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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from
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COMMISSION FILE NO. 1-5627
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ITT CORPORATION
INCORPORATED IN THE STATE OF DELAWARE
13-5158950
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
1330 AVENUE OF THE AMERICAS, NEW YORK, NY 10019-5490
(PRINCIPAL EXECUTIVE OFFICE)
TELEPHONE NUMBER: (212) 258-1000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT, ALL OF WHICH ARE
REGISTERED ON THE NEW YORK STOCK EXCHANGE, INC.:
COMMON STOCK, $1 PAR VALUE (ALSO REGISTERED ON PACIFIC STOCK EXCHANGE)
CUMULATIVE PREFERRED STOCK, WITHOUT PAR VALUE,
$2.25 CONVERTIBLE SERIES N (ALSO REGISTERED ON PACIFIC STOCK
EXCHANGE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /X/
The aggregate market value of the Common and Cumulative Preferred Stocks of
the registrant held by non-affiliates of the registrant on January 31, 1994,
was approximately $11.6 billion.
As of March 15, 1994, there were outstanding 117,539,083 shares of Common
Stock, $1 par value, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement filed or to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A involving the
election of directors at the annual meeting of the shareholders of the
registrant scheduled to be held on May 17, 1994, is incorporated by reference in
Part III of this Form 10-K.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
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<C> <C> <S> <C>
PART 1 Business of ITT...................................................... 1
I 2 Properties........................................................... 10
3 Legal Proceedings.................................................... 11
4 Submission of Matters to a Vote of Security Holders.................. 12
* Executive Officers of ITT............................................ 12
PART 5 Market for ITT's Common Stock and Related Stockholder Matters........ 13
II 6 Selected Financial Data.............................................. 14
7 Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 14
8 Financial Statements and Supplementary Data.......................... 23
9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................... 23
PART 10 Directors and Executive Officers of ITT.............................. 23
III 11 Executive Compensation............................................... 23
12 Security Ownership of Certain Beneficial Owners and Management....... 23
13 Certain Relationships and Related Transactions....................... 23
PART 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K..... 24
IV
Signatures.................................................................. II-1
Exhibit Index............................................................... II-2
</TABLE>
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* Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
PART I
ITEM 1. BUSINESS OF ITT
ITT Corporation is a Delaware corporation, with World Headquarters at 1330
Avenue of the Americas, New York, NY 10019-5490. Until December 31, 1983, the
corporation was known as International Telephone and Telegraph Corporation. It
is the successor (since 1968) to a Maryland corporation incorporated in 1920.
Unless the context otherwise indicates, references herein to ITT Corporation
("ITT") include its subsidiaries.
ITT is a diversified global enterprise engaged, either directly or through
subsidiaries, in manufacturing and selling automotive, defense and electronics,
and fluid technology products, in providing and selling insurance, financial and
communications and information services, and in hotel operations. In addition,
ITT owns approximately 6% of the outstanding capital shares of Alcatel Alsthom,
a French company which owns, among other things, Alcatel N.V., the largest
telecommunications equipment manufacturer in the world. ITT has approximately
98,000 employees.
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BUSINESS SEGMENTS*
<TABLE>
<CAPTION>
SALES AND REVENUES INCOME (LOSS)
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1993 1992 1991 1993 1992 1991
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(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL AND BUSINESS SERVICES
Insurance............................................... $10,338 $ 9,862 $ 9,242 $ 719 $ (513) $ 500
Finance................................................. 1,440 1,414 1,321 271 175 343
Communications & Information Services................... 800 817 684 162 170 149
MANUFACTURED PRODUCTS
Automotive.............................................. 3,580 3,498 2,933 164 118 71
Defense & Electronics................................... 1,671 1,927 1,985 51 (82) 83
Fluid Technology........................................ 1,030 1,070 1,064 95 67 83
HOTELS+................................................... 3,184 3,109 2,826 78 (28) 33
------- ------- ------- ------ ------- ------
Ongoing Segments.......................................... 22,043 21,697 20,055 1,540 (93) 1,262
Alcatel N.V............................................... -- 97 208
Dispositions and Other.................................... 719 1,280 1,481 105 (1,003) (246)
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TOTAL SEGMENTS............................................ 22,762 22,977 21,536 1,645 (999) 1,224
Gain on sale of Alcatel N.V............................... -- 942 --
Interest, net............................................. (147) (169) (177)
Other..................................................... (243) (203) (186)
Income tax (expense) benefit.............................. (345) 241 (166)
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Income (Loss) from Continuing Operations.................. 910 (188) 695
Discontinued Operations (after tax)....................... 53 (72) 54
Extraordinary Item, net of tax benefit of $25............. (50) -- --
Cumulative Effect of Accounting Changes
(SFAS Nos. 106 and 112), net of tax benefit of $322..... -- (625) --
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$22,762 $22,977 $21,536 $ 913 $ (885) $ 749
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* Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Business Segment Information,
included in the Notes to Financial Statements, which include descriptions of
Business Segments.
+ Total sales and revenues of the Hotels segment, including 100% of
unconsolidated revenues generated by franchised hotels, were $4.8, $4.8 and
$4.4 billion in 1993, 1992 and 1991, respectively.
FINANCIAL AND BUSINESS SERVICES
Insurance. ITT companies write commercial property and casualty insurance,
personal automobile and homeowners coverages and a variety of life and health
insurance plans. The businesses in the Insurance segment may be generally
categorized as (i) property and casualty insurance operations and (ii) life and
health insurance operations and, in both instances, their related investment
activities. ITT companies service the United States, Canada and Western Europe
and participate in the worldwide reinsurance market. Companies include Hartford
Fire Insurance Company and its subsidiaries (referred to collectively as "ITT
Hartford"). ITT Hartford is one of the United States' oldest and largest
international insurance organizations.
ITT Hartford is serviced in North America through its home office and 40
regional offices, and it is represented by approximately 6,000 independent
agents in North America. ITT Hartford operates in Western Europe through
independent brokers. It assumes reinsurance from other insurers and also cedes
reinsurance to other insurers or reinsurers in the world reinsurance market.
ITT's insurance operations are subject to regulation and supervision in the
states and other jurisdictions in which they are conducted, which may relate to,
among other things, the standards of solvency which must be met and maintained;
the licensing of insurers and their agents; the nature of and limitations on
investments; premium rates; restrictions on the size of risks which may be
insured under a single policy; approval of policy forms; periodic examinations
of the affairs of companies; and annual and other reports required to be filed
on the financial condition of companies or for other purposes.
Additional information with respect to ITT's property and casualty
insurance operations is set forth below under "Property and Casualty
Insurance--Liabilities for Unpaid Claims and Claim Adjustment Expenses."
Finance. This segment is comprised of ITT Financial Corporation, one of
the largest independent finance companies in the United States, with commercial
and consumer finance, related insurance and other financial services conducted
from offices located throughout the United States and in Puerto Rico, the U.S.
Virgin Islands, the Netherlands Antilles, Aruba and Panama. Commercial finance
operations are also conducted in Canada and the United Kingdom through
subsidiaries of ITT.
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Consumer finance operations include the buying, selling and originating of
residential mortgages, home equity lending and, to a limited extent, the
purchase from retail dealers of installment obligations arising from sales of
consumer goods and services.
Commercial finance operations include inventory financing, installment
lending, real estate financing and loans. Property insurance is made available
to certain retail dealers on the inventory financed.
A mortgage banking operation which includes a federally chartered savings
bank originates, buys, sells and services mortgages.
Communications and Information Services. ITT subsidiaries are engaged in
the publication of telephone directories, including classified directory
services for telephone subscribers in numerous countries outside the United
States, as well as in Puerto Rico and the U.S. Virgin Islands. Subsidiaries in
the United States also operate post-secondary career education and technical
schools and facilities. On March 14, 1994, ITT announced plans for an
underwritten public offering of up to 19.9% of the common stock of ITT
Educational Services Inc.
MANUFACTURED PRODUCTS
Automotive. With approximately twenty-six thousand employees in
seventy-one facilities located in twelve countries, ITT supplies braking,
electrical, suspension and mechanical systems and components to automotive
original equipment manufacturers worldwide. This segment, one of the world's
largest independent suppliers of such products, has expanded its customer base
by introducing sophisticated, high-technology products such as anti-lock brakes,
traction control systems, vehicle electrical components, fluid handling systems
and aftermarket products. More than half of the sales of this segment were made
in Europe in 1993, compared with almost three quarters in 1990.
Defense & Electronics. ITT companies in the defense sector of this segment
design, produce and operate numerous types of tactical communications equipment
for the military, navigation and air traffic control systems for civilian and
military aircraft, air and battlefield surveillance radar and night vision
equipment. Some of these subsidiaries also provide upgrading, maintenance and
training services for the military and other customers. A substantial portion of
the work in the defense sector is performed for the United States government
under prime contracts and subcontracts, some of which by statute are subject to
profit limitations and all of which are subject to termination by the
government.
ITT companies in the electronics sector of this segment operate in several
European countries, Japan and North America and produce a wide variety of
electronic connectors, switches, components and semiconductor devices which are
used in industrial, professional and telecommunications equipment as well as in
consumer appliances and automobiles. Night vision equipment, power supplies,
molded plastic components and electrical instruments are also produced for the
commercial and consumer markets.
Fluid Technology. This segment covers fluid handling products, which
include a wide range of pumps and heat exchangers; controls and instrumentation
products, including high-technology instruments for control and monitoring of
fluids and energy conservation; and a broad range of valves. ITT is one of the
largest pump manufacturers in the world. Most of these operations are carried on
in North America and Western Europe. Principal customers are commercial and
industrial users, construction contractors, process industries, water and
wastewater utilities, and original equipment manufacturers. Sales are made
directly and through independent distributors and representatives.
HOTELS
ITT Sheraton Corporation is a worldwide hospitality network of more than
400 owned, leased, managed and franchised properties in 61 countries, including
hotels, casinos and inns owned and operated, or operated under lease or
management agreements, by ITT subsidiaries, or operated by independent owners
under license agreements with ITT subsidiaries. Approximately 89% of the rooms
in the ITT Sheraton network are either managed or franchised. ITT Sheraton
entered the U.S. gaming industry during 1993 with the acquisition of the Desert
Inn Properties in Las Vegas, Nevada (reference is made to Governmental
Regulation and Related Matters -- Nevada Gaming Laws, below).
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ALCATEL N.V.
In July 1992, ITT sold its 30% equity interest in Alcatel N.V., a
Netherlands company which is the largest telecommunications equipment
manufacturer in the world, to Alcatel Alsthom, a major French company which
owned the other 70% of Alcatel N.V. At the closing of the sale ITT received $1
billion in cash and 9.1 million capital shares of Alcatel Alsthom, recorded at
$806 million, which, at December 31, 1993, represented approximately 6% of the
outstanding capital shares of Alcatel Alsthom. In addition, ITT received a cash
payment of approximately $767 million in July 1993 and will receive a cash
payment of approximately $817 million in July 1994. ITT will retain its equity
interest in Alcatel Alsthom until at least July 1997, unless Alcatel Alsthom and
ITT agree otherwise. Mr. Rand V. Araskog, Chairman, President and Chief
Executive of ITT, is a member of the board of directors of Alcatel Alsthom.
Alcatel N.V. was formed in 1986, when ITT and Alcatel Alsthom, then known as
Compagnie Generale d'Electricite, transferred their respective
telecommunications operations to the joint venture company.
DISCONTINUED OPERATIONS
Effective on February 28, 1994, ITT completed the spin off of all the
outstanding common shares of its former forest products subsidiary, Rayonier
Inc. (formerly ITT Rayonier Incorporated) to the holders of record on February
24, 1994 of ITT common stock and ITT cumulative preferred stock, $2.25
convertible series N.
OPERATIONS OUTSIDE THE UNITED STATES
In 1993, approximately one-third of the Corporation's consolidated sales
and revenues were made outside the United States. Of these, Western Europe
comprised 75%, the Asia Pacific region 9%, Canada 6% with the balance made
elsewhere.
COMPETITION
Substantially all of ITT's operations are in highly competitive businesses,
although the nature of the competition varies among the business segments. A
number of large companies engaged in the manufacture and sale of similar lines
or products and the provision of similar services in most of the geographical
areas in which ITT companies sell their products or render services are included
in the competition, as are many small enterprises with only a few products or
services and operating in limited areas.
Technological innovation, quality and reliability are primary factors
influencing competition in the markets of the Manufactured Products group, where
the competition frequently includes smaller companies with considerable
technological capabilities. In addition, pricing is a significant factor.
Pricing and service are very important considerations for the ITT subsidiaries
in the Financial and Business Services group, which are highly competitive
areas. Numerous factors influence competitive positions in the consumer-oriented
hotels segment, where advertising and pricing are important. ITT's hotel
operations face heavy competition from other large hotel companies, particularly
in North America.
RESEARCH, DEVELOPMENT AND ENGINEERING, AND INTELLECTUAL PROPERTIES
Research, development and engineering activities of ITT are conducted in
laboratory and engineering facilities at most of its major manufacturing
divisions and subsidiaries. ITT believes that continued leadership in technology
is essential to its future, and most ITT funds dedicated to research and
development are applied to areas of high technology, such as aerospace,
automotive braking and suspension systems, semiconductors and electronic
components.
ITT's research, development and engineering expenditures amounted to $460
million in 1993, $502 million in 1992, and $530 million in 1991, of which
approximately 53% was pursuant to customer contracts.
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While ITT owns and controls a number of patents, trade secrets,
confidential information, trademarks, trade names, copyrights and other
intellectual property rights which, in the aggregate, are of material importance
to its business, it is believed that ITT's business, as a whole, is not
materially dependent upon any one intellectual property or related group of such
properties. ITT is licensed to use certain patents, technology and other
intellectual property rights owned and controlled by others, and, similarly,
other companies are licensed to use certain patents, technology and other
intellectual property rights owned and controlled by ITT.
SERVICE CONTRACTS
ITT has contracts with certain of its operating subsidiaries under which it
furnishes them technical, engineering, traffic, insurance, administrative,
personnel, financial, accounting, purchasing and operating advice and
assistance, as well as other services. Where requested, specialized employees
are engaged for the account of the companies served. As compensation, such
subsidiaries pay ITT a percentage of their gross operating revenues. In
addition, reimbursement is sometimes made for the actual salaries and expenses
of specialized employees furnished.
Contracts are also in effect between ITT Industries, Inc. ("ITTI"), a
wholly-owned subsidiary of ITT, and certain subsidiaries and associate companies
of ITT under which ITTI, as part of ITT World Headquarters, undertakes to cause
to be furnished to such entities manufacturing, sales, accounting, technical,
intellectual property and personnel advice and assistance; the results of
research and development work, including rights under patents; information with
regard to sales and business methods and technical, engineering and
manufacturing matters; and other services. The companies served pay an amount
calculated as a percentage of their sales (less intercompany purchases) for the
manufacturing, sales, accounting and other business advice and services
furnished, and/or as a pooling of funds for performing research and development.
ITTI is reimbursed for the cost of any special services rendered. The companies
served also agree to grant ITTI certain patent rights and technical information
with regard thereto.
GOVERNMENTAL REGULATION AND RELATED MATTERS
General. Ownership of ITT shares by "aliens" (to the United States) is
subject to limitation under the United States Communications Act of 1934, as
more fully described under "Restrictions on Alien Ownership" below, due to the
licenses of the United States Federal Communications Commission held by certain
of ITT's subsidiaries. In addition, a number of ITT's businesses are subject to
governmental regulation by law or through contractual arrangements. ITT
companies in the defense segment perform work under contracts with the United
States Department of Defense and similar agencies in certain other countries.
These contracts are subject to security and facility clearances under applicable
governmental regulations, including regulations (requiring background
investigations for high-level security clearances) applicable to ITT executive
officers, and most of such contracts are subject to termination by the
respective governmental parties on various grounds. Sheraton hotels in the
United States are liquor retailers where permitted, licensed in each state where
they do such business, and in certain states are subject to statutes which
prohibit ITT Sheraton Corporation or its owner from being both a wholesaler and
retailer of alcoholic beverages. The post-secondary career education and
technical schools operations are extensively regulated by federal and state
agencies. The numerous regulations to which ITT's insurance operations are
subject include licensing requirements and, in certain states, requirements for
governmental approval of changes of direct or indirect ownership of such
operations or solicitations of proxies for a specified percentage of the voting
power of such insurance operations or their controlling parent. In the financial
services area, ITT's consumer finance operations are regulated at both the
federal and state levels, and its commercial financing is also subject to
regulation by state laws. ITT's bank subsidiaries are subject to both federal
and state laws and regulations governing depository institutions. In addition,
ITT, as a parent company of a federally chartered savings bank, is subject to
federal and state laws and regulations governing unitary savings and loan
holding companies.
Nevada Gaming Laws. During 1993 ITT entered the casino gaming business in
the United States with its acquisition of the Desert Inn hotel and casino in Las
Vegas, Nevada. The casino is operated by Sheraton Desert Inn Corporation
("SDI"), which is a wholly-owned subsidiary of Sheraton Gaming Corporation
("SGC"), which is a wholly-owned subsidiary of ITT Sheraton Corporation
("Sheraton").
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The ownership and operation of casino gaming facilities in the State of Nevada
are subject to extensive state and local regulations. ITT's gaming operation is
subject to the licensing and regulatory control of the Nevada Gaming Commission
(the "Gaming Commission"), the Nevada State Gaming Control Board (the "Control
Board"), and the Clark County Liquor and Gaming Licensing Board (the "CCB"). The
Gaming Commission, the Control Board, and the CCB are collectively referred to
as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are extensive and reflect certain broad declarations of public
policy. Changes in such laws, regulations and procedures could have an adverse
effect on Sheraton's gaming operation.
SDI, as the operator of the Desert Inn casino, is required to be licensed
by the Nevada Gaming Authorities. The gaming license is not transferable and
must be renewed periodically by the payment of gaming license fees and taxes.
