Table of Contents

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Filed by the Registrant x

Filed by a Party other than the Registrant o

Check the appropriate box:

ITT INDUSTRIES, INC.

Payment of Filing Fee (Check the appropriate box):

o  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

Table of Contents

Table of Contents

Louis J. Giuliano

March 27, 2003

Dear Fellow Shareholders:

Enclosed are the Notice of Annual Meeting and Proxy Statement for ITT Industries’ 2003 Annual Meeting of Shareholders. As has been the case with our previous Annual Meetings, this year’s meeting is intended to address only the business included on the agenda. Details of the business to be conducted at the Annual Meeting are given in the accompanying Notice of Annual Meeting and Proxy Statement, which provides information as required by applicable laws and regulations.

If you are the registered owner of ITT Industries’ stock, you may vote your shares by making a toll-free telephone call or using the Internet. You also may vote your shares by returning your proxy form by mail. Details of these voting options are explained in the Proxy Statement. You also can find useful instructions on the enclosed proxy form.

If you are a beneficial owner and someone else, such as your bank or broker, is the owner of record, the owner of record will communicate with you about how to vote your shares.

We urge you to complete and return the enclosed proxy as promptly as possible. Your vote is important.

Table of Contents

March 27, 2003

Notice of 2003 Annual Meeting

The 2003 Annual Meeting of ITT Industries, Inc. will be held on Tuesday, May 13, 2003 at 10:30 a.m. at Tappan Hill, 81 Highland Avenue, Tarrytown, New York. Directions to Tappan Hill are provided inside the back cover of the Proxy Statement.

The purpose of the 2003 Annual Meeting is to elect ten Directors, ratify the Board of Directors’ appointment of Deloitte & Touche LLP as ITT Industries’ independent auditors for 2003, and approve the ITT Industries, Inc. 2003 Equity Incentive Plan, which proposal is described in more detail in this proxy statement.

The record date for the meeting is March 21, 2003. If you were a shareholder at the close of business on the record date, you are entitled to vote.

Table of Contents

Table of Contents

Table of Contents

Proxy Statement

Beginning March 27, 2003, this proxy statement is being sent to shareholders who were shareholders of record as of March 21, 2003, as part of the Board of Directors’ solicitation of proxies for ITT Industries’ 2003 Annual Meeting.

Information about Voting

Why the Board solicits proxies from shareholders. In order to vote your shares, you must appoint a proxy to vote on your behalf, or attend the annual meeting and vote in person. Because it would be impossible for all shareholders to attend the meeting in person, the Board of Directors recommends that you appoint the two people named on the accompanying proxy form to act as your proxies at the 2003 Annual Meeting.

If you appoint the proxies, they will vote your shares in accordance with your voting instructions. If you appoint the proxies but do not provide voting instructions, they will vote as recommended by the Board of Directors. The proposals to be voted on and the Board’s voting recommendations are described on the following pages 4 through 18. If any other matters not described in this proxy statement are properly brought before the meeting for a vote, the proxies will use their discretion in deciding how to vote on those matters.

This proxy statement and ITT Industries’ 2002 Annual Report to Shareholders (which has been mailed to shareholders eligible to vote at the 2003 annual meeting) contain information that the Board of Directors believes offers an informed view of the Company and meets the regulations of the Securities and Exchange Commission for proxy solicitations.

Proxy voting procedures. You may vote in any one of the following ways:

Counsel has advised the Company that the Internet and telephone voting procedures meet legal requirements for proxy voting.

1

Table of Contents

Discretionary voting by proxies. There are three formal items scheduled to be voted upon at the annual meeting: election of Directors, ratification of the appointment of the independent auditors, and approval of the ITT Industries, Inc. 2003 Equity Incentive Plan. The Board of Directors did not receive any notice during the advance notice period that ended November 27, 2002 that any other matter might be presented for a vote at the 2003 Annual Meeting. However, if another matter were to be properly presented, the proxies would use their discretion in deciding whether to vote for or against it.

Revoking your proxy. You may revoke your proxy at any time before it is voted by granting a new proxy or by voting in person at the 2003 Annual Meeting.

Shares outstanding. As of the March 21, 2003 record date for the 2003 Annual Meeting, 91,853,309 shares of the Company’s common stock were outstanding. Each of those outstanding shares is entitled to one vote on each matter to be voted on at the 2003 Annual Meeting.

Quorum. In order for business to be conducted at the 2003 Annual Meeting, there must be a quorum. If the holders of a majority of ITT Industries’ outstanding shares, as of the record date, are present in person or represented by proxies at the meeting, there will be a quorum.

Votes required to elect Directors or approve a proposal. Indiana law, the law of the state in which ITT Industries is incorporated, provides that directors are elected by a plurality of the votes cast. This means that the ten nominees who receive the highest number of votes will be elected as the Directors of ITT Industries. Approval of the 2003 Equity Incentive Plan requires, for purposes of the New York Stock Exchange (the “NYSE”) and the Internal Revenue Code, as applicable, the affirmative vote of a majority of the votes cast, provided that the total votes cast represent over 50 percent in interest of all securities entitled to vote on the plan. Each of the other matters to be voted on at the 2003 Annual Meeting, including the ratification of the appointment of auditors, will be approved if the number of shares voted in favor of it is greater than the number of shares voted against it.

Abstentions and broker non-votes. Indiana law provides that abstentions and broker non-votes will be counted in order to determine whether there is a quorum; however, they will not be counted as votes for or against any matter. Therefore abstentions and broker non-votes will have no impact on the election of directors or ratification of the appointment of auditors. For NYSE purposes, abstentions will have the effect of a vote against the ITT Industries, Inc. 2003 Equity Incentive Plan and broker non-votes will have no effect, except to the extent they impact whether the 50 percent test has been satisfied. For the purpose of determining whether the number of votes cast represents more than 50 percent of the shares of common stock entitled to vote, abstentions will count as votes cast and broker non-votes will not count as votes cast.

Voting by employee participants in ITT Industries’ savings plans. If you participate in any of ITT Industries’ savings plans for salaried or hourly employees, your plan trustee will vote the ITT Industries shares credited to

2

Table of Contents

If you are a participant in the ITT Industries Investment and Savings Plan for Salaried Employees and also are a record owner of ITT Industries’ common stock, you will receive one proxy form that reflects your savings plan shares and the other shares you own, including any shares held in the Direct Purchase, Sale & Dividend Reinvestment Plan for ITT Industries, Inc. The number of savings plan and other shares that you own will be set out separately on the proxy form.

Number of ITT Industries shares held by participants in the Company’s employee savings plans. As of March 21, 2003, Deutsche Bank Trust Company Americas held 8,918,708 shares of ITT Industries’ common stock (approximately 9.7% of the outstanding shares) as trustee of the salaried employees savings plan, and Northern Trust Company, Inc. held 484,475 shares (approximately .53% of the outstanding shares) as trustee for the hourly employees savings plans.

Inspectors of Election and confidential voting. Representatives of IVS Associates, Inc. will act as the Inspectors of Election for the 2003 Annual Meeting. They will monitor the voting and certify whether the votes of shareholders are being kept in confidence in compliance with ITT Industries’ confidential voting policy.

Cost of the solicitation. ITT Industries has appointed Georgeson & Company Inc. to assist with the solicitation of proxies from its registered owners for a fee of $20,000 plus expenses. ITT Industries also will reimburse brokers, nominees, custodians and fiduciaries for their costs of sending the proxy materials to the beneficial owners. Directors, officers or other regular employees of ITT Industries also may solicit proxies from shareholders in person, or by telephone, facsimile transmission or other electronic means of communication.

