SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 205490
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FORM 10-K/A
(Amendment No. 1)
ANNUAL REPORT
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from __________ to __________
Commission File No. 1-13960
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ITT Corporation
(Exact name of registrant as specified in its charter)
Nevada 88-0340591
(State of Incorporation) (I.R.S. Employer
Identification No.)
1330 Avenue of the Americas, New York, NY 10019-5490
(Principal Executive Offices)
Telephone Number: (212) 258-1000
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Securities registered pursuant to Section 12(b) of the Act, all of which are
registered on The New York Stock Exchange, Inc.:
Common Stock, no par value
Series A Participating Cumulative Preferred Stock Purchase Rights
6 1/4% Notes Due November 15, 2000
6 3/4% Notes Due November 15, 2005
7 3/8% Debentures Due November 15, 2015
7 3/4% Debentures Due November 15, 2025
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the Common Stock of the registrant held by
non-affiliates of the registrant on March 24, 1997, was approximately $7.0
billion.
As of March 24, 1997, there were outstanding 116,429,113 shares of Common
Stock, no par value, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
None.
The undersigned registrant, ITT Corporation ("ITT", which may also be
referred to as "we" or "us"), hereby amends the following Items of its Annual
Report on Form 10-K for the year ended December 31, 1996 as set forth in the
pages attached hereto:
Part III, Item 10 -- Directors and Executive Officers
Part III, Item 11 -- Executive Compensation
Part III, Item 12 -- Security Ownership of Certain Beneficial Owners and
Management
Part III, Item 13 -- Certain Relationships and Related Transactions
<PAGE>
PART III
Item 10. Directors and Executive Officers
ITT was formed under the laws of the State of Nevada in June 1995 as a
wholly owned subsidiary of a Delaware corporation known as ITT Corporation
(referred to herein as "Old ITT"). On December 19, 1995, Old ITT distributed
(the "Distribution") to its stockholders all of the shares of common stock of
ITT. Old ITT has been reincorporated in Indiana and has changed its name to ITT
Industries, Inc. From the time of its formation until December 19, 1995, Robert
A. Bowman was the sole director of ITT.
A brief summary of each director's principal occupation, business
affiliations and other information follows:
BETTE B. ANDERSON
Principal occupation--
Vice Chairman of Kelly, Anderson, Pethick &
Associates, Inc.,
Consultants
Director since 1995
(Director of Old ITT 1981-1995)
Mrs. Anderson, 68, joined Kelly, Anderson, Pethick & Associates, Inc., a
Washington-based management firm, in 1990, was elected president in 1991 and was
elected Vice Chairman in 1995. She had previously been executive vice president
of the firm. Mrs. Anderson was formerly a partner in the public affairs company
of Anderson, Benjamin, Read & Haney. She was Undersecretary of the Treasury from
1977 to 1981. Mrs. Anderson was affiliated for 27 years with the Citizens and
Southern National Bank of Savannah, having served as a vice president until she
assumed the Treasury post. Mrs. Anderson is a director of ITT Educational
Services, Inc. ("ITT Educational"), a subsidiary of ITT, ITT Hartford Group,
Inc., American Banknote Corp., United Payors & United Providers Inc., the Miller
Foundation and the University of Virginia.
RAND V. ARASKOG
Principal occupation--
Chairman and Chief Executive of ITT
Director since 1995
(Director of Old ITT 1977-1995)
Mr. Araskog, 65, became chairman and chief executive of ITT in December 1995. In
December 1996, Mr. Araskog became chairman of ITT Sheraton Corporation
("Sheraton") and Caesars World, Inc. ("Caesars"). Prior thereto, since 1966, he
served with Old ITT as chief executive from 1979, chairman from 1980 and
president from 1991. He is a director of Sheraton, Caesars and ITT Educational,
each of which is a subsidiary of ITT. Mr. Araskog is also a director of Alcatel
Alsthom of France, Dow Jones & Company, Inc., ITT Hartford Group, Inc., ITT
Industries, Inc., Rayonier Inc. and Shell Oil Company.
NOLAN D. ARCHIBALD
Principal occupation--
Chairman, President and
Chief Executive Officer of
The Black & Decker Corporation,
Consumer and Commercial
Products Company
Director since 1995
(Director of Old ITT 1986-1988 and 1991-1995)
Mr. Archibald, 53, joined Black & Decker in 1985 as president and chief
operating officer and since that time has been elected chief executive officer
and chairman. Prior to joining Black & Decker, he was senior vice president and
president of the Consumer and Commercial Products Group of the Beatrice
Companies, Inc. and held various executive and marketing positions with the
Beatrice Companies, Inc. during the period 1977 to 1985. Mr. Archibald is a
director of Brunswick Corporation.
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ROBERT A. BOWMAN
Principal occupation--
President and Chief Operating
Officer of ITT
Director since 1995
Mr. Bowman, 41, became president and chief operating officer of ITT in December
1995. Prior thereto, he served with Old ITT as executive vice president and
chief financial officer since September 1992. From April 1991 to September 1992,
Mr. Bowman served as executive vice president and chief financial officer of
Sheraton. Mr. Bowman was Treasurer of the State of Michigan from 1983 until
December 1990. He is also a director of Sheraton, Caesars and ITT Educational,
each of which is a subsidiary of ITT.
ROBERT A. BURNETT
Principal occupation--
Chairman and CEO (Retired)
of Meredith Corporation,
Diversified Media Company
Director since 1995
(Director of Old ITT 1985-1995)
Mr. Burnett, 69, served as chairman of Meredith Corporation from 1988 until his
retirement in 1992. He served as president and chief executive officer from 1977
and relinquished the latter office in 1989. Mr. Burnett is a director of ITT
Hartford Group, Inc., ITT Industries, Inc., Meredith Corporation, Whirlpool
Corporation and MidAmerican Energy Holdings Corp.
PAUL G. KIRK, JR.
Principal occupation--
of Counsel to
Sullivan & Worcester,
Law Firm
Director since 1995
(Director of Old ITT 1989-1995)
Mr. Kirk, 59, became a partner in the law firm of Sullivan & Worcester in 1977
and is presently of Counsel to the firm. He served as chairman of the Democratic
National Committee from 1985 to 1989 and as treasurer from 1983 to 1985.
Following his resignation in 1989 as chairman of the Democratic National
Committee, he returned to Sullivan & Worcester as a partner in general corporate
practice at the firm's Boston and Washington offices. Mr. Kirk is a director of
Kirk-Sheppard & Co., Inc., of which he also is chairman and treasurer. He is
also a director of Bradley Real Estate Corporation, ITT Hartford Group, Inc. and
Rayonier Inc.
EDWARD C. MEYER
Principal occupation--
Chairman of Mitretek Systems,
Professional and Technical Services Provider
Director since 1995
(Director of Old ITT 1986-1995)
General Meyer, 68, retired in 1983 as chief of staff of the United States Army.
He is a director of FMC Corporation and its joint venture company in Turkey,
Savunma Sanayii A.S., Aegon USA, the Brown Group and GRC International. General
Meyer is also a director of ITT Industries, Inc. He is a managing partner of
Cilluffo Associates Limited Partnership, which owns approximately 20% of GRC
International. He is chairman of Mitretek Systems and trustee of the George C.
Marshall Foundation.
BENJAMIN F. PAYTON
Principal occupation--
President of Tuskegee
University
Director since 1995
(Director of Old ITT 1987-1995)
Dr. Payton, 64, has been president of Tuskegee University in Alabama since 1981.
Previously he had served as president of Benedict College and as program
officer, education and public policy, of the Ford Foundation. Dr. Payton is a
director of Amsouth Bancorporation, the Liberty Corporation, Praxair
Corporation, SONAT Inc., Morrisons, Inc., Ruby Tuesday, Inc., the Southern
Regional Council and the Alabama Shakespeare Festival.