SGC and Sheraton are required to be registered as intermediary companies by the
Gaming Commission and ITT is required to be registered as a publicly traded
corporation. No person may become a stockholder of, or receive any percentage of
profits from, SDI without first obtaining licenses and approvals from the Nevada
Gaming Authorities.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, ITT, Sheraton, SGC or
SDI in order to determine whether such individual is suitable or should be
licensed as a business associate of SDI. Officers, directors and key employees
of SDI must be individually licensed by, and changes in corporate positions must
be reported to, the Nevada Gaming Authorities. The Nevada Gaming Authorities may
disapprove a change in corporate position. Certain officers, directors and key
employees of ITT, Sheraton and SGC who are actively and directly involved in the
gaming activities of SDI may be required to be licensed or found suitable by the
Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application
for licensing for any cause which they deem reasonable. A finding of suitability
is comparable to licensing, and both require submission of detailed personal and
financial information followed by a thorough investigation. The applicant for
licensing or finding of suitability must pay all the costs of the investigation.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with ITT, Sheraton, SGC or SDI, the companies involved would have
to sever all relationships with such person. In addition, the Nevada Gaming
Authorities may require a registered company or licensee to terminate the
employment of any person who refuses to file appropriate applications.
ITT, Sheraton, SGC and SDI are required to submit detailed financial and
operating reports to the Gaming Commission. Substantially all loans, leases,
sales of securities and similar financing transactions by SDI must be reported
to or approved by the Gaming Commission. Nevada law prohibits a corporation
registered by the Gaming Commission from making a public offering of its
securities without the prior approval of the Commission if any part of the
proceeds of the offering or the securities themselves are to be used to finance
the construction, acquisition or operation of gaming facilities in Nevada, or to
retire or extend obligations incurred for one or more such purposes.
If it were determined that gaming laws were violated by SDI, the gaming
license it holds could be limited, conditioned, suspended or revoked. In
addition ITT, Sheraton, SGC, SDI and the persons involved could be subject to
substantial fines for each separate violation of the gaming laws at the
discretion of the Gaming Commission. Further, a supervisor could be appointed by
the Gaming Commission to operate SDI's gaming property and, under certain
circumstances, earnings generated during the supervisor's appointment (except
for the reasonable rental value of SDI's gaming property) could be forfeited to
the State of Nevada. Any suspension or revocation of SDI's license would have a
materially adverse effect on SDI.
The Nevada Gaming Authorities may investigate and require a finding of
suitability of any holder of any class of ITT's voting securities at any time.
Nevada law requires any person who acquires more than 5% of any class of ITT's
voting securities to report the acquisition to the Gaming Commission and such
person may be required to be investigated and found suitable. Any person who
becomes a beneficial owner of more than 10% of any class of ITT's voting
securities must apply for a finding of suitability by the Gaming Commission
within thirty days after the Control Board Chairman mails the written notice
requiring
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such filing, and must pay the costs and fees incurred by the Control Board in
connection with the investigation. Under certain circumstances, an
"Institutional Investor," as such term is defined in the Nevada gaming
regulations, which acquires more than 10% but not more than 15% of ITT's voting
securities, may apply to the Gaming Commission for a waiver of such finding of
suitability requirements. If the stockholder who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Gaming Commission or
by the Chairman of the Control Board, may be found unsuitable. Any stockholder
found unsuitable and who holds, directly or indirectly, any beneficial ownership
of ITT voting securities beyond such period of times as may be prescribed by the
Gaming Commission may be guilty of a gross misdemeanor. ITT could be subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with ITT, SDI, SGC, Sheraton
or ITT: (i) pays that person any dividend or interest on voting securities of
ITT, (ii) allows that person to exercise, directly or indirectly, any voting
right conferred through securities held by that person, or (iii) gives
remuneration in any form to that person. If a security holder is found
unsuitable, ITT may itself be found unsuitable if it fails to pursue all lawful
efforts to require such unsuitable person to relinquish the voting securities
for cash at fair market value. Additionally, the CCB has taken the position that
it has the authority to approve all persons owning or controlling the stock of
any corporation controlling a gaming license.
ITT is required to maintain a current stock ledger in Nevada which may be
examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make such disclosure may be grounds for finding both the record and
beneficial holders unsuitable. ITT is also required to render maximum assistance
in determining the identity of the beneficial owner. The Gaming Commission has
the power to require ITT's stock certificates to bear a legend indicating that
the securities are subject to the Nevada Act and the regulations of the Gaming
Commission. However, ITT has been granted an exemption from this requirement by
the Gaming Commission.
ITT has been advised that the Gaming Commission may also require the holder
of any debt security of a corporation registered under the Nevada Act to file
applications, be investigated and be found suitable to own the debt security of
such corporation. If the Gaming Commission determines that a person is
unsuitable to own such security, then pursuant to the regulations of the Gaming
Commission, the registered corporation can be sanctioned, including the loss of
its approvals, if without the prior approval of the Gaming Commission, it (i)
pays to the unsuitable person any dividend, interest or any distribution
whatsoever, (ii) recognizes any voting right by such unsuitable person in
connection with such securities, (iii) pays the unsuitable person remuneration
in any form or, (iv) makes any payment to the unsuitable person by way of
principal, redemption, conversion, exchange, liquidation or similar transaction.
Regulations of the Gaming Commission provide that control of a registered
publicly traded corporation cannot be changed through merger, consolidation,
acquisition of assets, management or consulting agreements of any form of
takeover without the prior approval of the Gaming Commission. Persons seeking
approval to control a registered publicly traded corporation must satisfy the
Gaming Commission as to a variety of stringent standards prior to assuming
control of such corporation. The failure of a person to obtain such approval
prior to assuming control over the registered publicly traded corporation may
constitute grounds for finding such person unsuitable.
Regulations of the Gaming Commission prohibit certain repurchases of
securities by registered publicly traded corporations without the prior approval
of the Gaming Commission. Transactions covered by these regulations are
generally aimed at discouraging repurchases of securities at a premium over
market price from certain holders of greater than 3% of the outstanding
securities of the registered publicly traded corporation. The regulations of the
Gaming Commission also require prior approval for a "plan of recapitalization"
as defined by the regulations. Generally, a plan of recapitalization is a plan
proposed by the management of a registered publicly traded corporation that
contains recommended
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action in response to a proposed corporate acquisition opposed by management of
the corporation which acquisition itself would require the prior approval of the
Gaming Commission.
Related Provisions of Certificate of Incorporation. ITT's restated
certificate of incorporation provides that (i) all securities of ITT are subject
to redemption by ITT to the extent necessary to prevent the loss or to secure
the reinstatement of any gaming license held by ITT or any of its subsidiaries
in any jurisdiction within or outside the United States of America, (ii) all
securities of ITT are held subject to the condition that if a holder thereof is
found by a gaming authority in any such jurisdiction to be disqualified or
unsuitable pursuant to any gaming law, such holder will be required to dispose
of all ITT securities held by such holder, and (iii) it will be unlawful for any
such disqualified person to (a) receive payments of interest or dividends on any
ITT securities, (b) exercise, directly or indirectly, any rights conferred by
any ITT securities, or (c) receive any remuneration in any form, for services
rendered or otherwise, from the subsidiary that holds the gaming license in such
jurisdiction.
Nevada Foreign Gaming Disclosure. Any person who is licensed, required to
be licensed, registered, required to be registered, or is under common control
with such persons (collectively, "Licensees"), and who proposes to become
involved in a gaming operation outside of Nevada is required to deposit with the
Gaming Board, and thereafter maintain, a revolving fund in the amount of $10,000
to pay the expenses of investigation of the Gaming Board of their participation
in such foreign gaming. The revolving fund is subject to increase or decrease in
the discretion of the Gaming Commission. Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act. Licensees
are also subject to disciplinary action by the Gaming Commission if it knowingly
violates any laws of the foreign jurisdiction pertaining to the foreign gaming
operation, fails to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations, engages
in activities that are harmful to the State of Nevada or its ability to collect
gaming taxes and fees, or employs a person in the foreign operation who has been
denied a license or finding of suitability in Nevada on the ground of personal
unsuitability.
PROPERTY AND CASUALTY INSURANCE--LIABILITIES FOR UNPAID
CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Liabilities for unpaid claims and claim adjustment expenses as of December
31, 1993 and 1992 were $11.9 billion and $11.8 billion. These amounts differ
from those reflected on the balance sheet by $5.3 billion and $5.6 billion,
respectively, reflecting liabilities on ceded reinsurance contracts as required
by Statement of Financial Accounting Standards ("SFAS") No. 113, "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts".
Liabilities for unpaid claims and claim adjustment expenses are based upon
individual case estimates for known claims, estimates of unreported claims and
estimates of future expenses to be incurred in the settlement of these
liabilities. Estimated loss and loss adjustment expense reserves are continually
reviewed as additional experience and other relevant data become available, and
reserve levels are adjusted accordingly. The natural uncertainties involved with
the reserving process have become increasingly unpredictable due to a number of
complex factors including social and economic trends and changes in the concept
of legal liability and damage awards. Accordingly, final claim settlements may
vary from the present estimates, particularly when those payments may not occur
until well into the future. Any adjustments to previously established reserves
would be reflected in net income for the period in which they are made. In the
judgment of management, all information currently available has been properly
considered and the reserves currently established for losses and loss adjustment
expenses, except for the asbestos-related and environmental claims, as discussed
below, are adequate to cover their eventual costs.
Claims asserting injuries from asbestos and asbestos-related products and
damages from environmental pollution and related clean-up costs continue to be
received. With regard to these claims, deviations from past experience
significantly impact the ability of insurance companies to estimate the ultimate
reserves for unpaid losses and related settlement expenses. ITT finds that
conventional reserving techniques cannot estimate the ultimate cost of these
claims because of inadequate development patterns and inconsistent emerging
legal doctrine. For asbestos and environmental pollution claims,
8
<PAGE> 10
unlike any other type of contractual claim, there is almost no agreement or
consistent precedent to determine what, if any, coverage exists or which, if
any, policy years and insurers may be liable. Further uncertainty arises with
environmental claims because claims are often made under policies, the existence
of which may be in dispute, the terms of which may have changed over many years,
which may or may not provide for legal defense costs, and which may or may not
contain pollution exclusion clauses that may be absolute or allow for fortuitous
events. Courts in different jurisdictions have reached disparate conclusions on
similar issues and in certain situations have broadened the interpretation of
policy coverage and liability issues. If future social, economic or legal
developments continue to expand the original intent of policies and the scope of
coverage as they have in the past, the need for additional reserves may arise
and that requirement cannot be reasonably estimated. Based on current
evaluation, ITT believes the ultimate resolution of all its claims, including
reinsurance effects, will not have a material adverse impact on its overall
financial condition.
Certain liabilities for unpaid claims, principally for permanently disabled
claimants, terminated reinsurance treaties and certain contracts that fund loss
run-offs for unrelated parties have been discounted to present value. The amount
of discount was approximately $362 million and $325 million as of December 31,
1993 and 1992 and the amortization of the discount had no material effect on net
income during 1993, 1992 and 1991.
A reconciliation of liabilities for unpaid claims and claim adjustment
expenses for the last three years and a table depicting the historical
development of the liabilities for unpaid claims and claim adjustment expenses
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------
1993 1992 1991
----- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Beginning Liabilities for Unpaid Claims and Claim Adjustment Expenses......... $11,785 $10,558 $ 9,995
Add Provision for Claims and Claim Adjustment Expenses:
Current year................................................................ 4,611 4,822 4,679
Prior years*................................................................ 248 1,406 328
------- ------- -------
Total Provision for Unpaid Claims and Claim Adjustment Expenses... 4,859 6,228 5,007
------- ------- -------
Less Payments:
Current year................................................................ 1,856 1,927 1,600
Prior years................................................................. 2,806 2,879 2,789
------- ------- -------
Total Payments.................................................... 4,662 4,806 4,389
------- ------- -------
Foreign Currency Translation.................................................. (37) (195) (55)
------- ------- -------
Ending Liabilities for Unpaid Claims and Claim Adjustment Expenses............ $11,945 $11,785 $10,558
------- ------- -------
------- ------- -------
</TABLE>
Note: The liabilities for unpaid claims and claim adjustment expenses shown
above are greater than those reported in the domestic insurance
subsidiaries statutory filings by $1.8 billion in 1993 reflecting amounts
related to non-U.S. subsidiaries and $1.7 billion in 1992 reflecting
amounts related to non-U.S. subsidiaries and the exclusion of anticipated
salvage and subrogation. The liabilities for claim and claim adjustment
expenses shown above differ from those reflected on the balance sheet by
$5.3 billion and $5.6 billion for 1993 and 1992, respectively. These
amounts, which reflect liabilities on ceded reinsurance contracts as
required by SFAS No. 113 do not lend themselves to practicable
presentation in the above table.
* Does not include the effects of foreign exchange adjustments which are
included in the table on the following page.
9
<PAGE> 11
PROPERTY AND CASUALTY CLAIMS AND
CLAIM ADJUSTMENT EXPENSES LIABILITY DEVELOPMENT
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------------------------
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities
for
Unpaid
Claims
and
Claim
Adjustment
Expenses
(Note
1)...... 4,235 4,287 4,868 5,903 7,262 8,168 8,666 9,366 9,796 11,103 11,441
Cumulative
Paid
Claims
and
Claim
Expenses
(Note 1):
One year
later... 1,411 1,393 1,607 1,808 2,089 2,296 2,545 2,789 2,879 2,806 --
Two
years
later... 2,218 2,283 2,632 2,916 3,323 3,618 4,013 4,428 4,465 -- --
Three
years
later... 2,808 2,953 3,356 3,683 4,187 4,577 5,132 5,511 -- -- --
Four
years
later... 3,251 3,425 3,883 4,275 4,846 5,341 5,863 -- -- -- --
Five
years
later... 3,598 3,808 4,308 4,743 5,392 5,872 -- -- -- -- --
Six
years
later... 3,870 4,136 4,633 5,168 5,787 -- -- -- -- -- --
Seven
years
later... 4,108 4,346 4,980 5,481 -- -- -- -- -- -- --
Eight
years
later... 4,241 4,628 5,248 -- -- -- -- -- -- -- --
Nine
years
later... 4,469 4,784 -- -- -- -- -- -- -- -- --
Ten
years
later... 4,615 -- -- -- -- -- -- -- -- -- --
Liabilities
Reestimated:
One year
later... 4,206 4,469 5,324 6,293 7,437 8,342 8,879 9,636 11,053 11,311 --
Two
years
later... 4,355 4,860 5,558 6,422 7,619 8,432 9,052 10,780 11,202 -- --
Three
years
later... 4,632 5,002 5,656 6,718 7,719 8,482 10,200 10,905 -- -- --
Four
years
later... 4,738 5,074 6,100 6,885 7,827 9,645 10,342 -- -- -- --
Five
years
later... 4,822 5,484 6,291 7,021 9,117 9,829 -- -- -- -- --
Six
years
later... 5,162 5,653 6,456 8,504 9,287 -- -- -- -- -- --
Seven
years
later... 5,325 5,767 8,015 8,652 -- -- -- -- -- -- --
Eight
years
later... 5,452 7,177 8,157 -- -- -- -- -- -- -- --
Nine
years
later... 6,605 7,280 -- -- -- -- -- -- -- -- --
Ten
years
later... 6,650 -- -- -- -- -- -- -- -- -- --
Deficiency... 2,415 2,993 3,289 2,749 2,025 1,661 1,676 1,539 1,406 208 --
</TABLE>
NOTES:
(1) The above table excludes the liabilities and claim developments for
reinsurance coverage written for unrelated parties that fund ultimate net
aggregate loss run-offs since changes to those reserves do not illustrate
the manner in which those reserve estimates changed. Liabilities for unpaid
claims and claim adjustment expenses excluded were $688 million, $629
million, $762 million, $682 million and $504 million as of December 31,
1989, 1990, 1991, 1992 and 1993.
The liability for unpaid claims and claim adjustment expenses excludes
the impact of the adoption of SFAS No. 113 of $5.3 billion and $5.6
billion for 1993 and 1992, respectively. Presentation of the above
table to reflect liabilities on ceded reinsurance contracts is not
practicable.
Liabilities on all lines of insurance are monitored regularly and
corrective action is taken as required.
ITEM 2. PROPERTIES
Reference is made to "Business of ITT."
10
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS
Hartford Fire Insurance Company, a subsidiary of ITT, together with other
companies, associations and organizations involved in the business of property
and casualty insurance and reinsurance, was named as a defendant in a group of
lawsuits filed by Attorneys General of 20 states and by various private parties
in the United States District Court for the Northern District of California. All
of the suits, which were filed in 1988, 1990 and 1991, were based upon
allegations that the defendants violated federal and/or state antitrust laws by
reason of their activities in connection with the development of new standard
commercial general liability policy forms by the Insurance Services Office, an
industry organization. The state suits seek civil penalties and fines,
unspecified damages and various forms of injunctive relief. The private suits
seek unspecified treble damages and various forms of injunctive relief. In June
1991, the Ninth Circuit U.S. Court of Appeals reversed the United States
District Court for the Northern District of California which had granted summary
judgment in September 1989 in favor of the defendants. The defendants filed a
petition for certiorari to the United States Supreme Court which was granted by
the Court in October 1992. Oral argument was held on February 23, 1993. On June
28, 1993, the Supreme Court reversed the Ninth Circuit U.S. Court of Appeals,
holding that the domestic insurers, including ITT Hartford, had not lost their
McCarran-Ferguson Act exemption from the antitrust laws generally, as a result
of activities alleged in the complaints, but remanded the case for further
proceedings to determine if certain of those activities came within the
"boycott" exception to the McCarran-Ferguson Act exemption.
ITT and its former subsidiaries, Rayonier Inc. ("Rayonier") and Southern
Wood Piedmont Company ("SWP"), are named defendants in a lawsuit filed in 1991
in the U.S. District Court for the Southern District of Georgia, Ernest L.
