<PAGE> 1
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
------------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
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 NUMBER 1-13960
------------------------
ITT CORPORATION
<TABLE>
<S> <C>
NEVADA 88-0340591
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
</TABLE>
1330 AVENUE OF THE AMERICAS
NEW YORK, NY 10019-5490
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE NUMBER: (212) 258-1000
------------------------
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 [ ]
As of July 31, 1997, there were outstanding 116,636,190 shares of common
stock, no par value, of the registrant.
================================================================================
<PAGE> 2
ITT CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<C> <S> <C>
PART I
FINANCIAL INFORMATION
1 Financial Statements:
Consolidated Income -- Second Quarter and Six Months Ended June 30, 1997 and
1996.............................................................................. 2
Consolidated Balance Sheet -- June 30, 1997 and December 31, 1996................. 3
Consolidated Cash Flow -- Six Months Ended June 30, 1997 and 1996................. 4
Notes to Financial Statements..................................................... 5
Business Segment Information...................................................... 9
2 Management's Discussion and Analysis of Financial Condition and Results of 10
Operations........................................................................
PART II
OTHER INFORMATION
6 Exhibits and Reports on Form 8-K.................................................. 15
Signature......................................................................... II-1
Exhibit Index..................................................................... II-2
</TABLE>
<PAGE> 3
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited financial statements, in the opinion of management,
reflect all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the financial position, the results of
operations and cash flow for the periods presented. For a description of
accounting policies, see notes to financial statements in ITT Corporation's 1996
Annual Report on Form 10-K.
ITT CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME
(IN MILLIONS EXCEPT PER SHARE)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SECOND QUARTER JUNE 30,
----------------- -----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues............................................. $1,775 $1,752 $3,215 $3,140
Costs and expenses:
Salaries, benefits and other operating............. 1,268 1,242 2,343 2,260
Selling, general and administrative................ 210 203 413 410
Restructuring charge............................... -- -- 58 --
Depreciation and amortization...................... 73 65 149 128
------ ------ ------ ------
1,551 1,510 2,963 2,798
------ ------ ------ ------
224 242 252 342
Interest expense, net................................ (55) (54) (110) (118)
Gain on sale of Alcatel Alsthom shares............... -- -- 183 --
Gain on sale of investment in Madison Square
Garden............................................. 200 -- 200 --
Miscellaneous income (expense), net.................. 2 10 (18) 8
------ ------ ------ ------
371 198 507 232
Provision for income taxes........................... (156) (85) (213) (100)
Minority equity...................................... (16) (17) (15) (16)
------ ------ ------ ------
Net income........................................... $ 199 $ 96 $ 279 $ 116
====== ====== ====== ======
Earnings per share................................... $ 1.69 $ .81 $ 2.37 $ .97
====== ====== ====== ======
Weighted average common equivalent shares............ 118.1 119.0 118.0 119.0
====== ====== ====== ======
</TABLE>
- ---------------
The accompanying notes to financial statements are an integral part of the above
statement.
2
<PAGE> 4
ITT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN MILLIONS EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
JUNE
30, DECEMBER 31,
1997 1996
------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 337 $ 224
Marketable securities.............................................. -- 599
Receivables, net................................................... 616 659
Inventories........................................................ 95 103
Prepaid expenses and other......................................... 168 113
------- -------
Total current assets............................................ 1,216 1,698
Plant, property and equipment, net................................... 4,512 4,746
Investment in Madison Square Garden.................................. 85 533
Other investments.................................................... 350 387
Long-term receivables, net........................................... 215 186
Other assets......................................................... 421 367
Goodwill, net ....................................................... 1,325 1,358
Net assets held for sale............................................. 339 --
------- -------
$8,463 $9,275
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 308 $ 312
Accrued expenses................................................... 576 551
Notes payable and current maturities of long-term debt............. 239 297
Other current liabilities.......................................... 261 231
------- -------
Total current liabilities....................................... 1,384 1,391
Long-term debt....................................................... 2,789 3,894
Deferred income taxes................................................ 193 196
Other liabilities.................................................... 480 430
Minority interest.................................................... 271 290
------- -------
5,117 6,201
------- -------
Stockholders' Equity:
Common stock: authorized 200,000,000 shares, no par or stated
value, outstanding 116,528,691 and 116,366,176 shares,
respectively.................................................... 2,903 2,897
Cumulative translation adjustment.................................. (77) (2)
Unrealized loss on securities...................................... -- (62)
Retained earnings.................................................. 520 241
------- -------
Total stockholders equity....................................... 3,346 3,074
------- -------
$8,463 $9,275
======= =======
</TABLE>
- ---------------
The accompanying notes to financial statements are an integral part of the above
statement.
3
<PAGE> 5
ITT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------
1997 1996
------ -----
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................ $ 279 $ 116
Adjustments to net income:
Depreciation and amortization........................................... 149 128
Provision for doubtful receivables...................................... 26 23
Gain on divestments -- pretax........................................... (411) (20)
Changes in working capital:
Receivables............................................................. (24) (20)
Inventories............................................................. -- (7)
Accounts payable........................................................ (35) (58)
Accrued expenses........................................................ 41 (42)
Accrued and deferred taxes................................................ 27 13
Other, net................................................................ (32) (3)
------ -----
Cash from operating activities.......................................... 20 130
------ -----
INVESTING ACTIVITIES
Additions to plant, property and equipment................................ (480) (239)
Proceeds from divestments................................................. 1,597 219
Collection of note receivable from Cablevision Systems Corporation........ 169 --
Acquisitions, net of acquired cash........................................ (29) (75)
Other, net................................................................ (35) 6
------ -----
Cash from/(used for) investing activities............................... 1,222 (89)
------ -----
FINANCING ACTIVITIES
Short-term debt, net...................................................... (22) 31
Long-term debt issued..................................................... 98 146
Long-term debt repaid..................................................... (1,197) (260)
Other, net................................................................ (5) 51
------ -----
Cash used for financing activities...................................... (1,126) (32)
------ -----
EXCHANGE RATE EFFECT ON CASH AND CASH EQUIVALENTS......................... (3) (1)
Increase in cash and cash equivalents..................................... 113 8
------ -----
Cash and cash equivalents -- Beginning of Period.......................... 224 177
------ -----
Cash and Cash Equivalents -- End of Period................................ $ 337 $ 185
====== =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................................ $ 113 $ 115
====== =====
Income taxes............................................................ $ 195 $ 85
====== =====
</TABLE>
- ---------------
The accompanying notes to financial statements are an integral part of the above
statement.