Shareholder proposals for the 2004 Annual Meeting. Rule 14a-8 of the Securities and Exchange Commission establishes the eligibility requirements and the procedures that must be followed for a shareholder’s proposal to be included in a public company’s proxy materials. Under the rule, if a shareholder wishes to include a proposal in ITT Industries’ proxy materials for its next annual meeting, those eligibility requirements and procedures must be complied with and the proposal must be received by ITT Industries at its principal executive offices on or before November 28, 2003. An ITT Industries shareholder who wishes to present a matter for action at ITT Industries’ next annual meeting, but chooses not to do so under SEC Rule 14a-8, must deliver to ITT Industries, at its principal executive offices, on or before November 28, 2003 a written notice to that effect. In either case, as well as for shareholder nominations for Directors, the shareholder must also comply with the

3

Table of Contents

Proposals to be voted on at the 2003 Annual Meeting

A. Election of Directors

The Board of Directors has nominated ten individuals for election as Directors at the 2003 Annual Meeting. Each of the nominees is currently serving as a Director of ITT Industries and has agreed to continue to serve if elected. If unforeseen circumstances arise before the annual meeting and a nominee becomes unable to serve, the Board of Directors could reduce the size of the Board or nominate someone else for election. If the Board nominates someone else, the proxies could use their discretion to vote for that other person. Each Director elected at the 2003 Annual Meeting will be elected to serve as a Director until ITT Industries’ next annual meeting.

The Board of Directors recommends that you vote FOR the election of each of the following ten nominees:

		Louis J. Giuliano Chairman, President and Chief Executive Officer, ITT Industries, Inc.

Mr. Giuliano, 56, has been chairman, president and chief executive officer of ITT Industries since March 1, 2001. From October 1998 to February 28, 2001 he was president and chief operating officer of the Company. Prior to that, he was president and chief executive of ITT Industries’ Defense & Electronics businesses and a senior vice president of the Company for eight years. Mr. Giuliano joined ITT in July 1988 as a vice president of the Company and vice president of Defense Operations at ITT Defense. Prior to joining ITT, Mr. Giuliano held various positions at Allied-Signal during a 19 year career there, including president of the Avionics Systems Group. He is a director of the Engelhard Corporation. Mr. Giuliano holds a BA degree in Chemistry and an MBA from Syracuse University.

Mr. Giuliano has been a Director of ITT Industries since February, 2001.

4

Table of Contents

		Rand V. Araskog Chairman and Chief Executive Officer, ITT Corporation (retired), a hotel, gaming, entertainment and information services company

Mr. Araskog, 71, was chairman and chief executive officer of ITT Corporation from December 1995 until March 1998. Previously, he had served as the chief executive of the corporate predecessor of ITT Industries from 1979 and as its chairman from 1980. He is a director of The Hartford Financial Services Group, Inc., Rayonier Inc., and ITT Educational Services, Inc. He is a graduate of the U.S. Military Academy at West Point and attended the Harvard Graduate School of Arts and Sciences.

Mr. Araskog has been a Director of ITT Industries or its predecessor since 1977.

		Curtis J. Crawford President and Chief Executive Officer, Onix Microsystems, a photonics technology company

Dr. Crawford, 55, has served as president and chief executive officer of Onix Microsystems, a private photonics technology company which designs, manufactures and sells micro-electro-mechanical systems based optical switching engines since April 1, 2002. He was chairman of the board of directors of ON Semiconductor Corporation from September 1999 until April 1, 2002. Previously, he was president and chief executive officer of ZiLOG, Inc. from 1998 to 2001 and its chairman from 1999 to 2001. From 1997 to 1998, Dr. Crawford was group president of the Microelectronics Group of Lucent Technologies and served as its president from 1995-1997. Prior to the formation of Lucent Technologies, he was president of AT&T Microelectronics, a business unit of AT&T, from 1993 to 1995, and its vice president and co-chief executive officer from 1991 to 1993. From 1988 to 1991, he was vice president of sales, service and support at AT&T Computer Systems. From 1973 to 1988, Dr. Crawford held various positions at International Business Machines Corporation. Dr. Crawford is a director of Onix Microsystems, E.I.Dupont de Nemours and Company, and ON Semiconductor and is a member of the Board of Trustees of DePaul University. He received a BA degree in business administration and computer science and an MA degree from Governors State University, an MBA from DePaul University and a Ph.D. from Capella University. Governors State University awarded him an honorary doctorate in 1996 and he received an honorary doctorate degree from DePaul University in 1999.

Dr. Crawford has been a Director of ITT Industries since 1996.

5

Table of Contents

		Christina A. Gold Senior Executive Vice President, First Data Corp. and President, Western Union Financial Services, Inc., a global leader in money transfer and message services

Mrs. Gold, 55, was named Senior Executive Vice President — First Data Corp. and President, Western Union Financial Services, Inc., a global leader in money transfer and message services on May 20, 2002. She was formerly chairman, president and chief executive officer of Excel Communications. Previously, she was president and chief executive officer of The Beaconsfield Group. From February 1997 to March 1998, Mrs. Gold was executive vice president, global direct selling of Avon Products, Inc. She was executive vice president of Avon Products and president of Avon North America from 1993 to 1997, and from 1989 to 1993 Mrs. Gold was president of Avon Canada. She is a director of New York Life Insurance Company and The Torstar Corporation. Mrs. Gold also is a director of The Conference Board, Inc. of Canada and vice chairman and a trustee of The Conference Board, Inc. in New York. She is a member of the Advisory Council of Carleton University. Mrs. Gold is a graduate of Carleton University, Ottawa, Canada.

Mrs. Gold has been a Director of ITT Industries since 1997.

		Ralph F. Hake Chairman and Chief Executive, Maytag Corporation, a home and commercial appliance company

Mr. Hake, 54, was named Chairman and Chief Executive of Maytag Corporation in June of 2001. Previously, he was executive vice president and chief financial officer for Fluor Corporation, an engineering and construction firm. From 1987 to 1999, Mr. Hake served in various executive capacities at Whirlpool Corporation, including chief financial officer and senior executive vice president for global operations. Mr. Hake was employed by Mead Corporation prior to 1987. Mr. Hake is a director of Maytag Corporation and serves on the Board of the National Association of Manufacturers, where he is chairman of that association’s Taxation and Economic Policy Group. Mr. Hake is a 1971 business and economics graduate of the University of Cincinnati and holds an M.B.A. from the University of Chicago.

Mr. Hake has been a Director of ITT since December 2002.

6

Table of Contents

		John J. Hamre President and Chief Executive Officer, Center for Strategic & International Studies, a public policy research institution dedicated to strategic, bipartisan global analysis and policy impact

Dr. Hamre, 52, was elected president and chief executive officer of CSIS in April of 2000. Prior to joining CSIS, he served as U.S. Deputy Secretary of Defense from 1997 to 2000 and Under Secretary of Defense (Comptroller) from 1993 to 1997. Prior to serving in the Department of Defense, Dr. Hamre was a professional staff member of the Senate Armed Services Committee from 1984 to 1993 with responsibilities for oversight and evaluation of procurement, research and development programs and defense budget issues. From 1978 to 1984, Dr. Hamre served as Deputy Assistant Director, National Security and International Affairs, in the Congressional Budget Office. Dr. Hamre is a director of MITRE Corporation, Choicepoint, Inc. and Integrated Nano-Technologies LPC. He received a BA degree, with highest distinction from Augustana College in Sioux Falls, South Dakota, was a Rockefeller Fellow at Harvard Divinity School and was awarded a Ph.D., with distinction, from the School of Advanced International Studies, Johns Hopkins University in 1978.

Dr. Hamre has been a Director of ITT Industries since 2000.

