<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 MARCH 31, 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
NEVADA 88-0340591
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
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 APRIL 30, 1997, THERE WERE OUTSTANDING 116,455,794 SHARES OF COMMON STOCK,
NO PAR VALUE, OF THE REGISTRANT.
<PAGE> 2
ITT CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
PART I FINANCIAL INFORMATION
1 Financial Statements:
Consolidated Income - Three Months Ended March 31, 1997 and 1996 ..... 2
Consolidated Balance Sheet - March 31, 1997 and December 31, 1996 .... 3
Consolidated Cash Flow - Three Months Ended March 31, 1997 and 1996 .. 4
Notes to Financial Statements ........................................ 5
Business Segment Information ......................................... 8
2 Management's Discussion and Analysis of Financial Condition and
Results of Operations .............................................. 9
PART II OTHER INFORMATION
6 Exhibits and Reports on Form 8-K ..................................... 12
Signature ............................................................ II-1
Exhibit Index ........................................................ II-2
</TABLE>
1
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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's 1996 Annual
Report on Form 10-K.
ITT CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME
(IN MILLIONS EXCEPT PER SHARE)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------
1997 1996
------- -------
<S> <C> <C>
Revenues ......................................... $ 1,440 $ 1,388
Costs and expenses:
Salaries, benefits and other operating ......... 1,075 1,018
Selling, general and administrative ............ 261 207
Depreciation and amortization .................. 76 63
------- -------
1,412 1,288
------- -------
28 100
Interest expense, net ............................ (55) (64)
Gain on sale of Alcatel Alsthom shares ........... 183 --
Miscellaneous expense, net ....................... (20) (2)
------- -------
136 34
Income tax expense ............................... (57) (15)
Minority equity .................................. 1 1
------- -------
Net income ....................................... $ 80 $ 20
======= =======
Earnings per share ............................... $ 0.68 $ 0.17
======= =======
Weighted average common equivalent shares ........ 117.9 118.8
======= =======
</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>
MARCH 31, DECEMBER 31,
1997 1996
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................. $ 233 $ 224
Marketable securities ...................................... -- 599
Receivables -
Accounts receivable, net ................................ 524 659
Sale of Alcatel Alsthom shares .......................... 533 --
Inventories ................................................ 104 103
Prepaid expenses and other ................................. 145 113
------- -------
Total current assets .................................... 1,539 1,698
Plant, property and equipment, net ............................ 4,483 4,746
Investment in Madison Square Garden ........................... 368 533
Other investments ............................................. 344 387
Long-term receivables, net .................................... 171 186
Other assets .................................................. 428 367
Goodwill, net ................................................. 1,332 1,358
Net assets held for sale ...................................... 330 --
------- -------
$ 8,995 $ 9,275
======= =======
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable ............................................ $ 259 $ 312
Accrued expenses ............................................ 577 551
Notes payable and current maturities of long-term debt ...... 303 297
Other current liabilities ................................... 257 231
------- -------
Total current liabilities ................................ 1,396 1,391
Long-term debt ................................................ 3,557 3,894
Deferred income taxes ......................................... 203 196
Other liabilities ............................................. 432 430
Minority interest ............................................. 266 290
------- -------
5,854 6,201
------- -------
Stockholders Equity:
Common stock: authorized 200,000,000 shares, no par or stated
value, outstanding 116,429,113 and 116,366,176 shares,
respectively ............................................. 2,899 2,897
Cumulative translation adjustment ........................... (79) (2)
Unrealized loss on securities ............................... -- (62)
Retained earnings ........................................... 321 241
------- -------
Total stockholders equity ............................... 3,141 3,074
------- -------
$ 8,995 $ 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>
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
------ ------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ............................................. $ 80 $ 20
Adjustments to net income:
Depreciation and amortization ........................ 76 63
Provision for doubtful receivables ................... 12 9