4
<PAGE> 6
ITT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS EXCEPT PER SHARE)
BASIS OF PRESENTATION
ITT Corporation ("ITT") is one of the world's largest hotel and gaming
companies. ITT's principal lines of business are hotels, gaming and information
services. The hotels segment is comprised of a worldwide hospitality network of
over 420 full-service hotels serving three markets: luxury, upscale and
mid-price. ITT's hotel operations are represented on every continent and in
nearly every major world market. ITT's gaming operations are located in several
key domestic jurisdictions. ITT also operates various hotel/casino ventures
outside the United States. ITT's information services segment publishes
telephone directories in certain countries outside the United States and owns
and operates post-secondary educational institutions in the United States.
COMPREHENSIVE PLAN
At a July 15, 1997 meeting of the Board of Directors of ITT, the Board
approved a comprehensive plan (the "Comprehensive Plan"), which is designed to
enhance the value of the ongoing investment of stockholders as well as further
the interests of ITT's employees, creditors, customers and the economies and
communities in which ITT operates. The major elements of the Comprehensive Plan
are:
(i) A tender offer to repurchase up to 30 million shares (or
approximately 25.7% of all the outstanding shares) of ITT's common stock
from the public for a price per share of $70, net to the seller in cash
(the "Stock Tender Offer"). ITT commenced the Stock Tender Offer on July
17, 1997 and the Stock Tender Offer is currently scheduled to expire at
5:00 p.m., New York City time, on Tuesday, September 9, 1997, unless
extended;
(ii) the pro rata distribution to stockholders of ITT of all the
shares of common stock of ITT Destinations, Inc. ("Destinations"), a new
subsidiary that was formed to hold ITT's hotels and gaming business (the
"Destinations Distribution");
(iii) the pro rata distribution to stockholders of ITT of all the
shares of common stock owned by ITT of ITT Educational Services, Inc. ("ITT
Educational"), the subsidiary that operates ITT's post-secondary technical
education business (the "ITT Educational Distribution" and, together with
the Destinations Distribution, the "Distributions"); and
(iv) the allocation of ITT's indebtedness between its hotels and
gaming business and telephone directories publishing business in a manner
that is appropriate for the credit capacity and capitalization requirement
of each entity. In order to effect this allocation, ITT commenced a tender
offer (the "Debt Tender Offer") for all of its outstanding public debt on
August 11, 1997. The Debt Tender Offer is currently scheduled to expire at
5:00 p.m., New York City time, on Tuesday, September 9, 1997, unless
extended.
Consummation of the Comprehensive Plan is subject to receipt of certain
regulatory and other approvals. Following the Distributions, ITT's only direct
subsidiary will be ITT World Directories, Inc. ("ITT World Directories"), the
subsidiary that operates ITT's telephone directories publishing business and it
is expected that the company will change its name to "ITT Information Services,
Inc."
GAMING OPERATIONS
Casino revenues represent the net win from gaming wins and losses. Revenues
exclude the retail value of rooms, food, beverage, entertainment and other
promotional allowances provided on a complimentary basis to customers. The
estimated retail value of such promotional allowances was $36 and $41 for the
second quarter of 1997 and 1996, respectively, and $75 and $83 for the six
months ended June 30, 1997 and 1996, respectively. The estimated cost of such
promotional allowances was $29 and $28 for second quarter of 1997 and 1996,
respectively, and $59 and $56 for the six months ended June 30, 1997 and 1996,
respectively, and has been included in costs and expenses.
5
<PAGE> 7
ITT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenues and costs and expenses of the Gaming operations are comprised of
the following:
<TABLE>
<CAPTION>
SIX MONTHS
SECOND ENDED
QUARTER JUNE 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Gaming............................................ $242 $264 $473 $526
Rooms............................................. 17 18 33 36
Food and beverage................................. 18 19 36 39
Other operations.................................. 26 30 53 54
---- ---- ---- ----
Total..................................... $303 $331 $595 $655
==== ==== ==== ====
Cost and Expenses
Gaming............................................ $144 $151 $296 $302
Rooms............................................. 6 7 12 13
Food and beverage................................. 17 19 34 35
Other operations.................................. 14 12 28 25
Selling, general and administrative............... 41 48 91 105
Depreciation and amortization..................... 20 18 41 39
Provision for doubtful accounts................... 4 7 14 14
---- ---- ---- ----
Total..................................... $246 $262 $516 $533
==== ==== ==== ====
</TABLE>
INVESTMENT IN MADISON SQUARE GARDEN
On April 15, 1997, ITT entered into a Partnership Interest Transfer
Agreement (the "Partnership Interest Transfer Agreement") among ITT, ITT Eden
Corporation, ITT MSG Inc., Cablevision Systems Corporation ("Cablevision"),
Rainbow Media Holdings Inc., Rainbow Garden Corp., Garden L.P. Holding Corp.,
MSG Eden Corporation and Madison Square Garden L.P. ("MSG"). Pursuant to the
Partnership Interest Transfer Agreement, Cablevision paid ITT $500 in cash on
June 17, 1997. ITT also has a "put" option to require Cablevision or MSG to
purchase half of ITT's continuing interest in MSG for $75 on June 17, 1998 and
the other half of this continuing interest for an additional $75 on June 17,
1999 (or, if the first option is not exercised, the entire continuing interest
for $150). In addition, pursuant to an Aircraft Contribution Agreement dated as
of April 15, 1997, among Garden L.P. Holding Corp., MSG Eden Corporation, ITT
MSG Inc., ITT Flight Operations, Inc. and MSG, ITT has agreed to contribute to
MSG an ITT-owned aircraft which MSG has used for the Knicks and the Rangers. In
consideration of the aircraft contribution, Cablevision has agreed to add an
additional $19 to the exercise price of each of ITT's "put" options. The
Partnership Interest Transfer Agreement also includes a "call" option requiring
ITT to sell its remaining stake in MSG on June 17, 2000 at fair market value,
but not below a minimum price based on the "put" prices.