		Raymond W. LeBoeuf Chairman of the Board and Chief Executive Officer, PPG Industries, Inc., a global manufacturer of materials for manufacturing, construction, automotive, chemical processing and other industries

Mr. LeBoeuf, 56, has been chairman of PPG Industries since November 1997 and its chief executive officer since July 1997. In December 1995 he was elected president and chief operating officer of PPG. He was an executive vice president of PPG from 1994 until 1995. Mr. LeBoeuf joined PPG Industries in 1980 as its treasurer, and has held a number of executive positions since that time. Mr. LeBoeuf was elected a director of PPG in December 1995. He is also a director of Praxair, Inc. Mr. LeBoeuf is chairman of the Robert Morris College Board. He is also a board member of the Allegheny Conference on Community Development, Business Roundtable, Extra Mile Foundation and the Pittsburgh Cultural Trust and is a member of The Northwestern Library Board of Trustees. Mr. LeBoeuf is a graduate of Northwestern University and holds an MBA from the University of Illinois.

Mr. LeBoeuf has been a Director of ITT Industries since 2000.

7

Table of Contents

		Frank T. MacInnis Chairman and Chief Executive Officer, EMCOR Group, Inc., an international electrical and mechanical construction and facility management company

Frank T. MacInnis, 56, has been chairman of the board and chief executive officer of EMCOR since April 1994. He was also president of EMCOR from April 1994 to April 1997. From April 1990 to April 1994, Mr. MacInnis served as president and chief executive officer and from August 1990 to April 1994 as chairman of the board, of Comstock Group Inc., a nationwide electrical contracting company. Mr. MacInnis is also a director of The Williams Companies, Inc., Geneva Steel Holdings Corp., The Greater New York Chapter of the March of Dimes and ComNet Communications, LLC Mr. MacInnis received an undergraduate degree from The University of Alberta and is a graduate of The University of Alberta Law School, Alberta, Canada.

Mr. MacInnis has been a Director of ITT Industries since October, 2001.

		Linda S. Sanford Senior Vice President, Enterprise On Demand Transformation, International Business Machines Corporation, an information technology company

Ms. Sanford, 50, was named Senior Vice President, Enterprise on Demand Transformation, IBM in January 2003. Previously, she was senior vice president and group executive, IBM Storage Systems Group, which develops and markets IBM’s Enterprise Storage Server and other storage-related hardware and software. She has also held positions as general manager, Global Industries, which manages relationships with IBM’s largest customers worldwide, and general manager of IBM’s S/390 Division, which develops, manufactures and markets large-enterprise systems. Ms. Sanford joined IBM in 1975 as a mathematician. Since then she has held a number of executive positions at IBM. Ms. Sanford is a member of the Women in Technology International Hall of Fame and the National Association of Engineers. She is on the board of directors of St. John’s University and Rensselaer Polytechnic Institute. She is a graduate of St. John’s University and earned an MS degree in operations research from Rensselaer Polytechnic Institute.

Ms. Sanford has been a Director of ITT Industries since 1998.

8

Table of Contents

		Markos I. Tambakeras Chairman, President and Chief Executive Officer, Kennametal, Inc., a premier global tooling solutions supplier to the automotive, aerospace, energy, mining, construction and other industries

Markos I. Tambakeras, 52, has been president and chief executive officer and a director of Kennametal, Inc. since July 1999 and Chairman since July 1, 2002. From 1997 to June 1999, Mr. Tambakeras served as president, Industrial Controls Business of Honeywell Incorporated, having previously served as president, Industrial Automation and Control, Honeywell Incorporated from 1995 to 1996 and as president, Honeywell Asia Pacific in Hong Kong from 1992 to 1994. Mr. Tambakeras is Vice Chair, Manufacturers Alliance Board of Trustees and a member of the Board of Saint Vincent College, Latrobe, PA and the Allegheny Conference on Community Development. Mr. Tambakeras received a BSc degree from the University of Witwatersrand, Johannesburg South Africa and an MBA from Loyola Marymount University, Los Angeles, CA.

Mr. Tambakeras has been a Director of ITT Industries since July, 2001.

B. Ratification of Appointment of the Independent Auditors

Subject to shareholders ratification, the Board of Directors has appointed Deloitte & Touche LLP as ITT Industries’ independent auditors (the “Independent Auditor”) for 2003.

Representatives of Deloitte & Touche LLP attended all meetings of the Audit Committee after engagement as Independent Auditors in April of 2002. The Audit Committee reviewed the non-audit services provided by Deloitte & Touche LLP to ITT Industries in 2002. Based on that review, the Audit Committee determined that the provision of certain non-audit services was compatible with the provision of independent auditor services.

Representatives of the Independent Auditor will be present at the Annual Meeting to answer questions. They also will have the opportunity to make a statement if they desire to do so.

Independent Auditor Fees

Aggregate fees billed to the company for the fiscal year ended December 31, 2002 represent fees billed by the Company’s independent auditor, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, “Deloitte & Touche”). Aggregate fees billed

9

Table of Contents

Change in Independent Auditor

In April 2002, the Company engaged Deloitte & Touche LLP to serve as ITT’s independent auditor for 2002. Prior to that date, Arthur Andersen LLP (Andersen) had served as the Company’s independent public accountants.

The reports by Andersen on the Company’s consolidated financial statements for the past two years did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. Andersen’s report on ITT’s consolidated financial statements for 2001 was issued on an unqualified basis in conjunction with the publication of ITT’s 2001 Annual Report to Shareowners and the filing of ITT’s Annual Report on Form 10-K.

During the Company’s two most recent fiscal years, and through the date of the change, there were no disagreements with Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures which, if not resolved to Andersen’s satisfaction, would have caused them to make reference to the subject matter in connection with their report on the Company’s consolidated financial statements for such years; and there were no reportable events, as listed in Item 304(a)(1)(v) of Regulation S-K.

10

Table of Contents

The decision to change accountants was recommended by the Audit Committee and approved by the Board of Directors on March 22, 2002.

Pre-Approval of Non-Audit Services

The Audit Committee has adopted a policy addressing pre-approval of services provided by the Independent Auditor, and services provided by the Company’s outsourced internal auditor (“Internal Auditor”). The purpose of the policy is to clearly identify circumstances where the Independent Auditor and the Internal Auditor may perform non-audit services and where such services shall require further approval by the Audit Committee. The Audit Committee has determined that, where practical, all non-audit services shall first be placed for competitive bid prior to selection of a service provider. Management may select the party deemed best suited for the particular engagement, which may or may not be the Independent Auditor and the Internal Auditor. Providers other than the Independent Auditor and Internal Auditor shall be preferred in the selection process. The policy is reviewed and reaffirmed on a regular basis to assure conformance with applicable rules.

If billable fees for pre-approved non-audit services provided by each of the Independent Auditor or the Internal Auditor exceed a pre-determined threshold during any calendar year, any additional proposed non-audit services provided by that service provider must be submitted for prior approval by the Audit Committee. The Audit Committee reviews the fees paid or committed to the Independent Auditor and the Internal Auditor on a quarterly basis.

The Audit Committee approved specific categories of audit-related services and tax services incidental to the normal auditing function which the Independent Auditor may provide without further Audit Committee approval. These categories are:

The Audit Committee has also approved specific categories of audit-related services, including assessment and review of internal controls and effectiveness of those controls, which the Internal Auditor may provide without further approval.

Other audit-related and tax services are subject to specific prior approval if the prospective fee exceeds a pre-determined threshold.

11

Table of Contents

The Company may not engage the Independent Auditor to provide the services described below:

Employees of the Independent Auditor and the Internal Auditor who are senior manager level or above and have had any involvement with the Company in the independent audit and/or internal audit activities shall not be employed by the Company in any capacity for a period of five years after the termination of their activities on behalf of the Company.

The Board of Directors recommends you vote FOR ratification of appointment of the Company’s Independent Auditor.

C. Approval of the ITT Industries, Inc. 2003 Equity Incentive Plan

Upon approval and effectiveness of this plan, no new awards will be made under the 1994 ITT Industries Incentive Stock Plan, the ITT Industries 1996 Restricted Stock Plan for Non-Employee Directors or the 2002 ITT Industries Stock Option Plan for Non-Employee Directors.