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VIN WEBER
Principal occupation--
Partner at Clark & Weinstock, Inc.,
Public Relations Firm
Director since February 1996
Mr. Weber, 44, is a partner at Clark & Weinstock, Inc., a Washington-based
public relations firm. He is vice chairman and co-founder of Empower America, a
public interest group. He is also a senior fellow at the University of
Minnesota's Humphrey Institute of Public Affairs and co-director of the
Institute's Policy Forum. Mr. Weber served in the U.S. House of Representatives
from 1980 to 1992, representing Minnesota's 2nd district. He is a director of
Department 56, Inc., ITT Educational, a subsidiary of ITT, Mark Centers Trust,
Inc., OneLink Communications, Inc. (formerly MarketLink, Inc.) and TCF Financial
Corporation.
MARGITA E. WHITE
Principal occupation--
President of the Association
for Maximum Service
Television, Inc.,
Television Trade Association
Director since 1995
(Director of Old ITT 1980-1995)
Mrs. White, 59, has been President of the Association for Maximum Service
Television, Inc. since 1987. Prior thereto, she served in the federal government
as a member of the Federal Communications Commission and as a director of the
White House office of communications, assistant press secretary to President
Ford, and assistant director of the U.S. Information Agency. She is a director
of ITT Educational, a subsidiary of ITT, The Growth Fund of Washington, Leitch
Technology Corp., Washington Mutual Investors Fund and a trustee of Mitretek
Systems.
KENDRICK R. WILSON III
Principal occupation--
Managing Director of
Lazard Freres & Co. LLC,
Investment Bankers
Director since February 1996
Mr. Wilson, 50, joined Lazard Freres & Co. LLC in 1989 after serving as founder
and president of Ranieri Wilson & Co., a merchant banking firm. Prior thereto,
he was senior executive vice president and a director of E.F. Hutton & Co. and
managing director in the financial institutions group of Salomon Brothers Inc.
Mr. Wilson is a director of American Buildings Company, Inc., American Marine
Holdings, Inc., Bank United and Meigher Communications, Inc. He is also a
trustee of BlackRock Asset Investors.
Board of Directors
The Board of Directors is responsible for establishing broad corporate
policies and for overseeing the overall performance of ITT. The Board reviews
significant developments affecting ITT and acts on other matters requiring Board
approval.
Bette B. Anderson, Rand V. Araskog, Nolan D. Archibald, Robert A. Bowman,
Robert A. Burnett, Paul G. Kirk, Jr., Edward C. Meyer, Benjamin F. Payton, Vin
Weber, Margita E. White and Kendrick R. Wilson III are currently directors of
ITT. During 1996, there were eight meetings of the Board of Directors.
The standing committees of the Board are the Audit, Capital, Compensation
and Personnel, Corporate Governance and Legal Affairs, Executive and Policy,
Gaming Audit, Nominating and Public Affairs Committees.
The Audit Committee recommends the selection of independent auditors for
ITT, confirms the scope of audits to be performed by such auditors, reviews
audit results and internal accounting and control procedures and policies, and
reviews the fees paid to our independent auditors. The Committee reviews and
recommends approval of our audited financial statements and the annual report to
stockholders. It also reviews the expense accounts of senior executives. The
Committee held five meeting during 1996. The members of the Audit Committee are:
Bette B. Anderson, Paul G. Kirk, Jr., Edward C. Meyer, Benjamin F. Payton, Vin
Weber and Kendrick R. Wilson III.
The Capital Committee is responsible for maximizing the effective use of
the assets of ITT and its subsidiaries and for reviewing capital expenditures
and appropriations. The Committee held six meetings during 1996. The members of
the Capital Committee are: Bette B. Anderson, Rand V. Araskog, Nolan D.
Archibald, Robert A. Bowman,
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Robert A. Burnett, Paul G. Kirk, Jr., Edward C. Meyer, Benjamin F. Payton, Vin
Weber, Margita E. White and Kendrick R. Wilson III.
The Compensation and Personnel Committee, which is comprised entirely of
non-employee directors, oversees the compensation and benefits of employees,
evaluates management performance and establishes executive compensation. In the
performance of its functions, the Committee has access to independent
compensation counsel. The Committee held seven meetings during 1996. The members
of the Compensation and Personnel Committee are: Bette B. Anderson, Nolan D.
Archibald, Robert A. Burnett, Paul G. Kirk, Jr., Edward C. Meyer and Margita E.
White.
The Corporate Governance and Legal Affairs Committee reviews and considers
major claims and litigation, and legal, regulatory and related governmental
policy matters affecting ITT and its subsidiaries. The Committee reviews and
approves management policies and programs relating to compliance with legal and
regulatory requirements, business ethics and environmental matters and reviews
and advises on corporate governance matters. The Committee held four meetings
during 1996. The members of the Corporate Governance and Legal Affairs Committee
are: Bette B. Anderson, Robert A. Burnett, Edward C. Meyer, Benjamin F. Payton,
Vin Weber, Margita E. White and Kendrick R. Wilson III.
The Executive and Policy Committee exercises the powers of the Board in the
management of the business and affairs of ITT in the intervals between meetings
of the Board. The Committee reviews the long-range corporate strategies
formulated by senior management and the non-employee directors meet in executive
session to review the overall performance of the chief executive, particularly
with respect to ITT's long-range strategies. The Committee held eight meetings
during 1996. The members of the Executive and Policy Committee are: Bette B.
Anderson, Rand V. Araskog, Nolan D. Archibald, Robert A. Burnett, Paul G. Kirk,
Jr., Edward C. Meyer, Benjamin F. Payton, Vin Weber, Margita E. White and
Kendrick R. Wilson III.
The Gaming Audit Committee reviews audit results and internal accounting,
control and surveillance procedures and policies employed in connection with our
casino gaming activities. Pursuant to the requirements of certain gaming laws,
the employees primarily responsible for internal accounting and internal
surveillance at our casinos report directly to the Gaming Audit Committee. The
Committee held four meetings during 1996. The members of the Gaming Audit
Committee are: Robert A. Bowman, Benjamin F. Payton and Margita E. White.
The Nominating Committee makes recommendations to the Board concerning the
organization, size and composition of the Board and its Committees, proposes
nominees for election to the Board and its Committees and considers the
qualifications, compensation and retirement of directors. The Committee held
three meetings during 1996. The members of the Nominating Committee are: Bette
B. Anderson, Nolan D. Archibald, Edward C. Meyer and Benjamin F. Payton. The
Nominating Committee will consider recommendations for director nominees that
are submitted by stockholders in writing to the Secretary of ITT. Our By-laws
contain provisions relating to nominations for director at any stockholders
meeting.
The Public Affairs Committee reviews and defines our social
responsibilities and advertising practices, including issues of significance to
ITT and to its stockholders and employees. The Committee held four meetings
during 1996. The members of the Public Affairs Committee are: Robert A. Burnett,
Paul G. Kirk, Jr., Benjamin F. Payton, Vin Weber and Margita E. White.
The Board consists of nine directors who are not officers or
employees of ITT or its subsidiaries and two directors, Rand V. Araskog
and Robert A. Bowman, who are officers.
The Board has adopted a retirement policy which provides that (i) no person
may be nominated for election or reelection as a non-employee director after
reaching age 72 and (ii) no employee of ITT or of any of its subsidiaries (other
than an employee who has served as chief executive of ITT) may be nominated for
election or reelection as a director after reaching age 65, unless there has
been a specific waiver by the Board of these age requirements.
Directors' Compensation
Mr. Araskog and Mr. Bowman are not compensated for service on the Board or
any Committee of the Board. Non-employee directors receive a fee of $1,000 for
each meeting of the Board of Directors attended and a $1,000 fee for each
Committee meeting attended. Members of the Board of Directors, except for Mr.