Jordan, Sr. et al. v. Southern Wood Piedmont Company, et al., in which
plaintiffs allege property damage and personal injury based on alleged exposure
to toxic chemicals used by SWP in its former wood preserving operations, seek
certification as a class action, and ask for compensatory and punitive damages
in the amount of $700 million. Under an agreement entered into by ITT and
Rayonier in connection with the distribution of Rayonier stock to ITT
stockholders in February 1994, ITT is entitled to be indemnified by Rayonier for
any expenses or losses incurred by ITT in connection with this suit as well as
in other legal proceedings arising out of Rayonier or SWP operations.
In approximately 40 current "Superfund Site" proceedings instituted by the
U.S. Environmental Protection Agency or similar state agencies a subsidiary or
division of ITT has been named a "potentially responsible party." In most
(approximately two-thirds) of these the ITT company is considered a "de minimis
contributor." Other activities in the environmental area in which ITT and its
subsidiaries are participants (approximately another 40 items) involve air,
ground and/or water contamination issues which are the subject of ongoing or
prospective (usually voluntary) remedial measures with any required approvals of
federal or local authorities (approximately three-fourths of such items), or in
connection with which other private parties seek to impose upon an ITT company
the financial responsibility for costs or damages which allegedly have been or
may be incurred by such other parties. Asbestos-related and environmental
pollution claims received by ITT's property and casualty insurance operations
are discussed above under "Business of ITT -- Property and Casualty
Insurance -- Liabilities for Unpaid Claims and Claim Adjustment Expenses."
There are various other lawsuits pending against ITT and its subsidiaries,
some of which involve claims for substantial amounts. However, the ultimate
liability with respect to the actions pending against ITT and its subsidiaries,
including those proceedings and other matters specifically referred to above, is
not considered material in relation to the consolidated financial condition of
ITT and its subsidiaries.
11
<PAGE> 13
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of ITT during the
fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF ITT
The following information is provided as to the executive officers of ITT.
<TABLE>
<CAPTION>
DATE OF
AGE AT YEAR OF ELECTION
FEBRUARY 1, INITIAL ELECTION TO PRESENT
NAME 1994 POSITION AS AN OFFICER POSITION
------------- ---------------------------------------- ----------------- ------------
<S> <C> <C> <C> <C>
Rand V. Araskog................... 62 Chairman, President and Chief Executive 1971 11/14/79
and Director
Howard J. Aibel................... 64 Executive Vice President and Chief 1966 9/ 1/92
Legal Officer
Robert A. Bowman.................. 38 Executive Vice President and Chief 1992 9/15/92
Financial Officer
Juan C. Cappello.................. 55 Senior Vice President, Director of 1981 12/11/84
Corporate Relations
Dale R. Comey..................... 52 Executive Vice President 1990 5/15/90
Jon F. Danski..................... 41 Senior Vice President and Controller 1993 10/18/93
D. Travis Engen................... 49 Executive Vice President 1987 1/30/91
Louis J. Giuliano................. 47 Senior Vice President 1988 6/11/91
Timothy D. Leuliette.............. 44 Senior Vice President 1991 9/21/91
Daniel F. Lundy................... 63 Senior Vice President, Director of Taxes 1976 9/ 7/82
Bertil T. Nilsson................. 61 Senior Vice President 1987 9/ 1/92
Ralph W. Pausig................... 59 Senior Vice President 1979 3/10/87
Ann N. Reese...................... 40 Senior Vice President and Treasurer 1987 9/ 1/92
Frank J. Schultz.................. 55 Senior Vice President 1992 6/ 9/92
Samuel L. Simmons................. 64 Senior Vice President 1987 4/13/87
Richard S. Ward................... 53 Senior Vice President and General 1984 9/ 1/92
Counsel
</TABLE>
Each of the above-named officers was elected to his or her present position
to serve at the pleasure of the Board of Directors.
Throughout the past five years, all of the above-named officers have held
executive positions with ITT bearing at least substantially the same
responsibilities as those borne in their present offices, except that (i) Mr.
Aibel, prior to his election as Executive Vice President and Chief Legal
Officer, was Executive Vice President and General Counsel of ITT; (ii) Mr.
Bowman, prior to his election as Executive Vice President and Chief Financial
Officer, was Executive Vice President and Chief Financial Officer of ITT
Sheraton Corporation (1991) and Treasurer of the State of Michigan; (iii) Mr.
Comey, prior to his election as Executive Vice President, was the President and
Chief Operating Officer of Hartford Fire Insurance Company and Executive Vice
President of ITT Hartford; (iv) Mr. Danski, prior to his election as Senior Vice
President and Controller, was Vice President and General Auditor of RJR Nabisco;
(v) Mr. Engen, prior to his election as Executive Vice President, was Senior
Vice President of ITT and the Chief Executive Officer of ITT Defense, Inc.; (vi)
Mr. Giuliano, prior to his election as Senior Vice President, was Vice President
of ITT and Vice President and Director--Defense Operations of ITT Defense, Inc.;
(vii) Mr. Leuliette, prior to his election as Senior Vice President, was
President and Chief Executive of Siemens Automotive and Vice President of
Siemens A.G.; (viii) Mr. Nilsson, prior to his election as Senior Vice
President, was Vice President of ITT (1987) and President and Chief Operating
Officer of ITT Fluid Technology Corporation (1991) and Managing Director of ITT
Flygt AB; (ix) Mrs. Reese, prior to her election as Senior Vice President and
Treasurer, was Vice President of ITT (1989) and Assistant Treasurer; (x) Mr.
Schultz, prior to his election as Senior Vice President, was Executive Vice
President of Bank America Corp.; and (xi) Mr. Ward, prior to his election as
Senior Vice President and General Counsel, was Vice President and Associate
General Counsel of ITT.
12
<PAGE> 14
PART II
ITEM 5. MARKET FOR ITT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
ITT COMMON STOCK -- MARKET PRICES AND DIVIDENDS (UNAUDITED)
<TABLE>
<CAPTION>
1993 1992
-------------------- --------------------
HIGH LOW HIGH LOW
-------- ------- -------- --------
(IN DOLLARS)
<S> <C> <C> <C> <C>
Three Months Ended
March 31.................... $81.00 $69.00 $70.63 $54.75
June 30..................... 86.75 77.25 68.50 62.50
September 30................ 94.75 83.75 68.13 62.75
December 31................. 94.88 86.75 72.00 63.25
</TABLE>
The above table reflects the range of market prices of ITT Common Stock as
reported in the consolidated transaction reporting system of the New York Stock
Exchange, the principal market in which this security is traded, under the
trading symbol "ITT".
During the period from January 1, 1994 through February 28, 1994, the high
and low reported market prices of ITT Common Stock were $104.25 and $90.00. The
dividend declared in the first quarter of 1994 was $.495 per common share. The
dividends declared in each of the four quarters of 1993 were also $.495 per
common share. The dividends declared in each of the four quarters of 1992 were
$.46 per common share. As noted above in Item 1 under "Discontinued Operations,"
ITT also paid a special dividend on its common stock and cumulative preferred
stock, convertible series N, during the first quarter of 1994 in the form of a
distribution of all the outstanding common shares of its former forest products
subsidiary.
See "Notes to Financial Statements -- Capital Stock" for descriptions of
restrictions on dividend payments.
There were approximately 60,000 holders of record of ITT Common Stock on
February 28, 1994.
ITT Common Stock is listed on the following exchanges: Amsterdam, Antwerp,
Basel, Bern, Brussels, Frankfurt, Geneva, Lausanne, London, New York, Pacific,
Paris, Tokyo, Vienna and Zurich.
RESTRICTIONS ON ALIEN OWNERSHIP
Pursuant to the requirements of United States statutes, ITT limits stock
ownership by aliens (as used herein, the term "alien" includes the following and
their representatives: individuals who are not nationals of the United States,
partnerships unless a majority of the partners are such nationals and share in a
majority of its profits, foreign governments, entities created under the laws of
foreign governments, and entities controlled directly or indirectly by one or
more of such individuals, partnerships, governments or entities). The ITT
By-Laws provide that under no circumstances shall the amount of ITT stock owned
of record by aliens exceed 25% of the total outstanding. If and so long as the
stock records of ITT shall at any time disclose 25% alien ownership (i) no
transfers of shares of domestic record to aliens may be made and (ii) if it
shall be found that stock of domestic record is in fact held by or for the
account of an alien, the holder of such stock shall not be entitled to vote, to
receive dividends, or to have any other rights except the right to transfer the
stock to a citizen of the United States. At the close of business on January 31,
1994, approximately 6.5% of the outstanding stock of ITT was owned of record by
aliens. Assuming that all of the shares of ITT Common Stock issuable upon
conversion of securities initially issued to aliens, or issuable pursuant to
other existing commitments to aliens, had been issued at that date to aliens,
and that at that date all other securities then convertible into ITT stock were
owned by nationals of the United States and had also been converted in
accordance with their terms, such percentage would not have been significantly
different.
13
<PAGE> 15
ITEM 6.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1993 1992* 1991* 1990* 1989*
------- ------- ------- ------- -------
(IN MILLIONS EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
RESULTS AND POSITION
Sales and Revenues.................................................. $22,762 $22,977 $21,536 $21,680 $20,822
Income (Loss) from Continuing Operations............................ 910 (188) 695 903 716
Net Income (Loss)................................................... 913 (885) 749 923 848
Total Assets........................................................ 70,560 68,563 53,611 48,704 45,099
Long-Term Debt --
Excluding Finance subsidiaries.................................... 2,710 2,686 3,129 2,182 2,234
Finance subsidiaries.............................................. 6,248 5,888 5,539 4,263 3,822
Stockholders Equity................................................. 7,650 7,247 8,721 8,164 7,710
------- ------- ------- ------- -------
------- ------- ------- ------- -------
EARNINGS (LOSS) PER SHARE
Income (Loss) from Continuing Operations
Primary........................................................... 7.29 (1.85) 5.40 6.84 5.02
Fully Diluted..................................................... 6.87 (1.64) 5.08 6.41 4.85
Net Income (Loss)
Primary........................................................... 7.32 (7.93) 5.84 7.00 5.98
Fully Diluted..................................................... 6.90 (6.90) 5.49 6.56 5.76
------- ------- ------- ------- -------
------- ------- ------- ------- -------
DIVIDENDS DECLARED PER COMMON SHARE................................. $ 1.98 $ 1.84 $ 1.72 $ 1.63 $ 1.51
------- ------- ------- ------- -------
------- ------- ------- ------- -------
SIGNIFICANT RATIOS**
Return on Sales***.................................................. 3.9% (0.7)% 3.4% 4.3% 3.6%
Return on Assets***................................................. 1.3% (0.3)% 1.4% 2.0% 1.8%
Return on Total Capital............................................. 6.9% 2.0% 6.5% 7.8% 8.0%
Return on Stockholders Equity....................................... 12.3% (3.4)% 8.9% 11.6% 11.0%
Assets to Sales..................................................... 305.6% 265.9% 237.5% 216.3% 208.1%
Book Value per Share................................................ $ 58.94 $ 54.63 $ 65.52 $ 60.66 $ 52.59
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
- ---------------
* As restated (see Notes to Financial Statements).
** Before the cumulative effect of accounting changes in 1992.
*** Excludes effects of Discontinued Operations.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED)
The task of repositioning the Corporation's businesses which began in 1992
was intensified in 1993 with a number of strategic transactions expected to
further the Corporation's goals of improved shareholder value, cash generation
and return on equity.
A major study designed to improve the effectiveness and productivity of the
Corporation's Headquarters functions was completed last fall and will result in
reduced overhead costs in 1994 and future years. At ITT Hartford, both revenues
and operating income reached record levels in 1993 as the life insurance
operations continued to grow through internal expansion and through the
assumption of policies from other insurers. Improved underwriting results in the
property and casualty business were also a significant contributor to ITT
Hartford's performance as the worldwide combined ratio improved to 107.3
percent. ITT Automotive's sales of four-wheel anti-lock brake and traction
control systems exceeded $1 billion for the first time in 1993, making it the
first automotive parts supplier in the world to reach that level.
In June, the sale of ITT Consumer Financial Corporation's domestic
unsecured consumer small loan portfolio was completed resulting in a pretax gain
of $95 ($63 after tax). Proceeds from the sale allowed ITT Financial to retire
higher cost fixed-rate debt, and return capital to the Corporation. An
extraordinary
14
<PAGE> 16
pretax loss of $75 ($50 after tax) was recorded on the debt retirement. In
September, the Corporation announced the signing of a preliminary agreement to
acquire the Motors and Actuators Business Unit of General Motors Automotive
Components Group. This acquisition is expected to contribute annual revenues of
$900 and add strength to ITT's position as a global leader in the automotive
components and systems market. The transaction is expected to close in the first
half of 1994. In November, the Corporation entered the U.S. gaming industry with
the acquisition of the Desert Inn Properties in Las Vegas which is expected to
be developed into a major gaming resort. The acquisition of a full-service
resort in Las Vegas, the country's number one destination resort and one of the
largest convention cities in the U.S., afforded the Corporation the opportunity
to immediately enter the North American land-based gaming industry. ITT Sheraton
also plans to open a dockside casino near Memphis by the summer of 1994.
The spin-off of ITT Rayonier to the Corporation's shareholders was
announced in December and was completed in February, 1994. The spin-off allows
Rayonier to better fulfill its long-term strategies and objectives while
furthering the Corporation's strategic goals. Rayonier expects to pay a dividend
of $.72 per share in 1994, the equivalent of $.18 per share to the Corporation's
shareholders. Rayonier has been reflected as a "Discontinued Operation" for all
periods presented.
These important actions further the Corporation's commitment to improving
returns and shareholder value. To that end, additional steps will be taken in
1994, including strategic acquisitions and the continuation of the repurchase of
the Corporation's common shares.
SALES, REVENUES AND INCOME
Worldwide sales and revenues were $22.8 billion in 1993 compared with a
restated $23.0 billion and $21.5 billion in 1992 and 1991, respectively. The
sales and revenues decrease in 1993 primarily reflects the sale of ITT
Financial's domestic unsecured consumer small loan business in June as well as
reduced Defense business as several major programs were completed. Excluding the
sales of companies included in "Dispositions and Other", sales and revenues
increased 2% in 1993 and 8% in 1992. Sales and revenues in all periods have been
modified to include 100 percent of the revenues of partially-owned hotel
properties and hotel properties under long-term management agreements. The
Corporation believes that this presentation better reflects the breadth and
control of hotel operations and increased sales and revenues (with no impact on
operating income) by $2.4, $2.3 and $2.1 billion in 1993, 1992 and 1991,
respectively.
Net income for 1993 was $913 or $6.90 per fully diluted share compared with
a net loss of $885 or $6.90 per fully diluted share in 1992, which was due
primarily to several significant nonrecurring items and accounting changes
during 1992. This was compared with net income in 1991 of $749 or $5.49 per
fully diluted share. Primary earnings (loss) per share were $7.32 in 1993,
$(7.93) in 1992 and $5.84 in 1991.
1993: A number of one-time items are included in net income in 1993
including the gain on the sale of the domestic unsecured consumer small loan
portfolio at ITT Financial of $63 after tax, or $.48 per fully diluted share and
the related retirement of fixed-rate debt at a premium of $50 after tax, or $.38
per fully diluted share. In addition, results included a $33 after tax or $.25
per fully diluted share provision relating to a program aimed at increasing the
effectiveness and productivity at ITT Headquarters and the headquarters of the
business segments and a $22 or $.17 per fully diluted share favorable impact of
the changes in the United States tax law. Income in future periods will be
negatively impacted by the 1% increase in the U.S. Federal tax rate. Further,
the year was impacted by $19 after tax or $.15 per fully diluted share for the
accelerated write-off of capitalized development expenses at ITT Sheraton; $7 or
$.06 per fully diluted share for an after tax gain at ITT Sheraton on its
investment in Bally's Las Vegas and $10 after tax or $.08 per fully diluted
share for an after tax gain on the sale of ITT Components Distribution. The year
also included prior period tax and associated interest charges related to
separate decisions by Canadian and California state taxing authorities of $16
after tax or $.12 per fully diluted share and $10 or $.08 per fully diluted
share. Extraordinary catastrophe losses at ITT Hartford early in the year
negatively impacted earnings by $41 after tax or $.32 per fully diluted share.
The catastrophes included the World Trade Center bombing in New York and
excessive damage from storms in the Northeastern United States. Portfolio gains
at ITT Hartford and ITT Financial in 1993 totalled $98 after tax
15
<PAGE> 17
or $.76 per fully diluted share. Excluding these gains along with the one-time
items, net income was $882 or $6.65 per fully diluted share.
1992: The net loss in 1992 included the effects of the Corporation's
adoption of Statement of Financial Accounting Standards ("SFAS") No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions", and
SFAS No. 112, "Employers' Accounting for Postemployment Benefits," which were
recorded effective January 1, 1992 using the immediate recognition method. These
accounting changes resulted in a cumulative catch-up adjustment of $625 after
tax, or $4.71 per fully diluted share. These standards required accrual of
postretirement and postemployment health care and life insurance benefit costs
during the years that an employee provides services to the Corporation rather
than on the pay-as-you-go basis previously in effect. There is no cash flow
impact of these accounting changes.
In July 1992, the Corporation completed the sale of its 30% stake in
Alcatel N.V. to its joint venture partner, Alcatel Alsthom, resulting in an
after tax gain of $622 or $4.71 per fully diluted share -- see "Alcatel N.V." in
Notes to Financial Statements. The Corporation also recorded several one-time
items during the year to realign and restructure certain businesses including:
-- A $594 after tax charge at ITT Hartford to fund expected loss
developments in surplus lines and reinsurance business at its Cameron & Colby
unit and $165 after tax for expected legal defense costs associated with
environmental-related claims. The total result was a charge of $759 or $5.75 per
fully diluted share. Extraordinary catastrophe losses at ITT Hartford in 1992
negatively impacted earnings by $131 after tax or $.99 per fully diluted share.
The catastrophes included Hurricanes Andrew and Iniki along with the Los Angeles
riots and the Chicago flood.