ITT Industries, Inc. 2003 Equity Incentive Plan

Summary Description of the Plan

The following summary of the terms of the Plan is qualified in its entirety by reference to the text of the Plan, which is attached as Appendix I. If approved, the Plan will be effective as of May 13, 2003.

Administration. The Plan will be administered by the Compensation and Personnel Committee of the Board of Directors (the “Committee”).

Eligibility. All employees of ITT Industries, Inc., its subsidiaries and affiliates and all Directors of ITT Industries, Inc. are eligible to participate in the Plan.

Approximately 38,000 employees of ITT Industries, Inc., its subsidiaries and affiliates and nine non-employee Directors will currently be eligible to participate; however, because the Plan provides for broad discretion in selecting

12

Table of Contents

Stock Available for Issuance Through the Plan. The Plan provides for a number of forms of stock-based compensation, as further described below. Up to 6,100,000 shares of ITT Industries’ common stock will be authorized for issuance through the Plan. The number of shares that may be issued under the Plan for awards other than stock options or SARs (both with a grant price equal to at least fair market value) will not exceed 1,000,000 shares. Provisions in the Plan permit the reuse or reissuance by the Plan of shares of common stock underlying canceled, terminated, expired, forfeited, or lapsed awards of stock-based compensation.

Stock-based compensation will typically be issued in consideration for the performance of services to ITT Industries and its affiliates.

Description of Awards Under the Plan. The Committee may award to eligible employees incentive and nonqualified stock options, stock appreciation rights, restricted stock, and restricted stock units. The forms of awards are described in greater detail below.

Stock Options. The Committee will have discretion to award incentive stock options (“ISOs”), which are intended to comply with Section 422 of the Internal Revenue Code, or nonqualified stock options (“NQSOs”), which are not intended to comply with Section 422 of the Internal Revenue Code. Each option issued under the Plan must be exercised within a period from the date of grant to be determined by the Committee (not to exceed ten years), and the exercise price of an option may not be less than the fair market value of the underlying shares of common stock on the date of grant; provided, however, that a NQSO granted outside the United States may be granted with an exercise price less than the fair market value of the underlying shares of common stock on the date of grant if necessary to comply with local tax laws and regulations. Subject to the specific terms of the Plan, the Committee will have discretion to set such additional limitations on option grants as it deems appropriate.

Each option award agreement will set forth the extent to which the participant will have the right to exercise the option following termination of the participant’s employment or service as a Director. The termination provisions will be determined within the discretion of the Committee, need not be uniform among all participants and may reflect distinctions based on the reasons for termination of employment or service as a Director.

Upon the exercise of an option granted under the Plan, the exercise price is payable in full to ITT Industries either: (a) in cash or its equivalent; or (b) if permitted in the award agreement, by tendering shares having a fair market value at the time of exercise equal to the total exercise price (provided such shares have been held for at least six months prior to their tender); or (c) if

13

Table of Contents

Stock Appreciation Rights (SARs). The Committee may grant SARs in tandem with stock options, freestanding and unrelated to options, or any combination of these forms. In any case, the form of payment of a SAR will be determined by the Committee either at grant time or when exercised, and may be in shares of common stock, cash, or a combination of the two. If granted other than in tandem, the Committee will determine the number of shares of common stock covered by and the exercise period for the SAR.

Upon exercise of the SAR, the participant will receive an amount equal to the excess of the fair market value of one share of stock on the date the exercise is received by ITT Industries over the fair market value of one share of the stock on the grant date, multiplied by the number of shares of stock covered by the SAR exercise. If granted in tandem with an option, a SAR’s exercise period may not exceed that of the option. The participant may exercise a tandem SAR when the option is exercisable, surrender the option, and receive on exercise an amount equal to the excess of fair market value of one share of stock on the date the election to surrender is received by ITT Industries over the option exercise price, multiplied by the number of shares of stock covered by the SAR exercise.

Each SAR award agreement will set forth the extent to which the participant will have the right to exercise the SAR following termination of the participant’s employment or service as a director. The termination provisions will be determined within the discretion of the Committee, need not be uniform among all participants and may reflect distinctions based on the reasons for termination of employment or service as a director.

Restricted Stock. The Committee will also be authorized to award shares of restricted common stock under the Plan upon such terms and conditions as it shall establish. The participants may be required to pay a purchase price for each share of restricted stock granted. The award agreement will specify the period(s) of restriction, the number of shares of restricted common stock granted, such other provisions as the Committee shall determine and/or restrictions under applicable federal or state securities laws. Although participants may have the right to vote these shares from the date of grant, they will not have the right to sell or otherwise transfer the shares during the applicable period of restriction or until satisfaction of other conditions imposed by the Committee in its sole discretion. Participants may also receive dividends on their shares of restricted stock and the Committee, in its discretion, will determine how such dividends on restricted shares are to be paid.

Each award agreement for restricted stock will set forth the extent to which the participant will have the right to retain unvested restricted stock following termination of the participant’s employment or service as a Director. These provisions will be determined in the sole discretion of the Committee, need not be uniform among all shares of restricted stock issued pursuant to the Plan and

14

Table of Contents

Restricted Stock Units. The Committee will also be authorized to award restricted stock units under the Plan upon such terms and conditions as it shall establish. The award agreement will specify the period(s) of restriction, the number of restricted stock units granted, such other provisions as the Committee shall determine and/or restrictions under applicable federal or state securities laws. The participants shall have no voting rights with respect to the restricted stock units and will not have the right to sell or otherwise transfer the units during the applicable period of restriction or until earlier satisfaction of other conditions imposed by the Committee in its sole discretion. Participants may receive dividends on their shares of restricted stock units and the Committee, in its discretion, will determine how such dividends on restricted stock units are to be paid.

Each award agreement for restricted stock units will set forth the extent to which the participant will have the right to retain unvested restricted stock units following termination of the participant’s employment or service as a director. These provisions will be determined in the sole discretion of the Committee, need not be uniform among all awards of restricted stock units issued pursuant to the Plan and may reflect distinctions based on reasons for termination of employment or service as a Director.

Performance Measures. The Committee may grant awards under the Plan to eligible employees subject to the attainment of certain specified performance measures. The performance measures are net earnings, earnings per share, net income, net sales growth, net operating profit, return measures (including, but not limited to, return on assets, equity, or sales), productivity ratios, expense targets, working capital targets, cash flow, cash flow return on capital, earnings before or after taxes, interest, depreciation and/or amortization, gross revenues, margins, operating efficiency, customer satisfaction, employee satisfaction metrics, human resources metrics, share price (including, but not limited to, growth measures and total shareholder return), and EVA®.

Subject to the individual and Plan limits described herein, the number of performance-based awards granted to any participant in any year is determined by the Committee in its sole discretion. Following the end of a performance period, the Committee shall determine the value of the performance-based awards granted for the period based on the attainment of the preestablished objective performance goals. The Committee shall also have discretion to reduce (but not to increase) the value of a performance-based award.

Individual Limits. The maximum number of shares with respect to which stock options may be granted to an individual during any one year shall be 300,000. The maximum number of shares with respect to which SARs may be granted to any individual during any one year shall be 300,000. The maximum

15

Table of Contents

Adjustment and Amendments. The Plan provides for appropriate adjustments in the number and nature of shares of common stock subject to awards and available for future awards and in the exercise price of options and the grant price of SARs, in the event of changes in outstanding common stock by reason of a merger, stock split, or certain other events. The Committee shall specify in each Participant’s award agreement the treatment of outstanding awards upon a change in control.

The Plan may be modified or amended by the Committee at any time and for any purpose which the Committee deems appropriate; no such amendment shall adversely affect any outstanding awards in a material way without the affected holder’s consent. However, options issued under the Plan may not be repriced without the approval of shareholders.