Araskog and Mr. Bowman, receive an annual retainer fee of $48,000 payable solely
in restricted shares of our Common Stock. See "Restricted Stock Plan for
Non-Employee Directors." Directors are reimbursed for travel expenses incurred
on behalf of ITT. The non-employee directors who also serve on the Board of
Directors of ITT Educational receive an annual retainer fee of $18,000 and an
attendance fee of $750 for each meeting of the Board of
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Directors of ITT Educational and an attendance fee of $500 for each ITT
Educational Committee meeting attended.
We maintain an unfunded retirement plan to provide benefits accrued as of
December 19, 1995 for non-employee directors who were directors of Old ITT on
December 18, 1995. No future benefits are accruing under this plan. The benefits
are payable upon retirement from the Board at or after age 65 after completing
at least five years of service on the Board, counting service on the Board of
Directors of Old ITT. Under the plan, directors may indicate a preference,
subject to certain conditions, to receive any accrued benefit in the form of a
single (discounted) lump sum payment immediately payable upon such director's
retirement. ITT has agreed to pay the affected directors, Mrs. Anderson, Mr.
Archibald, Mr. Burnett, Mr. Kirk, Gen. Meyer, Dr. Payton and Mrs. White, accrued
benefits due them which presently have a total value of $2,181,880 in the
aggregate.
Non-employee directors may participate in a group life insurance plan that
has been established for their benefit. The plan provides $100,000 of
non-contributory group life insurance to participating non-employee directors
during their service on the Board.
The non-employee directors are covered under a non-contributory group
accidental death and dismemberment program which provides each of them $750,000
of coverage during their service on the Board. Additional benefits also may be
purchased.
Restricted Stock Plan for Non-Employee Directors
In 1995, the Board adopted the 1996 Restricted Stock Plan for Non-Employee
Directors (the "1996 Non-Employee Directors Plan"). The 1996 Non-Employee
Directors Plan was designed to further ITT's objectives of attracting and
retaining individuals of ability as directors and providing the directors with a
closer identity with the interests of our stockholders.
Directors who are not employees of ITT or any of its subsidiaries
automatically participate in the 1996 Non-Employee Directors Plan. There are
presently nine directors who are eligible to participate in the 1996
Non-Employee Directors Plan. The plan is administered by the Compensation and
Personnel Committee of the Board. The Committee has the responsibility of
interpreting the plan and establishing appropriate rules for the administration
of the plan.
Under the 1996 Non-Employee Directors Plan, grants of restricted stock will
be made automatically on the date of each Annual Meeting of Stockholders to each
non-employee director elected at the meeting or continuing in office following
the meeting. The amount of the award shall equal (and be in lieu of) the annual
retainer in effect for the calendar year within which the award date falls,
divided by the fair market value of our Common Stock. "Annual retainer" is
defined as the amount payable to a director for service on the Board during the
calendar year and does not include meeting attendance fees. The annual retainer
is presently set at $48,000. "Fair market value" is defined as the average of
the high and low sales price per share of our Common Stock on the date of the
Annual Meeting, as reported on the New York Stock Exchange Composite Tape. A
total of 120,000 shares are reserved for issuance under the 1996 Non-Employee
Directors Plan. The shares to be issued may be treasury shares or newly issued
shares of our Common Stock. The shares of Common Stock that are granted under
the 1996 Non-Employee Directors Plan will be held in escrow by us during the
restriction period. The restriction period commences on the grant date and ends
on the earliest of (i) the fifth anniversary of the grant date, (ii) retirement
at age 72, (iii) a "change in control" (as defined) of ITT, (iv) death, (v) the
onset of disability, (vi) resignation in certain cases of ill health, relocation
or entering into any governmental, diplomatic or other service or employment or
(vii) the occurrence of circumstances which, in the opinion of outside counsel,
could result in a conflict with applicable law or an ITT written policy. Except
as provided above, any resignation from the Board within the restriction period
will result in forfeiture of the shares. Shares of Common Stock granted to a
director under the 1996 Non-Employee Directors Plan may not be sold, assigned,
transferred, pledged or otherwise disposed of during the restriction period.
Until such risk of forfeiture lapses or the shares are forfeited, a director
will have the right to vote and to receive dividends on the shares granted under
the 1996 Non-Employee Directors Plan.
The Board may amend, suspend, or discontinue the 1996 Non-Employee
Directors Plan at any time except that the Board may not, without stockholder
approval, take any action that would cause the 1996 Non-Employee Directors Plan
to no longer comply with Rule 16b-3 under the Securities Exchange Act of 1934.
No amendment, suspension or discontinuance of the 1996 Non-Employee Directors
Plan will impair a director's right under a restricted stock award previously
granted, without his or her consent.
The 1996 Non-Employee Directors Plan became effective as of December 19,
1995 and will terminate on December 31, 2005, provided that grants of restricted
stock made prior to the termination of the plan may vest following such
termination in accordance with their terms.
During 1996, 7,165 shares of restricted stock were granted to non-employee
directors under the 1996 Non-Employee Directors Plan.
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The information called for by this Item 10 with respect to executive
officers is set forth under the caption "Executive Officers" contained in Part
I, Item 1 of our 1996 Form 10-K and is incorporated herein by reference.
Item 11. Executive Compensation
Report of the Compensation and Personnel Committee
The ITT executive compensation program is designed to attract, reward and
retain skilled executives and to provide incentives which vary depending upon
the attainment of short-term operating performance objectives and strategic
long-term performance goals. The major objective of the long-term incentive
program is to provide ITT executives with incentives directly linked to the
creation of stockholder value. The program is intended to be highly leveraged so
that when performance goals are exceeded executives can earn better than
average compensation and, conversely, when such goals are not achieved,
compensation will be below competitive levels.
This report sets forth the executive compensation policies of the
Compensation and Personnel Committee with respect to ITT's executive officers in
general and the rationale for the specific decisions affecting the 1996
compensation of Rand V. Araskog, our chief executive. Following this report is
a performance graph which compares the cumulative return on our Common Stock to
the cumulative total return of Standard & Poor's S&P 500 Index and a peer index
of large capitalization hotel and gaming companies (assuming the investment of
$100 in (a) our Common Stock, (b) the Standard & Poor's S&P 500 Index and (c)
the peer index for the period from December 20, 1995 through March 31, 1997).
The amounts of all compensation awarded to, earned by, or paid to the chief
executive officer and the other four most highly compensated executive officers
who were serving as executive officers at the end of the 1996 fiscal year are
set forth in the Summary Compensation Table following the performance graph.
The Committee's Role
The Compensation and Personnel Committee is responsible for the
administration of the executive compensation program, and it reviews all
proposed new or amended employee benefit plans. The Committee is currently
composed of the six non-employee directors named at the end of this report, none
of whom is eligible to participate in any of the plans which make up ITT's
executive compensation program. It is the policy of the Board to periodically
rotate the members and chairperson of the Committee to assure that fresh points
of view are part of the Committee's deliberations.
The Committee may select consultants from nationally recognized independent
compensation and benefits consulting firms to provide expert advice on any
aspect of the ITT executive compensation program. The Committee may request
written reports or hold private meetings with such consultants in order to get
independent opinions on compensation proposals. The Committee may meet in
executive session which is not attended by any ITT executives or managers. The
Committee regularly reports its activities to the Executive and Policy Committee
of the Board.
The Compensation Program
General. The compensation program for ITT executives presently consists of
base salary, annual incentive bonus, long-term incentives and employee benefits.
It is the intent of the Committee that incentives based upon long-term
performance should be the major compensation component for senior executives.
Base Salary. Salaries are set and administered to reflect the value of the
job in the marketplace and individual contribution and performance. Salaries
provide a necessary element of stability in the total pay program and, as such,
are not subject to significant variability. Salary increases are based primarily
on merit. During 1996, ITT executive salaries were evaluated in relation to a
competitive annualized merit increase guideline of 4% for expected levels of
individual performance. Actual increases can vary from this guideline depending
primarily on individual performance and changes in responsibilities. The normal
interval between salary reviews for senior executives is 18 months, subject to
variation based on changes in responsibilities or other factors.