-- A $612 after tax charge or $4.66 per fully diluted share at ITT
Financial primarily to strategically transform the consumer finance business by
significantly reducing its domestic unsecured consumer small loan business. As a
result, ITT Financial established reserves of $693 to cover future unsecured
loan losses from the run-off of its existing portfolio, $103 for restructuring,
including consolidation of loan offices, and $132 for anticipated losses in the
commercial real estate portfolio. The domestic unsecured consumer small loan
business has been reflected in "Dispositions and Other" and, as discussed
previously, was sold in June 1993.
-- Other provisions and reserves of $115 after tax or $.87 per fully
diluted share, to cover the loss on the disposal of assets and for closure
expenses of ITT Rayonier's Grays Harbor pulp and paper complex. In addition, a
$34 after tax, or $.25 per fully diluted share provision to write down hotel
investments at ITT Sheraton, and a $33 after tax or $.25 per fully diluted share
charge for restructuring in the Components operations of ITT Defense &
Electronics were recorded.
Portfolio gains at ITT Hartford and ITT Financial in 1992 totalled $337
after tax or $2.56 per fully diluted share. Excluding these gains as well as the
one-time items and accounting changes, net income was $465 or $3.31 per fully
diluted share.
1991: There were no significant items of an unusual or nonrecurring nature
during 1991. Net income was $749 or $5.49 per fully diluted share. Portfolio
gains at ITT Hartford and ITT Financial in 1991 totalled $137 or $1.04 per fully
diluted share. Excluding these gains, net income was $612 or $4.45 per fully
diluted share.
CASH FLOW
The Corporation generated $1.7 billion of cash from operating activities
during 1993, $1.7 billion in 1992 and $2.1 billion in 1991. Additional funds of
$2.4 billion were also raised in 1993 from the sale of companies including ITT
Financial's domestic unsecured consumer small loan business for $1.5 billion and
the collection on a note of $.8 billion from the 1992 sale of Alcatel N.V.
Proceeds in 1992 from the Alcatel N.V. sale totalled $1.0 billion. Growth in
investment life contracts provided $1.7 billion, compared with $1.6 billion and
$1.8 billion in the prior two years.
Cash generated was used to fund internal growth, pay dividends, repay debt
in 1993 and to repurchase and redeem ITT common and preferred shares in 1993 and
1992. Cash was also reinvested in securities at ITT Hartford and ITT Financial.
Additional information on the investment portfolio is included in "Insurance and
Finance Investments" in Notes to Financial Statements.
16
<PAGE> 18
Pursuant to the Corporation's share repurchase program announced in May
1992, 3.6 million common shares were repurchased in 1993 at an average price of
$86.52 per share for a total of $310 at December 31, 1993. At December 31, 1992,
approximately 1.7 million common shares had been repurchased at an average price
of $65.63 per share for a total of $109. In addition, the Corporation called for
the redemption of all outstanding $4.00 Convertible Series K and $5.00
Convertible Series O Cumulative Preferred Stock at $100 per share plus accrued
dividends in June 1992. Redemptions totalled $106, which reduced common
equivalent shares by an additional 1.6 million, with the balance converted to
5.8 million shares of common stock. Since the Corporation's stock repurchase
programs began in 1987, nearly 40 million equivalent shares have been
repurchased and redeemed for approximately $2.3 billion. Dividend payments were
$277, $270 and $267 during 1993, 1992 and 1991, including $48 in both 1993 and
1992 and $49 in 1991 related to the ESOP preferred stock.
Cash expenditures for plant, property and equipment were $505 in 1993, $549
in 1992 and $658 in 1991 and are expected to approximate $800 in 1994.
Acquisitions in 1993 included the Desert Inn Properties in Las Vegas for $160.
The planned acquisitions in 1994 in the Automotive and Hotels segments are
expected to total approximately $1.0 billion. The Corporation has sufficient
cash available, along with debt and equity financing alternatives, to fulfill
these and other commitments that may be undertaken during the year. Depreciation
in 1993 was $463 compared with $483 in 1992 and $426 in 1991. Accumulated
depreciation amounted to 47% of gross plant, property and equipment at year-end
1993 and 1992.
Expenditures for research, development and engineering totalled $460 in
1993, $502 in 1992 and $530 in 1991, of which approximately 53% was pursuant to
customer contracts. These expenditures have funded numerous product developments
such as anti-lock brake systems, and integrated circuits for multimedia
applications and digital television, as well as electronic countermeasures and
tactical radio communications technology.
The Corporation remains financially strong and flexible given the level of
cash generated from operations as well as the proceeds received (and expected to
be received in 1994) from the sale of investments. Cash at December 31, 1993
totalled $1.1 billion and debt as a percentage of total capital was 33 percent
with the Insurance and Finance subsidiaries carried on an equity basis and
excluding Discontinued Operations.
BUSINESS SEGMENTS
Following is a discussion of important factors affecting the sales,
revenues and operating income of each Business Segment.
INSURANCE
<TABLE>
<CAPTION>
1993 1992 1991
------- ------ ------
<S> <C> <C> <C>
Revenues............................................................................. $10,338 $9,862 $9,242
Operating Income (Loss).............................................................. $ 719 $ (513) $ 500
</TABLE>
Revenues and operating income achieved record levels in 1993. Revenues
increased 5 percent despite portfolio gains which were $288 lower than 1992.
Portfolio gains included in revenues totalled $155, $443 and $144 in 1993, 1992
and 1991, respectively.
Life operations provided much of the revenue growth and contributed 29
percent of the segment revenues in 1993 compared with 24 percent and 21 percent
in 1992 and 1991. This increase, 25 percent in 1993, reflects dramatic
improvement in account charge revenues from corporate owned life insurance
contracts (COLI) combined with continued growth in individual life and annuity
lines of business. The assumption and reinsurance of both COLI and annuity
policies from Mutual Benefit and Fidelity Bankers were instrumental in the
continued growth. Operating income in the life operations contributed 31 percent
to the insurance segment in 1993 and increased 30 percent compared with 1992
which, in turn, increased 26 percent over 1991. As with revenues, the effects of
the Mutual Benefit and Fidelity Bankers transactions were the largest
contributors to the improvement.
17
<PAGE> 19
North American property and casualty underwriting revenues also increased
modestly while revenues of the international property and casualty operations
were flat compared with 1992. Dramatically improved income performance reflects
improved property and casualty underwriting results as reflected in the
worldwide combined ratio of 107.3 percent in 1993. Worldwide combined ratios
were 133.7 percent in 1992 and 111.3 percent in 1991. Reserves were established
in 1992 for expected loss developments in surplus lines and reinsurance at
Cameron & Colby ($900) as well as projected legal defense costs associated with
environmental-related claims ($250). Excluding the effects of the Cameron &
Colby loss developments in surplus lines and reinsurance, the worldwide combined
ratios were 105.9 percent in 1993, 114.8 percent in 1992 and 109.1 percent in
1991. In addition, catastrophe losses in 1993 were significantly below the
record setting levels of 1992. Adjusted for these unusual items and portfolio
gains, 1993 operating income increased significantly. These improvements were
partially offset by reduced investment income, the result of lower interest
rates and lower portfolio gains in 1993. On the same adjusted basis, 1992
operating income approximated 1991, reflecting a similar trend in domestic
property and casualty results, offset by difficult market conditions in the
international property and casualty business.
Operating results are projected to continue to improve in 1994 due to
improvements in worldwide property and casualty underwriting results combined
with the effect of the growing life insurance operations. These projections
include the benefits of recent restructuring actions designed to increase ITT
Hartford's efficiency and competitiveness.
FINANCE
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Revenues.............................................................................. $1,440 $1,414 $1,321
Operating Income...................................................................... $ 271 $ 175 $ 343
</TABLE>
During 1993, ITT Financial completed a strategic repositioning of the
company aimed toward emphasizing the origination and servicing of secured
lending assets. Actions during 1993 included the sale of its domestic unsecured
consumer small loan portfolio, the start up of ITT Residential Capital Corp. (a
fully integrated residential mortgage company) and the repositioning of the
domestic home equity business. At year-end 1993, secured funded receivables
constituted 88% of total funded receivables as compared to 69% at year-end 1992.
Revenues and operating income data have been restated to exclude the results of
the domestic unsecured consumer small loan business which is reported in
"Dispositions and Other".
The benefits of this strategic shift will be reduced operating expenses,
dramatically improved credit quality, and improved asset liquidity. ITT
Financial plans to leverage these benefits through improved capital efficiency,
primarily securitization. During 1993, ITT Financial completed the
securitization of $2.4 billion of assets.
Finance revenues from ongoing businesses increased in 1993 and 1992 due to
increased finance charges and servicing income on higher levels of owned and
serviced receivables. The operating income improvement in 1993 reflects the
absence of last year's provision of $132 for anticipated losses in the
commercial real estate portfolio. When adjusting for that provision, along with
the portfolio gains which were significantly lower in 1993 compared with prior
years, operating income in 1993 improved over 1992 and approximated 1991 levels.
Emphasis on secured lending and asset securitization will remain the focus
in 1994. The nature of this strategy is to enhance the Company's risk profile
and improve asset quality, although operating income will be somewhat lower.
18
<PAGE> 20
COMMUNICATIONS & INFORMATION SERVICES
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Sales and Revenues......................................................................... $800 $817 $684
Operating Income........................................................................... $162 $170 $149
</TABLE>
Both sales and revenues and operating income rose 5 percent in 1993 over
1992 when adjusting for the impact of unfavorable foreign exchange. The increase
in all periods reflected improvements in the telephone directory operations in
Western Europe as well as an increase in the number of ITT Technical Institutes
and student enrollment at those institutes at ITT Educational Services.
At ITT World Directories, operating margins are under pressure due to lower
advertising volume in a number of units. Modest price increases, coupled with
reduced operating costs, have resulted in margins that generally meet or exceed
prior year levels. ITT World Directories' operations in the United Kingdom were
sold to British Telecom in 1993 prior to the expiration of a directory sales
contract. Operations in Turkey were shut down in December 1992 as a result of
continuing losses in a difficult economic environment. The operating results of
these units are reported in "Dispositions and Other" for all years presented. A
shift in the regulatory and competitive structures in the European Community may
limit growth of existing operations during 1994. The Company continues to pursue
a program of product diversification and geographic expansion.
At ITT Educational Services, 20,000 students are enrolled at 48 schools.
Five new schools opened during 1993. Operating results at ITT Educational
Services are projected to continue to improve in 1994 due to additional school
openings and a continuing expansion of curricula and degree offerings. A period
of strong growth is expected as a result of ongoing demand for increased
technical education of the U.S. work force.
AUTOMOTIVE
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Sales................................................................................. $3,580 $3,498 $2,933
Operating Income...................................................................... $ 164 $ 118 $ 71
</TABLE>
Sales continued to increase in 1993 as in 1992 as a result of increased
market penetration of ITT Anti-lock Brake Systems ("ABS"), higher light vehicle
production in North America and the continued shift in consumer preference
toward light trucks for which ITT Automotive maintains a strong product
offering. Tempering the growth in 1993 was the deepening recession in Western
Europe which resulted in a decline in Western European car production. Western
European sales comprised 57 percent of the total in 1993 compared with 68
percent in 1992 and 70 percent in 1991.
Higher operating income in 1993 is largely the result of continued cost
reduction efforts partially offset by lower sales prices and higher labor costs.
Compared with 1991, the increased operating income was largely attributable to
sales growth in addition to cost reduction efforts partially offset by higher
labor costs and restructuring actions.
ITT Automotive will continue to benefit in 1994 from an anticipated
increase in North American light vehicle production, particularly light trucks,
as well as continued cost reduction efforts. Additionally, Western European
passenger car production is anticipated to stabilize. Anti-lock brake systems
remains the largest product line offered by ITT Automotive, comprising 30, 27
and 22 percent of total sales in 1993, 1992 and 1991, respectively. The
acquisition of General Motors' motors and actuators business unit is expected to
strengthen ITT Automotive's position in a number of product lines, particularly
motors and wiper systems for the North American market.
19
<PAGE> 21
DEFENSE & ELECTRONICS
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Sales................................................................................. $1,671 $1,927 $1,985
Operating Income (Loss)............................................................... $ 51 $ (82) $ 83
</TABLE>
The 13 percent sales reduction in 1993 was anticipated and related
primarily to the Defense units as the impact of the completion of several major
programs and reduced U.S. government defense spending resulted in lower
shipments and a decline in operations and maintenance contracts. The sales
decrease in 1992 related primarily to the Electronics units due to a worldwide
decline in the television market and softness in the connector product line,
especially due to lower military related demand. Sales and operating income have
been restated in all periods to reflect the December 1993 sale of ITT Components
Distribution. The gain on the sale of $13 pretax and the operating results are
reflected in "Dispositions and Other."
Operating income improved substantially in 1993 reflecting current year
cost improvements at several units and favorable margin adjustments on mature
military programs along with the absence of a 1992 restructuring charge. The
operating loss in 1992 resulted from the $53 million restructuring charge,
reduced volume and downward pricing pressures for commercial products.
Order backlog was $2.2, $2.3 and $2.2 billion at December 31, 1993, 1992
and 1991, respectively. Sales and operating income in 1994 are expected to
approximate 1993 levels. New product development, expanded markets (including
international defense opportunities) and the benefits of ongoing restructuring
activities provide a basis for future growth.
FLUID TECHNOLOGY
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Sales................................................................................. $1,030 $1,070 $1,064
Operating Income...................................................................... $ 95 $ 67 $ 83
</TABLE>
Sales have remained relatively level in the past several years with the
decrease in 1993 due primarily to a stronger U.S. dollar versus many of the
European currencies in which Fluid Technology operates. In the past two years,
growth in markets including water and wastewater treatment, power generation and
exports as well as new products have been largely offset by weak market
conditions in such industries as construction, industrial process, oil and gas,
mining and leisure marine.
Operating income in 1993 benefited from the impact of cost improvement
actions taken in 1992, including the consolidation of facilities to reduce
excess capacity. In 1992, provisions for restructuring along with the
devaluation of the Swedish krona adversely impacted operating income. Slow but
steady economic improvement is expected in served markets in 1994. ITT Fluid
Technology's position of market leadership, customer-oriented marketing
programs, and new products, together with its lower cost structure, should allow
the company to resume its profitable growth.
HOTELS
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Sales and Revenues................................................................... $3,184 $3,109 $2,826
Operating Income (Loss).............................................................. $ 78 $ (28) $ 33
</TABLE>
Sales and revenues have been modified in all periods to include 100 percent
of the revenues of the hotels under Sheraton's management. The Corporation
believes that such a presentation better reflects the breadth and control of
hotel operations and increased sales and revenues (with no impact on operating
income) by $2.4, $2.3 and $2.1 billion in 1993, 1992 and 1991, respectively.
Sales and revenues increased in 1993 largely due to improvements in the
North American region along with the contribution of the Desert Inn which was
acquired in late 1993. The increase in 1992 over 1991 was also attributable to
the North American region, where room inventory levels were fully restored as
renovations were completed at several owned hotels and to higher revenues among
Sheraton's managed properties. In 1993, ITT Sheraton continued its focus on
upgrading properties and enhancing its
20
<PAGE> 22
image through the completion of renovation work and elimination of properties
which do not meet required standards. More than 30.2 million room nights were
sold in 1993, an increase of 1.7 million room nights from 1992 for comparable
hotels.
Operating income in 1993 reflected the accelerated write-off of capitalized
development expenses totalling $29 along with an $11 gain on the sale of an
investment in Bally's Las Vegas operations. In 1992, a provision of $45 to write
down hotel investments resulted in a reported operating loss. When excluding the
impacts of these one-time items, operating income rose dramatically in 1993.
Total sales and revenues of the Hotels segment, including 100% of
unconsolidated revenue generated by franchised hotels, were (in billions) $4.8
in 1993 and 1992 and $4.4 in 1991. Room rates of owned, managed and leased
properties averaged $105.48, $107.14 and $104.19 for 1993, 1992 and 1991,
respectively, while occupancy rates were 68.5% , 66.4% and 64.9%. The 1993 room
rate reduction reflects the stronger U.S. dollar against numerous foreign
currencies, particularly in Europe. Total properties numbered 407 in 1993
compared with 426 and 423 in 1992 and 1991, respectively, including franchised
properties of 230, 252 and 259 in those years.
Operating income is expected to continue to improve in 1994 both from
existing hotels as well as from acquisitions. The Gaming division, which will
include a full year's results from the Desert Inn and the anticipated
contribution from a casino near Memphis opening mid-year, will be a significant
focal point. Other anticipated acquisitions are expected to provide Sheraton
with an enhanced presence in markets not previously represented.
ALCATEL N.V.
<TABLE>
<CAPTION>
1993 1992 1991
---- ----- ----
<S> <C> <C> <C>
Equity in Earnings of Alcatel N.V.......................................................... $ -- $97 $208
</TABLE>
The Corporation sold its 30 percent interest in Alcatel N.V. to its joint
venture partner, Alcatel Alsthom in July, 1992. Proceeds from the sale included
$1 billion in cash, two notes payable in 1993 and 1994 totalling $1.6 billion
(including interest) and 9.1 million shares in Alcatel Alsthom. The shares,
which have a net book value of $.8 billion, have a fair market value of $1.1
billion as of February 28, 1994. The Corporation recognized a pretax gain of
$942 ($622 after tax) in 1992 on the transaction.
DISPOSITIONS AND OTHER
Dispositions and Other includes the sales, operating results and the gain
or loss from sale or closedown of units other than "Discontinued Operations,"
along with the sales and operating results of other non-core businesses. Results
for all years presented include sales and operating results of the Corporation's
Community Development subsidiary. The domestic unsecured consumer small loan
portfolio previously included in the Finance segment is the largest business
included in "Dispositions and Other". The operating losses are included in all
years presented along with the provision in 1992 to cover future domestic
unsecured consumer small loan losses and to restructure the business, including
consolidation of consumer loan offices. A $95 pretax gain ($63 after tax) on the
sale of this portfolio is included in 1993. Operating results for all periods
and associated gains on sale in 1993 as they relate to ITT Components
Distribution and World Directories United Kingdom operations are also included.