Nontransferability. Unless otherwise determined by the Committee and provided in a participant’s award agreement, no award (including, without limitation, options) granted pursuant to, and no right to payment under, the Plan shall be assignable or transferable by a Plan participant except by will or by the laws of descent and distribution, and any option or similar right shall be exercisable during a participant’s lifetime only by the participant or by the participant’s guardian or legal representative.

Duration of the Plan. The Plan will remain in effect until all options and rights granted thereunder have been satisfied or terminated pursuant to the terms of the Plan, and all performance periods for performance-based awards granted thereunder have been completed.

Prior Plans. The Plan will replace, on a prospective basis, the 2002 ITT Industries Stock Option Plan for Non-Employee Directors, the ITT Industries 1996 Restricted Stock Plan for Non-Employee Directors, and the 1994 ITT Industries Incentive Stock Plan (collectively, the “Prior Plans”). If the Plan is approved by the shareholders, no new grants will be made from the Prior Plans. All awards granted under the Prior Plans shall continue to vest and/or be exercisable in accordance with their original terms and conditions.

Federal Income Tax Consequences. The following discussion covers some of the United States federal income tax consequences with respect to awards that may be granted under the Plan. It is a brief summary only. Participants should consult with their tax advisors for a complete statement of all relevant federal tax consequences. This summary does not describe state, local, or foreign tax consequences of an individual’s participation in the Plan.

Federal Income Tax Consequences — Participants

Options. With respect to options which qualify as ISOs, a Plan participant will not recognize income for federal income tax purposes at the time options are granted or exercised. If the participant disposes of shares acquired by exercise of an ISO either before the expiration of two years from the date the

16

Table of Contents

The exercise of an ISO may result in alternative minimum tax (“AMT”) liability. The excess of the fair market value of the shares purchased on exercise of an ISO over the exercise price paid for such shares is considered alternative minimum taxable income for AMT purposes.

With respect to NQSOs, the participant will recognize no income upon grant of the option, and, upon exercise, will recognize ordinary income to the extent of the excess of the fair market value of the shares on the date of option exercise over the option (“exercise”) price. Upon a subsequent disposition of the shares received from the exercise of an option, the participant generally will recognize capital gain or loss to the extent of the difference between the fair market value of the shares at the time of exercise and the amount realized on the disposition.

SARs. The recipient of a grant of SARs will not realize taxable income and ITT Industries will not be entitled to deduction with respect to such grant on the date of such grant. Upon the exercise of a SAR, the recipient will realize ordinary income, and ITT Industries will be entitled to a corresponding deduction, equal to the amount of cash or fair market value of stock received.

Restricted Stock. A participant holding restricted stock will, at the time the shares vest, realize ordinary income in an amount equal to the fair market value of the shares and any cash received at the time of vesting, and ITT Industries will be entitled to a corresponding deduction for federal income tax purposes. Dividends paid to the participant on the restricted stock during the restriction period will generally be ordinary income to the participant and deductible as such by ITT Industries.

Restricted Stock Units. A participant holding restricted stock units will, at the time the units vest, realize ordinary income in an amount equal to the fair market value of the shares and any cash received at the time of vesting, and ITT Industries will be entitled to a corresponding deduction for federal income tax purposes.

Federal Tax Consequences — ITT Industries. In general, ITT Industries will receive an income tax deduction at the same time and in the same amount as the amount which is taxable to the employee as compensation, except as provided below under “Section 162(m).” To the extent a participant realizes capital gains, as described above, ITT Industries will not be entitled to any corresponding deduction for federal income tax purposes.

17

Table of Contents

Section 162(m). Under Section 162(m) of the Internal Revenue Code, compensation paid to “Covered Employees” in excess of $1 million for any taxable year generally is not deductible by ITT Industries unless such compensation meets the IRS guidelines as “performance-based compensation,” and is paid pursuant to a plan the material terms of which have been approved by shareholders of ITT Industries.

Generally, “Covered Employee” under Section 162(m) means the chief executive officer and the four other highest paid executive officers of ITT Industries as of the last day of the applicable taxable year.

It is presently anticipated that the Committee will at all times consist of “outside directors” as required for purposes of Section 162(m), and that the Committee will take the effect of Section 162(m) into consideration in structuring Plan awards.

New Plan Benefits. The benefits that will be received under the Plan by particular individuals or groups are not determinable at this time.

Board of Directors Recommendation. The accompanying proxy will be voted in favor of approval of the Plan unless contrary instructions are noted on the proxy. The affirmative vote of a majority of the shares of common stock present in person or by proxy are entitled to vote at the annual meeting is required for adoption of the Plan.

The Board of Director recommends you vote “FOR” approval of the ITT Industries, Inc. 2003 Equity Incentive Plan.

18

Table of Contents

The following table sets forth information concerning the shares of common stock that may be issued under equity compensation plans as of December 31, 2002.

Equity Compensation Plan Information

19

Table of Contents

Information about the Board of Directors

Responsibilities of the Board of Directors. The Board sets policy for ITT Industries and advises and counsels the chief executive officer and the executive officers who manage the Company’s business and affairs. In December 2002, the Board eliminated its Capital Committee. Responsibilities of the Capital Committee are now the responsibilities of the full Board. The Board is responsible for assuring that:

The Board of Directors has adopted principles for governance of the Board. The Governance Principles provide, among other things, that a coordinating Director shall be selected from the Committee chairs, on a rotating basis, to preside at meetings of the Board of Directors at which the Chairman is not present, including regularly scheduled private sessions of the non-employee Directors. Each coordinating director shall serve until the next regular or special meeting of the Board of Directors, whichever occurs first.

Independent Directors. ITT Industries’ By-laws require that a majority of the Directors shall be independent directors. The Charters of the Audit, Compensation and Personnel, and Nominating and Governance Committee require all members to be independent directors, as defined in the Director Independence Appendix to the Charters.

An independent director is someone who is free of any relationship that would interfere with the exercise of independent judgement, and within the past 5 years:

20

Table of Contents

Committees of the Board of Directors. The four standing Committees of the Board that are described below perform essential corporate governance functions. The post of Committee Chair and the members of each Committee are rotated periodically to assure that fresh points of view are reflected.

Audit Committee

2002 Audit Committee Members:

2003 Audit Committee Members as of February 2003:

21

Table of Contents

22

Table of Contents

23

Table of Contents

A copy of the Audit Committee’s Charter is attached as Appendix II.

24

Table of Contents

Compensation and Personnel Committee

2002 Compensation and Personnel Committee Members:

2003 Compensation and Personnel Committee Members as of February 2003:

25

Table of Contents

Corporate Responsibility Committee

2002 Corporate Responsibility Committee Members:

2003 Corporate Responsibility Committee Members as of February 2003:

Nominating and Governance Committee

2002 Nominating and Governance Committee Members:

2003 Nominating and Governance Committee Members as of February 2003:

26

Table of Contents

During 2002, there were 6 regularly scheduled Board meetings, three special Board meetings and 27 Committee meetings. All Directors attended at least 75% of the aggregate of all meetings of the Board and the Committees on which they served. For 2003, the Board has scheduled six regular meetings. In conjunction with the regular meetings, those Directors who are not employees of ITT Industries are scheduled to meet privately several times during the year. The Board of Directors has identified Ralph F. Hake and Raymond W. LeBoeuf as audit committee financial experts.

Compensation of Directors. Non-employee Directors are paid annual retainers of $50,000 and attendance fees of $2,000 for each Board and $1,000 for each Committee meeting (of which they are a member) they attend. The annual retainer is paid in shares of restricted stock that are held in escrow until the restrictions lapse. The number of restricted shares is determined by dividing into $50,000 the average of the high and low sales prices per share of ITT Industries’ common stock on the date of the annual meeting or as soon thereafter as legally permissible. Any fractional share is paid in cash. If the ITT Industries, Inc. 2003 Equity Incentive Plan is approved, we expect that restricted stock grants to Directors for their 2003 annual retainer will be determined and awarded on a date subsequent to the 2003 Annual Meeting in order to permit the Company to complete the Securities Act registration and NYSE listing of shares of restricted stock to be granted under the ITT Industries, Inc. 2003 Equity Incentive Plan.