NEW ACCOUNTING PRONOUNCEMENT
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128
"Earnings per Share," which is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods; earlier
application is not permitted. SFAS No. 128 requires replacement of primary and
fully diluted earnings per share with basic and diluted earnings per share. The
impact of SFAS No. 128 to ITT's current presentation is immaterial for all
periods presented.
6
<PAGE> 8
ITT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the 1996 financial statements have been reclassified to
conform to the current year presentation.
NET ASSETS HELD FOR SALE
On April 29, 1997, ITT announced its intention to sell two of its Gaming
properties: The Desert Inn Resort & Casino in Las Vegas, Nevada ("The Desert
Inn"), and The Sheraton Casino in Tunica, Mississippi. For financial reporting
purposes, the assets and liabilities attributable to these two properties have
been classified in the Consolidated Balance Sheet as "Net assets held for sale".
On August 1, 1997, ITT Sheraton Corporation entered into an agreement in
principle with Davis Gaming, L.L.C. ("Davis Gaming"), a Delaware limited
liability company owned by Marvin Davis, to form two 50/50 joint ventures to own
The Desert Inn and the 34 acre parcel of land adjacent to The Desert Inn. The
Desert Inn and the 34 acre parcel of land are currently owned by a subsidiary of
ITT. Under the terms of the agreement in principle, ITT will receive $250 in
cash, including a $150 cash payment from Davis Gaming and $100 from the proceeds
of new debt issued by the Desert Inn joint venture. ITT, through its Caesars
World, Inc. subsidiary, will manage The Desert Inn for a period of ten-years
with an option to extend the management contract for an additional ten-year
period. Over the next two years, the joint venture partners will consider the
feasibility of developing a new hotel and casino on the 34 acre parcel. Should
the decision be made to proceed, ITT will also manage the new property. At the
insistence of Davis Gaming, the transaction documentation will include certain
"change of control" provisions.
This transaction, which is subject to the execution of definitive
agreements, due diligence and certain other customary closing conditions, is
expected to be completed by November 1, 1997. ITT's rights under the transaction
will be retained by Destinations after the completion of the Distributions.
SUBSEQUENT EVENTS
On July 15, 1997, ITT entered into a definitive agreement with an affiliate
of Clayton, Dubilier & Rice, Inc. ("CDR") to purchase following the
Distributions approximately 32.9% of ITT and warrants to purchase shares
representing an additional 13.7% of the outstanding common stock of ITT for
aggregate consideration of $225. The warrants will have a ten year term and
permit CDR to buy common stock of ITT at a 50% premium to CDR's initial purchase
price. Consummation of this transaction is subject to certain conditions
including, among other things, completion of the Distributions and approval of
ITT's stockholders (which will be sought following the Distributions).
In addition, on July 15, 1997, ITT purchased from a subsidiary of BellSouth
Corporation for $254 the 20% minority interest in ITT World Directories,
bringing its ownership of this entity to 100%.
THE HILTON OFFER
On January 31, 1997, Hilton Hotels Corporation ("Hilton") commenced a
tender offer for approximately 50.1% of the outstanding shares of ITT's common
stock (the "Hilton Tender Offer") at $55 per share, net to the seller in cash
and without interest, upon the terms and subject to the conditions set forth in
the Offer to Purchase dated January 31, 1997 and the related Letter of
Transmittal. On August 7, 1997, Hilton amended the Hilton Tender Offer to
increase the offered purchase price to $70 per share. The Hilton Tender Offer
has been extended to August 29, 1997.
Hilton has announced that, if the Hilton Tender Offer succeeds, it will
obtain the entire equity interest in ITT by merging ITT with Hilton or a
subsidiary of Hilton (such merger, together with the Hilton Tender Offer, the
"Hilton Transaction") in a transaction pursuant to which all shares not tendered
and purchased
7
<PAGE> 9
ITT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
pursuant to the Hilton Tender Offer (other than shares owned by Hilton and its
subsidiaries or held in ITT's treasury) would be converted into the right to
receive a number of shares of Hilton common stock, par value $2.50 per share,
having a nominal value of $70 per share, subject to unspecified collar
provisions. The Hilton Transaction is more fully described in the Tender Offer
Statement on Schedule 14D-1 filed by Hilton with the Securities and Exchange
Commission.
8
<PAGE> 10
BUSINESS SEGMENT INFORMATION
(IN MILLIONS)
Business segment information is as follows:
<TABLE>
<CAPTION>
REVENUES INCOME
- --------------------------------------- -------------------------------
SECOND SECOND
QUARTER SIX MONTHS QUARTER SIX MONTHS
- ----------------- ----------------- ------------- -------------
1997 1996 1997 1996 1997 1996 1997 1996
- ------ ------ ------ ------ ---- ---- ---- ----
<C> <C> <C> <C> <S> <C> <C> <C> <C>
$1,178 $1,120 $2,220 $2,086 Hotels......................... $109 $102 $181 $158
251 269 514 534 Gaming......................... 51 64 98 117
294 301 400 398 Information Services........... 82 94 93 103
------ ------ ------ ---- ---- ---- ----
1,723 1,690 3,134 3,018 Ongoing Segments............... 242 260 372 378
52 62 81 122 Dispositions................... 4 6 (20) 13
------ ------ ------ ---- ---- ---- ----
1,775 1,752 3,215 3,140 Total Segments................. 246 266 352 391
-- -- -- -- Restructuring charge........... -- -- (58) --
-- -- -- -- Other.......................... (22) (24) (42) (49)
------ ------ ------ ---- ---- ---- ----
1,775 1,752 3,215 3,140 224 242 252 342
Interest expense, net.......... (55) (54) (110) (118)
Gain on sale of Alcatel
Alsthom........................ -- -- 183 --
Gain on sale of investment in
Madison Square Garden.......... 200 -- 200 --
Miscellaneous income
(expense), net................. 2 10 (18) 8
Provision for income taxes..... (156) (85) (213) (100)
Minority equity................ (16) (17) (15) (16)
------ ------ ------ ---- ---- ---- ----
$1,775 $1,752 $3,215 $3,140 $199 $ 96 $279 $116
====== ====== ====== ==== ==== ==== ====
</TABLE>
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED)
Three months ended June 30, 1997 compared with three months ended June 30,
1996
Revenues of $1,775 in the 1997 second quarter increased 1% compared with
$1,752 in the corresponding 1996 quarter. Hotel revenues, which increased 5% due
to strong average daily rate gains, were the primary driver of this improvement.