Gain on divestments - pretax ......................... (201) (8)
Changes in working capital:
Receivables .......................................... 62 98
Inventories .......................................... (6) (12)
Accounts payable ..................................... (61) (46)
Accrued expenses ..................................... 62 (24)
Accrued and deferred taxes ............................. 34 (35)
Other, net ............................................. (18) (7)
----- -----
Cash from operating activities ....................... 40 58
----- -----
INVESTING ACTIVITIES
Additions to plant, property and equipment ............. (187) (86)
Proceeds from divestments .............................. 365 21
Acquisitions, net of acquired cash ..................... (31) --
Other, net ............................................. 111 (7)
----- -----
Cash from/(used for) investing activities ............ 258 (72)
----- -----
FINANCING ACTIVITIES
Short-term debt, net ................................... 37 (12)
Long-term debt issued .................................. 73 42
Long-term debt repaid .................................. (396) (58)
Other, net ............................................. 1 49
----- -----
Cash (used for)/from financing activities ............ (285) 21
----- -----
EXCHANGE RATE EFFECT ON CASH AND CASH EQUIVALENTS ...... (4) --
----- -----
Increase in cash and cash equivalents .................. 9 7
Cash and cash equivalents -- Beginning of Period ....... 224 177
----- -----
CASH AND CASH EQUIVALENTS -- END OF PERIOD ............. $ 233 $ 184
===== =====
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ........................................... $ 31 $ 39
===== =====
Income taxes ....................................... $ 22 $ 35
===== =====
</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" or the "Corporation") 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 410 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 many countries outside the
United States and owns and operates post-secondary educational institutions in
the United States.
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 $39 and $42 for the
three months ended March 31, 1997 and 1996, respectively. The estimated cost of
such promotional allowances was $30 and $28 for the three months ended March 31,
1997 and 1996, respectively, and has been included in costs and expenses.
Revenues and costs and expenses of the Gaming operations are comprised
of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------
1997 1996
---------------------- -----------------------
COSTS AND COSTS AND
REVENUES EXPENSES REVENUES EXPENSES
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Gaming ............................ $231 $152 $262 $147
Rooms ............................. 16 6 18 6
Food and beverage ................. 18 17 20 20
Other operations .................. 27 14 24 13
Selling, general and administrative -- 50 -- 57
Depreciation and amortization ..... -- 21 -- 21
Provision for doubtful accounts ... -- 10 -- 7
---- ---- ---- ----
Total ....... $292 $270 $324 $271
==== ==== ==== ====
</TABLE>
SALE OF ALCATEL ALSTHOM SHARES
During February and March 1997, ITT sold its remaining interest in the
capital stock of Alcatel Alsthom. Total proceeds from these sales were
approximately $830, resulting in an after-tax gain of $106 ($183 pretax), or 90
cents per share. On April 10, 1997, ITT received the remaining balance of $533
from these sales.
5
<PAGE> 7
ITT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(Dollars in millions except per share)
INVESTMENT IN MADISON SQUARE GARDEN
On April 15, 1997, ITT entered into definitive documentation with
respect to its previously announced agreement in principle to sell its 50%
interest in Madison Square Garden, L.P. ("MSG") to Cablevision Systems
Corporation ("Cablevision"). The transaction is expected to be completed as
early as June 1, 1997. Cablevision has received a commitment letter from a
financial institution for funding for the purchase and the closing is not
subject to a financing condition. It is subject only to approval by the National
Basketball Association and the National Hockey League and other customary
closing conditions.
Pursuant to a Partnership Interest Transfer Agreement dated as of April
15, 1997, among ITT, ITT Eden Corporation, ITT MSG, Inc., Cablevision, Rainbow
Media Holdings, Inc., Rainbow Garden Corp., Garden L. P. Holding Corp., MSG Eden
Corporation and MSG (the "Partnership Interest Transfer Agreement"), Cablevision
will pay ITT $500 in cash at closing. ITT also has a "put" option to require
Cablevision or MSG to purchase half of ITT's continuing interest in MSG for $75
on the first anniversary of the closing and the other half of this continuing
interest for an additional $75 on the second anniversary of the closing (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 the third anniversary
of the closing 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
pro forma basic and diluted earnings per share under SFAS No. 128 would have
been $.69 and $.68, respectively, for the three months ended March 31, 1997 and
$.17 and $.17, respectively, for the three months ended March 31, 1996.