1992 included provisions for the closedown of World Directories' unit in Turkey
($41 pretax offset with tax benefits of a similar amount included in "Income
Taxes") along with respective operating losses in 1992 and 1991. Sales and
operating results for 1991 included certain Italian automotive operations sold
in 1991.
DISCONTINUED OPERATIONS
During December, 1993, the Corporation announced its plans to spin-off ITT
Rayonier, the Corporation's Forest Products segment to its common and preferred
shareholders. The spin-off was completed in February, 1994. Accordingly, the
results of ITT Rayonier are reported as "Discontinued Operations" on a one-lined
after tax basis. The income (loss) from "Discontinued Operations", net of taxes,
were $53, $(72) and $54 in 1993, 1992 and 1991, respectively. The 1992 results
included an after tax provision of
21
<PAGE> 23
$115 for the loss on disposal and the estimated closure costs of ITT Rayonier's
Grays Harbor pulp and paper complex.
INTEREST, TAXES AND OTHER
Net interest expense in 1993 decreased due to lower average debt levels and
higher average cash invested. Net interest expense in 1992 approximated 1991
levels as interest income earned in the second half of the year from the
proceeds of the Alcatel sale offset higher expense from higher average debt
levels incurred to support investments, capital programs and working capital
requirements.
Income taxes of $345 in 1993 were provided on pretax income of $1.3 billion
representing a 27 percent effective tax rate. Tax exempt interest earned on
invested assets at Insurance and Finance caused the effective rate to be lower
than the U.S. statutory rate. Additionally, in 1993, the changes in the United
States tax law resulted in a one-time benefit of $32 representing an increase in
the Corporation's deferred tax assets at the beginning of the year necessitated
by the 1 percent increase in the statutory rate. Partly offsetting this benefit
was a $10 increase to the current year tax provision. "Discontinued Operations",
"Extraordinary Item" and "Cumulative Effect of Accounting Changes" are all
presented on a net of tax basis and accordingly, the associated tax benefits are
not included in the provision above.
The increase in income taxes over 1992 and 1991 related primarily to the
increase in pretax income. In 1992, large provisions in the Insurance and
Finance segments resulted in a pretax loss and a corresponding tax benefit.
Income taxes paid in 1993, 1992 and 1991 were $337, $202 and $157, respectively.
"Other" consists primarily of corporate expenses, minority equity and
non-operating income (expense). In 1993, a provision of $50 pretax is included
for estimated severance and other costs associated with a program aimed at
increasing the effectiveness and productivity at the Corporation's headquarters
locations. "Other" expenses increased in 1992 primarily due to higher corporate
provisions for divested company exposures and environmental issues.
DEBT AND LIQUIDITY
Outstanding debt, including Insurance and Finance debt, was $13.9 billion
at December 31, 1993. This was a $2.0 billion decrease from 1992, and was
primarily due to the application of the proceeds from the sale of ITT
Financial's domestic unsecured consumer small loan portfolio and from ITT
Financial's receivable securitization. At December 31, 1993 and 1992, debt was
64% and 68% of total capitalization, including finance and insurance
subsidiaries debt of $10.4 billion and $12.1 billion, respectively. With
insurance and finance subsidiaries carried on an equity basis and excluding
Discontinued Operations, debt was 33% of total capitalization at the end of 1993
compared with 37% at the end of 1992. The Corporation remains strong, flexible
and well positioned.
Future debt needs can be met as required by traditional and emerging
channels. Certain subsidiaries are subject to restrictions on transfer of funds
to the Corporation, but the restrictions have not affected the Corporation's
ability to meet its cash obligations. No change in this condition is
anticipated.
Stockholders equity increased $403 during 1993 to $7.7 billion mainly as a
result of earnings, partly offset by dividends, share repurchases and
redemptions and a reduction in the cumulative translation account. The
Corporation had cash of $1.1 billion at December 31, 1993, compared with $882 at
the end of 1992. The increase is largely the result of cash generated from
operations and proceeds from the collection of the Alcatel note, partly offset
by share repurchases and acquisitions. Collection of the remaining note received
in the Alcatel sale will supplement the Corporation's available cash by $817 in
1994. This cash, along with debt and equity financing alternatives, is available
for share repurchases, acquisitions or debt repayment in 1994 and future
periods.
In February, 1994, the Corporation entered into a new revolving credit
agreement with terms ranging from one to five years with 65 domestic and foreign
banks providing credit commitments of $7 billion. These commitments were made to
the ITT parent company and certain of its subsidiaries for $3 billion and to ITT
Financial totalling $4 billion. The credit commitments of the ITT parent company
are used to assure working capital needs and to support commercial paper.
Commercial paper borrowings totalled $268 at December 31, 1993.
22
<PAGE> 24
ITT's insurance and finance subsidiaries, foreign units and certain other
major domestic subsidiaries usually meet their funding requirements on a direct
basis and, from time to time, are supplemented through Corporate-established
financing vehicles.
ITT Financial is a direct issuer of commercial paper. At December 31, 1993,
$2.0 billion of commercial paper was outstanding.
The Corporation operates in a multinational environment with minimal
exposures in hyper-inflationary countries. Thus, inflation has not had a
significant impact on the financial position of the Corporation or results of
its operations in recent periods, nor is it expected to do so in the near
future.
The multinational operations of the Corporation also create exposure to
foreign currency fluctuation. The Corporation enters into foreign exchange
contracts with major financial institutions to reduce such exposure. These
agreements are meant to either hedge exchange exposure on the Corporation's net
investment in a foreign country or on the Corporation's foreign denominated debt
or are meant to hedge a specific transaction. During 1993, consolidated net
assets decreased by $114 reflecting the effect of translated local currencies on
the Corporation's net foreign investments and was primarily the result of the
strengthening of the U.S. dollar against most European currencies. Foreign
currency transaction gains or losses were not significant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Schedules elsewhere herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ITT
The information called for by Item 10 with respect to directors is
incorporated herein by reference to the definitive proxy statement involving the
election of directors filed or to be filed by ITT with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this Form 10-K.
The information called for by Item 10 with respect to executive officers is
set forth above in Part I under the caption "Executive Officers of ITT."
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated herein by reference
to the definitive proxy statement referred to above in Item 10.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information called for by Item 12 is incorporated herein by reference
to the definitive proxy statement referred to above in Item 10.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item 13 is incorporated herein by reference
to the definitive proxy statement referred to above in Item 10.
23
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
1. See Index to Financial Statements and Schedules appearing on page
F-1 for a list of the financial statements and schedules filed as a
part of this report.
2. See Exhibit Index appearing on pages II-2 and II-3 for a list of
the exhibits filed or incorporated herein as a part of this report.
(b) There were no Form 8-K Current Reports filed by ITT during the quarter
ended December 31, 1993.
24
<PAGE> 26
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Management........................................................... F-2
Report of Independent Public Accountants....................................... F-3
Consolidated Income for the three years ended December 31, 1993................ F-4
Consolidated Balance Sheet as of December 31, 1993 and 1992.................... F-5
Consolidated Cash Flow for the three years ended December 31, 1993............. F-6
Consolidated Retained Earnings for the three years ended December 31, 1993..... F-7
Consolidated Capital Stock and Surplus for the three years ended
December 31, 1993............................................................ F-7
Cumulative Preferred Stock as of December 31, 1993 and 1992.................... F-7
Notes to Financial Statements.................................................. F-8-19
Supplementary Condensed Financial Statements................................... F-20-21
Business Segment Information................................................... F-22
Geographical Information....................................................... F-22
Quarterly Results for 1993 and 1992............................................ F-23
Export Sales................................................................... F-23
Valuation and Qualifying Accounts.............................................. S-1
Short-term Borrowings.......................................................... S-2
Supplementary Income Statement Information..................................... S-2
Summary of Insurance Investments............................................... S-3
Supplementary Insurance Information............................................ S-4
Supplemental Information Concerning Property and Casualty Insurance
Operations................................................................... S-4
Reinsurance.................................................................... S-5
</TABLE>
F-1
<PAGE> 27
REPORT OF MANAGEMENT
The management of ITT Corporation is responsible for the preparation and
integrity of the information contained in the financial statements and other
sections of the Annual Report. The financial statements are prepared in
accordance with generally accepted accounting principles and, where necessary,
include amounts that are based on management's informed judgments and estimates.
Other information in the Annual Report is consistent with the financial
statements.
ITT's financial statements are audited by Arthur Andersen & Co.,
independent public accountants, elected by the shareholders. Management has made
ITT's financial records and related data available to Arthur Andersen & Co., and
believes that the representations made to the independent public accountants are
valid and complete.
ITT's system of internal controls is a major element in management's
responsibility to provide a fair presentation of the financial statements. The
system includes both accounting controls and the internal auditing program,
which are designed to provide reasonable assurance that the Corporation's assets
are safeguarded, that transactions are properly recorded and executed in
accordance with management's authorization, and that fraudulent financial
reporting is prevented or detected.
ITT's internal controls provide for the careful selection and training of
personnel and for appropriate divisions of responsibility. The controls are
documented in written codes of conduct, policies and procedures that are
communicated to ITT's employees. Management continually monitors the system of
internal controls for compliance. ITT's internal auditors independently assess
the effectiveness of internal controls and make recommendations for improvement
on a regular basis. The independent public accountants also evaluate internal
controls and perform tests of procedures and accounting records to enable them
to express their opinion on ITT's financial statements. They also make
recommendations for improving internal controls, policies and practices.
Management takes appropriate action in response to each recommendation from the
internal auditors and the independent public accountants.
The Audit Committee of the Board of Directors, composed of nonemployee
directors, meets periodically with management and with the independent public
accountants and internal auditors to evaluate the effectiveness of the work
performed by them in discharging their respective responsibilities and to assure
their independent and free access to the Committee.
F-2
<PAGE> 28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS OF ITT CORPORATION:
We have audited the financial statements of ITT Corporation (a Delaware
corporation) and subsidiaries as of December 31, 1993 and 1992, and for each of
the three years in the period ended December 31, 1993, as described in the
accompanying Index to Financial Statements and Schedules. These financial
statements and the schedules referred to below are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ITT Corporation and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in the accompanying notes to financial statements, the
Corporation adopted new accounting standards promulgated by the Financial
Accounting Standards Board, changing its methods of accounting, in 1993, for
reinsurance of short-duration and long-duration contracts, and, effective
January 1, 1992, for postretirement benefits other than pensions and
postemployment benefits.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the Index to
Financial Statements and Schedules are presented for purposes of complying with
the Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen & Co.
New York, New York
February 3, 1994
F-3
<PAGE> 29
ITT CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME
IN MILLIONS EXCEPT PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
RESULTS FOR YEAR
Sales and Revenues
Products and Services....................................................... $10,791 $11,098 $10,268
Insurance................................................................... 10,338 9,862 9,242
Finance..................................................................... 1,633 2,017 2,026
------- ------- -------
22,762 22,977 21,536
Costs and Expenses
Products and Services (including selling and general expenses of $1,062,
$1,135 and $1,065)........................................................ 10,240 10,908 9,882
Insurance................................................................... 9,619 10,375 8,726
Finance (including interest expense of $605, $699 and $781)................. 1,371 2,798 1,932
Other....................................................................... 211 165 135
------- ------- -------
1,321 (1,269) 861
Equity in earnings of Alcatel N.V............................................. -- 97 208
Gain on sale of Alcatel N.V................................................... -- 942 --
Interest expense (net of interest income of $168, $160 and $100).............. (147) (169) (177)
Gain on sale of loan portfolio................................................ 95 -- --
Miscellaneous income (expense), net........................................... 13 (3) 1
------- ------- -------
1,282 (402) 893
Income tax (expense) benefit.................................................. (345) 241 (166)
Minority equity............................................................... (27) (27) (32)
------- ------- -------
Income (Loss) from Continuing Operations...................................... 910 (188) 695
Discontinued Operations, net of tax (expense) benefit of $(30), $46 and
$(24)....................................................................... 53 (72) 54
Extraordinary Item, net of tax benefit of $25................................. (50) -- --
Cumulative Effect of Accounting Changes (SFAS Nos. 106 and 112), net of tax
benefit of $322............................................................. -- (625) --
------- ------- -------
Net Income (Loss)............................................................. $ 913 $ (885) $ 749
------- ------- -------
------- ------- -------
EARNINGS (LOSS) PER SHARE
Income (Loss) from Continuing Operations
Primary..................................................................... $ 7.29 $ (1.85) $ 5.40
Fully Diluted*.............................................................. $ 6.87 $ (1.64) $ 5.08
Discontinued Operations
Primary..................................................................... $ .44 $ (.62) $ .44
Fully Diluted*.............................................................. $ .41 $ (.55) $ .41
Extraordinary Item
Primary..................................................................... $ (.41) -- --
Fully Diluted............................................................... $ (.38) -- --
Cumulative Effect of Accounting Changes (SFAS Nos. 106 and 112)
Primary..................................................................... -- $ (5.46) --
Fully Diluted*.............................................................. -- $ (4.71) --
Net Income (Loss)
Primary..................................................................... $ 7.32 $ (7.93) $ 5.84
Fully Diluted*.............................................................. $ 6.90 $ (6.90) $ 5.49
------- ------- -------
------- ------- -------
AVERAGE COMMON EQUIVALENT SHARES -- PRIMARY................................... 120 117 122
------- ------- -------
------- ------- -------
AVERAGE COMMON EQUIVALENT SHARES -- FULLY DILUTED............................. 129 132 132
------- ------- -------
------- ------- -------
</TABLE>
- ---------------
* The reported net loss in 1992 causes the calculation of the fully diluted
loss per share in 1992 to be anti-dilutive. In such a case, generally
accepted accounting principles suggest the fully diluted loss per share to be
the same as the primary loss per share; however, the Corporation has
presented the actual calculated amount in order that all calculations and
comparisons with previously reported and future amounts be on a consistent
basis.
The accompanying notes to financial statements are an integral part of the
above statement.
F-4
<PAGE> 30
ITT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
IN MILLIONS EXCEPT FOR SHARES AND PER SHARE
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1992
------- -------
<S> <C> <C>
ASSETS
Cash........................................................................................... $ 1,136 $ 882
Finance Receivables, net....................................................................... 7,556 9,280
Other Receivables, net......................................................................... 5,163 5,403
Inventories.................................................................................... 963 1,108
Insurance Investments --
Fixed maturities............................................................................. 26,870 25,025
Other........................................................................................ 3,712 2,841
Finance Investments............................................................................ 3,097 2,989
Reinsurance Recoverables....................................................................... 11,577 11,322
Deferred Policy Acquisition Costs.............................................................. 2,024 1,482
Plant, Property and Equipment, net............................................................. 3,416 3,306
Other Assets................................................................................... 5,046 4,925
------- -------
$70,560 $68,563
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS EQUITY
Liabilities --
Policy liabilities and accruals.............................................................. $40,884 $37,705
Finance debt................................................................................. 9,463 11,043
Other debt................................................................................... 3,874 4,250
ESOP debt.................................................................................... 603 640
Accounts payable and accrued liabilities..................................................... 4,293 3,957
Other liabilities............................................................................ 3,793 3,721
------- -------
62,910 61,316
------- -------
Stockholders Equity --
Cumulative preferred stock (aggregate liquidation value of $719 as of December 31, 1993)..... 673 687
Common stock: Authorized 200,000,000 shares, $1 par value
Outstanding 117,560,877 and 119,059,132........................................ 118 119
Capital surplus.............................................................................. -- 76
Deferred compensation -- ESOP................................................................ (603) (631)
Cumulative translation adjustments........................................................... (206) (92)
Unrealized gain on equity securities, net of tax............................................. 80 30
Retained earnings............................................................................ 7,588 7,058
------- -------
7,650 7,247
------- -------
$70,560 $68,563
------- -------
------- -------
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
F-5
<PAGE> 31
ITT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW
IN MILLIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss)........................................................... $ 913 $ (885) $ 749
Discontinued Operations..................................................... (53) 72 (54)
Extraordinary Item.......................................................... 50 -- --
Cumulative Effect of Accounting Changes..................................... -- 625 --
-------- -------- --------
Income (Loss) from Continuing Operations................................ 910 (188) 695
Adjustments to net income (loss):
Depreciation and amortization............................................. 576 504 465
Provision for doubtful receivables........................................ 157 1,264 538
(Gain) loss on divestments -- pretax...................................... (129) (916) 4
Gain on sale of portfolio securities -- pretax............................ (161) (511) (215)
Change in receivables, inventories, payables and accrued liabilities...... 263 293 314
Accrued and deferred taxes................................................ 22 (481) 10
Increase in liability for policy benefits and unpaid claims............... 233 1,873 763
Increase in deferred policy acquisition costs............................. (359) (235) (148)
Decrease (increase) in reinsurance and other related assets............... 244 107 (40)
Other, net................................................................ (36) 1 (303)
-------- -------- --------
Cash from operating activities.......................................... 1,720 1,711 2,083
-------- -------- --------
INVESTING ACTIVITIES
Additions to plant, property and equipment.................................. (505) (549) (658)
Proceeds from divestments................................................... 2,379 1,077 26
Purchase of insurance and finance investments............................... (38,461) (28,873) (19,458)
Sale and maturity of insurance and finance investments...................... 35,716 26,140 16,460
Finance receivables originated or purchased................................. (19,355) (15,693) (12,500)
Finance receivables repaid or sold.......................................... 19,778 14,857 11,374
Investment in Alcatel N.V................................................... -- -- (335)
Acquisitions................................................................ (180) (62) (33)
Other, net.................................................................. (76) (76) 71
-------- -------- --------
Cash used for investing activities...................................... (704) (3,179) (5,053)
-------- -------- --------
FINANCING ACTIVITIES
Short-term debt, net........................................................ (2,289) 881 (878)
Long-term debt issued....................................................... 2,857 1,401 3,314
Long-term debt repaid....................................................... (2,598) (1,405) (1,119)
Investment life contracts, net.............................................. 1,734 1,617 1,829
Repurchase and redemption of stock.......................................... (322) (223) (6)
Dividends paid.............................................................. (277) (270) (267)
Other, net.................................................................. 18 (6) (68)
-------- -------- --------
Cash from (used for) financing activities............................... (877) 1,995 2,805
-------- -------- --------
EXCHANGE RATE EFFECT ON CASH................................................ (26) (27) 1
-------- -------- --------
CASH FROM DISCONTINUED OPERATIONS........................................... 141 27 73
-------- -------- --------
Increase (decrease)in cash.................................................. 254 527 (91)
Cash -- Beginning of year................................................... 882 355 446
-------- -------- --------
CASH -- END OF YEAR......................................................... $ 1,136 $ 882 $ 355
-------- -------- --------
-------- -------- --------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................................................. $ 1,024 $ 1,101 $ 1,081
-------- -------- --------
Income taxes (net of refunds)............................................. $ 337 $ 202 $ 157
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
F-6
<PAGE> 32
ITT CORPORATION AND SUBSIDIARIES
CONSOLIDATED RETAINED EARNINGS
IN MILLIONS EXCEPT PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Balance -- Beginning of Year..................................................... $7,058 $8,202 $7,705
Net Income (Loss).............................................................. 913 (885) 749
Dividends declared --
Cumulative preferred stock, net of tax benefit............................... (36) (43) (55)
Common stock -- $1.98, $1.84 and $1.72 per share............................. (235) (216) (197)
Repurchases of Common Stock.................................................... (112) -- --
------ ------ ------
Balance -- End of Year........................................................... $7,588 $7,058 $8,202
------ ------ ------
------ ------ ------
</TABLE>
CONSOLIDATED CAPITAL STOCK AND SURPLUS
IN MILLIONS EXCEPT FOR SHARES
<TABLE>
<CAPTION>
CUMULATIVE
PREFERRED STOCK COMMON STOCK
---------------------- ----------------------- CAPITAL
SHARES AMOUNT SHARES AMOUNT SURPLUS
----------- ------ ------------ ------ -------
<S> <C> <C> <C> <C> <C>
Balance--December 31, 1990........................ 14,852,772 $ 973 114,168,125 $ 114 $ --
Redemption of ESOP Series preferred stock....... (65,703) (5) -- -- --
Stock incentive plans........................... -- -- 156,227 -- 7
Stock conversions............................... (72,970) (1) 97,704 -- 1
----------- ------ ------------ ------ -------
Balance--December 31, 1991........................ 14,714,099 967 114,422,056 114 8
Redemption of ESOP Series preferred stock....... (111,859) (8) -- -- --
Stock incentive plans........................... -- -- 361,031 -- 16
Stock conversions............................... (3,647,710) (174) 5,940,563 6 168
Redemptions and repurchases..................... (1,059,777) (98) (1,664,518) (1) (116)
----------- ------ ------------ ------ -------
Balance--December 31, 1992........................ 9,894,753 687 119,059,132 119 76
Redemption of ESOP Series preferred stock....... (175,964) (14) -- -- (2)
Stock incentive plans........................... -- -- 1,915,760 2 121
Stock conversions............................... (137,460) -- 173,993 -- --
Repurchases..................................... -- -- (3,588,008) (3) (195)
----------- ------ ------------ ------ -------
Balance--December 31, 1993........................ 9,581,329 $ 673 117,560,877 $ 118 $ --
----------- ------ ------------ ------ -------
----------- ------ ------------ ------ -------
</TABLE>
CUMULATIVE PREFERRED STOCK
STATED VALUE IN MILLIONS
<TABLE>
<CAPTION>
PER SHARE--DECEMBER 31, 1993 1993 1992
----------------------------- -------------------- --------------------
CONVERSION REDEMPTION STATED STATED
RATE PRICE SHARES VALUE SHARES VALUE
---------- ---------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
$2.25 Series N.................. 1.2660 $85.00 581,535 $ 2 718,995 $ 2
$5.221 ESOP Series.............. 1.0000 77.20 8,999,794 671 9,175,758 685
---------- ------ ---------- ------
9,581,329 $ 673 9,894,753 $ 687
---------- ------ ---------- ------
---------- ------ ---------- ------
</TABLE>
The Corporation has authorized 50,000,000 shares of cumulative preferred
stock, without par value, which are issuable in series. The ESOP Series shares
are redeemable after July 1, 1994 at $77.20 per share reduced annually through
June 30, 1999 to $74.59 per share.