27

Table of Contents

Directors receive dividends on the restricted shares and may vote the shares during the restriction period. Directors may choose to extend the restriction period for up to two successive five year periods, or until six months and one day following the Director’s termination of service from the Board under certain permitted circumstances. Attendance fees are paid in cash. Directors can annually irrevocably elect to defer receipt of attendance fees to a future date, up to the time the Director’s service on the Board ends. Such fees are treated as though invested in an interest bearing account. Mr. Giuliano, as an employee Director, does not receive compensation for his Board service.

Each Director’s restricted shares are held in escrow and may not be transferred in any manner until one of the following events occurs:

The ITT Industries’ 1996 Restricted Stock Plan for Non-Employee Directors provides that if a Director ceases serving on the Board under any other circumstances, shares with respect to which the Plan restrictions have not been lifted will be forfeited.

Non-employee Directors also receive an annual grant of stock options. On May 7, 2002 each non-employee Director received a grant of stock options for 1,780 shares priced at the closing price of ITT Industries stock as of the May 7, 2002 annual meeting at which the 2002 ITT Industries Stock Option Plan for Non-Employee Directors was adopted by the Company’s shareholders. In subsequent years, non-employee Directors’ stock option grants will be priced and awarded on the same day that employee stock options are priced and awarded.

If the Company’s 2003 Equity Incentive Plan is adopted by shareholders at the 2003 Annual Meeting, no further awards will be made under the ITT Industries 1996 Restricted Stock Plan for Non-Employee Directors and the 2002 ITT Industries Stock Option Plan for Non-Employee Directors.

The Board of Directors has established Director share ownership guidelines. The guidelines currently provide for desired Director share ownership levels at four times the annual retainer amount.

Directors are reimbursed for the expenses they incur to travel to Board and Committee meetings.

28

Table of Contents

Director Nomination Policy. No one may be nominated for election as a Director after he or she has reached 72 years of age. The Nominating and Governance Committee will consider shareholder nominations for Directors that meet the requirements of ITT Industries’ By-laws. (A copy of the nomination requirements may be obtained from the Secretary of ITT Industries.)

Indemnification and Insurance. As permitted by its By-laws, ITT Industries indemnifies the Directors to the full extent permitted by law and maintains insurance to protect the Directors from liabilities, including certain instances where it could not otherwise indemnify them. All Directors are covered under a non-contributory group accidental death and dismemberment policy that provides each of them with $750,000 of coverage. They may elect to purchase additional coverage under that policy. Non-employee Directors also may elect to participate in an optional non-contributory group life insurance plan that would provide $100,000 of coverage.

Report of the Audit Committee

The following Report of the Audit Committee does not constitute soliciting material and the Report should not be deemed filed or incorporated by reference into any other previous or future filings by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.

• Role of the Audit Committee.

The Audit Committee of the Board of Directors provides oversight on matters relating to the Company’s financial reporting process and assures that the Company develops and maintains adequate financial controls and procedures, and monitors compliance with these processes. This includes responsibility for, among other things, 1) the appointment, compensation and oversight of the independent auditors in preparing or issuing audit reports and related work; 2) review of financial reports and other financial information provided by the Company, its systems of internal accounting and financial controls, and the annual independent audit of the Company’s financial statements; 3) oversight and review of procedures developed for consideration of accounting, internal accounting controls and auditing related complaints; 4) review of risk assessment processes; and 5) adoption of and monitoring the implementation and compliance with a non-audit services policy. The Audit Committee also has oversight responsibility for confirming the scope and monitoring the progress and results of internal audits conducted by the Company’s outsourced internal auditor. The Audit Committee discussed with the Company’s outsourced internal auditors and independent auditors the plans for their respective audits. The Audit Committee met with the outsourced internal auditors and independent auditors, with and without management present, and discussed results of their examinations, their evaluation of the Company’s internal controls, and the availability of the Company’s financial reporting.

29

Table of Contents

The Company’s management has primary responsibility for the financial statements, including the Company’s system of disclosure and internal controls. The Audit Committee may investigate any matter brought to its attention. In that regard, the Audit Committee has full access to all books, records, facilities and personnel of the Company. Any individual may also bring matters to the Audit Committee confidentially or on an anonymous basis.

• Audit Committee Charter.

The Board of Directors has adopted a written charter for the Audit Committee, which it reviews, and at least annually updates and/or reaffirms. The Charter sets out the purpose, membership and organization, and key responsibilities of the Audit Committee.

• Composition of the Audit Committee.

The Audit Committee is comprised of five members of the Company’s Board. The Board of Directors has determined that each Audit Committee member meets the independence standards set out in the Audit Committee Charter and Director Independence Appendix and the requirements of the New York Stock Exchange currently in effect. No member of the Audit Committee has any relationship with the Company that may interfere with the exercise of independence from management and the Company. All members of the Audit Committee, in the business judgment of the full Board of Directors, are financially literate and several have accounting or related financial management expertise. The Board of Directors has identified Ralph F. Hake and Raymond W. LeBoeuf as audit committee financial experts.

• Regular Review of Financial Statements.

During 2002, the Audit Committee reviewed and discussed the Company’s 2002 audited financial statements with management. The Audit Committee, management and the Company’s independent auditors reviewed and discussed the Company’s unaudited financial statements before the release of each quarters’ earnings report and filing on Form 10-Q, and the Company’s audited financial statements before the annual earnings release and filing on Form 10-K.

• Communications with Independent Auditors.

The Audit Committee has discussed with Deloitte & Touche LLP, the independent auditors, the matters required by Statement on Auditing Standards No. 61, Communication with Audit Committees (“SAS 61”), as modified or supplemented by the Auditing Standards Boards of the American Institute of Certified Public Accountants. These discussions included all matters required by SAS 61, including independent auditors’ responsibilities under generally accepted auditing standards in the United States, significant accounting policies and management judgments, the quality of the Company’s accounting

30

Table of Contents

• Independence of Independent Auditors.

The Company’s independent auditors are directly accountable to the Audit Committee and the Board. The Audit Committee has received from the independent auditors required written disclosures, including a formal written statement, setting out all the relationships between the Company and its independent auditors, as required by Independence Standard No. 1, Independence Discussions with Audit Committees, as amended by the Independence Standards Board. The Audit Committee has discussed the independent auditors’ independence, any disclosed relationships and the impact of those relationships on the independent auditors’ independence.

• Recommendation Regarding Annual Report on Form 10-K.

In performing its oversight function during 2002 with regard to financial statements for 2002, the Audit Committee relied on financial statements and information prepared by the Company’s management. It also relied on information provided by the internal audit staff as well as the Independent Auditors. The Audit Committee reviewed and discussed with management the Company’s audited financial statements as of and for the year ended December 31, 2002. Based on these discussions, and the information received and reviewed, the Audit Committee recommended to the Company’s Board that the financial statements be included in the Annual Report on Form 10-K for that year (or the Annual Report to Shareholders if distributed prior to the filing of Form 10-K).

This report is furnished by the members of the Audit Committee during 2002 and 2003.

31

Table of Contents

Executive Compensation

Report of the Compensation and Personnel Committee

The Compensation and Personnel Committee of the Board of Directors establishes executive compensation policies. This report discusses the application of these policies to ITT Industries’ executive officers in general, and the rationale for the decisions affecting the compensation as reported for 2002 of Louis J. Giuliano and each of the four other named executive officers in the Summary Compensation Table.

ITT Industries is a global, multi-industry engineering and manufacturing company with leading positions in the markets that it serves. ITT Industries has approximately 38,000 employees located in 48 countries with 2002 sales of approximately $4.99 billion and assets of approximately $5.39 billion. In establishing compensation policies and programs for 2002, the Committee considered compensation provided to executives of corporations similar to ITT Industries in terms of assets, sales and revenues, and earnings. These corporations consisted of leading manufacturing companies in the S&P Industrials Index.