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. The Hilton Tender Offer has been extended to May 30, 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 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 $55 per share, subject to unspecified
collar provisions. The Hilton Transaction is more fully
6
<PAGE> 8
ITT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions except per share)
described in the Tender Offer Statement on Schedule 14D-1 filed by Hilton with
the Securities and Exchange Commission.
RECLASSIFICATIONS
Certain amounts in the 1996 financial statements have been reclassified
to conform to the current year presentation.
RESTRUCTURING CHARGE
In the first quarter, ITT recorded a $58 pretax charge to restructure
and rationalize its World Headquarters operations. Of the total pretax charge,
$28 represents severance and other related employee termination costs
associated with the elimination of nearly 115 positions. It is expected that
the majority of the severance costs will be paid by the end of 1997. The
balance of the restructuring charge ($30 pretax) relates to charges for reduced
facilities utilization.
SUBSEQUENT EVENTS
On April 29, 1997, ITT announced its intention to sell two of its Gaming
properties: The Desert Inn in Las Vegas, Nevada, 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 May 12, 1997, ITT Dow Jones Television, a general partnership in which
each of ITT and Dow Jones & Company, Inc. ("Dow Jones") owns a 50% interest,
agreed to sell the Federal Communications Commission license of WBIS+, Channel
31 in New York City, to Paxson Communications Corporation for a purchase price
of approximately $258. This agreement is subject to the approval of the Federal
Communications Commission, which is expected to be received in 1997. This
transaction is expected to be completed by the end of 1997.
7
<PAGE> 9
BUSINESS SEGMENT INFORMATION
(IN MILLIONS)
Business segment information is as follows:
<TABLE>
<CAPTION>
REVENUES INCOME
------------------- -------------------
THREE MONTHS ENDED MARCH 31,
-------------------------------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Hotels ......................... $ 1,042 $ 966 $ 72 $ 56
Gaming ......................... 263 265 47 53
Information Services ........... 106 97 11 9
------- ------- ------- -------
Ongoing Segments ............ 1,411 1,328 130 118
Dispositions ................... 29 60 (23) 4
------- ------- ------- -------
Total Segments .............. 1,440 1,388 107 122
Other .......................... -- -- (79) (22)
------- ------- ------- -------
1,440 1,388 28 100
Interest expense, net .......... (55) (64)
Gain on sale of Alcatel Alsthom 183 --
Miscellaneous expenses, net .... (20) (2)
Income tax expense ............. (57) (15)
Minority equity ................ 1 1
------- ------- ------- -------
$ 1,440 $ 1,388 $ 80 $ 20
======= ======= ======= =======
</TABLE>
8
<PAGE> 10
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 MARCH 31, 1997 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1996
Revenues of $1,440 in the 1997 first quarter increased 4% compared with
$1,388 in the corresponding 1996 quarter. Hotels revenues, which increased 8%
due to strong average daily rate gains, were the primary driver of this
improvement. Revenues at ITT World Directories, Inc. ("ITT World Directories")
remained basically unchanged due to a historically limited publishing schedule
in the first quarter. Revenues at ITT Educational Services, Inc. ("ITT
Educational Services") increased 12% as a result of tuition price increases,
increased census and the introduction of new baccalaureate programs which
attracted more applicants to its 59 post-secondary schools. Gaming revenues
decreased 10% due primarily to adverse results at The Desert Inn in Las Vegas,
Nevada and The Sheraton Casino in Tunica, Mississippi, the two gaming properties
planned for disposition; excluding the results at these two properties, Gaming
revenues were approximately unchanged. The Desert Inn's results were impacted by
negative win percentage in baccarat and construction disruption, while The
Sheraton Casino's results continued to reflect the effects of increased local
competition.