Liquidation preference on shares outstanding is $34 per share for the
Series N and $77.72 per share for the ESOP Series.
The accompanying notes to financial statements are an integral part of the above
statements.
F-7
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED)
ACCOUNTING POLICIES
Consolidation Principles: The financial statements include the accounts of
all majority-owned subsidiaries. All significant intercompany transactions have
been eliminated.
Insurance Operations: Policy acquisition costs, representing commissions,
premium taxes and certain other underwriting costs of developing and
implementing new insurance programs, are deferred and amortized over the periods
benefited. Estimates of future revenues, including investment income, are
compared with estimates of future costs, including amortization of policy
acquisition costs, to determine if policies currently in force are expected to
result in a net loss. No revenue deficiencies have been determined in the
periods presented.
The liability for property and casualty claims includes amounts determined
by claim adjusters on individual cases and estimates for unreported claims based
on past experience. While asbestos and pollution liabilities are established for
claims and legal defense costs, the ultimate liabilities cannot be reasonably
estimated due to the unpredictability of notification and resolution, and
therefore the liabilities established may have to be adjusted as additional
information becomes available. However, based on current evaluation, the
Corporation believes the ultimate resolution of all its claims, including
reinsurance effects, will not have a material adverse impact on its overall
financial condition.
Certain liabilities for unpaid claims are discounted at interest rates
between 3% and 3.5%, for permanently disabled claimants, and between 3% and 14%
for terminated reinsurance treaties and certain reinsurance contracts that fund
loss runoffs for unrelated parties. The discount amounted to $362 and $325 as of
December 31, 1993 and 1992. Unearned premiums are calculated principally by the
application of monthly pro rata fractions for the unexpired terms of policies in
force.
The liability for future life insurance payments, excluding investment and
universal life-type contracts, is computed by the net level premium method,
based on estimated future investment yields, withdrawals, mortality and other
assumptions made at the time the policies are issued.
The liability for investment and universal life-type contracts is stated at
policyholder account values before surrender charges. Revenue on these contracts
represents policyholder charges. The cost of acquiring new business is
recognized over the term of the contracts in proportion to estimated gross
profits.
Separate account assets and corresponding liabilities totalling $16.6
billion and $8.8 billion at December 31, 1993 and 1992, respectively, have been
netted in the accompanying Balance Sheet.
Finance Operations: Revenues from finance receivables are recognized using
the interest method, whereby finance charges, loan origination fees and direct
loan origination costs are recognized over the life of the related loan to
provide a constant effective yield. Because the insurance subsidiaries of the
finance companies are integral parts of the finance operations, the accounts of
those subsidiaries are included in finance revenues, operating costs and
expenses, assets and liabilities. The reserve for credit losses is based on
analysis of historical loss experience and other factors, and is considered
adequate to cover incurred losses in the finance receivables portfolio.
In May 1993, the Financial Accounting Standards Board issued a new standard
related to the accounting by creditors for the impairment of a loan (SFAS No.
114). The standard, which must be adopted by 1995, requires that impaired loans,
as defined, be measured based on the present value of expected future cash
flows. The Corporation is reviewing the requirements and the timing of the
adoption of the standard, however, the impacts are not expected to be material
to the Corporation's financial position or results of operations.
Hotel Operations: During 1993, the Corporation changed its presentation of
the operations of partially-owned hotel properties and hotel properties under
long-term management agreements to include their revenues and expenses in the
consolidated results of operations. The change was made because the operating
control and responsibilities associated with these properties are substantially
the
F-8
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
same as those for owned or leased hotel properties. The inclusion of revenues
and expenses of these properties more clearly reflects the results of operations
of all of the properties that are actively managed and controlled by the
Corporation. Prior year amounts have been reclassified to conform to the 1993
presentation. Sales and expenses have been increased by $2.4 billion, $2.3
billion and $2.1 billion (with no impact on operating income) in 1993, 1992 and
1991, respectively.
Inventories: Inventories are generally valued at the lower of cost
(first-in, first-out) or market. In manufacturing operations, a full absorption
procedure is employed using standard cost techniques. Revenue from long-term
contracts is recognized on the percentage-of-completion method. Expected losses
on long-term contracts and potential losses from obsolete and slow-moving
inventories are provided for in the current period.
Plant, Property and Equipment: Plant, property and equipment, including
capitalized interest applicable to major project expenditures, are recorded at
cost. The Corporation normally claims the maximum depreciation deduction
allowable for tax purposes. In general, for financial reporting purposes,
depreciation is provided on a straight-line basis over the useful economic lives
of the assets involved. Accumulated depreciation was $3,054 and $2,916 at
December 31, 1993 and 1992.
Earnings Per Share: Fully diluted earnings per share is based on the
weighted average of common stock equivalents and assumes conversion of the ESOP
Series convertible preferred stock and in 1992 and 1991 assumes conversion of
the then outstanding Series O convertible preferred stock. Net income applicable
to fully diluted earnings per share consists of reported net income or loss
adjusted for the amount, net of tax, the Corporation would be required to
contribute to the ESOP if the ESOP Series preferred shares were converted into
common stock.
Primary earnings per share is based, in 1993, on the weighted average of
common and common equivalent shares outstanding, which include Series N
convertible preferred stock and stock options. In 1992, common equivalent
shares, which include Series K and N convertible preferred stock and stock
options, have not been considered since their effect is anti-dilutive. These
common equivalent shares are, however, included in the primary earnings per
share calculation in 1991. With respect to options, it is assumed that proceeds
received upon exercise will be used to acquire common stock of the Corporation.
In 1993 and 1991, net income applicable to primary earnings per share consists
of the reported net income adjusted for dividend requirements on preferred stock
not considered common stock equivalents, net of the related tax benefits. In
1992, net income applicable to primary earnings per share consists of reported
net loss adjusted for dividend requirements on all preferred stock series, net
of the related tax benefits.
CHANGES IN ACCOUNTING PRINCIPLES
Change Adopted in 1993: During the first quarter of 1993, the Corporation
adopted Statement of Financial Accounting Standards ("SFAS") No. 113,
"Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts", by restating the balance sheet of the prior period. This new
standard requires reinsurance recoverables and prepaid reinsurance premiums to
be reported as assets. As a result of the restatement, reinsurance recoverables
increased $10.2 billion, prepaid insurance premiums (included in "Other Assets")
increased $.3 billion and policy liabilities and accruals increased $10.5
billion at December 31, 1992. The income statement impact of the adoption is not
significant.
Changes Adopted in 1992: Effective January 1, 1992, the Corporation
adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
than Pensions" and SFAS No. 112, "Employers' Accounting for Postemployment
Benefits", using the immediate recognition method. Accordingly, cumulative
adjustments (through December 31, 1991) of $580 after tax ($4.37 per fully
diluted share) and $45 after tax ($.34 per fully diluted share), respectively,
have been recognized at January 1, 1992.
The Corporation's cash flows were not impacted by these changes in
accounting principles.
F-9
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SPECIAL CHARGES AND EXTRAORDINARY ITEM
In 1992, as a result of adverse loss developments in certain surplus lines
and reinsurance business, the Corporation's insurance operations recorded a $900
pretax charge to fund expected loss developments in surplus lines and
reinsurance business and $250 pretax for expected legal defense costs associated
with environmental-related claims. The effect of these two charges was $759
after tax or $5.75 per fully diluted share.
The Corporation also announced in 1992 a strategic transformation of its
consumer finance operations to considerably reduce its business in the domestic
unsecured consumer small loan area and to pursue growth opportunities in other
portions of the finance business. The domestic unsecured consumer small loan
portfolio totalled $2.4 billion at December 31, 1992. In conjunction with this
decision, reserves were established in the fourth quarter totalling $928 pretax
or $612 after tax ($4.66 per fully diluted share), including a $693 pretax
provision to cover future unsecured consumer small loan losses from the run-off
of its existing portfolio; $103 pretax for restructuring and consolidation of
loan offices; and $132 pretax for anticipated losses in the commercial real
estate portfolio. In June 1993, the domestic unsecured consumer small loan
portfolio was sold to a group of investors resulting in a $95 pretax gain ($63
after tax or $.48 per fully diluted share). Proceeds from the sale were used to
retire fixed-rate debt resulting in an extraordinary loss of $50 after tax or
$.38 per fully diluted share.
ALCATEL N.V.
In July 1992, the Corporation sold its 30% equity interest in Alcatel N.V.
(Alcatel) to its joint venture partner, Alcatel Alsthom, resulting in a pretax
gain of $942 or $622 after tax ($4.71 per fully diluted share). The Corporation
received cash at the closing of $1 billion, two notes payable in 1993 and 1994
valued at $1.4 billion and 9.1 million shares of Alcatel Alsthom stock recorded
at $806. The Alcatel Alsthom stock, which is carried at cost, is included in
"Other Assets" in the accompanying Balance Sheet and has a value of $1.3 billion
and $1.1 billion based on the quoted market prices at December 31, 1993 and
1992.
Equity in earnings of Alcatel in 1992 and 1991 represents the Corporation's
30% equity in after tax income of Alcatel, adjusted for amortization of the
amount by which the Corporation's investment exceeded its equity in the joint
venture, over periods not longer than 40 years.
RECEIVABLES
Finance Receivables of $7,556 and $9,280 at December 31, 1993 and 1992 are
net of unearned income of $567 and $917 and reserves for credit losses of $222
and $1,119. The estimated fair value of Finance Receivables, net, at December
31, 1993 and 1992, approximates the recorded value and was computed by
discounting the projected cash flows at a rate at which similar loans would be
made to borrowers with similar credit ratings and for the same maturities.
Consumer receivables were $3,647 and $5,932 and commercial receivables were
$4,698 and $5,384 at December 31, 1993 and 1992. These receivables are generally
written with maximum original terms of 60 months for consumer small loans, 84
months for commercial loans, 180 months for consumer mortgages and 120 months
for commercial mortgages. Net charge-offs as a percentage of average net finance
receivables were 3.22%, 4.85% and 4.58% in 1993, 1992 and 1991.
Other Receivables were $5,163 and $5,403 at December 31, 1993 and 1992, net
of allowances for doubtful accounts of $127 and $133. Included in the balances
are notes receivable from the sale of Alcatel totalling $785 and $1,461 at
December 31, 1993 and 1992, respectively, which approximate fair value. Also
included are insurance premiums receivable and agents' balances of $1,842 and
$1,791, trade receivables of $2,395 and $1,989 and other receivables of $268 and
$295.
F-10
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INCOME TAX
Income tax data from continuing operations is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------ ----- ----
<S> <C> <C> <C>
Pretax income (loss)
U.S........................................................................... $ 923 $(648) $603
Foreign....................................................................... 359 246 290
------ ----- ----
$1,282 $(402) $893
------ ----- ----
Provision (benefit) for income tax
Current
U.S. Federal................................................................ $ 183 $ 136 $ 28
State and local............................................................. 12 3 9
Foreign..................................................................... 156 101 110
------ ----- ----
351 240 147
------ ----- ----
Deferred
U.S. Federal................................................................ 24 (455) 39
Foreign and other........................................................... (30) (26) (20)
------ ----- ----
(6) (481) 19
------ ----- ----
$ 345 $(241) $166
------ ----- ----
------ ----- ----
</TABLE>
No provision was made for U.S. taxes payable on undistributed foreign
earnings amounting to approximately $800 since these amounts are permanently
reinvested.
Deferred income taxes represent the tax effect related to recording
revenues and expenses in different periods for financial reporting and tax
purposes. The December 31, 1993 and 1992 Balance Sheets include net U.S. Federal
deferred tax assets of $1,044 and $1,037, respectively (included in "Other
Assets"), and net foreign and other deferred tax liabilities of $196 and $244,
respectively (included in "Other Liabilities").
Deferred tax assets (liabilities) include the following:
<TABLE>
<CAPTION>
1993 1992
------------------- -------------------
U.S. FOREIGN U.S. FOREIGN
FEDERAL & OTHER FEDERAL & OTHER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Discounted insurance loss reserves................................ $ 673 $ -- $ 674 $ --
Other insurance related items..................................... (120 ) (73) (237 ) (67)
Employee benefits................................................. 272 24 269 25
Reserve for bad debts............................................. 109 -- 384 --
Accelerated depreciation.......................................... (79 ) (156) (71 ) (174)
Installment sales................................................. (108 ) -- (211 ) --
Reserves and other................................................ 297 9 229 (28)
------- ------- ------- -------
$1,044 $(196) $1,037 $(244)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
A reconciliation of the tax provision (benefit) at the U.S. statutory rate
to the provision (benefit) for income tax as reported is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Tax provision (benefit) at U.S. statutory rate............................. $449 $(137) $304
Tax exempt interest........................................................ (34) (40) (63)
Change in U.S. tax law..................................................... (32) -- --
Foreign tax rate differential.............................................. (28) (38) (42)
Other...................................................................... (10) (26) (33)
------- ------- -------
Provision (benefit) for income tax......................................... $345 $(241) $166
------- ------- -------
------- ------- -------
</TABLE>
F-11
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DEBT
As of December 31, debt consisted of:
<TABLE>
<CAPTION>
FINANCE OTHER
------------------- -------------------
1993 1992 1993 1992
------- ------- ------- -------
<S> <C> <C> <C> <C>
Commercial paper.................................................. $2,008 $ 3,873 $ 518 $ 915
Bank loans and other short-term................................... 1,207 1,282 646 649
Long-term......................................................... 6,248 5,888 2,710 2,686
------- ------- ------- -------
$9,463 $11,043 $3,874 $4,250
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The fair value of the Corporation's commercial paper and bank loans and
other short-term loans approximates carrying value. The estimated fair value of
long-term debt at December 31, 1993 and, 1992 is $6,590 and $6,135 for Finance
and $3,071 and $2,935 for Other, based on discounted cash flows using the
Corporation's incremental borrowing rates for similar arrangements.
