheets. FLYPS 2.0 was provided to over 20,000 users in CFD (Computational Fluid Dynamics) is an advanced software that takes the guesswork out of mixing technology by electronically modelling the flow pattern in a tank, generated by a submerged jet from a mixer. Visualisation is combined with an analysis of critical figures relating to overall performance, so that mixing solutions can be evaluated and developed. This enables a customer to see the results a specific mixer would have in a particular application. AquaView 1.20 is one of the latest advancements in monitoring and control from ITT Flygt, used for storing and managing data from pump stations systems. An update of AquaView 1.0, this software is networkcompatible, meaning it can be run from several computers at the same time, over the Internet, intranet, or a dialledup telephone line. The improved communication system also means that alarms or other data can now be sent to a laptop or mobile telephone. 17

18 Manufacturing and logistics Manufacturing 1999 was a year of manufacturing reorganisation. Three projects mark the beginning of a new phase in manufacturing and distribution. Lindås plant Sweden The Supply and Distribution Center in Lindås was inaugurated in the autumn. All distribution activities were moved to this new building, freeing up space to increase capacity and finalise the product work shop concept, throughout the entire plant. The reorganisation of the motor winding shop was initiated, with the installation of the first trickle impregnation plant. Based on the new modular motor program, this project will not only improve manufacturing performance but also constitute a base for future development in production technology. Throughout the year, major efforts were made to further improve environmental conditions as well as safety and health standards at the Lindås plant. Ventilation improvements in the foundry and the machine shops, and a biological cleaning process for handling potential storm water spills, were among the major projects. Flygt Werk - Germany Production levels reached an all time high at the German factory in Rapid product development, together with favourable market conditions, constituted major contributing factors. A decision was taken to install a new machine line for pump housings, which will enable further production improvements in

19 Flygt Argentina and Flygt China The factories in Argentina and China, which mainly distribute products to domestic customers, continued to perform strongly. The Argentinean market decreased slightly during 1999, whilst the Chinese market increased, boosted by infrastructural investments by the government. Logistics Distribution of ITT Flygt products and parts entered a new phase in Two new Supply and Distribution Centers were inaugurated SDC Metz and SDC Lindås. These centers were created to improve delivery service, assets and cost performance. SDC Metz in northern France is near the Belgian, German and Luxembourg borders, and was the first center of its type to be opened. It currently serves customers in Austria, France, Great Britain and Ireland. The center will soon also serve Belgium, Germany, Italy, Spain and The Netherlands. SDC Lindås currently serves all the countries not handled by SDC Metz. 19

20 Environment, Safety & Health ESH Environmental oriented initiatives in 1999 are moving beyond traditional environmental issues. ITT Flygt s participation in the Global Reporting Initiative (GRI) work with the Sustainability Reporting Guidelines resulted in an ITT Flygt Sustainability Report. The sustainability concept embraces environmental, social and ethical aspects together with economics ITT Flygt is one of 20 pilot companies selected globally to participate in this task. This Report will be found on our corporate Internet site The report is based on the definition of sustainability developed by the Brundtland Commission in Sustainability is defined as meeting the needs of the present, without compromising the ability of future generations to meet their own needs. ESH management systems Between 1997 and 1999, the number of countries and sites that implemented ESH management systems increased from 20 to 29. Implementation starts with an introduction and after 12 months of preparation work an internal audit is taken. The site can then begin to report ESH related key data. ISO In May, 1999, the Grindex plant in Haninge, Sweden, received a certificate according to ISO for its environmental management system, which is integrated with the ISO 9001 system certified in Today, there are ten ITT Flygt sites in Sweden certified for ISO One of these, the main plant in Lindås, is also registered for EMAS. Soil and groundwater investigations There has been a comprehensive soil and groundwater investigation program in force for many years within ITT Industries. The main objective is to identify potential liabilities and quantify potential exposures. The program was started within ITT Flygt in 1992 and all facilities worldwide are scheduled to be investigated by year-end At the close of 1999, investigations had been finalised at 25% of the sites and are ongoing at 50%, leaving 25% to be investigated. Results obtained so far are encouraging. Very limited contamination has been found. At sites where contamination exceeded national standards, remedial measures have been taken. 20