Salaries, benefits and other operating costs increased 6% in the
quarter to $1,075 from $1,018 in the 1996 quarter. This increase primarily
reflects the costs of acquired hotel properties and smaller increases in the
cost of services.
Selling, general and administrative expenses increased 26% to $261 in
the 1997 quarter compared with $207 in the 1996 quarter. Included in the 1997
quarter is a charge of $58 for severance and other costs to streamline the
Corporation's World Headquarters operations. Excluding the impact of this
restructuring charge, selling, general and administrative expenses declined 2%
compared with the prior period.
Excluding the restructuring charge and results of the two Gaming
properties held for sale, the Corporation's earnings before interest, taxes,
depreciation and amortization ("EBITDA") was $181 in the 1997 quarter compared
with $160 in the 1996 quarter, a 13% improvement. This improvement reflects
significant increases in average room rates, particularly in owned and leased
properties, and the benefits of hotel acquisitions. Depreciation and
amortization increased 21% compared with the prior period due primarily to the
impact of hotel acquisitions. Operating income increased 14%, when excluding the
impact of the restructuring charge and the two Gaming properties held for sale.
Net interest expense decreased significantly in the 1997 first quarter
compared with the 1996 first quarter. This decrease was due principally to the
lower average debt balance attributable to selected asset dispositions (see
"Liquidity and Capital Resources" for a more detailed discussion of these asset
dispositions) as well as slightly lower overall interest rates.
Miscellaneous expense reflects $20 for costs associated with the Hilton
Tender Offer. The Corporation recorded a pre-tax gain of $183 related to the
sale of its remaining interest in the capital stock of Alcatel Alsthom.
Income tax expense increased in the 1997 quarter on higher pretax
earnings due to improved operations and the sale of ITT's interest in the
capital stock of Alcatel Alsthom. The minority equity benefit includes the net
loss attributable to the minority shareholders of Ciga S.p.A. (this loss is due
to the seasonality of its business) which was partially offset by the net income
attributable to the minority shareholders of ITT Educational Services.
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 MARCH 31, 1997 THREE MONTHS ENDED MARCH 31, 1996
- ------------------------------------ -------------------------------------
OPERATING OPERATING
REVENUES EBITDA INCOME REVENUES EBITDA INCOME
- -------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
$1,042 $117 $72 ....... Hotels ....... $966 $90 $56
</TABLE>
9
<PAGE> 11
Hotels 1997 first quarter generated EBITDA of $117, a 30% increase over
EBITDA of $90 in the 1996 quarter. Owned hotels continued to be the primary
driver of this improved performance, with EBITDA increasing to $83 in the
quarter from $67 a year ago. The EBITDA margin at these properties was 25% for
the quarter compared with 22% in the 1996 quarter. In North America, the average
daily rate at owned hotels increased 11%, to $172, and revenue per available
room ("REVPAR") rose 11%, to $124. Worldwide owned hotels achieved average daily
rate increases of 11%, to $156, while REVPAR increased 9%, to $110. Management
continues to aggressively pursue profitable expansion opportunities while
seeking cost saving initiatives in each of its market segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997 THREE MONTHS ENDED MARCH 31, 1996
- ------------------------------------- ------------------------------------
OPERATING OPERATING
REVENUES EBITDA INCOME REVENUES EBITDA INCOME
- -------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
$263 $65 $47 ....... Gaming ....... $265 $71 $53
</TABLE>
Gaming's 1997 first quarter results, excluding assets held for sale,
reflect EBITDA of $65 compared with $71 in the 1996 quarter. This decline is
primarily related to the significant construction activity at Caesars Palace in
Las Vegas, Nevada which is expected to be completed by year-end. Caesars
Atlantic City in Atlantic City, New Jersey, continued to post impressive results
with a 14% EBITDA increase, despite construction disruptions and a soft local
gaming market.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997 THREE MONTHS ENDED MARCH 31, 1996
- ------------------------------------- ------------------------------------
OPERATING OPERATING
REVENUES EBITDA INCOME REVENUES EBITDA INCOME
- -------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
$106 $18 $11 ....... Information Services ....... $97 $16 $9
</TABLE>
Revenues at ITT World Directories for the comparable quarters were
basically unchanged as there are historically few directory publications in the
first quarter, while EBITDA and operating income improved due to the benefits of
continued cost containment.