ITT Industries’ executive compensation program historically has been designed to attract, engage, reward, and retain capable and motivated executives and to provide incentives that vary depending upon the attainment of short-term performance objectives and strategic long-term performance goals. The major objective of the long-term incentive program has been to provide ITT Industries’ executives with incentives directly linked to shareholder value. In reviewing ITT’s compensation programs, the Committee has agreed with management’s desire to provide a closer link between compensation and performance. The Company believes that the measures of performance in its compensation programs must be aligned with the measures that are key to the success of its businesses. The stronger link between compensation and performance is intended to provide incentives for achieving financial and business objectives, increasing the value of the Company’s stock and increasing value to our shareholders.

The Compensation Program. The executive compensation program of ITT Industries is based on current competitive compensation practices as well as on performance measures and policies that focus on the continued growth of shareholder value. The compensation for ITT Industries’ executives consists of base salary, annual incentives, stock-based programs, long-term incentives, and employee benefits. The Summary Compensation Table reflects payments and awards made to Louis J. Giuliano and each of the four other named executive officers during the three years ended 2002.

• Base Salary.

Salaries are set and administered to reflect the value of the job in the marketplace and individual contribution and performance. Based on a recent

32

Table of Contents

The Committee reviewed the performance of the named executive officers of ITT Industries during 2002. The Committee will continue to review and assess the performance of the chief executive officer and all senior executives and will authorize salary actions as are appropriate, commensurate with relevant competitive data and the approved ITT Industries’ salary administration program. As of March 1, 2003, the annual salaries of the named executive officers of ITT Industries were as follows: Mr. Giuliano, $950,000 Mr. Anderson, $530,000; Mr. Ayers, $445,000; Mr. Maffeo, $395,000; and Mr. Driesse, $360,000.

• Annual Incentive Plan.

For 2002, the named executive officers participated in the ITT Industries 1997 Annual Incentive Plan for Executive Officers approved by ITT Industries’ shareholders in 1997. Bonus amounts paid under the plan were based on the financial performance of ITT Industries during 2002 as compared with the annual performance goals established and approved by the Committee at the beginning of the 2002 performance year. The amounts paid with respect to performance year 2002 reflect ITT Industries’ outstanding overall operational and financial performance during the year. The bonus awards for 2002 shown in the Summary Compensation Table following this report include payments in accordance with the annual incentive plan as well as supplemental payments outside the plan to Messrs. Giuliano, Anderson, Ayers and Maffeo in recognition of additional performance factors.

• Long-Term Incentive Award Program

ITT Industries’ Long-Term Incentive Award Program is based on the competitive market and designed to link incentive awards to shareholder value. The target value of each award is determined as a percent of base salary and program parameters are approved each year by the Compensation and Personnel Committee. All executives are eligible to participate in the program through non-qualified stock options. For senior executives, the total award value is split equally between non-qualified stock options and target cash awards.

• Stock-Based Awards.

Stock options are the incentive component utilized for all executive participants in the Company’s Long-Term Incentive Award Program described above. Stock options provide long-term incentives that are directly related to the performance of ITT Industries’ common stock. Non-qualified stock options have terms of ten years and two days, and closely align executives’ interests with those of other shareholders. The stock option tables on pages 39 and 40 provide

33

Table of Contents

Approximately 1,866,150 shares of non-qualified stock options were granted effective January 2, 2003 to approximately 486 executives under the 1994 ITT Industries Incentive Stock Plan (the “1994 Plan”). Grants to the named executive officers were as follows: Mr. Giuliano, 80,000 shares; Mr. Anderson, 30,000 shares; Mr. Ayers, 21,000 shares; Mr. Maffeo, 20,000 shares; and Mr. Driesse, 20,000 shares. For Mr. Giuliano, and the other named executive officers, such options were granted at an option exercise price of $61.82 per share and will become exercisable upon the earlier of an appreciation in ITT Industries’ common stock price of 25% above the grant price for ten consecutive trading days, or nine years from the date of grant.

ITT Industries is presenting to the shareholders at the annual meeting the new ITT Industries 2003 Equity Incentive Plan for approval. If this Plan is adopted by shareholders, no further awards will be made to employees under the 1994 Plan. See page 12, Proposal C. ITT Industries, Inc. 2003 Equity Incentive Plan, herein for summary information regarding this Plan and Appendix I hereto for the provisions of the Plan itself.

• Long-Term Incentive Plan.

The ITT Industries 1997 Long-Term Incentive Plan approved by shareholders in 1997 authorizes performance awards to be made to key employees of ITT Industries at the discretion of the Committee. It has been Company practice that only senior executives participate in this plan. Awards made under this plan are expressed as target cash awards and comprise one-half of the total long-term incentive value for senior executives. The nonqualified stock options described above comprise the other half.

The Long-Term Incentive Plan provides that the Committee shall determine the size and frequency of awards, performance measures, performance goals and performance periods. The size of the awards is determined by the Committee in order to meet competitive practice. Payment, if any, of awards generally will be made at the end of the applicable performance period and will be 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 2000 awards be made wholly in cash. It is anticipated that future payments under the Plan will also be made entirely in cash.

The Long-Term Incentive Plan enables the Committee to make adjustments to awards and increase or decrease payment values based upon events or circumstances, including but not limited to acquisitions or divestitures, having a material impact on the overall performance of ITT Industries.

On January 2, 2003 the Committee granted target awards under the long-term incentive plan to 52 key employees, including Messrs. Giuliano, Anderson,

34

Table of Contents

Messrs. Giuliano, Anderson, Ayers, Maffeo and Driesse received grants of awards in 2000 under the ITT Industries 1997 Long-Term Incentive Plan. These awards were subject to a three-year performance period ending December 31, 2002 and were subject to achievement of pre-established goals, as approved by the Committee in 2000, measuring ITT Industries’ performance with respect to total shareholder return against the performance of the other S&P® Industrial companies. Long-Term Incentive Plan payments were made in strict accordance with the plan as measured for the period January 1, 2000 through December 31, 2002 and are shown in the Summary Compensation Table on page 38. Based on the Company’s performance at the 93.6 percent rank of the S&P® Industrial companies, payout was at 200% of target, which was in accordance with the approved formula. The Committee determined that payment be made wholly in cash.

• Share Ownership Guidelines

At their meeting on March 5, 2001, the Committee endorsed Share Ownership Guidelines for corporate officers of ITT Industries, and such guidelines were approved by the ITT Industries Board of Directors on March 6, 2001. These guidelines specify the desired levels of Company stock that each officer should own and encourage a set of behaviors to enable each officer to reach the guideline levels of ownership.

The approved guidelines require share ownership expressed as a multiple of base salary for all corporate officers. Specifically the guidelines apply as follows: chief executive officer at four times base salary; chief financial officer at three times base salary; senior vice presidents and management company presidents at two times base salary; and all other corporate vice presidents at one times base salary.

In achieving these ownership levels, shares owned outright, Company restricted stock, shares held in the Company’s dividend reinvestment plan, shares owned in the Company’s investment and savings plan, and “phantom” shares held in the deferred compensation plan are considered. To attain the ownership levels set forth in the guidelines it is expected that any restricted shares that become

35

Table of Contents

• Employee Benefits.

Executives also participate in ITT Industries’ broad-based employee benefits program that includes a pension program, an investment and savings plan, group medical and dental coverage, group life insurance, and other benefit plans. The named executive officers also participate in certain other benefit programs that are described on pages 41 through 46.

Under the deferred compensation plan, executives with an annual base salary of $200,000 or more may elect to defer receipt of all or a portion of their annual incentive. The amount of deferred compensation ultimately received is based on the performance of benchmark investment funds made available under the plan as selected by the executive. Participants in the plan may elect a fund that tracks the performance of ITT Industries common stock.