Excluding the results of the two gaming properties planned for disposition,
Gaming revenues decreased 7% due to the impacts of the continuing construction
projects at Caesars Palace in Las Vegas, Nevada, and Caesars Atlantic City in
Atlantic City, New Jersey. Revenues at ITT Educational increased 13% due to
strong gains in total student enrollment over the past year. Revenues at ITT
World Directories decreased 6% due in large part to the unfavorable effects of
currency exchange.
Salaries, benefits and other operating expenses increased 2% in the quarter
to $1,268 from $1,242 in the 1996 quarter. This increase primarily reflected the
additional costs of certain hotel properties acquired in the second half of
1996. Selling, general and administrative expenses increased 3% in the 1997
second quarter to $210 compared with $203 in the 1996 second quarter. This
increase was also primarily caused by the additional hotel properties, which
more than offset a 5% decrease in the Gaming segment.
Excluding the results of assets held for sale, earnings before interest,
taxes, depreciation and amortization ("EBITDA") were $289 in the 1997 quarter
compared with $297 in the 1996 quarter. Significant increases in average room
rates, particularly in owned and leased properties, and the benefits of hotel
acquisitions were more than offset by the unfavorable effects of currency
exchange at ITT World Directories and construction impacts at Caesars Palace and
Caesars Atlantic City. Depreciation and amortization increased 12% compared with
the prior period due primarily to the impact of hotel acquisitions. Operating
income decreased 7% in the quarter due to unfavorable effects of currency
exchange and the continued construction impacts at Caesars Palace and Caesars
Atlantic City.
Net interest expense was essentially unchanged as compared with the 1996
quarter. Excluding $6 of interest income on the Cablevision note included in
1996 results, interest expense decreased 8%. This decrease is due to lower
average debt balances resulting from the receipt of the proceeds from the sale
of ITT's remaining interest in Alcatel Alsthom and a majority of its investment
in MSG.
Miscellaneous expense reflects $9 for costs associated with the Hilton
Transaction. ITT recorded a pre-tax gain of $200 related to the sale of a
majority of its interest in MSG.
Income tax expense increased in the 1997 quarter on higher pretax earnings
due to the MSG sale. The minority equity represents the net income attributable
to the minority shareholders of ITT World Directories, ITT Educational and Ciga
S.p.A. and was essentially unchanged compared with the prior period.
Business Segments -- Revenues, EBITDA and operating income, excluding the
effects of overhead, restructuring charges, assets held for sale and minority
equity, for each of ITT's three major business segments were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1997 THREE MONTHS ENDED JUNE 30, 1996
- --------------------------------- ---------------------------------
OPERATING OPERATING
REVENUES EBITDA INCOME REVENUES EBITDA INCOME
- -------- ------ --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
$1,178 $153 $ 109 ....... Hotels ....... $1,120 $140 $ 102
</TABLE>
Hotels' 1997 second quarter generated EBITDA of $153, a 9% increase over
$140 in the 1996 quarter. Owned and leased hotels continued to be the primary
driver of this improved performance, with EBITDA increasing to $117 in the
quarter from $110 a year ago. The EBITDA margin at these properties was 29% for
the quarter, which was unchanged from the 1996 quarter. In North America, the
average daily rate at owned and leased hotels increased 10%, to $170, and
revenue per available room
10
<PAGE> 12
("REVPAR") rose 10%, to $127. Management continues to aggressively pursue
profitable expansion opportunities while seeking cost saving initiatives in each
of its market segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1997 THREE MONTHS ENDED JUNE 30, 1996
- --------------------------------- ---------------------------------
OPERATING OPERATING
REVENUES EBITDA INCOME REVENUES EBITDA INCOME
- -------- ------ --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
$251 $ 67 $51 ....... Gaming ....... $269 $ 78 $64
</TABLE>
Gaming's 1997 second quarter results reflect EBITDA of $67 compared with
$78 in the 1996 quarter. This decline is primarily related to the significant
construction activity at Caesars Palace and at Caesars Atlantic City, which is
expected to be completed by year-end.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1996 THREE MONTHS ENDED JUNE 30, 1996
- --------------------------------- ---------------------------------
OPERATING OPERATING
REVENUES EBITDA INCOME REVENUES EBITDA INCOME
- -------- ------ --------- -------- ------ ---------
<C> <C> <C> <S> <C> <C> <C>
... Information
$294 $ 89 $82 Services ................ $301 $101 $94
</TABLE>
Results at ITT World Directories reflect lower revenues, EBITDA and
operating income due to unfavorable effects of currency exchange and slightly
higher distribution and marketing costs at certain of its operating units.
ITT Educational continued to grow its revenues and earnings during the
quarter through increased student enrollment due to the introduction of new
baccalaureate programs and expanded curricula offerings. Operating margins at
ITT Educational benefited from improved results at new colleges opened over the
last three years and controlled expense growth.