ITT Educational Services continued to grow its revenues and earnings
during the quarter through tuition price increases, increased census and the
introduction of new baccalaureate programs which attracted more applicants to
its 59 post-secondary schools. Operating margins at ITT Educational Services
benefited from improved results at new colleges opened over the last three
years.
DISPOSITIONS
At the two Gaming properties planned for disposition, The Desert Inn
experienced a $22 EBITDA loss, due to a negative win percentage in baccarat and
construction disruption, and The Sheraton Casino posted 1997 first quarter
EBITDA of $3 compared to $6 in the 1996 quarter as a result of the continued
effects of increased local competition.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's EBITDA, excluding the 1997 first quarter
restructuring charge and assets held for sale, increased 13% in the quarter
reflecting strong earnings growth in Hotels and Information Services. Cash flows
are expected to be sufficient to service indebtedness, satisfy tax obligations
and fund maintenance capital expenditures and other liquidity needs. Additional
liquidity needs are 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," was strong in both quarters. 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.
10
<PAGE> 12
On June 27,1996, the Corporation announced a capital expenditure
program to upgrade and expand its existing gaming operations. Approximately $625
is expected to be invested at Caesars Palace and approximately $280 is expected
to be invested at Caesars Atlantic City. The Corporation 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, the
Corporation has announced that it will construct a riverboat casino and a hotel
in Harrison County, Indiana at a cost of approximately $270. Construction on
certain of these projects has commenced. Total capital expenditures related to
these projects is estimated to be $900 and $290 in 1997 and 1998, respectively.
The Corporation 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.
The Corporation has entered into an agreement in principle to form a
joint venture with Planet Hollywood to develop, own and operate "Planet
Hollywood" themed hotel/casinos. The Corporation 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. Currently,
the plans for these properties are in a preliminary stage, and the construction
will be conditioned upon receipt of all necessary consents, permits and
approvals. It is not currently anticipated that construction in Las Vegas would
commence prior to the first quarter of 1998 or that construction in Atlantic
City would commence prior to the first quarter of 2000. Although the Corporation
and Planet Hollywood have entered into an agreement in principle, the
Corporation and Planet Hollywood have not completed the negotiation of
definitive documentation. While the Corporation believes these negotiations are
in their final stages, there can be no assurances that definitive agreements
relating to the joint venture will be executed or that any of the proposed
projects will be commenced or completed.
On February 11, 1997, the Corporation sold 3 million shares of capital
stock of Alcatel Alsthom for approximately $300. On March 27, 1997, the
Corporation sold its remaining 4.5 million shares of capital stock of Alcatel
Alsthom for approximately $530. The proceeds from the March 27, 1997 sale were
received on April 10, 1997. Proceeds from these sales were used for general
corporate purposes, including debt reduction.
On February 18, 1997, the Corporation received $169 as payment of the
remaining amount necessary to equalize the partnership interests of Cablevision
and ITT in MSG. On April 15, 1997, ITT entered into definitive documentation
with respect to its previously announced agreement in principle to sell its 50%
interest in MSG to Cablevision. The transaction is expected to be completed as
early as June 1, 1997. Cablevision has received a commitment letter from The
Chase Manhattan Bank for funding for the purchase and the closing is not subject
to a financing condition. It is subject only to approval by the National
Basketball Association and the National Hockey League and other customary
closing conditions.