Mr. Araskog's base salary was not increased during 1996.
Among the other named officers, Mr. Bowman's annual salary was raised to
$800,000 effective August 1, 1996, an increase of $100,000 after 12 months. Mr.
Weadock's annual salary was increased from $525,000 to $600,000 on November 1,
1996 after an interval of 18 months. Mr. Boynton's annual salary was increased
from $650,000 to $725,000 during 1996. Ms. Reese's annual salary was increased
from $400,000 to $460,000 effective December 1, 1996 after 12 months.
Annual Incentive Bonus. Under the ITT Annual Incentive Bonus Plan, the
amounts of annual bonus awards are based upon corporate financial performance
for the year compared to annual performance goals established by the Committee
at the beginning of the year. For 1996, the performance goal for ITT was based
on Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA").
Under a leveraged performance/payout schedule, the performance factor generated
a standard bonus adjustment factor of 113%. The calculated bonus amounts for
1996 performance for
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Messrs. Araskog and Bowman and for Ms. Reese are shown in the Summary
Compensation Table following this report and were determined strictly in
accordance with the above described formula and standard bonus adjustment
factor. The bonus factor for Mr. Weadock reflects the performance measurement
formula applicable to Sheraton; the bonus amount for Mr. Boynton reflects the
performance measurement formula applicable to Caesars. The bonus amounts paid to
Messrs. Araskog, Bowman, Boynton, and Weadock and Ms. Reese were reviewed and
approved by the Committee prior to payment.
Stock Option Awards. Stock option awards provide long-term incentives which
are directly related to the performance of our Common Stock. Options generally
have a 10-year term and closely align the executive's interests with those of
other stockholders. Outstanding stock options in respect of common stock of Old
ITT were adjusted to reflect the effects of the Distribution.
During 1996, ITT awarded stock options to the named executive officers as
shown in the table on page 10. These options are exercisable at the earliest of
the following events: (a) when the price of our Common Stock reaches $69.85
(125% of the grant price) at which time two-thirds of the options will become
exercisable; (b) when the price of our Common Stock reaches $78.23 (140% of the
grant price) at which time the options will become fully exercisable; or (c) on
the ninth anniversary of the grant, February 6, 2005, at which time the options
will become fully exercisable. The Committee believes that the requirement for
significant stock price appreciation for senior officers' stock option
exercisability underscores the primary objective of building stockholder value.
In determining the size of option grants, the Committee relied on surveys of
competitive practice and its assessment of each individual's performance.
There were no awards during 1996 under the ITT Long-Term Performance Plan
nor were there any awards of restricted stock.
Employee Benefits. Executives also participate in our broad-based employee
benefits program which includes a pension program, a 401(k) retirement savings
plan, group medical and dental coverage, group life insurance and other benefit
plans. Further details on the pension plans in which Messrs. Araskog, Bowman,
Boynton, and Weadock and Ms. Reese participate are provided on pages 12 through
14.
In 1996, we adopted the 1997 ITT Deferred Compensation Plan. Under this plan,
executives with a base salary of $200,000 or more may elect to defer receipt of
all or a portion of their 1996 bonus. ITT will credit interest on the deferred
compensation based upon the notional performance of certain benchmark investment
funds selected by the executive.
Discussion of the Committee's Policy Regarding Qualifying Compensation for
Deductibility Under Section 162(m) of the Internal Revenue Code
Tax legislation known as the Omnibus Budget Reconciliation Act of 1993
("OBRA") was passed by Congress and signed into law by the President in August
1993. Under OBRA, which created Internal Revenue Code subsection 162(m), the
allowable deduction for compensation paid or accrued with respect to the chief
executive officer and each of the four most highly compensated executive
officers of a publicly held corporation is limited to no more than $1 million
per year for taxable years beginning on or after January 1, 1994. Certain types
of compensation are exempted from this deduction limitation, including payments
subject to: (a) the attainment of an objective performance goal or goals; (b) an
outside director requirement; and (c) a stockholder approval requirement.
Proposed regulations issued by the Internal Revenue Service in 1993 and 1994
provided broad guidance to companies, but were not intended to be comprehensive.
It is the policy of the Committee to establish a competitive executive
compensation program and to design and administer incentive plans which relate
rewards directly to the overall performance of ITT and the individual
executive's specific contribution. To qualify pay for exemption from Section
162(m) as "performance-based compensation," the requirements of OBRA and the
proposed regulations generally preclude the use of discretion in determining
specific amounts of compensation. Accordingly, base salaries are subject to the
$1 million limit on deductible compensation as are annual bonus amounts where
discretion is used to increase an executive's payment above an amount determined
strictly by an objective formula.
In light of OBRA, it is the policy of the Committee to modify where
practicable the executive incentive plans so as to maximize the tax
deductibility of compensation paid to its top executive officers. Accordingly,
the ITT Corporation Annual Performance-Based Incentive Plan for Executive
Officers, which was approved by stockholders in 1996, will qualify annual
bonuses under that plan as "performance-based compensation".
The Committee believes that the overall performance of ITT's most senior
executives cannot in all cases be reduced to a fixed formula and that a prudent
use of discretion in determining pay levels is in the best interest of
stockholders and ITT. Under some circumstances (other than in the context of the
ITT Corporation Annual Performance-Based Incentive Plan for Executive Officers),
the Committee's use of discretion in
7
<PAGE>
determining appropriate amounts of compensation may be essential. In those
situations where discretion is used by the Committee, compensation may not be
fully deductible. The Committee does not believe that such loss of deductibility
will have any material impact on our financial condition.
This report is furnished by the members of the Compensation and Personnel
Committee. The members of the Compensation and Personnel Committee are listed
below.
Bette B. Anderson
Nolan D. Archibald
Robert A. Burnett
Paul G. Kirk, Jr., Chairman
Edward C. Meyer
Margita E. White
Corporate Performance Graph
Our Common Stock commenced "regular way" trading on the New York Stock
Exchange on December 20, 1995, the first business day following the
Distribution.
The following graph shows the cumulative total return to stockholders for
the period from December 20, 1995 (the first business day following the
Distribution) through March 31, 1997 on an assumed investment of $100 on
December 20, 1995 in ITT, the Standard & Poor's S&P 500 Index and a peer index
of large capitalization hotel and gaming companies. The peer group returns are
weighted by market capitalization at December 20, 1995. The peer group is
comprised of common stocks of the following hotel and gaming corporations:
Hilton Hotels Corporation, Host Marriott Corporation, Marriott International,
Inc., Circus Circus Enterprises, Inc., Mirage Resorts, Inc., Harrah's
Entertainment, Inc. and ITT (the "Peer Group"). The Peer Group was selected to
reflect our current mix of hotel and gaming businesses and our current major
publicly-traded competitors.
Our Common Stock traded "regular way" on the New York Stock Exchange for
only six days during 1995. In an effort to present stockholders meaningful
information to evaluate the compensation paid to executives for the year ended
December 31, 1995, our Proxy Statement for the 1996 Annual Meeting of
Stockholders included a performance graph for Old ITT for the five fiscal years
ended December 31, 1995 on an assumed investment of $100 on December 31, 1990 in
Old ITT, the Standard & Poor's S&P 500 Index and the Standard & Poor's
Conglomerate Index. That graph assumed that the holders of the common stock of
Old ITT continued to hold the common stock of ITT, ITT Hartford Group, Inc. and
ITT Industries, Inc. for the period from December 20, 1995 through December 31,
1995. Given the significantly different mix of our businesses following the
Distribution, we believe that the Peer Group provides a better index against
which to compare our share price performance since the date of the Distribution.
Accordingly, we have provided a comparison of our share price performance since
the Distribution to the Peer Group and have not provided a comparison to the S&P
Conglomerate Index (which was discontinued in July 1996).