Six months ended June 30, 1997 compared with six months ended June 30, 1996
Revenues of $3,215 in the 1997 period increased 2% compared with $3,140 in
the corresponding 1996 period. Hotel revenues, which increased 6% due to strong
average daily rate gains, were the primary driver of this improvement. Excluding
the results of the two gaming properties planned for disposition, Gaming
revenues decreased 4% due to the impacts of the continued construction projects
at Caesars Palace and Caesars Atlantic City. Revenues at ITT Educational
increased 13% due to strong gains in total student enrollment over the prior
period and tuition price increases. Revenues at ITT World Directories decreased
4% due primarily to the unfavorable effects of currency exchange.
Salaries, benefits and other operating expenses increased 4% in the period
to $2,343 from $2,260 in the 1996 period. This increase primarily reflects the
costs of acquired hotel properties. Selling, general and administrative expenses
increased 1% in the period to $413 from $410 in the 1996 period. This increase
is attributable to hotel property additions, whose impact more than offset a
decrease in the Gaming segment. Included in the 1997 six month period is a
restructuring charge of $58 for severance and other costs to streamline ITT's
World Headquarters operations. Excluding the impact of this restructuring
charge, selling, general and administrative expenses increased 1% in the period.
Excluding the results of assets held for sale and the 1997 restructuring
charge described above, EBITDA was $471 in the 1997 period compared with $450 in
the 1996 period, a 5% improvement. This improvement reflects significant
increases in average room rates, particularly in owned and leased properties,
and the benefits of hotel acquisitions somewhat offset by the unfavorable
effects of currency exchange at ITT World Directories and construction impacts
at Caesars Palace and Caesars Atlantic City. Depreciation and amortization
increased 16% compared with the prior period due primarily to the impact of
hotel acquisitions. Operating income was unchanged from the prior period.
Net interest expense decreased to $110 in the 1997 period from $118 in the
1996 period. Excluding $6 of interest income on the Cablevision note included in
the second quarter 1996 results, interest expense decreased 11%. This decrease
is due to lower average debt balances from asset dispositions (see "-- Liquidity
and Capital Resources" for a more detailed discussion of these asset
dispositions).
11
<PAGE> 13
Miscellaneous expense reflects $29 for costs associated with the Hilton
Transaction. ITT recorded a pre-tax gain of $200 related to the sale of a
majority of its interest in MSG and a pre-tax gain of $183 related to the sale
of its remaining interest in Alcatel Alsthom.
Income tax expense increased in the 1997 period on higher pretax earnings
due to the sales of a majority of ITT's interest in MSG and its remaining
interest in Alcatel Alsthom. The minority equity represents the net income
attributable to the minority shareholders of ITT World Directories, ITT
Educational and Ciga S.p.A. and was essentially unchanged compared with the
prior period.
Business Segments -- Revenues, EBITDA and operating income, excluding the
effects of overhead, restructuring charges, assets held for sale and minority
equity, for each of ITT's three major business segments were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 SIX MONTHS ENDED JUNE 30, 1996
- --------------------------------- ---------------------------------
OPERATING OPERATING
REVENUES EBITDA INCOME REVENUES EBITDA INCOME
- -------- ------ --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
$2,220 $270 $ 181 ....... Hotels ....... $2,086 $230 $ 158
</TABLE>
Hotels generated EBITDA of $270 in the 1997 six month period, a 17%
increase over $230 in the 1996 period. Owned and leased hotels continued to be
the primary driver of this improved performance, with EBITDA increasing to $200
in the period from $177 a year ago. The EBITDA margin at these properties was
27% for the period, compared with 26% in the 1996 period. In North America, the
average daily rate at owned hotels increased 10%, to $171, and REVPAR rose 10%,
to $125.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 SIX MONTHS ENDED JUNE 30, 1996
- --------------------------------- ---------------------------------
OPERATING OPERATING
REVENUES EBITDA INCOME REVENUES EBITDA INCOME
- -------- ------ --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
$514 $132 $98 ....... Gaming ....... $534 $149 $ 117
</TABLE>
Gaming's 1997 six month results, reflect EBITDA of $132 compared with $149
in the 1996 period. This decline is primarily related to the significant
construction activity at Caesars Palace and at Caesars Atlantic City, which is
expected to be completed by year-end.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 SIX MONTHS ENDED JUNE 30, 1996
- --------------------------------- ---------------------------------
OPERATING OPERATING
REVENUES EBITDA INCOME REVENUES EBITDA INCOME
- -------- ------ --------- -------- ------ ---------
<C> <C> <C> <S> <C> <C> <C>
... Information
$400 $107 $93 Services ................ $398 $117 $ 103
</TABLE>
Results at ITT World Directories reflect lower revenues, EBITDA and
operating income due to unfavorable effects of currency exchange and slightly
higher distribution and marketing costs at certain of its operating units.
ITT Educational continued to grow its revenues and earnings during the
period through increased student enrollment due to the introduction of new
baccalaureate programs and expanded curricula offerings and tuition price
increases. Operating margins at ITT Educational benefited from improved results
at new colleges opened over the last three years and controlled expense growth.
DISPOSITIONS
At the two Gaming properties planned for disposition, The Desert Inn in Las
Vegas, Nevada, experienced a $17 EBITDA loss in the six months ended June 30,
1997 compared with EBITDA of $1 in the 1996 period. This loss was due to a
negative win percentage in bacarrat in the first quarter and construction
disruption. The Sheraton Casino in Tunica, Mississippi, posted EBITDA of $6 for
the six months ended June 30, 1997 compared with $11 in the 1996 period. The
effects of increased local competition continued to depress results at this
property. On August 1, 1997, ITT Sheraton Corporation entered into an agreement
in principle with Davis Gaming to form two 50/50 joint ventures to own The
Desert Inn and the 34 acre parcel of land adjacent to the Desert Inn. A
description of this agreement in principle is contained in the notes to the
financial statements contained in this Form 10-Q under "Net Assets Held For
Sale".