21 Life Cycle Assessment (LCA) and Environmental Product Declaration (EPD) ITT Flygt began working with LCA and EPD in 1997, and the program has now been expanded to include not only all new products and parts, but also all existing products. By year-end 1999, 22 products and associated parts had gone through LCA. All LCAs are accompanied with EPD, according to the international standard ISO Waste Reporting practices within ITT Flygt regarding waste include three categories: hazardous, non-hazardous and recycled. Some non-hazardous waste is also recycled, but for many sites in certain countries, the degrees of recycling are not accessible. The development of the waste indicator for ITT Flygt between is described by the enclosed figures: Total waste, tons 6,836 8,077 8,589 Cost, USD 364, , ,671 Haz. waste, tons Cost, USD 150, , ,627 Non-haz. waste, tons 5,571 5,841 6,368 Cost, USD 213, , ,044 Recycled, tons 837 1,829 1,931 The cost for handling all waste within ITT Flygt has increased by 38% during the last years, especially the cost for taking care of hazardous waste. The amount of hazardous waste has decreased by 32%. However, the cost increased by 45% due to the contractors higher price. Energy Between 1995 and 1999, the factory in Lindås converted from fossil oil to biofuel. In 1999, a total of 10.8 GWh of energy from biofuel was used. Only 0.6 GWh of energy comes from fossil oil. The Lindås factory accounts for 64% of the total energy use (81.1GWh) within ITT Flygt. Water During the three-year period ( ) the water usage within ITT Flygt has decreased by 15%. The factory in Lindås has decreased usage by 42% by implementing actions that comprehensively save water, especially in the cooling system in the foundry Total water usage, m 3 250, , ,610 Chemicals An important part of the ESH work at all ITT Flygt sites is to replace hazardous chemicals with more environmentally adopted alternatives. Chemicals have been on the ITT Flygt agenda for at least the last five years and the European Chemical Reduction Project has resulted in a Reduction List, as well as an Approved Chemical List for ITT Flygt service centres. Training and information ITT Industries has set rigorous training requirements for its employees from introductory environmental, safety and health training and general environmental awareness, to more specific training for high risk operations. ITT Flygt has compiled comprehensive training programs for local use at the various sites. 21

22 Financial report 1999 ITT Flygt sales and revenues increased by 3.8% to USD million and at comparable currency rates by 7.0%. Operating income increased from USD 51.1 million to USD 70.4 million in Excluding restructuring and nonrecurring items of USD 2.7 million in 1999 and USD 19.8 million in 1998 (see note 17) operating income increased by USD 2.1 million to 73.0 million. The main reasons for the improvement are expense savings and the acquisition of the company Sanitaire Corporation, USA. Net income after tax and minority interest was USD 44.4 million compared to 30.1 million in Excluding restructuring and nonrecurring items after tax of USD 1.7 million in 1999 and USD 14.8 million in 1998, net income after tax increased by USD 1.2 million to USD 46.1 million showed operational cash flow USD 41.0 million compared to USD 73.9 million in The lower cash flow in 1999 was mainly due to acquisitions. Cash at end of year 1999 was USD 17.5 million (USD 14.4 million). At the end of the year, ITT Flygt had the equivalent of 71.5 days sales in accounts receivable, compared with 69.9 days at the end of The slightly higher days in 1999 is explained by a larger portion of total sales in countries with over-average payment terms (Spain, Italy and France). Total inventories, net of reserves for excess and obsolete goods and progress payments, were equivalent to 14.1% of annual sales (13.2% in 1998). The start up of the distribution center in Metz, France, caused some double stocking at the initial stage. This included buffer inventories in connection with Y2k. The ratio of total interest bearing debt to the total of interest bearing debt and stockholders equity was 34.7% at year end in 1999 (29% at the end of 1998). Operating income exceeded interest income/expenses and financial costs in 1999 by 47.5% compared with 120% in Euro conversion issue The Company is addressing issues raised by the conversion to the Euro and adapting its information technology systems. All operations are today able to accommodate Euro-denominated invoicing and purchasing transactions. The Company s EMU located operations are formulating plans to accommodate all Euro-denominated transactions by January 1, The Company anticipates that its costs in connection with the Euro conversion will not be material. Further, the Company does not anticipate that the conversion from the local currencies to the Euro would have a material adverse impact on its consolidated financial condition, results of operations, or cash flows. 22