<TABLE>
<CAPTION>
20-Dec-95 31-Dec-95 31-Mar-96 30-Jun-96 30-Sep-96 31-Dec-96 31-Mar-97
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ITT Corporation $100 $105 $119 $131 $ 86 $ 86 $117
S&P 500(R) $100 $102 $107 $112 $115 $125 $128
Custom Lodging/Gaming $100 $103 $128 $144 $128 $124 $123
</TABLE>
8
<PAGE>
Compensation of Executive Officers
The following table discloses the compensation received by ITT's Chief
Executive and the four other most highly paid executive officers for services
rendered to ITT (including compensation received from Old ITT prior to the
Distribution) for the three fiscal years ended December 31, 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual Compensation Awards Payouts
------------------- ------ -------
Other Securities Long-Term
Annual Restricted Underlying Incentive All Other
Name and Principal Compen- Stock Options Plan Compen-
Position Year Salary($) Bonus($) sation($)(2) Awards($) (3)(#) Payouts sation(4)($)
- -------- ---- --------- -------- ------------ --------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rand V. Araskog 1996 2,000,000 2,260,000 347,268 -- 150,000 -- 422,280
Chairman and Chief 1995 2,000,000 2,330,800 251,063 2,718,750 429,971 2,625,000 449,962
Executive 1994 1,625,000 2,405,000 219,457 -- 429,971 -- 58,656
Robert A. Bowman 1996 741,667 813,600 75,117 -- 100,000 -- 25,625
President and Chief 1995 583,333 611,800 44,942 1,087,500 143,324 900,000 37,380
Operating Officer 1994 456,250 471,750 25,534 -- 143,324 -- 13,844
Peter G. Boynton (1) 1996 682,583 15,200 694,276 -- 40,000 -- 11,705
Senior Vice President of 1995 578,117 299,776 105,288 -- 59,718 -- 14,500
ITT; President and Chief 1994 -- -- -- -- -- -- --
Executive Officer of
Caesars World, Inc.
Ann N. Reese 1996 405,000 389,900 47,910 -- 40,000 -- 14,008
Executive Vice President 1995 303,571 252,300 45,369 543,750 71,662 113,600 39,018
and Chief Financial 1994 263,333 210,000 33,738 -- 71,662 -- 10,998
Officer
Daniel P. Weadock 1996 537,500 757,300 55,287 -- 40,000 -- 18,281
Senior Vice President of 1995 516,667 398,800 433,646 -- 59,718 1,280,000 44,321
ITT; President and Chief 1994 500,000 385,000 13,408 -- 83,605 -- 17,500
Executive Officer of ITT
Sheraton Corporation
</TABLE>
(1) Mr. Boynton became an executive officer of ITT following the January 1995
acquisition of Caesars. As a result, the 1994 compensation paid to Mr.
Boynton by Caesars has not been included.
(2) Amounts shown in this column are tax reimbursement allowances, which are
intended to offset the inclusion in taxable income of the value of certain
benefits, except that: (a) the amounts shown for Mr. Araskog also include
$164,066, $92,224 and $128,873 in 1996, 1995 and 1994, respectively, for
personal benefits including tax and financial counseling and transportation
services, (b) the amount shown for Mr. Bowman in 1996 also includes $40,309
for personal benefits including tax and transportation services, (c) the
amounts shown for Mr. Boynton include $513,463 and $41,074 in 1996 and
1995, respectively, in relocation allowances, (d) the amounts shown for Ms.
Reese also include $25,602, $22,186 and $20,973 in 1996, 1995 and 1994,
respectively, for personal benefits including tax and transportation
services, and (e) the amount shown for Mr. Weadock in 1995 also includes
$426,597 in relocation allowances.
(3) The named executives do not hold any stock appreciation rights in
connection with the options shown above. The options shown for years prior
to 1996 are substitute options which replaced surrendered options
originally granted by Old ITT before the Distribution.
(4) The amounts shown in this column are contributions by ITT under the ITT
401(k) Retirement Savings Plan and, in the case of Messrs. Araskog, Bowman,
and Weadock and Ms. Reese, the ITT Excess Savings Plan, which are defined
contribution plans. Under such plans, ITT makes a matching contribution in
an amount equal to 50% of an employee's contribution, such matching
contribution not to exceed two and one-half percent (2.5%) of such
employee's salary. Under these plans, ITT also makes a non-matching
contribution equal to one percent (1%) of an employee's salary. In 1995,
the Employee Stock Ownership Plan (the "ESOP") of Old ITT was terminated
and unallocated shares remaining after the related ESOP loan was repaid
were distributed among all participants. Except in the case of Mr. Boynton,
the amounts shown for 1995 also include an allocation of certain amounts as
a result of the termination of the ESOP.
In the case of Mr. Araskog, the amounts also include $353,113 and $354,156
paid in 1996 and 1995, respectively, by ITT for premiums on a split-dollar
life insurance policy maintained jointly for
9
<PAGE>
Mr. and Mrs. Araskog. We are entitled to be reimbursed for our payments
with respect to such policy upon the earlier to occur of: (i) the death of
Mr. Araskog or Mrs. Araskog, whichever occurs later, and (ii) the date on
which the cash surrender value of the policy is sufficient to repay amounts
paid by ITT and continue to sustain the policy until the year 2035, which
is expected to occur at the end of the year 2008.
In the case of Mr. Boynton, the amount shown for 1996 includes a
Company-paid life insurance premium of $8,538.
Option Grants on ITT Common Stock to Executives in Last Fiscal Year
The following table provides information about grants of options during the 1996
fiscal year to the named executives to purchase shares of our Common Stock. The
stock options granted to each of the executives listed below were issued in
1996.
<TABLE>
<CAPTION>
Stock Option Grants in 1996 Potential Realizable Value
--------------------------- at Assumed Annual
Number of % of Total Rates of Stock Price
Securities Options Appreciation for
Underlying Granted to Option Term
Options Employees Exercise ---------------
Granted (1) in Price (3) Expiration 5% 10%
Name (#) 1996 (2) ($/Share) Date ($) ($)
- ---- --- ------- --------- ---- --- ---
<S> <C> <C> <C> <C> <C> <C>
Rand V. Araskog 150,000 8.6 55.88 2/8/06 5,271,000 13,359,000
Robert A. Bowman 100,000 5.7 55.88 2/8/06 3,514,000 8,906,000
Peter G. Boynton 40,000 2.3 55.88 2/8/06 1,405,600 3,562,400
Ann N. Reese 40,000 2.3 55.88 2/8/06 1,405,600 3,562,400
Daniel P. Weadock 40,000 2.3 55.88 2/8/06 1,405,600 3,562,400
</TABLE>
(1) The numbers in this column represent options to purchase our Common Stock.
(2) Percentages indicated are based on a total of 1,741,546 options granted to
457 employees during 1996.
(3) The exercise price per share is 100% of the fair market value of a share of
our Common Stock on the date of the grant. The exercise price may be paid
in cash or in shares of our Common Stock valued at their fair market value
on the date of exercise.
Options granted on February 6, 1996 at the exercise price of $55.88 per
share are not exercisable until the trading price of our Common Stock
equals or exceeds $69.85 per share for five consecutive trading days, at
which time two-thirds of the options will be exercisable; when the trading
price equals or exceeds $78.23 per share for five consecutive trading days,
the options will be fully exercisable. Notwithstanding the above, these
options will be fully exercisable after February 6, 2005, and will expire
on February 8, 2006.
Aggregated Option Exercises in the Last Fiscal Year and Fiscal Year-End Option
Value
The following table provides information on option exercises in 1996 by the
named executives and the value of each such executive's unexercised options to
acquire our Common Stock at December 31, 1996.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Number of Securities Value of Unexercised,
Underlying Unexercised In-the-Money
Shares Options at Options Held at
Acquired Value Fiscal Year-End(#) Fiscal Year-End($)(1)
On Exercise Realized ------------------ ---------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --- --- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Rand V. Araskog -- -- 1,251,617 150,000 6,718,105 --
Robert A. Bowman -- -- 521,653 100,000 4,357,947 --
Peter G. Boynton -- -- 59,718 40,000 -- --
Ann N. Reese -- -- 236,544 40,000 1,797,819 --
Daniel P. Weadock -- -- 322,186 40,000 3,569,868 --
</TABLE>
(1) Based on the New York Stock Exchange consolidated trading closing price of
our Common Stock on December 31, 1996 of $43.38.