12
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
ITT expects to arrange credit facilities to provide borrowings to
Destinations and borrowings and proceeds from debt securities issuances of ITT
World Directories and its subsidiaries necessary to consummate the Tender Offers
and repayment of certain other indebtedness and to provide working capital to
each company following the Distributions. ITT has received a letter from The
Chase Manhattan Bank and Chase Securities Inc. stating that they are highly
confident that they will be able to arrange these borrowings in amounts
sufficient to consummate the Tender Offers and other elements of the
Comprehensive Plan.
Upon the consummation of the Distributions and the Tender Offers,
Destinations and ITT will be more leveraged than ITT was prior to the
consummation of the Distributions and will have indebtedness that is substantial
in relation to stockholders' equity. This high degree of leverage could have
important consequences for stockholders, including the following: (i) ITT's and
Destinations' ability to obtain additional financing on favorable terms may be
impaired in the future; (ii) a substantial portion of ITT's and Destinations'
cash flow from operations will be dedicated to the payment of principal and
interest on their indebtedness, thereby reducing the funds available for other
purposes; (iii) covenants contained in the credit facilities or other financing
agreements may restrict ITT's and Destinations' ability to dispose of assets,
incur additional indebtedness, repay other indebtedness or amend other debt
instruments, pay dividends, create liens on assets, make investments or
acquisitions, engage in mergers or consolidations, make capital expenditures, or
engage in other corporate activities; (iv) ITT and Destinations may be more
leveraged than some of their respective competitors, which may place them at a
competitive disadvantage; and (v) ITT's and Destinations' substantial degree of
leverage may hinder their ability to adjust rapidly to changing market
conditions and could make them more vulnerable in the event of a downturn in
general economic conditions or in their businesses.
ITT's and Destinations' ability to make scheduled payments or refinance
their obligations with respect to their indebtedness will depend on their
financial and operating performance, which, in turn, is subject to prevailing
economic conditions and to certain financial, business and other factors beyond
ITT's and Destinations' control. If cash flow and capital resources are
insufficient to fund its debt service obligations, ITT and Destinations may be
forced to reduce or delay planned expansion and capital expenditures, sell
assets, obtain additional equity capital or restructure their debt. In addition,
certain states' laws contain restrictions on the ability of companies engaged in
the gaming business to undertake certain financing transactions. Such
restrictions may prevent Destinations from obtaining necessary capital in a
timely manner. Although the management of ITT and Destinations believe that
ITT's and Destinations' cash flow will be adequate to meet interest and
principal payments, there can no assurances that operating results, cash flow
and capital resources will be sufficient for payment of their indebtedness in
the future.
ITT's EBITDA, excluding assets held for sale and the 1997 first quarter
restructuring charge, increased 5% reflecting strong earnings growth in Hotels.
Cash flows are expected to be sufficient to service indebtedness, satisfy tax
obligations and fund maintenance capital expenditures and other liquidity needs.
Currently unanticipated liquidity needs would be expected to be funded through
traditional debt or equity financing, asset sales or any combination thereof.
Cash from operating activities, as defined by SFAS No. 95 "Statement of
Cash Flows" and excluding the impacts of divestments was strong in both periods.
The SFAS definition of cash from operating activities differs from EBITDA
largely due to the inclusion of interest, income taxes and changes in working
capital.
On June 27,1996, ITT announced a capital expenditure program to upgrade and
expand its existing gaming operations. Approximately $495 is expected to be
invested at Caesars Palace and approximately $280 is expected to be invested at
Caesars Atlantic City. ITT is also in the process of renovating The Desert Inn.
This renovation commenced in 1995 and is expected to be completed in the third
quarter of 1997 at a total cost of approximately $175. In addition to the
expansion of existing gaming operations, ITT is constructing a riverboat casino
and a hotel in Harrison County, Indiana, at a cost of approximately $270.
13
<PAGE> 15
Construction on certain of these projects has commenced. Total capital
expenditures related to these projects is estimated to be $840 and $270 in 1997
and 1998, respectively. Destinations plans to finance this capital expenditure
program from a combination of cash generated from operations, net proceeds
received from the issuance of securities and the sale of non-strategic assets.
These capital expenditures, and the timing of these capital expenditures, are
dependent upon many factors, including business conditions during the
construction period. Major construction projects, such as the program described
above, entail significant risks, including shortages of skilled labor or
materials, unforeseen environmental, engineering or geological problems, work
stoppages and weather interference, all of which could result in unanticipated
cost increases and delays.
ITT has entered into an agreement in principle to form a joint venture with
Planet Hollywood International, Inc. ("Planet Hollywood") to develop, own and
operate "Planet Hollywood" themed hotel/casinos. ITT expects that the joint
venture will initially develop a Planet Hollywood Hotel and Casino in Las Vegas,
Nevada, and later in Atlantic City, New Jersey, as market conditions warrant.
Although ITT and Planet Hollywood have entered into an agreement in principle,
ITT and Planet Hollywood have not completed the negotiation of definitive
documentation.
On February 11, 1997, ITT sold 3 million shares of capital stock of Alcatel
Alsthom for approximately $300. On March 27, 1997, ITT sold its remaining 4.5
million shares of capital stock of Alcatel Alsthom for approximately $530.
Proceeds from these sales were used for general corporate purposes, including
debt reduction.
On February 18, 1997, ITT received $169 as payment of the remaining amount
necessary to equalize the partnership interests of Cablevision and ITT in MSG.
On July 17, 1997, ITT closed the first transfer under the Partnership Interest
Transfer Agreement. At such closing, MSG redeemed a portion of ITT's interest in
MSG, such that after such redemption ITT owned an 11.5% limited partnership
interest in MSG, for $493.5, and the general partner of MSG redeemed all of the
shares of its capital stock owned by ITT for $6.5. In addition, at such closing,
Cablevision caused SportsChannel Associates, a New York general partnership, to
be contributed as a capital contribution to MSG, which diluted ITT's limited
partnership interest in MSG to 10.2%. ITT has a "put" option to require
Cablevision to purchase (or cause MSG to redeem) half of ITT's continuing
interest in MSG for $75 on June 17, 1998 and ITT's other half of this continuing
interest for an additional $75 (or if the first "put" is not exercised on June
17, 1998, ITT's entire continuing interest for $150) on June 17, 1999. On June
17, 2000, Cablevision has the right to purchase (or cause MSG to redeem) ITT's
remaining interest in MSG at a price determined by an investment banking firm to
be fair market value, subject to a floor price equal to the proportionate "put"
price. In addition, Cablevision has the right to purchase (or cause MSG or
redeem) ITT's remaining interest in MSG upon a "change of control" (as defined
in the MSG Agreement) of ITT, at a price equal to the proportionate "put" price,
payable, at Cablevision's election, in cash or debt securities of Cablevision.