Pursuant to a Partnership Interest Transfer Agreement dated as of April
15, 1997, among ITT, ITT Eden Corporation, ITT MSG, Inc., Cablevision, Rainbow
Media Holdings, Inc., Rainbow Garden Corp., Garden L. P. Holding Corp., MSG Eden
Corporation and MSG (the "Partnership Interest Transfer Agreement"), Cablevision
will pay ITT $500 in cash at closing. ITT also has a "put" option to require
Cablevision or MSG to purchase half of ITT's continuing interest in MSG for $75
on the first anniversary of the closing and the other half of this continuing
interest for an additional $75 on the second anniversary of the closing (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 the third anniversary of the closing
at fair market value, but not below a minimum price based on the "put" prices.
Capital expenditures totaled $187 in the 1997 first quarter, 24% and
72% at the Hotels and Gaming segments, respectively, compared with $86 in the
1996 first quarter, with 61% and 36% attributable to the Hotels and Gaming
segments, respectively.
11
<PAGE> 13
External borrowings were $3.86 billion and $4.19 billion at March 31,
1997 and December 31, 1996, respectively. This decrease was funded primarily
with proceeds related to the sale of ITT's interest in Alcatel Alsthom and the
payment by Cablevision of the amount required to equalize its interest 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 the Corporation during the
quarter for which this report is filed.
12
<PAGE> 14
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)
May 14, 1997
II-1
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION LOCATION
- ------- ----------- --------
<S> <C> <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
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).
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).
</TABLE>
II-2
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION LOCATION
- ------- ----------- --------
<S> <C> <C>
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).
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).
</TABLE>
II-3
<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION LOCATION
- ------- ----------- --------
<S> <C> <C>
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.
22 Published report regarding matters submitted to vote of
security holders................................... None.
</TABLE>
II-4
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION LOCATION
- ------- ----------- --------
<S> <C> <C>
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>
THREE MONTHS
ENDED MARCH 31,
---------------
1997 1996
----- -----
<S> <C> <C>
Earnings:
Net Income .................................................. $ 80 $ 20
Add:
Adjustment for undistributed equity earnings and losses (a) (3) --
Income taxes .............................................. 57 15
Minority equity in net income ............................. (1) (1)
Amortization of interest capitalized ...................... 1 1
----- -----
134 35
----- -----
Fixed Charges:
Interest and other financial charges ...................... 61 83
Interest factor attributable to rentals (b) ............... 6 7
----- -----
67 90
----- -----
Earnings, as adjusted ....................................... $ 201 $ 125
===== =====
Fixed Charges:
Fixed charges above ....................................... $ 67 $ 90
Interest capitalized ...................................... 4 1
----- -----
Total fixed charges ....................................... $ 71 $ 91
===== =====
Ratio:
Earnings, as adjusted, to total fixed charges ............. 2.83 1.37
===== =====
</TABLE>
Notes:
a) The adjustment for undistributed equity earnings and losses represents the
elimination from income of both 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 the Corporation 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 March
31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 233
<SECURITIES> 0
<RECEIVABLES> 631
<ALLOWANCES> 107
<INVENTORY> 104
<CURRENT-ASSETS> 1,539
<PP&E> 5,265
<DEPRECIATION> 782
<TOTAL-ASSETS> 8,995
<CURRENT-LIABILITIES> 1,396
<BONDS> 3,860
0
0
<COMMON> 2,899
<OTHER-SE> 242
<TOTAL-LIABILITY-AND-EQUITY> 8,995
<SALES> 0
<TOTAL-REVENUES> 1,440
<CGS> 0
<TOTAL-COSTS> 1,412
<OTHER-EXPENSES> 20
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 55
<INCOME-PRETAX> 136
<INCOME-TAX> 57
<INCOME-CONTINUING> 80
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
</TABLE>