23 8.5% 2.0% 60.3% 26.4% 2.8% Sales by region 1999 thousands of USD Africa & Middle East 2.0% 12,084 North America 26.4% 162,564 South America 2.8% 17,399 Europe 60.3% 371,044 Asia & Pacific 8.5% 52,590 Total 615, % 3.0% 64.0% 21.5% 3.4% Sales by region 1998 thousands of USD Africa & Middle East 3.0% 17,738 North America 21.5% 127,700 South America 3.4% 20,078 Europe 64.0% 379,895 Asia & Pacific 8.1% 48,013 Total 593, % 10.3% 61.7% 20.9% 4.4% Sales by region 1997 thousands of USD Africa & Middle East 2.7% 16,619 North America 20.9% 127,534 South America 4.4% 26,956 Europe 61.7% 376,404 Asia & Pacific 10.3% 62,849 Total 610,362 23

24 Combined statements of income Years ended December 31 (Thousands of USD) Net sales 615, , ,362 Costs and expenses Manufacturing and service costs 376, , ,513 Depreciation and amortisation 16,607 16,704 15,953 Marketing, general and administrative expenses 149, , ,910 Restructuring and other special items (Note 17) 2,679 19, , , ,376 Operating income 70,353 51,102 63,986 Other income (expense) Interest income 1,334 1,811 1,389 Interest expense and financial costs (2,816) (2,237) (3,443) Miscellaneous income (expense), net (Note 8 and 14) 1, ,583 (247) (50) (471) Income before income taxes 70,106 51,052 63,515 Provision for income taxes (Note 9) (25,167) (20,225) (23,322) Minority interest in net income (572) (683) (602) Net income 44,367 30,144 39,591 Combined statements of comprehensive income Years ended December 31 (Thousands of USD) Net income 44,367 30,144 39,591 Foreign currency translation: Translation of foreign currency financial statements (10,123) 497 (20,848) Comprehensive income 34,244 30,641 18,743 24

25 Combined balance sheets At December 31 (Thousands of USD) Assets Current assets Cash 17,516 14,424 16,182 Accounts and notes receivables (Note 2) 139, , ,557 Receivables from affiliated companies 13,625 16,503 26,228 Inventories (Note 3) 86,536 78,209 79,595 Deferred income taxes (Note 9) 6,442 6,426 6,410 Other current assets 8,879 6,450 8, , , ,116 Investments and other non-current assets Investments (Note 1) 10,147 9,852 6,146 Amortisable goodwill (Note 4) 42,896 12,146 12,770 Other assets 13,023 12,528 9,323 66,066 34,526 28,239 Plant, property and equipment at cost (Note 5) 213, , ,624 Less accumulated depreciation (119,832) (114,065) (106,216) 93,737 86,671 81,408 Total assets 432, , ,763 25

26 Combined balance sheets At December 31 (Thousands of USD) Liabilities and stockholders equity Current liabilities Short-term debt (Note 6) 6,478 8,322 7,091 Current maturities of long-term debt (Note 7) Trade payables 51,546 50,574 50,471 Payables to affiliated companies 79,584 52,406 46,805 Accrued salaries and benefits 31,717 39,430 29,495 Other accrued liabilities 35,273 28,005 17,190 Accrued income taxes 254 3, , , ,109 Long-term liabilities Deferred income taxes (Note 9) 21,334 20,232 19,435 Reserves for pension (Note 16) 37,903 38,604 37,198 Long-term debt (Note 7) 1, Other long-term liabilities 456 1, ,947 59,845 57,479 Minority interest 2,652 2,601 2,627 Stockholders equity Common stock (Note 10) 23,277 23,277 23,277 Retained earnings (Note 11) 187, , ,806 Accumulated other comprehensive loss: Cumulative translation adjustments (47,161) (37,038) (37,535) 163, , ,548 Total liabilities and stockholders equity 432, , ,763 Combined statements of changes in retained earnings Years ended December 31 (Thousands of USD) Balance, beginning of year 154, , ,301 Net income 44,367 30,144 39,591 Dividends (11,522) (54,146) (3,086) Balance, end of year 187, , ,806 26