10
<PAGE>
Severance Pay Plan
Following the Hilton Offer (as defined below), the Board considered the
recommendations of ITT's human resources consultants, Towers Perrin, and
reviewed industry practices concerning change-in-control severance benefits. In
view of the need to minimize employee distraction and to retain employee loyalty
and dedication to ITT and to assure their attention to ITT's performance pending
resolution of the tender offer for 50.1% of our Common Stock by Hilton Hotels
Corporation (the "Hilton Offer"), the Compensation and Personnel Committee
unanimously voted, with the unanimous concurrence of the entire Board (with
management members of the Board abstaining), to revise its previous policy
concerning executive severance agreements in order to provide severance payments
to certain officers and employees in the event of a change in control, which
severance arrangements it has determined are fair and consistent with industry
practices. At a meeting of the Board held on February 11, 1997, upon the
recommendation of the Compensation and Personnel Committee, the Board authorized
ITT to amend its severance compensation arrangements with such executives and
managers. Each of the arrangements is described below.
Our Senior Executive Severance Pay Plan (the "SPP") applies to ITT senior
executives who are U.S. citizens or who are employed in the U.S., including all
executive officers of ITT other than Mr. Araskog. Under the SPP, if a
participant's employment is terminated by ITT, other than for "Cause" (as
defined) or as a result of other occurrences specified in the SPP, the
participant is entitled to severance pay in an amount equal to up to 24 months
of base salary depending upon his or her length of service. In no event shall
such severance pay exceed the lesser of (a) the amount of base salary for the
number of months remaining between the termination of employment and the
participant's normal retirement date or (b) two times the participant's total
annual compensation during the year immediately preceding such termination. The
SPP includes offset provisions for other compensation from ITT and requirements
on the part of executives with respect to non-competition and compliance with
the ITT Code of Corporate Conduct. Under the SPP, severance payments would
ordinarily be made monthly over the scheduled term of such payments; however,
ITT has the option to make such payments in the form of a single (discounted)
lump sum payment. As of March 1, 1996, the named executive officers in the
Summary Compensation Table on page 9 participate in this plan, except for Mr.
Araskog who is covered by an employment agreement.
With respect to approximately 55 individuals covered by the SPP,
modifications were authorized to the change in control arrangements on February
11, 1997. As modified, the SPP provides that, if an executive covered by the SPP
is involuntarily terminated other than for Cause or the executive terminates for
"Good Reason" (as defined) within two years following a change in control, the
executive will receive severance consisting of (i) a lump-sum payment equal to
two times the executive's annual base salary in effect immediately prior to the
executive's termination of employment, and, for certain designated employees,
including the executive officers covered by the SPP, two times the highest bonus
paid or awarded in respect of the three years immediately preceding the change
in control, (ii) continued welfare benefits, fringe benefits and perquisites for
two years and (iii) one year of outplacement services. All severance payable
under the SPP is subject to the same Reduction and Additional Payment mechanism
(including the $50,000 minimum benefit requirement) described below with respect
to the employment agreement covering Mr. Araskog.
Severance Agreements
On February 11, 1997, ITT authorized severance agreements with nine
individuals (the "Individual Agreements"). Each of the Individual Agreements
provides that, if the executive is involuntarily terminated other than for Cause
or such executive terminates for Good Reason within two years following a change
in control, the executive will receive severance consisting of (i) a lump-sum
payment equal to the sum of (A) two or three times the executive's annual base
salary in effect immediately prior to the executive's termination of employment
and (B) two or three times the highest bonus paid or awarded to the executive
under our executive compensation plans in respect of the three years immediately
preceding the change in control, (ii) continued welfare benefits, fringe
benefits and perquisites for a number of years equal to the number by which such
executive's annual base salary is multiplied for purposes of determining such
executive's severance and (iii) one year of outplacement services. All severance
payable under each of the Individual Agreements is subject to the same Reduction
and Additional Payment mechanism (including the $50,000 minimum benefit
requirement) described below with respect to the employment agreement covering
Mr. Araskog. The named executive officers to be covered by Individual Agreements
are Robert A. Bowman, Peter G. Boynton, Ann N. Reese and Daniel P. Weadock.
The annual salaries of Messrs. Bowman, Boynton, and Weadock and Ms. Reese
as of March 1, 1997 were $800,000, $725,000, $600,000 and $460,000,
respectively.
Employment Contract
ITT has entered into an employment contract with Mr. Araskog (the "Araskog
Agreement") which provides for, among other things: (i) a base salary of
$2,000,000 per year, entitlement to receive bonus and additional incentive
compensation each year as may be awarded in the discretion of the Compensation
and Personnel Committee of the Board, participation in ITT's benefit plans
(other than pre-retirement and post-retirement life insurance benefits),
contractual disability and death benefits, his employment as chairman and chief
executive of ITT until October 31, 2000 (when he will have reached age 69); (ii)
his service as consultant to his successor as chief executive of ITT from
November 1, 2000 through October 31, 2003 for a fee of not less than $400,000
per year; (iii) his nomination as a director of ITT at each annual meeting of
ITT
11
<PAGE>
stockholders commencing with the annual meeting for 2001 and including the
annual meeting to be held in 2003 and, upon election, payment to him of the
usual director's fees for service in such capacity; (iv) the provision of office
space and certain staff and transportation assistance in connection with his
service as a director and consultant subsequent to October 31, 2000; (v) certain
payments in the event that (A) at any time prior to October 31, 2000, Mr.
Araskog is not re-elected as chairman and employed as chief executive, which
payments would be made (I) in monthly installments over the term of the contract
remaining through October 31, 2000 in amounts equal per annum to the salary
received by Mr. Araskog for the calendar year immediately preceding such event
plus a percentage of the average bonus received by Mr. Araskog with respect to
the three calendar years immediately preceding such event and (II) in the form
of a discounted lump sum payment on or about October 31, 2000 equal to the then
present value of the consulting fee and the director's fees referred to above,
and (B) after completion of services through October 31, 2000 in accordance with
the terms of the contract, Mr. Araskog at any time prior to October 31, 2003 is
not nominated as a director of ITT, which payment would be in the form of a
discounted lump sum payment equal to the then present value of the balance
remaining of the consulting fee and the director's fees referred to above; and
(vi) covenants by Mr. Araskog against competition with any business actively
conducted by ITT or any of its subsidiaries and for compliance with the ITT Code
of Corporate Conduct.
Mr. Araskog's employment agreement was amended on February 11, 1997. The
Araskog Agreement, as amended, provides that, if Mr. Araskog is involuntarily
terminated other than for Cause or he terminates for Good Reason within two
years following a change in control, he shall receive severance consisting of a
lump-sum payment equal to the remaining payments owed to him during the
respective employment and consulting terms set forth in the Araskog Agreement.
The severance payment is subject to the limitation that, if Sections 280G and
4999 of the Internal Revenue Code of 1986, as amended, would impose on Mr.