Long-term debt maturities and interest rates at December 31 were:
<TABLE>
<CAPTION>
FINANCE OTHER
-------------------- --------------------
MATURITIES UNDER 8% OVER 8% UNDER 8% OVER 8%
------------------------------------------------------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
1994......................................................... $ 1,021 $ 754 $ 187 $ 380
1995......................................................... 756 572 214 68
1996......................................................... 800 233 453 151
1997......................................................... 424 423 8 112
1998......................................................... 184 322 42 328
Thereafter................................................... 21 849 319 606
--------- -------- --------- --------
Total-1993................................................... $ 3,206 $3,153 $ 1,223 $1,645
--------- -------- --------- --------
--------- -------- --------- --------
Total-1992................................................... $ 2,009 $3,989 $ 1,140 $1,720
--------- -------- --------- --------
--------- -------- --------- --------
</TABLE>
The balances as of December 31, 1993 and 1992 exclude amortizable debt
discounts of $111 and $110 for Finance and $158 and $174 for Other operations.
Bank loans and other short-term debt are drawn down under lines of credit,
some of which extend for a fixed term of several years. As of December 31, 1993,
the Corporation had unused credit lines of $3.3 billion for Finance, the
majority of which supports outstanding commercial paper, and $2.0 billion for
Other operations.
The Corporation enters into interest rate swap agreements with major
financial institutions to manage exposure from fluctuations in interest rates.
Interest expense is adjusted with changes of the interest rate and any credit
risk is considered remote. At December 31, 1993 and 1992, interest rates were
effectively converted on the following notional principal amounts:
<TABLE>
<CAPTION>
LATEST
1993 1992 MATURITY
---- ------ --------
<S> <C> <C> <C>
Variable-rate into fixed-rate obligations...................................... $872 $1,286 1999
Fixed-rate into variable-rate obligations...................................... $595 $ 600 1999
Variable-rate into a different variable-rate index............................. $435 $ 225 1998
</TABLE>
The estimated fair value of these interest rate swap agreements at December
31, 1993 and 1992 amount to net payable of $25 and $32 over recorded amounts.
The fair value of interest rate swaps is the estimated amount that the
Corporation would receive or pay to terminate the swap agreements at December
31, 1993 and 1992, taking into account current interest rates.
F-12
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
CAPITAL STOCK
During 1993, 3,588,008 common shares were repurchased for $310. The excess
over par value was charged to Capital Surplus to the extent available and then
to Retained Earnings. In 1992, 1,664,518 common shares were repurchased for $109
with the excess over par value charged to Capital Surplus. Also in 1992, the
Corporation called for the redemption of all outstanding $4.00 Convertible
Series K and $5.00 Convertible Series O Cumulative Preferred Stock at $100 per
share plus accrued dividends. Redemptions totalled $106, which reduced common
equivalent shares by an additional 1,562,559 shares with the balance converted
to 5,822,118 shares of common stock. There were no share repurchases in 1991.
As of December 31, 1993, reserved shares of authorized and unissued common
stock totalled 13,344,783, in connection with convertible preferred stock and
incentive stock plans and shares held in treasury totalled 27,587,131.
Certain subsidiaries were subject to various restrictions such as transfers
of funds in the form of dividends and advances without prior regulatory
approval. The net assets of subsidiaries subject to such restrictions were
approximately $1.2 billion at December 31, 1993.
FOREIGN CURRENCY
Balance sheet accounts are translated at the exchange rates in effect at
each year end and income accounts are translated at the average rates of
exchange prevailing during the year. The national currencies of foreign
operations are generally the functional currencies.
The Corporation enters into foreign exchange contracts with major financial
institutions (currency swaps and forward exchange contracts) to reduce its
exposure to fluctuations in foreign currencies. These agreements are meant to
either hedge exchange exposure on the Corporation's net investment in a foreign
country or on the Corporation's foreign denominated debt and are, therefore, of
a long-term duration, or are meant to hedge a specific transaction.
The contractual amounts of these foreign exchange contracts at December 31,
1993 and 1992 totalled $966 and $1,122, respectively, and mature at varying
dates through 1997. The estimated fair value at December 31, 1993 and 1992
approximates the recorded amounts. The estimated fair value is the present value
of the change in cash flows that would result from the agreements being replaced
at the year-end market rate for the remaining term of the agreements. Cumulative
translation adjustments are adjusted for contracts that hedge the Corporation's
foreign investments, when the differential to be paid or received fluctuates
with the foreign exchange rate. Any credit risk is considered remote.
Translation adjustments recorded in a separate component of Stockholders
Equity were:
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- ----
<S> <C> <C> <C>
Balance -- Beginning of Year......................................................... $ (92) $ 107 $ 91
Translation of foreign currency financial statements............................... (125) (226) 19
Hedges of net foreign investments.................................................. 11 42 (8)
Sale or liquidation of investments................................................. -- (15) 5
----- ----- ----
Balance -- End of Year............................................................... $(206) $ (92) $107
----- ----- ----
----- ----- ----
</TABLE>
EMPLOYEE BENEFIT PLANS
Pension Plans -- The Corporation and its subsidiaries sponsor numerous
pension plans. The plans are funded with trustees, except in some countries
outside the U.S. where funding is not required.
F-13
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Total pension expenses were:
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Defined Benefit Plans
Service cost...................................................................... $ 123 $ 128 $ 119
Interest cost..................................................................... 309 293 267
Return on assets.................................................................. (574) (182) (444)
Net amortization and deferral..................................................... 294 (68) 210
----- ----- -----
Net periodic pension cost......................................................... 152 171 152
Other Pension Cost
Defined contribution (savings) plans.............................................. 42 41 41
Other............................................................................. 6 5 5
----- ----- -----
Total Pension Expense........................................................... $ 200 $ 217 $ 198
----- ----- -----
----- ----- -----
</TABLE>
U.S. pension expenses included in the net periodic pension costs in the
table above were $85, $100 and $86 for 1993, 1992 and 1991.
The following table sets forth the funded status of the pension plans,
amounts recognized in the Corporation's Balance Sheet at December 31, 1993 and
1992, and the principal weighted average assumptions inherent in their
determination.
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------ -----------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations --
Vested benefit obligation.............................................. $2,862 $ 714 $2,393 $ 635
Accumulated benefit obligation......................................... $2,972 $ 745 $2,494 $ 665
------ ------ ------ -----
------ ------ ------ -----
Projected benefit obligation............................................. $3,518 $ 902 $2,896 $ 793
Plan assets at fair value................................................ 3,172 380 2,724 328
------ ------ ------ -----
Projected benefit obligation (in excess of) plan assets.................. (346) (522) (172) (465)
Unrecognized net (gain)/loss............................................. 597 37 351 (29)
Unrecognized net obligation/(asset)...................................... (37) 34 (42) 38
------ ------ ------ -----
Pension asset (liability) recognized in the balance sheet................ $ 214 $ (451) $ 137 $(456)
------ ------ ------ -----
------ ------ ------ -----
Discount rate............................................................ 7.50% 7.71% 8.50% 8.63%
Rate of return on invested assets........................................ 9.75% 8.27% 9.75% 8.26%
Salary increase assumption............................................... 5.5% 5.6% 5.6% 5.6%
------ ------ ------ -----
------ ------ ------ -----
</TABLE>
For substantially all domestic plans, assets exceed accumulated benefits
and, for substantially all foreign plans, accumulated benefits exceed the
related assets.
Investment and Savings Plan -- The ITT Investment and Savings Plan for
Salaried Employees includes an Employee Stock Ownership Plan (ESOP) feature. In
1989, ITT sold to the ESOP 9,384,951 shares of a new series of Cumulative
preferred stock at a price of $74.5875 per share, which was financed through
borrowings by the ESOP guaranteed by ITT. Shares are allocated to participants
as a percent of each covered employee's salary and respective contribution. At
December 31, 1993, 1,968,237 shares were allocated to participants.
The ESOP debt of $603 is included in the Balance Sheet due to the
Corporation's guarantee of its repayment by the ESOP and is offset by a
reduction in Stockholders Equity as deferred compensation. The debt is at fixed
rates ranging between 8.4% and 8.8% and matures in varying amounts through 2004.
The fair value of ESOP debt at December 31, 1993 is $686 based on discounted
cash flows using incremental borrowing rates for similar arrangements. Interest
and principal repayments are funded by dividends on the ESOP Series preferred
stock and Plan contributions from the Corporation.
F-14
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Postretirement Health and Life -- The Corporation and its subsidiaries
provide health care and life insurance benefits for certain eligible retired
employees. Effective January 1, 1992, the Corporation adopted SFAS No. 106,
using the immediate recognition method for all benefits accumulated to date.
The Corporation adopted certain changes to a number of its postretirement
benefit plans during 1992. The effect of these changes has been reflected in the
determination of the expense recorded for 1993 and 1992 as reported below.
The Corporation has prefunded a portion of the health care and life
insurance obligations through trust funds where such prefunding can be
accomplished on a tax effective basis. Postretirement health care and life
insurance benefits expense (excluding the cumulative catch-up adjustment in
1992) was comprised of the following in 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Service cost................................................................................ $ 11 $ 21
Interest cost............................................................................... 50 62
Return on assets............................................................................ (12) (10)
Net amortization and deferral............................................................... (27) (16)
---- ----
Net periodic expense................................................................ $ 22 $ 57
---- ----
---- ----
</TABLE>
For 1991, the aggregate costs amounted to $27 under the prior accounting
method.
The following table sets forth the funded status of the postretirement
benefit plans other than pensions, amounts recognized in the Corporation's
Balance Sheet at December 31, 1993 and 1992 and the principal weighted average
assumptions inherent in their determination:
<TABLE>
<CAPTION>
1993 1992
----- -----
<S> <C> <C>
Accumulated postretirement benefit obligation............................................ $ 688 $ 607
Plan assets at fair value................................................................ 169 129
----- -----
Accumulated postretirement benefit obligation (in excess of) plan assets................. $(519) $(478)
Unrecognized net (gain)/loss............................................................. 40 (4)
Unrecognized past service liability...................................................... (350) (377)
----- -----
Liability recognized in the balance sheet................................................ $(829) $(859)
----- -----
----- -----
Discount rate............................................................................ 7.50% 8.50%
Rate of return on invested assets........................................................ 9.75% 9.75%
Ultimate health care trend rate.......................................................... 6.00% 6.60%
----- -----
----- -----
</TABLE>
The assumed rate of future increases in the per capita cost of health care
(the health care trend rate) was 12.1% for 1993, decreasing ratably to 6.0% in
the year 2001. Increasing the table of health care trend rates by one percent
per year would have the effect of increasing the accumulated postretirement
benefit obligation by $40 and the annual expense by $3. To the extent that the
actual experience differs from the inherent assumptions, the effect will be
amortized over the average future service of the covered active employees.
STOCK INCENTIVE PLANS
The Corporation's stock option incentive plans provide common shares for
options to employees, exercisable over ten-year periods. Some options become
exercisable upon the attainment of a specified and sustained market price
appreciation of the Corporation's common shares, while other options become
exercisable over a three-year period commencing with the date of grant. The
exercise price per share is the fair market value on the date each option is
granted.
F-15
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 1993, options for 1,684,000 shares were exercisable
under the Corporation's incentive plans. Common shares subject to options during
1993 were (in thousands of shares):
<TABLE>
<S> <C>
January 1, 1993................................................................................... 3,703
Granted ($72.63 to $93.50 per share)............................................................ 1,764
Exercised ($31.00 to $66.75 per share).......................................................... (1,910)
Cancelled or expired ($44.38 to $55.25 per share)............................................... (43)
------
December 31, 1993 ($32.38 to $93.50 per share).................................................... 3,514
------
------
</TABLE>
As of December 31, 1993, 94,498 shares were available for future grants
under the Corporation's various incentive plans. Grants contingent on the
acceptance of a new incentive plan by the Corporation's shareholders total
307,300 and are not included.
The number of options outstanding as well as the exercise price of all
outstanding options will be adjusted in 1994 to recognize the effect of the
Rayonier spin-off.
INSURANCE AND FINANCE INVESTMENTS
Fixed maturity investments of Insurance and Finance subsidiaries,
substantially all of which are carried at amortized cost, consisted of the
following at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
1993 COST GAINS LOSSES VALUE
----------------------------------------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Asset-backed securities, primarily U.S. government
sponsored agencies................................. $11,788 $456 $ (320) $11,924
Bonds and Notes
Federal, state and other governments............... 5,978 180 (44) 6,114
Corporate.......................................... 7,559 276 (60) 7,775
Other.............................................. 1,392 34 (10) 1,416
Short-term investments............................... 3,185 -- -- 3,185
--------- ----- ---------- ---------
Total fixed maturities........................... $29,902 $946 $ (434) $30,414
--------- ----- ---------- ---------
--------- ----- ---------- ---------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
1992 COST GAINS LOSSES VALUE
----------------------------------------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Asset-backed securities, primarily U.S. government
sponsored agencies................................. $14,000 $532 $ (368) $14,164
Bonds and Notes
Federal, state and other governments............... 3,995 118 (20) 4,093
Corporate.......................................... 4,484 132 (45) 4,571
Other.............................................. 707 23 (1) 729
Short-term investments............................... 4,766 -- -- 4,766
--------- ----- ---------- ---------
Total fixed maturities........................... $27,952 $805 $ (434) $28,323
--------- ----- ---------- ---------
--------- ----- ---------- ---------
</TABLE>
The Corporation considers its fixed maturity portfolio to be held primarily
for investment although, at times, changing interest rates, tax position and
other factors result in portfolio activity.
Other insurance and finance investments are primarily equity securities,
real estate and policy loans. Equity securities are carried at market and were
$1,367 and $1,045 at December 31, 1993 and 1992. Gross unrealized gains and
losses on equity securities were $183 and $61, respectively, in 1993 and $91 and
$46, respectively, in 1992. The after tax difference from cost for equity
securities is reflected in Stockholders Equity. Real estate, policy loans and
other are carried at cost which approximates fair value.
F-16
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Excluding U.S. government and government agency investments, the Corporation is
not exposed to any significant credit concentration risk.
Net investment income including realized gains is reflected in insurance
and finance revenues and totalled $2,375, $2,692 and $2,287 for 1993, 1992 and
1991, net of investment expenses of $104, $98 and $96. Total realized investment
gains (pretax) for 1993, 1992 and 1991 were $161, $511 and $208. Net pretax
changes in unrealized gains (losses) for fixed maturity and equity securities
were $218 for 1993, $(685) for 1992 and $1,096 for 1991.
The amortized cost and estimated market value of fixed maturity investments
at December 31, 1993 by estimated maturity are shown below. Maturities are
reflected by contract date except for asset-backed securities which are
distributed to maturity year based on the Corporation's estimate of the rate of
future prepayments of principal over the remaining life of the securities.
Actual maturities will differ from contractual and estimated maturities
reflecting borrowers' rights to call or prepay their obligations.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
ESTIMATED MATURITY COST VALUE
- ------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
1994....................................................................................... $ 6,487 $ 6,502
1995-1998.................................................................................. 12,532 12,737
1999-2003.................................................................................. 8,265 8,423
Thereafter................................................................................. 2,618 2,752
--------- ---------
$29,902 $30,414
--------- ---------
--------- ---------
</TABLE>
The Corporation manages its exposure to market price and/or interest rate
fluctuations on certain of its planned investment purchases or existing
investments by entering into interest rate cap or swap agreements as well as
exchange-traded financial futures and other contracts with major financial
institutions. At December 31, 1993 and 1992, respectively, the notional amounts
of investments under interest rate swap agreements were $4,120 and $4,200,
interest rate cap agreements were $1,685 and $1,357 and futures and other
contracts were $3,302 and $1,237. The fair value of these instruments, together
with other similar financial instruments, at December 31, 1993 and 1992
approximates the recorded amounts. The estimated fair value is the present value
of the cash flows that would result from the agreements being replaced at the
year-end market rate for the remaining term of the agreements. These agreements
mature at varying dates through 2003. Any credit risk is considered remote.
In May 1993, the Financial Accounting Standards Board issued a new standard
of accounting and reporting for certain investments in debt and equity
securities (SFAS No. 115). The new standard must be implemented by the 1994
first quarter and requires, among other things, that securities be classified as
held-to-maturity, available for sale or trading based on the Corporation's
intentions with respect to the ultimate disposition of the security and its
ability to effect those intentions. The classification determines the
appropriate accounting carrying value (cost basis or fair value) and, in the
case of fair value, whether the adjustment impacts Stockholders Equity directly
or is reflected in the Statement of Income.
The Corporation is reviewing the standard which will primarily impact the
investment portfolios in the Insurance and Finance segments. It is anticipated
that generally, portfolios will be classified as available for sale and
accordingly, most investments will be reflected at fair value with the
corresponding impact included in Stockholders Equity. At December 31, 1993, the
estimated impact of the standard is an increase to Stockholders Equity of
approximately $250 after tax. Implementation under generally accepted accounting
principles has not been finalized with respect to certain investments and
accordingly, a charge, which is not expected to be significant, may be recorded
through the income statement as a "Cumulative Effect of an Accounting Change"
when the standard is adopted.
F-17
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
REINSURANCE
The Corporation's insurance operations cede insurance to other insurers to
limit its maximum loss. Such transfers do not relieve the originating insurers
of their primary liabilities. These operations also assume insurance from other
insurers. Failure of reinsurers to honor their obligation could result in losses
to the Corporation. The Corporation evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk. The effect of reinsurance
on property and casualty premiums written and earned is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1993 1992 1991
-------------------------------------------------------------------------- ------ ------- -------
<S> <C> <C> <C>
Premiums Written:
Direct.................................................................. $6,751 $ 6,370 $ 6,498
Assumed................................................................. 683 618 906
Ceded................................................................... (986) (1,014) (1,247)
------ ------- -------
Net..................................................................... $6,448 $ 5,974 $ 6,157
------ ------- -------
------ ------- -------
Premiums Earned:
Direct.................................................................. $6,597 $ 6,477 $ 6,439
Assumed................................................................. 735 805 871
Ceded................................................................... (994) (1,188) (1,167)
------ ------- -------
Net..................................................................... $6,338 $ 6,094 $ 6,143
------ ------- -------
------ ------- -------
</TABLE>
Reinsurance recoveries, which reduced loss and loss expenses incurred, were
$1.2 billion, $1.2 billion and $1.7 billion for the years ended December 31,
1993, 1992 and 1991.