ITT also has the right to cause to be contributed as a capital contribution to
MSG an aircraft owned by ITT a value of $38. If ITT causes such contribution to
occur, each of the "put" prices will be increased by $19 (or if the first "put"
option is not exercised, $38) and the floor price in respect of Cablevision's
third-year call right and the price payable upon the exercise of Cablevision's
change of control call right will be correspondingly increased. In the event
Cablevision does not exercise its third-year call right, ITT's percentage
interest in MSG will be increased to reflect a capital contribution to MSG of
$38 due to the contribution of the aircraft.
On May, 12, 1997, ITT and Dow Jones & Co. signed a definitive agreement to
sell WBIS+, Channel 31 in New York City, to Paxson Communications Corporation
("Paxson") for a purchase price of approximately $258. The closing of the sale
of WBIS+ is subject to regulatory approval, and is expected to occur in the
fourth quarter of 1997. Paxson currently provides the station's programming
under a time brokerage agreement until the transaction closes.
On June 30, 1997, the ITT sold to FelCor Suite Hotels, Inc. five Sheraton
hotels for $200 in cash and retained a 20-year contract to manage these hotels,
subject to a limited change of control provision.
14
<PAGE> 16
Capital expenditures totaled $480 in the 1997 six month period, 23% and 74%
at the Hotels and Gaming segments, respectively, compared with $239 in the 1996
six month period, with 51% and 34% attributable to the Hotels and Gaming
segments, respectively.
External borrowings were $3.03 billion and $4.19 billion at June 30, 1997
and December 31, 1996, respectively. This decrease was funded primarily with
proceeds related to the sale of ITT's interest in Alcatel Alsthom, the payment
by Cablevision of the amount required to equalize its interest in MSG and the
sale of a majority of ITT's investment in MSG.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See the Exhibit Index for a list of exhibits filed herewith.
(b) There were no reports on Form 8-K filed by ITT during the quarter for
which this report is filed.
15
<PAGE> 17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ITT CORPORATION
By /s/ J.F. DANSKI
------------------------------------
J.F. Danski
Senior Vice President and Controller
(Principal Accounting Officer)
August 14, 1997
II-1
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION LOCATION
- ------- -------------------------------------- -------------------------------------------------
<C> <S> <C>
3.1 Restated Articles of Incorporation.... Incorporated by reference to Exhibit 3.1 to the
Registrant's Amendment No. 1 to Form 10/A dated
November 13, 1995 (File No. 1-13960).
3.2 Certificate of Amendment of Articles
of Incorporation...................... Incorporated by reference to Exhibit 1 to the
Registrant's Current Report on Form 8-K dated
December 22, 1995 (File No. 1-13960).
3.3 Amended and Restated By-Laws.......... Incorporated by reference to Exhibit 3.3 to the
Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1996 (File
No. 1-13960).
4.1 Specimen common share certificate..... Incorporated by reference to Exhibit 4.1 to the
Registrant's Amendment No. 1 to Form 10/A dated
November 13, 1995 (File No. 1-13960).
4.2 Rights Agreement dated as of November
1, 1995 between the Registrant and The
Bank of New York...................... Incorporated by reference to Exhibit 4.4 to the
Registrant's Amendment No. 1 to Form 10/A dated
November 13, 1995 (File No. 1-13960).
4.3 Form of Certificate of Voting Powers,
Preferences and Relative
Participating, Optional and Other
Special Rights and Qualifications,
Limitations or Restrictions of Series
A Participating Cumulative Preferred
Stock................................. Incorporated by reference to Exhibit 4.4
(attached as Exhibit A thereto) to the
Registrant's Amendment No. 1 to Form 10/A dated
November 13, 1995 (File No. 1-13960).
4.4 Form of Right Certificate............. Incorporated by reference to Exhibit 4.4
(attached as Exhibit B thereto) to the
Registrant's Amendment No. 1 to Form 10/A dated
November 13, 1995 (File No. 1-13960).
4.5 Other instruments defining rights of
security holders, including
indentures............................ The Registrant hereby agrees to file with the
Commission a copy of any instrument defining the
rights of long-term debt holders of the
Registrant and its consolidated subsidiaries upon
the request of the Commission.
10.1 Distribution Agreement among ITT
Industries, Inc., the Registrant and
ITT Hartford Group, Inc............... Incorporated by reference to Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 (File No. 1-13960).
</TABLE>
II-2
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION LOCATION
- ------- -------------------------------------- -------------------------------------------------
<C> <S> <C>
10.2 Intellectual Property License
Agreement between and among ITT
Industries, Inc., the Registrant and
ITT Hartford Group, Inc............... Incorporated by reference to Exhibit 10.2 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 (File No. 1-13960).
10.3 Trademark Assignment Agreement between
ITT Industries, Inc. and the
Registrant............................ Incorporated by reference to Exhibit 10.3 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 (File No. 1-13960).
10.4 License Assignment Agreement between
ITT Industries, Inc. and the
Registrant............................ Incorporated by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 (File No. 1-13960).
10.5 License Assignment Agreement among the
Registrant, ITT Hartford Group, Inc.
and Nutmeg Insurance Company.......... Incorporated by reference to Exhibit 10.5 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 (File No. 1-13960).
10.6 License Assignment Agreement among the
Registrant, Nutmeg Insurance Company
and Hartford Fire Insurance Company... Incorporated by reference to Exhibit 10.6 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 (File No. 1-13960).