Araskog any excise tax (an "Excise Tax") in respect of such severance, then the
amount of the severance payment will be reduced to an amount such that no amount
will be subject to such Excise Tax (the "Reduction"); provided, however, that if
the price of our Common Stock remains for five consecutive trading days
following February 11, 1997, at or above 125% of its closing price of $56.75 per
share on February 4, 1997, then the Reduction will not apply, and in addition,
Mr. Araskog will be entitled to a gross-up payment to fully offset any Excise
Tax imposed, as well as any additional income, employment and excise taxes
imposed on the gross-up payment (an "Additional Payment"), provided that no such
Additional Payment will be made to the extent that Mr. Araskog would not receive
at least a $50,000 net after-tax benefit from the Additional Payment, as
compared to the net amount he would otherwise receive if the Reduction were to
be implemented. The Board selected a share price threshold that must be reached
before the Reduction will be eliminated and the Additional Payment will be
payable that is the same as the share price that must be achieved for the
performance-based options granted by ITT to senior executives at a Board meeting
held on February 4, 1997 to vest. The threshold was determined in accordance
with our usual practice for option grants.
Other Change-in-Control Arrangements
Acceleration of the exercisability, payment or vesting of awards or
benefits is provided for under the ITT 1995 Incentive Stock Plan and the
retirement excess pension and savings plans and deferred compensation plan upon
the occurrence of a change in control.
Pension Plans
General. ITT has adopted the ITT Sheraton Plan as the ITT Salaried
Retirement Plan and extended it to employees formerly covered by the Old ITT
Salaried Retirement Plan. The plan has been amended to recognize service with
companies affiliated with ITT prior to December 19, 1995 for eligibility,
vesting and benefit accrual purposes and further provides for an offset of any
benefit payable from any Old ITT retirement plan covering the same period of
service.
12
<PAGE>
Messrs. Araskog, Bowman and Weadock and Ms. Reese participate in the retirement
plans maintained by ITT.
Executives of Caesars do not participate in the retirement plans maintained
by ITT. Accordingly, Mr. Boynton is covered by the Caesars Executive Security
Plans (collectively, the "Caesars Pension Plan").
ITT Retirement Plan. The ITT Salaried Retirement Plan covers all eligible
salaried employees of ITT, including senior executive officers and other ITT
executives.
A member's annual pension equals two percent of the member's average final
compensation for each of the first 25 years of benefit service, plus one and
one-half percent of a member's average final compensation for each of the next
15 years of benefit service, reduced by one and one-quarter percent of the
member's primary Social Security benefit for each year of benefit service to a
maximum of 40 years; provided that no more than one-half of the member's primary
Social Security benefit is used for such reduction. A member's average final
compensation (including salary plus approved bonus payments) is defined under
the plan as the total of (i) a member's average annual base salary for the five
calendar years of the last 120 consecutive calendar months of eligibility
service affording the highest such average plus (ii) a member's average annual
compensation not including base salary for the five calendar years of the
member's last 120 consecutive calendar months of eligibility service affording
the highest such average. The plan also provides for undiscounted early
retirement pensions for members who retire at or after age 60 following
completion of 15 years of eligibility service. A member is vested in benefits
accrued under the plan upon completion of five years of eligibility service.
Applicable Federal legislation limits the amount of benefits that can be
paid and compensation which may be recognized under a tax-qualified retirement
plan. ITT has adopted a non-qualified unfunded retirement plan (the "ITT Excess
Pension Plan") for payment of those benefits at retirement that cannot be paid
from the qualified retirement plan. The practical effect of the ITT Excess
Pension Plan is to continue calculation of retirement benefits to all employees
on a uniform basis. Benefits under the ITT Excess Pension Plan will generally be
paid directly by ITT. ITT has also created an excess plan trust under which
excess benefits under the ITT Excess Pension Plan for certain officers of ITT
will be funded. Any such employee may indicate a preference, subject to certain
conditions, to receive any excess benefit in the form of a single discounted
lump sum payment. Any "excess" benefit accrued to any such employee will be
immediately payable in the form of a single discounted lump sum payment upon the
occurrence of a change in control.
Based on various assumptions as to remuneration and years of service,
before Social Security reductions, the following table illustrates the estimated
annual benefits payable from the Retirement Program at retirement at age 65 that
are paid for by ITT, subject to the offsets described above.
ITT Pension Plan Table
Average Years of Service
Final ----------------
Compensation 20 25 30 35 40
- ------------ -- -- -- -- --
$ 50,000 $ 20,000 $ 25,000 $ 28,750 $ 32,500 $ 36,250
100,000 40,000 50,000 57,500 65,000 72,500
300,000 120,000 150,000 172,500 195,000 217,500
500,000 200,000 250,000 287,500 325,000 362,500
750,000 300,000 375,000 431,250 487,500 543,750
1,000,000 400,000 500,000 575,000 650,000 725,000
1,500,000 600,000 750,000 862,500 975,000 1,087,500
2,000,000 800,000 1,000,000 1,150,000 1,300,000 1,450,000
2,500,000 1,000,000 1,250,000 1,437,500 1,625,000 1,812,500
3,000,000 1,200,000 1,500,000 1,725,000 1,950,000 2,175,000
3,500,000 1,400,000 1,750,000 2,012,500 2,275,000 2,537,500
4,000,000 1,600,000 2,000,000 2,300,000 2,600,000 2,900,000
5,000,000 2,000,000 2,500,000 2,875,000 3,250,000 3,625,000
The amounts shown under "Salary" and "Bonus" opposite the names of the
individuals in the Summary Compensation Table on page 9 comprise the
compensation which is used for purposes of determining "average final
compensation" under the plan. The years of service of each of the individuals
for eligibility and benefit purposes as of December 31, 1996 are as follows:
Rand V. Araskog, 30.09 years; Robert A. Bowman, 5.73 years; Ann N. Reese, 9.16
years; and Daniel P. Weadock, 35.46 years.
The Caesars Pension Plan. The Caesars Pension Plan provides for annual
pension benefits for individuals retiring at age 65 payable in the form of a
straight life annuity for various levels of compensation and years of service.
Under the Caesars Pension Plan, benefits may also be payable as a lump sum,
subject to Committee approval and other specified conditions. The Caesars
Pension Plan is a defined benefit pension plan which is not a tax qualified plan
and covers all full time salaried officers and selected other key executives.
Benefits under the Caesars Pension Plan accrue at the rate of two percent of
average annual salary for each year of credited service with a one-time
additional 5%
13
<PAGE>
accrual after completion of ten years of credited service. Benefits vest after
five years of credited service. Under certain circumstances, benefits may be
forfeited concurrent with or following termination of employment.
Based upon various assumptions as to remuneration and years of service, the
following table illustrates the estimated annual benefits payable from the
Caesars Pension Plan at retirement at age 65. The amounts shown in the table are
not subject to reduction for Social Security benefits or other offset amounts
and are based upon the assumption that the Caesars Pension Plan continues in its
present form.
Caesars Pension Plan Table
Five Year Years of Service
Average ----------------
Salary 15 20 25 30
------ -- -- -- --
$ 125,000 $ 43,750 $ 56,250 $ 68,750 $ 81,250
150,000 52,500 67,500 82,500 97,500
175,000 61,200 78,750 96,250 113,750
200,000 70,000 90,000 110,000 130,000
225,000 78,750 101,250 123,750 146,250
250,000 87,500 112,500 137,500 162,500
300,000 105,000 135,000 165,000 195,000
400,000 140,000 180,000 220,000 260,000
500,000 175,000 225,000 275,000 325,000
600,000 210,000 270,000 330,000 390,000
800,000 280,000 360,000 440,000 520,000
1,000,000 350,000 450,000 550,000 650,000
1,200,000 420,000 540,000 660,000 780,000
The remuneration covered by the Caesars Pension Plan is the average of the
participant's highest five years of salary earned during his last ten years of
employment with Caesars. The amount shown under "Salary" opposite the name of
Mr. Boynton in the Summary Compensation Table on page 9 will be used for
determining "average annual salary" under the plan. As of December 31, 1996, Mr.
Boynton had 20.67 years of credited service under the Caesars Pension Plan.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table shows as of December 31, 1996 the beneficial ownership
of persons known to us to be the beneficial owners of more than five
percent of our Common Stock.