27 Combined statements of cash flow Year ended December 31 (Thousands of USD) Operating activities Net income 44,367 30,144 39,591 Adjustments to net income Depreciation and amortisation 16,607 16,704 15,953 Increase in non-current deferred income taxes 1, (449) Provision to pension reserves (701) 1,406 (5,064) (Decrease) increase in other long-term liabilities (545) Changes in accrued and deferred taxes (2,393) (2,788) 1,500 Changes in working capital (7,330) 26,951 26,582 Translation adjustments (10,123) 497 (20,848) Cash from operating activities 40,984 73,882 57,862 Investing activities Additions to plant, property and equipment (26,424) (23,362) (18,165) Net book value for fixed assets retired or sold (1,025) 1,707 (30) Acquisitions (32,545) (3,962) (10,286) Other, net 4,781 (2,637) 9,957 Cash used for investing activities (55,213) (28,254) (18,524) Financing activities Increase (decrease) in short-term debt, net 27,597 6,768 (30,743) Increase (decrease) in long-term debt 1,246 (8) (39) Dividends paid (11,522) (54,146) (3,086) Cash from (used for) financing activities 17,321 (47,386) (33,868) Increase (decrease) in cash 3,770 (2,099) 7,791 Exchange rate effects on cash (678) 341 (2,321) Cash at beginning of year 14,424 16,182 10,712 Cash at end of year 17,516 14,424 16,182 27

28 Notes to combined financial statements 1. Accounting policies A. Combination principles and investments These combined financial statements include the legal statutory ITT Flygt Group and other companies/divisions which are an integral part of ITT Flygt s activities. Investments in which ITT Flygt Group has a stock ownership of at least 20% but not over 50% are accounted for using the equity method. Investments accounted for using the equity method were USD 10,147 and 9,852 in 1999 and 1998 respectively. Transactions between all companies/divisions in the ITT Flygt Group have been eliminated and reserves have been provided for profits generated through transfer of inventories. Goodwill is amortised on a straight-line basis in the income statement. The amortisation period for goodwill has been established since 1996, based on the following criteria for the acquired company. 20 years - Acquisitions of major distribution activities by country. 40 years - Acquisitions of new product lines with a global market reach. An amount of 848 was however acquired prior to the date when it became mandatory to amortise such goodwill and is therefore not amortised and is reflexed among other assets. The operating companies/divisions included in the combined financial statements (all ultimately majority owned by ITT Industries, USA) are as follows: ITT Flygt Ltd., Ermington (Sydney), Australia* ITT Flygt GmbH, Vienna, Austria ITT Flygt N.V./S.A., Zaventem (Brussels), Belgium ITT Flygt A Division of ITT Industries of Canada Ltd, Point Claire (Montreal), Canada* ITT Flygt Pump Co Ltd., Shenyang, China* ITT Flygt A/S, Glostrup (Copenhagen), Denmark ITT Flygt S.A., Nanterre (Paris), France ITT Flygt Pumpen GmbH, Langenhagen (Hannover), Germany* ITT Flygt Werk GmbH, Pforzheim, Germany* ITT Flygt Ltd., Nottingham, Great Britain ITT Flygt Kft, Budapest, Hungary ITT Flygt Ltd., Tallaght (Dublin), Ireland ITT Flygt S.p.A., Milan, Italy ITT Flygt B.V., Dordrecht, The Netherlands ITT Flygt AS, Oslo, Norway ITT Flygt Sp. z.o.o., Warsaw, Poland ITT Flygt Pty. Ltd, Edenvale (Johannesburg), South Africa* ITT Flygt AB, Solna/Lindås, Sweden ITT Flygt Corporation, Trumbull, (CT) USA* ITT Flygt HK Ltd. Hong Kong ITT Flygt Korea Ltd. Seoul, Korea** Flygt Argentina S.A., Buenos Aires, Argentina *, ** TFB, Flygt S.A., Madrid, Spain** Flygt-Pumps Finland OY, Vantaa, Finland Grindex AB, Haninge, Sweden Grindex Pumps, Tintley Park (IL), USA* Trimate Industries Ltd., Auckland, New Zealand* JSC ITT Flygt AB, St. Petersburg, Russia (in liquidation) Sanitaire Corporation, Brown Deer, (WI), USA* * Companies/Divisions that are not part of the legal statutory ITT Flygt Group. ** Company partly owned subsidiary Investments accounted for using the equity method are as follows: Anadolu Flygt Pompa Pazarlama ve Ticaret A S, Istanbul, Turkey Flygt do Brasil S/A, Brazil Flygt Chile S.A., Santiago, Chile Flygt Hellas, Athens Greece Flygt Portugal Tecnologia da Agua e do Ambiente, S.A., Lisbon, Portugal Sam McCoy Engineering Pte, Ltd., Singapore Sam McCoy Manufacturing Sdn, Bhd, Malaysia Oy Flygt-Nova AB, Korsnäs, Finland B. Basis of financial statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Changes in accounting policies In January 1998, ITT Flygt adopted statement of financial accounting standard (SFAS) No. 130, Reporting Comprehensive Income. SFAS No. 130 requires the disclosure of comprehensive income, which includes, in addition to net income, other comprehensive income consisting of unrealised gains and losses which bypass the traditional income statement and are recorded directly into a separate section of shareholders equity on the balance sheet. The components of other comprehensive income for the ITT Flygt Group consist of unrealised gains and losses relating to the translation of foreign currency financial statements. C. Sales and revenue recognition The Company recognises revenue as services are rendered and recognises sales as products are shipped to customers. D. Currency translation Financial statements of individual entities in the ITT Flygt Group have been translated from local currency (functional currency) into USD (reporting currency) in accordance with SFAS No. 52 of the Financial Accounting Standards Board. Under this accounting standard, all assets and liabilities are translated at the exchange rate in effect at year-end. Common stock, denominated in foreign currency, in associated companies, has been translated at the historic exchange rate. Income accounts are translated at the average rates of the exchange prevailing during the year. Translation adjustments result from the process of translating an entity s financial statements into USD, if its functional currency is different than USD. Translation adjustments are not included in determining net income but are charged/- credited to Cumulative Translation Adjustments (CTA). Transactions denominated in a currency other than the entity s functional currency which result in foreign exchange gains or losses have been included in net income for the year in which the exchange rate changed or the transaction is settled. 28