10.7 Tax Allocation Agreement among ITT
Industries, Inc., the Registrant and
ITT Hartford Group, Inc............... Incorporated by reference to Exhibit 10.7 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 (File No. 1-13960).
10.8.. Employee Benefit Services and
Liability Agreement among ITT
Industries, Inc., the Registrant and
ITT Hartford Group, Inc............... Incorporated by reference to Exhibit 10.8 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 (File No. 1-13960).
10.9 Form of ITT Corporation 1996
Restricted Stock Plan for Non-Employee
Directors............................. Incorporated by reference to Exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 (File No. 1-13960).
</TABLE>
II-3
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION LOCATION
- ------- -------------------------------------- -------------------------------------------------
<C> <S> <C>
10.10 Form of indemnification agreement with
members of the Board of Directors..... Incorporated by reference to Exhibit 10.10 to the
Registrant's Form 10 dated September 18, 1995
(File No. 1-13960).
10.11 Form of 1995 ITT Corporation Incentive
Stock Plan............................ Incorporated by reference to Exhibit 10.11 to the
Registrant's Form 10 dated September 18, 1995
(File No. 1-13960).
10.12 Form of ITT Corporation Senior
Executive Severance Pay Plan.......... Incorporated by reference to Exhibit 99.4 to the
Registrant's Schedule 14D-9 dated February 12,
1997 (File No. 1-13960).
10.13 Form of R.V. Araskog employment
agreement............................. Incorporated by reference to Exhibit 10.13 to the
Registrant's Form 10 dated September 18, 1995
(File No. 1-13960).
10.14 364-Day Competitive Advance and
Revolving Credit Facility Agreement
dated as of November 5, 1996 among the
Registrant, the lenders parties
thereto and The Chase Manhattan Bank,
as administrative agent............... Incorporated by reference to Exhibit 10.14 to the
Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1996
(File No. 1-13960).
10.15 Five-Year Competitive Advance and
Revolving Credit Facility Agreement
dated as of November 5, 1996 among the
Registrant, the lenders parties
thereto and The Chase Manhattan Bank,
as issuing bank and administrative
agent................................. Incorporated by reference to Exhibit 10.15 to the
Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1996
(File No. 1-13960).
10.16 First Amendment to Employment and
Consulting Agreement dated as of
December 19, 1995 between the
Registrant and R.V. Araskog........... Incorporated by reference to Exhibit 99.2 to the
Registrant's Schedule 14D-9 dated February 12,
1997 (File No. 1-13960).
11 Statement re computation of per share
earnings.............................. None.
12 Statement re computation of ratios.... Filed herewith.
15 Letter re unaudited interim financial
information........................... None.
18 Letter re change in accounting
principles............................ None.
19 Report furnished to security
holders............................... None.
13 Annual report to security holders..... None.
</TABLE>
II-4
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION LOCATION
- ------- -------------------------------------- -------------------------------------------------
<C> <S> <C>
22 Published report regarding matters
submitted to vote of security
holders............................... None.
23 Consents of experts and counsel....... None.
24 Power of attorney..................... None.
27 Financial data schedule............... Filed herewith.
99 Additional exhibits................... None.
99.1 Schedule 14D-9 of the Registrant dated
February 12, 1997..................... Incorporated by reference to the Registrant's
Schedule 14D-9 dated February 12, 1997 (File No.
1-13960).
99.2 Certain Information relating to the
Private Securities Litigation Reform
Act................................... Incorporated by reference to Exhibit 99.2 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996 (File No. 1-13960).
</TABLE>
II-5
<PAGE> 1
EXHIBIT 12
ITT CORPORATION AND SUBSIDIARIES
CALCULATION OF RATIO OF EARNINGS TO TOTAL FIXED CHARGES
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
30,
-------------
1997 1996
---- ----
<S> <C> <C>
Earnings:
Net Income........................................................... $279 $116
Add:
Adjustment for distributions (less than) in excess of undistributed
equity earnings and losses (a).................................. (3) 4
Income taxes....................................................... 213 100
Minority equity in net income...................................... 15 16
Amortization of interest capitalized............................... 3 2
---- ----
507 238
---- ----
Fixed Charges:
Interest and other financial charges............................... 120 146
Interest factor attributable to rentals (b)........................ 13 13
---- ----
133 159
---- ----
Earnings, as adjusted................................................ $640 $397
==== ====
Fixed Charges:
Fixed charges above................................................ $133 $159
Interest capitalized............................................... 11 8
---- ----
Total fixed charges................................................ $144 $167
==== ====
Ratio:
Earnings, as adjusted, to total fixed charges...................... 4.44 2.38
==== ====
</TABLE>
- ---------------
Notes:
a) The adjustment for distributions in excess of (less than) undistributed
equity earnings and losses represents the adjustments to income for
distributions in excess of (less than) undistributed earnings and losses of
companies in which at least 20% but less than 50% equity is owned.
b) The interest factor attributable to rentals consists of one third of rental
charges, deemed by ITT to be representative of the interest factor inherent
in rents.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 FINANCIAL STATEMENTS INCLUDED IN FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 337
<SECURITIES> 0
<RECEIVABLES> 725
<ALLOWANCES> 109
<INVENTORY> 95
<CURRENT-ASSETS> 1,216
<PP&E> 5,289
<DEPRECIATION> 777
<TOTAL-ASSETS> 8,463
<CURRENT-LIABILITIES> 1,384
<BONDS> 3,028
0
0
<COMMON> 2,903
<OTHER-SE> 443
<TOTAL-LIABILITY-AND-EQUITY> 8,463
<SALES> 0
<TOTAL-REVENUES> 3,215
<CGS> 0
<TOTAL-COSTS> 2,963
<OTHER-EXPENSES> 18
<LOSS-PROVISION> 26
<INTEREST-EXPENSE> 110
<INCOME-PRETAX> 507
<INCOME-TAX> 213
<INCOME-CONTINUING> 279
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 279
<EPS-PRIMARY> 2.37
<EPS-DILUTED> 2.37
</TABLE>