Name and Amount and
Address of Nature of
Beneficial Beneficial Percent
Owner Ownership of Class
- ----- --------- --------
Bankers Trust New York Corporation
280 Park Avenue
New York, New York 10017 7,728,083 shares(1) 8.9%
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109 13,166,423 shares(2) 11.32%
(1) A February 14, 1997 Schedule 13G filed with the Securities and Exchange
Commission (the "Commission") reflects that Bankers Trust New York
Corporation, through its wholly owned subsidiaries Bankers Trust Company
(as Trustee for various trusts and employee benefit plans, and as
investment advisor) and BT Securities Corporation, and its indirectly
wholly owned subsidiary Bankers Trust International PLC, beneficially own
7,728,083 shares of our Common Stock. Of these shares, Bankers Trust
Company is deemed to have (i) sole power to vote or to direct the vote with
respect to 7,725,383 shares of our Common Stock, (ii) shared power to vote
or to direct the vote with respect to 2,700 shares of our Common Stock,
(iii) sole power to dispose of or to direct the disposition of 1,990,982
shares of our Common Stock and (iv) shared power to dispose of or to direct
the disposition of 16,505 shares of our Common Stock.
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(2) A February 14, 1997 Schedule 13G reflects that FMR Corp. ("FMR")
beneficially owns 13,166,423 shares of our Common Stock. Of such reported
shares, Fidelity Management & Research Company ("Fidelity"), a wholly owned
subsidiary of FMR and an investment adviser registered under Section 203 of
the Investment Advisers Act of 1940, is the beneficial owner of 12,437,559
shares as a result of acting as investment adviser to several investment
companies registered under Section 8 of the Investment Company Act of 1940.
Edward C. Johnson 3d, the Chairman of FMR, FMR, through its control of
Fidelity, and the Fidelity Funds each has sole power to dispose of the
12,437,559 shares of our Common Stock owned by the Fidelity Funds. Neither
FMR nor Edward C. Johnson 3d, Chairman of FMR, has the sole power to vote
or direct the voting of the shares owned directly by the Fidelity Funds,
which power resides with the Funds' Boards of Trustees. Fidelity carries
out the voting of the shares under written guidelines established by the
Funds' Boards of Trustees. Fidelity Management Trust Company ("FMTC"), a
wholly owned subsidiary of FMR, and a bank as defined in Section 3(a)(6) of
the Act, is the beneficial owner of 725,464 shares of our Common Stock or
0.62% of our Common Stock outstanding as a result of its serving as
investment manager of institutional accounts. Edward C. Johnson 3d and FMR,
through its control of FMTC, has sole dispositive power over 725,464 shares
and sole power to vote or to direct the voting of 513,264 shares, and no
power to vote or to direct the voting of 212,000 shares of our Common Stock
owned by certain institutional accounts. Members of the Edward C. Johnson
3d family and trusts for their benefit are the predominant owners of Class
B shares of common stock of FMR, representing approximately 49% of the
voting power of FMR. Mr. Johnson 3d owns 12% and Abigail Johnson owns 24.5%
of the aggregate outstanding voting stock of FMR. Mr. Johnson 3d is
Chairman of FMR and Abigail P. Johnson is a Director of FMR. The Johnson
family group and all other Class B stockholders have entered into a
stockholders' voting agreement under which all Class B shares will be voted
in accordance with the majority vote of Class B shares. Accordingly,
through their ownership of voting common stock and the execution of the
stockholders' voting agreement, members of the Johnson family may be
deemed, under the Investment Company Act of 1940, to form a controlling
group with respect to FMR. The number of shares of our Common Stock
reported includes 3,400 shares owned directly by Edward C. Johnson 3d or in
trusts for the benefit of Edward C. Johnson 3d and/or Edward C. Johnson 3d
family members, for which Edward C. Johnson 3d serves as trustee. Edward C.
Johnson has sole voting and dispositive power over 400 shares and shared
voting and dispositive power over 3,000 shares.
The following table shows as of March 31, 1997 the beneficial ownership of
shares of our Common Stock by each director, by each of the executive officers
named in the Summary Compensation Table on page 9, and by the directors and
executive officers as a group.
Amount and Nature
Name of of Beneficial Percent
Beneficial Owner Ownership (1) of Class
------------------ ------------ --------
Bette B. Anderson 2,811 shares(2) *
Rand V. Araskog 1,748,398 shares 1.5%
Nolan D. Archibald 1,811 shares *
Robert A. Bowman 549,005 shares *
Robert A. Burnett 2,981 shares *
Paul G. Kirk, Jr. 1,821 shares *
Edward C. Meyer 3,311 shares *
Benjamin F. Payton 1,303 shares *
Vin Weber 844 shares *
Margita E. White 2,811 shares *
Kendrick R. Wilson III 3,744 shares *
Peter G. Boynton 60,850 shares *
Ann N. Reese 251,023 shares *
Daniel P. Weadock 396,055 shares *
All directors and executive
officers as a group (21) 4,320,406 shares 3.7%
* Less than one percent.
(1) All shares are owned directly except as hereinafter otherwise indicated.
Pursuant to regulations of the Commission, shares (i) receivable by
directors and executive officers upon exercise of employee stock options
exercisable within 60 days after March 31, 1997, and (ii) allocated to the
accounts of certain directors and executive officers under the ITT 401(k)
Retirement Savings Plan at March 31, 1997, are deemed to be beneficially
owned by such directors and executive officers at said date. Of the number
of shares shown above, (i) the following represent shares that may be
acquired upon exercise of employee stock options for the accounts of: Mr.
Araskog, 1,251,617 common shares; Mr. Bowman, 521,653 common shares; Mr.
Boynton, 59,718 common shares; Ms. Reese, 236,544 common shares; Mr.
Weadock, 322,186 common shares; and all present directors and executive
officers as a group, 3,583,512 common shares; and (ii) the following
amounts were allocated under the ITT 401(k) Retirement Savings Plan to the
accounts of: Mr. Araskog, 20,255 common shares; Mr. Bowman, 2,424 common
shares; Mr. Boynton, 132 common shares, Ms. Reese, 1,303 common shares; Mr.
Weadock, 52,790 common shares; and all present directors and executive
officers as a group, 113,502 common shares.
(2) An additional 83 shares of our Common Stock are owned by Mrs. Anderson's
husband. Mrs. Anderson disclaims beneficial ownership in such shares.
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Item 13. Certain Relationships and Related Transactions
Lazard Freres, of which Mr. Kendrick R. Wilson III is a Managing Director,
performed various investment banking services for ITT and its subsidiaries in
1996. Lazard Freres is serving as our co-financial advisor in connection with
the Hilton Offer. Mr. Wilson receives a percentage of Lazard Freres' income,
including a percentage of any income under this engagement.
A By-law of ITT provides for mandatory indemnification of ITT directors and
officers (including payment of legal fees) to the fullest extent permitted by
applicable law. The By-law also provides that we may maintain insurance to
indemnify our directors and officers against liabilities whether or not we would
be permitted to indemnify them. This type of insurance, as well as policies
under which we may be reimbursed for amounts paid in indemnification of our
directors and officers, are in force. The premiums thereon, which aggregate
$1,164,755 for a twelve month period, are paid by ITT. As authorized by such
By-law, we have entered into indemnification agreements with our directors
pursuant to which we have agreed to indemnify them against all expenses,
liabilities or losses incurred by the directors in their capacity as such: (i)
to the fullest extent permitted by applicable law; (ii) as provided in the
By-laws of ITT as in effect on the date of such agreement; and (iii) in the
event we do not maintain the aforementioned insurance or comparable coverage, to
the full extent provided in the applicable policies as in effect on January 1,
1997 (our obligations described in (ii) and (iii) being subject to certain
exceptions). Contractual rights under such indemnification agreements are
believed to provide the directors more protection than the indemnification
By-law, which is subject to change.
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SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
ITT CORPORATION
By /s/ JON F. DANSKI
------------------------------------
Jon F. Danski
Senior Vice President and Controller
April 30, 1997