29 E. Inventories Inventories are generally valued at the lower of cost (first-in, first-out) or market. In manufacturing operations, a full absorption procedure is employed using standard cost techniques. Expected losses from obsolete or slow-moving inventories are provided for currently. F. Computer software The ITT Flygt Group capitalises computer software and certain software development costs effective from July This capitalised computer software is included in other non current assets. Depreciation is provided on a straight-line basis with the shorter of estimated useful lifetime of the assets or five years. G. Plant, property, and equipment Plant, property and equipment are recorded at cost, including freight, customs, duties and construction or installation costs (including labor and related overhead). Interest is capitalised in connection with major project expenditures. H. Depreciation For financial reporting purposes, depreciation is provided on a straight-line basis over the useful economic lives of the assets involved as follows: Building and permanent fixtures Land improvement Machinery and equipment Tools, dies, and fixtures Assets on operating leases to customers Furniture and fixtures Lease hold improvements Other fixed assets 40 years 20 years 10 years 5 years 5 years 10 years 25 years 5 years For tax purposes maximum depreciation deduction is normally claimed, using those accelerated techniques available in each country in which the Group operates. Gains or losses on sale or retirement of assets are not significant and are included in operating income. I. Research and development Significant costs are incurred each year in connection with research and development programs that are expected to contribute profits to the operations of future years. Such costs are charged to operating income as incurred. Research and development expenditures charged to operations amounted to 16,012, 14,397 and 15,694 for 1999, 1998 and 1997, respectively. 2. Accounts and notes receivables Accounts and notes receivables as of December 31 were as follows: Trade receivables 145, , ,480 Less - reserves for doubtful accounts (6,188) (6,242) (5,923) 3. Inventories Inventories as of December 31 were as follows: Finished goods 54,573 56,206 56,000 Work in process 2,167 2,639 2,676 Raw materials 38,987 30,893 31,537 95,727 89,738 90,213 Less - reserves (6,487) (8753) (8,617) - Progress payments (2,704) (2776) (2,001) 86,536 78,209 79, Amortisable goodwill Cost, January 1 13,724 13,659 2,402 Purchases 32, ,257 Sales (254) Cost, December 31 45,974 13,724 13,659 Accumulated amortisation, January 1 1, Amortisation 1, Sales (20) Accumulated amortisation, December 31 3,078 1, Net value after accumulated amortisation 42,896 12,146 12,770 The following table shows amortisation for 1999 and the net value after cost depreciation for goodwill distributed over the amortisation period. 20 years 40 years Total Amortisation for ,500 Net value after amortisation at Dec ,014 30,882 42, Plant, property and equipment Plant, property and equipment consists of the following: Land and improvements 3,000 2,442 2,214 Buildings and improvements 29,919 25,311 27,197 Machinery and equipment 86,355 81,401 81,261 Construction work in progress 2,443 4,941 3,928 Other 91,852 86,641 73,024 Gross plant, property and equipment 213, , ,624 Less - accumulated depreciation (119,832) (114,065) (106,216) 93,737 86,671 81, , , ,557 29