Although the Committee believes that ITT Industries should strive to structure its compensation program for senior executives in a manner that would permit deductibility under the Internal Revenue Code, it realizes that the evaluation of the overall performance of the senior executives cannot be reduced in all cases to a fixed formula. There may be situations in which the prudent use of discretion in determining pay levels is in the best interest of ITT Industries and its shareholders. Under some circumstances the use of discretion in determining appropriate amounts of compensation may be desirable. In those situations where discretion is used, compensation may not be fully deductible on ITT Industries’ tax return. However, the Committee does not believe that such loss of deductibility would have any material impact on the financial condition of ITT Industries.

This report is furnished by the members of the Compensation and Personnel Committee during 2002 and 2003.

36

Table of Contents

Performance Graph

37

Table of Contents

Compensation of Executive Officers

The following table shows the annual and long-term compensation paid or awarded during the three-year period ended December 31, 2002 to the chief executive officer and the four other most highly paid executive officers of ITT Industries for 2002.

38

Table of Contents

Option Grants During 2002

The following table provides information about options granted on January 2, 2002 to each of the named executive officers of ITT Industries. The options awarded to Messrs. Giuliano, Anderson, Maffeo, Ayers and Driesse become exercisable upon the earlier of:

The options granted on January 2, 2002 became exercisable on April 18, 2002 because the target increase in share price was achieved.

Option/SAR Grants in Last Fiscal Year

39

Table of Contents

Aggregated Option Exercises During 2002 and Year-End Option Values

The table below provides information about:

Aggregated Option/SAR Exercises in Last Fiscal Year

Long-Term Incentive Plan — 2002 Awards

The following table provides information about target awards made to each of the named executive officers during 2002. The final payment value, if any, of the target awards will be determined based on ITT Industries’ total shareholder return performance measured against the other S&P® Industrial companies. Payment, if any, would be made following the completion of the three-year performance period.

40

Table of Contents

Long-Term Incentive Plans — Awards in Last Fiscal Year

Senior Executive Severance Pay Arrangements

Senior executives who are U.S. citizens or who are employed in the United States are covered by the ITT Industries, Inc. Senior Executive Severance Pay Plan. If a covered executive is terminated by ITT Industries, that executive would be eligible to receive severance pay unless the executive is terminated for cause, terminated after the executive’s normal retirement date, or in certain divestiture instances where the executive accepts employment or refuses comparable employment. There is no severance in cases where the executive voluntarily leaves the Company. The amount of severance pay depends upon the executive’s base pay and years of service. The amount will not exceed 24 months of base pay, or be greater than two times the executive’s total annual compensation during the year immediately preceding termination. ITT Industries’ obligation to continue severance payments stops if the executive does not comply with non-competition provisions of the plan or with ITT Industries’ Code of Corporate Conduct.

If a covered executive receives or is entitled to receive other compensation from ITT Industries, the amount of that compensation could be used to offset amounts otherwise payable under the plan. During the period in which the executive continues to receive severance payments, the executive will have a limited right to continue to be eligible for participation in certain benefit plans.

Messrs. Giuliano, Anderson, Ayers, Maffeo, and Driesse participate in the plan.

Special Senior Executive Severance Pay Plan

The ITT Industries, Inc. Special Senior Executive Severance Pay Plan provides severance benefits for covered executives whose employment is terminated other than for cause or where the covered executive terminates his or her employment for good reason within two years after the occurrence of an acceleration event as defined in the Change of Control Arrangements described below. The plan provides two levels of benefits for covered executives, based on

41

Table of Contents

Messrs. Giuliano, Anderson, Ayers, Maffeo, and Driesse are covered at the highest level of benefits.

Change of Control Arrangements

The payment or vesting of awards or benefits under the plans listed below would be accelerated upon the occurrence of a change of control of ITT Industries. There would be a change of control if one of the following acceleration events occurred:

42

Table of Contents

(a) any consolidation or merger of ITT Industries in which it would not be the continuing or surviving corporation or the common stock of ITT Industries would be converted into cash, securities or other property, unless the transaction was a merger in which the shareholders of ITT Industries immediately prior to the merger would have the same proportionate ownership of common stock of the surviving corporation that they held in ITT Industries immediately prior to the merger; or

(b) any sale, lease, exchange or other transfer of all or substantially all of the assets of ITT Industries; or

The following ITT Industries plans have change of control provisions:

In addition, if approved by the shareholders at the annual meeting, the ITT Industries, Inc. 2003 Equity Incentive Plan would have change of control provisions.

43

Table of Contents

Salaried Retirement Plan

Most of ITT Industries’ salaried employees who work in the United States participate in the Salaried Retirement Plan. Under the plan, participants have the option, on an annual basis, to elect to be covered under either the Traditional Pension Plan (TPP) or a Pension Equity Plan (PEP) formula for future pension accruals. While the TPP formula pays benefits on a monthly basis after retirement, the PEP formula enables participants to elect to have benefits paid as a single sum payment upon employment termination, regardless of the participant’s age.

Under the TPP, a participant first employed prior to January 1, 2000, would receive an annual pension that would be the total of:

44

Table of Contents

The following table illustrates estimated annual benefits (not including Social Security reductions) that would be payable under the TPP formula to a participant who retired at age 65:

Pension Plan Table

Participants who retire at or after they reach 60 years of age and have completed at least 15 years of eligibility service would receive undiscounted early retirement pensions.

At the present time, none of the individuals named in the Summary Compensation Table have elected to accrue benefits under the PEP formula.

Employees first hired on or after January 1, 2000 are eligible to make an annual election to be covered under either the PEP formula referred to above or a TPP formula (post-2000 TPP) which provides for a lower accrual rate than the TPP formula described above which is available to employees hired before January 1, 2000.

Regardless of the formula elected, participants become vested in their accrued pension benefits after they complete five years of eligibility service.

45

Table of Contents

Federal law limits the amount of benefits that could be paid and the amount of compensation that could be recognized under tax-qualified retirement plans. As a consequence, ITT Industries has established and maintains non-qualified, unfunded Excess Pension Plans to pay retirement benefits that could not be paid from the Salaried Retirement Plan. Benefits under the Excess Pension Plans are generally paid directly by ITT Industries. There also is an excess plan trust under which excess benefits accrued by certain of the officers are funded. Generally, participating officers may elect, upon retirement, to receive their excess benefit in a single discounted lump sum payment, if approved by the Compensation and Personnel Committee of the Board.

In the event of a change of control, any excess benefit would be immediately payable and would be paid in a single discounted lump sum.

Beneficial Ownership of ITT Industries’ Common Stock

Set forth below is information reported to the Securities and Exchange Commission on the most recently filed Schedule 13G by the following persons who owned more than 5% of ITT Industries’ outstanding common stock. This information does not include holdings by the Trustee with respect to individual participants in the ITT Industries Investment and Savings Plan for Salaried Employees.

46

Table of Contents

Stock Ownership of Directors and Executive Officers

The following table shows, as of January 31, 2003, the beneficial ownership of ITT Industries’ common stock and options exercisable within 60 days by each Director, by each of the executive officers named in the Summary Compensation Table, and by all Directors and executive officers as a group.

The number of shares beneficially owned by each Director or executive officer has been determined under rules of the Securities and Exchange Commission, which provide that beneficial ownership includes any shares as to which a person has sole or shared voting or dispositive power, and any shares which the person would have the right to acquire beneficial ownership of within 60 days through the exercise of any stock option or other right.

Unless otherwise indicated, each Director or executive officer has sole dispositive and voting power, or shares those powers with his or her spouse.

As of January 31, 2003 all Directors and executive officers as a group owned 2.7% of the shares deemed to be outstanding. No other Director or executive officer owned in excess of one percent of the shares deemed to be outstanding.

47

Table of Contents

Appendix I

2003 Equity Incentive Plan