Life insurance net retained premiums were comprised of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1993 1992 1991
-------------------------------------------------------------------------- ------ ------- -------
<S> <C> <C> <C>
Gross Premiums............................................................ $1,789 $ 1,263 $ 1,144
Reinsurance Assumed....................................................... 225 162 5
Reinsurance Ceded......................................................... (202) (86) (73)
------ ------- -------
Net Retained Premiums................................................... $1,812 $ 1,339 $ 1,076
------ ------- -------
------ ------- -------
</TABLE>
Life insurance recoveries, which reduced death and other benefits,
approximated $19 for each of the years ended December 31, 1993, 1992 and 1991.
During 1992, ITT Hartford entered into an agreement with Mutual Benefit
Life Insurance Company in Rehabilitation ("Mutual Benefit") whereby it assumed a
block of contract obligations of Mutual Benefit individual corporate owned life
insurance (COLI) contracts. As part of this agreement, ITT Hartford received
$5.6 billion in cash and invested assets, $5.3 billion of which were COLI policy
loans. ITT Hartford coinsured approximately 84% of these contract obligations
back to Mutual Benefit and two other insurers. At December 31, 1993, ITT
Hartford has a reinsurance receivable from Mutual Benefit of $4.5 billion. The
risk of Mutual Benefit becoming insolvent is mitigated by the reinsurance
agreement's requirement that assets be kept in a security trust, with ITT
Hartford as the sole beneficiary. ITT Hartford has no other significant
reinsurance-related concentrations of credit risk.
POLICY LIABILITIES AND ACCRUALS
Policy liabilities and accruals at December 31 were:
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Future policy benefits, unpaid claims and claim adjustment expenses................... $19,983 $20,139
Other policy claims and benefits payable.............................................. 18,364 15,115
Unearned premiums..................................................................... 2,537 2,451
------- -------
$40,884 $37,705
------- -------
------- -------
</TABLE>
At December 31, 1993 and 1992, the estimated fair value of Other Policy
Claims and Benefits Payable approximates the recorded amount and is based on the
present value of estimated future cash flows using current market rates for
similar arrangements.
F-18
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INSURANCE OPERATING COSTS AND EXPENSES
Insurance operating costs and expenses were:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------- ------
<S> <C> <C> <C>
Benefits, claims and claim adjustment expenses....................................... $6,808 $ 7,946 $6,433
Amortization of deferred policy acquisition costs.................................... 1,647 1,430 1,391
Interest expense..................................................................... 66 54 62
Other insurance expenses............................................................. 1,098 945 840
------ ------- ------
$9,619 $10,375 $8,726
------ ------- ------
------ ------- ------
</TABLE>
DISCONTINUED OPERATIONS
In December 1993, the Corporation announced plans to spin-off ITT Rayonier,
the Corporation's wholly-owned forest products subsidiary, to ITT shareholders.
On February 28, 1994, all of the shares of common stock of ITT Rayonier
(approximately 29.6 million shares) will be distributed to holders of ITT Common
Stock and holders of ITT Cumulative Preferred Stock, $2.25 Convertible Series N,
on the basis of one share of Rayonier Common Stock for every four shares of ITT
Common Stock held and one share of Rayonier Common Stock for every 3.1595 shares
of ITT Series N held.
ITT Rayonier has been reflected as a "Discontinued Operation" in the
accompanying financial statements. The net assets of Discontinued Operations are
included in Other Assets. Summarized information is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------- ------
<S> <C> <C> <C>
Income Statement Data:
Net Sales.......................................................................... $ 962 $ 1,005 $ 994
Operating Income (Loss)............................................................ $ 131 $ (72) $ 111
Net Income (Loss).................................................................. $ 53 $ (72) $ 54
Balance Sheet Data:
Total Assets....................................................................... $1,470 $ 1,464
Debt............................................................................... $ 498 $ 403
Equity............................................................................. $ 607 $ 679
</TABLE>
ITT Rayonier's results of operations in 1992 include a charge of $180
pretax or $115 after tax recorded in connection with the closedown of its Grays
Harbor pulp and paper complex.
LEASES AND RENTALS
As of December 31, 1993, minimum rental commitments under operating leases
were $237, $186, $149, $123 and $103 for 1994, 1995, 1996, 1997 and 1998. For
the remaining years, such commitments amounted to $742, aggregating total
minimum lease payments of $1,540.
Rental expenses for operating leases were $322, $341 and $328 for 1993,
1992 and 1991, respectively.
COMMITMENTS AND CONTINGENCIES
The Corporation and its subsidiaries are involved in various legal matters
including those related to antitrust issues, government contracts and
environmental matters. Some of these actions include claims for substantial
sums. Reserves have been established when the outcome is probable and can be
reasonably estimated. While the ultimate result of claims and litigation cannot
be determined, the Corporation does not expect that these matters will have a
material adverse effect on its results of operations or its consolidated
financial position.
F-19
<PAGE> 45
SUPPLEMENTARY CONDENSED FINANCIAL STATEMENTS
ITT CORPORATION AND SUBSIDIARIES (WITH INSURANCE AND FINANCE SUBSIDIARIES ON AN
EQUITY BASIS)
The following condensed balance sheets, statements of income and cash flows
reflect the insurance and finance subsidiaries on an equity basis. This
presentation does not affect consolidated income or stockholders equity.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1992
------- -------
<S> <C> <C>
Current Assets
Cash........................................................................................ $ 1,074 $ 784
Accounts and notes receivable............................................................... 2,120 2,016
Inventories................................................................................. 963 1,108
Other....................................................................................... 579 151
------- -------
4,736 4,059
------- -------
Investments
Insurance and Finance subsidiaries.......................................................... 5,054 5,235
Equity investments.......................................................................... 193 203
------- -------
5,247 5,438
------- -------
Plant, Property and Equipment, net............................................................ 3,090 2,977
------- -------
Other Assets.................................................................................. 1,458 2,829
------- -------
$14,531 $15,303
------- -------
------- -------
Current Liabilities
Short-term debt (including current maturities).............................................. $ 1,348 $ 1,398
Payables and accruals....................................................................... 1,996 2,674
------- -------
3,344 4,072
------- -------
Reserves and deferred liabilities............................................................. 1,371 1,537
Long-term debt................................................................................ 1,563 1,807
ESOP debt..................................................................................... 603 640
------- -------
3,537 3,984
------- -------
Stockholders Equity........................................................................... 7,650 7,247
------- -------
$14,531 $15,303
------- -------
------- -------
</TABLE>
F-20
<PAGE> 46
SUPPLEMENTARY CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
ITT CORPORATION AND SUBSIDIARIES (WITH INSURANCE AND FINANCE SUBSIDIARIES ON AN
EQUITY BASIS)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1993 1992
------- -------
<S> <C> <C>
Sales and Revenues............................................................................ $10,791 $11,098
Costs and Expenses............................................................................ 10,432 11,053
------- -------
359 45
Earnings (Losses) of Insurance & Finance subsidiaries......................................... 1,057 (1,314)
Equity in earnings of Alcatel N.V............................................................. -- 97
Gain on sale of Alcatel N.V................................................................... -- 942
------- -------
1,416 (230)
Interest expense (net of interest income)..................................................... (147) (169)
Miscellaneous income (expense), net........................................................... 13 (3)
------- -------
1,282 (402)
Income tax (expense) benefit.................................................................. (345) 241
Minority equity............................................................................... (27) (27)
------- -------
Income (Loss) from Continuing Operations...................................................... 910 (188)
Discontinued Operations, net of tax (expense) benefit of ($30) and $46........................ 53 (72)
Extraordinary Item, net of tax benefit of $25................................................. (50) --
Cumulative Effect of Accounting Changes, net of tax benefit of $322........................... -- (625)
------- -------
Net Income (Loss)............................................................................. $ 913 $ (885)
------- -------
------- -------
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1993 1992
------ ------
<S> <C> <C>
OPERATING ACTIVITIES
Income (Loss) from Continuing Operations...................................................... $ 910 $ (188)
Noncash items included in income (loss)....................................................... 459 429
Gain on divestments........................................................................... (34) (906)
Undistributed losses (earnings)............................................................... (41) 941
Change in working capital..................................................................... 3 85
Other, net.................................................................................... (338) 283
------ ------
Cash from operating activities.............................................................. 959 644
------ ------
INVESTING ACTIVITIES
Additions to plant, property and equipment.................................................... (425) (481)
Proceeds from divestments..................................................................... 900 1,032
Acquisitions.................................................................................. (180) (26)
Other, net.................................................................................... (280) (399)
------ ------
Cash from investing activities.............................................................. 15 126
------ ------
FINANCING ACTIVITIES
Debt (repaid) issued, net..................................................................... (254) 214
Repurchase and redemption of stock............................................................ (322) (223)
Dividends paid................................................................................ (277) (270)
Other, net.................................................................................... 56 6
------ ------
Cash used for financing activities.......................................................... (797) (273)
------ ------
EXCHANGE RATE EFFECTS ON CASH................................................................... (28) (15)
------ ------
CASH FROM DISCONTINUED OPERATIONS............................................................... 141 27
------ ------
Increase in cash.............................................................................. 290 509
Cash -- beginning of year..................................................................... 784 275
------ ------
CASH -- END OF YEAR............................................................................. $1,074 $ 784
------ ------
------ ------
</TABLE>
F-21
<PAGE> 47
BUSINESS SEGMENT INFORMATION*
<TABLE>
<CAPTION>
GROSS PLANT
IDENTIFIABLE ASSETS ADDITIONS DEPRECIATION
----------------------------- -------------------- --------------------
1993 1992 1991 1993 1992 1991 1993 1992 1991
------- ------- ------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
FINANCIAL AND BUSINESS SERVICES
Insurance............................. $49,617 $45,559 $30,786 $ 61 $ 56 $ 66 $ 78 $ 69 $ 68
Finance............................... 11,619 11,488 9,716 19 7 6 10 12 12
Communications & Information
Services............................ 371 450 423 15 13 20 13 14 13
MANUFACTURED PRODUCTS
Automotive............................ 1,846 1,867 1,866 235 216 196 150 154 130
Defense & Electronics................. 892 971 1,018 62 83 97 95 98 100
Fluid Technology...................... 613 640 697 34 41 46 36 38 38
HOTELS.................................. 1,971 1,680 1,637 71 69 246 57 50 33
Alcatel N.V............................. -- -- 2,219
Dispositions and Other.................. 414 2,108 3,587 5 15 18 16 40 25
------- ------- ------- ---- ---- ---- ---- ---- ----
Total Segments.......................... 67,343 64,763 51,949 502 500 695 455 475 419
Other................................... 3,217 3,800 1,662 4 9 8 8 8 7
------- ------- ------- ---- ---- ---- ---- ---- ----
$70,560 $68,563 $53,611 $506 $509 $703 $463 $483 $426
------- ------- ------- ---- ---- ---- ---- ---- ----
------- ------- ------- ---- ---- ---- ---- ---- ----
</TABLE>
FINANCIAL AND BUSINESS SERVICES. The Insurance segment writes a broad
range of life and property and casualty insurance while Finance makes consumer
and commercial loans and services mortgages. Communications & Information
Services primarily publishes telephone directories and provides educational
services.
MANUFACTURED PRODUCTS. Automotive, Defense & Electronics and Fluid
Technology units are engaged in the manufacture and sale of equipment for
commercial, military and process industries. Products include automotive
equipment, accessories and parts for the OEM and aftermarket, pumps, valves,
electrical connectors, components, integrated circuits and other semiconductors.
Defense activities include the development, manufacture, sale, installation,
maintenance and operation of military electronic and communications equipment,
primarily for the U.S. Government.
HOTELS operates a worldwide network of hotels, resorts and casinos under
the Sheraton name.
"Dispositions and Other" include the operating results and the gain or loss
from sale or closedown of units other than "Discontinued Operations," including
the Domestic Unsecured Consumer Small Loan business, ITT Components Distribution
and World Directories, U.K. and Turkey operations, along with sales and
operating income of other non-core businesses.
"Income (Loss)" consists of the gross profit on sales and revenues less
operating expenses incurred. "Other" includes nonoperating income, corporate
assets and expenses and minority equity. Intercompany sales, which are priced on
an arm's-length basis and eliminated in consolidation, are not material.
GEOGRAPHICAL INFORMATION -- TOTAL SEGMENTS
<TABLE>
<CAPTION>
SALES AND REVENUES INCOME (LOSS) IDENTIFIABLE ASSETS
----------------------------- --------------------------- -----------------------------
1993 1992 1991 1993 1992 1991 1993 1992 1991
------- ------- ------- ------ ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
U.S. .................... $15,351 $15,094 $13,971 $1,141 $(1,422) $ 599 $60,025 $56,924 $41,943
Western Europe........... 5,545 6,170 5,752 352 201 303 6,109 6,526 5,779
Canada and Other......... 1,866 1,713 1,813 152 125 114 1,209 1,313 2,008
Alcatel N.V. ............ -- 97 208 -- -- 2,219
------- ------- ------- ------ ------- ------ ------- ------- -------
Total Segments........... $22,762 $22,977 $21,536 $1,645 $ (999) $1,224 $67,343 $64,763 $51,949
------- ------- ------- ------ ------- ------ ------- ------- -------
------- ------- ------- ------ ------- ------ ------- ------- -------
</TABLE>
- ---------------
* Refer to page 2 where Business Segment sales, revenues and income information
are provided.
F-22
<PAGE> 48
QUARTERLY RESULTS*
FOR 1993 AND 1992 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 YEAR
------- ------- -------- ------- -------
(IN MILLIONS EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
1993
Sales and Revenues........................................ $5,393 $5,841 $5,546 $5,982 $22,762
Costs and Expenses........................................ $5,131 $5,461 $5,210 $5,639 $21,441
Income from Continuing Operations......................... $ 158 $ 291 $ 245 $ 216 $ 910
Net Income................................................ $ 175 $ 267 $ 252 $ 219 $ 913
Earnings Per Share --
Income Per Share from Continuing Operations
-- Primary.............................................. $ 1.23 $ 2.35 $ 1.97 $ 1.74 $ 7.29
-- Fully Diluted........................................ $ 1.17 $ 2.20 $ 1.85 $ 1.65 $ 6.87
Net Income
-- Primary.............................................. $ 1.37 $ 2.15 $ 2.03 $ 1.77 $ 7.32
-- Fully Diluted........................................ $ 1.30 $ 2.02 $ 1.91 $ 1.67 $ 6.90
1992
Sales and Revenues........................................ $5,358 $5,708 $5,811 $6,100 $22,977
Costs and Expenses........................................ $5,190 $5,612 $6,590 $6,854 $24,246
Income (Loss) from Continuing Operations.................. $ 124 $ 98 $ 98 $ (508 ) $ (188)
Net Income (Loss)......................................... $ (487 ) $ 106 $ 113 $ (617 ) $ (885)
Earnings Per Share --
Income (Loss) from Continuing Operations
-- Primary.............................................. $ .96 $ .77 $ .81 $(4.39 ) $ (1.85)
-- Fully Diluted**...................................... $ .90 $ .68 $ .69 $(3.91 ) $ (1.64)
Net Income (Loss)
-- Primary.............................................. $(4.38 ) $ .84 $ .94 $(5.33 ) $ (7.93)
-- Fully Diluted**...................................... $(3.71 ) $ .75 $ .80 $(4.74 ) $ (6.90)
</TABLE>
- ---------------
* As restated (see Notes to Financial Statements).
** The reported net loss in 1992 causes the calculation of the fully diluted
loss per share in 1992 to be anti-dilutive. In such a case, generally
accepted accounting principles suggest the fully diluted loss per share to
be the same as the primary loss per share; however, the Corporation has
presented the actual calculated amount in order that all calculations and
comparisons with previously reported and future amounts be on a consistent
basis.
EXPORT SALES (UNAUDITED)
In serving its global markets, ITT generates significant export sales,
which benefit local economies. Sales of products (including intercompany)
manufactured in various countries for shipment to other countries consisted of
the following:
<TABLE>
<CAPTION>
MANUFACTURING SALES
LOCATION DESTINATION 1993 1992 1991
------------------------------------------------ --------------- ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
United States................................... Canada $ 177 $ 55 $ 88
Other 105 100 166
------ ------ ------
282 155 254
------ ------ ------
Canada.......................................... United States 159 83 76
Other 5 11 12
------ ------ ------
164 94 88
------ ------ ------
Western Europe.................................. United States 63 55 49
Western Europe 664 750 697
Other 142 143 128
------ ------ ------
869 948 874
------ ------ ------
Other........................................... 11 5 3
------ ------ ------
$1,326 $1,202 $1,219
------ ------ ------
------ ------ ------
</TABLE>
F-23
<PAGE> 49
ITT CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS (DEDUCTIONS)
-----------------------------------------
CHARGED
TO WRITE-OFFS/
BALANCE COSTS AND TRANSLATION PAYMENTS/ BALANCE
DESCRIPTION JANUARY 1 EXPENSES ADJUSTMENT OTHER DECEMBER 31
- ------------------------------------------------------- ---------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Finance Receivables--Reserve for credit losses......... $ 1,119 $ 109 $ -- $ (1,006)(2) $ 222
Trade Receivables--Allowance for doubtful accounts..... 133 48 (4) (50) 127
Accumulated depreciation of plant, property and
equipment............................................ 2,916 463 (107) (218)(1) 3,054
YEAR ENDED DECEMBER 31, 1992
Finance Receivables--Reserve for credit losses......... $ 359 $1,219 $ -- $ (459) $ 1,119
Trade Receivables--Allowance for doubtful accounts..... 146 45 (6) (52) 133
Accumulated depreciation of plant, property and
equipment............................................ 2,769 483 (119) (217)(1) 2,916
YEAR ENDED DECEMBER 31, 1991
Finance Receivables--Reserve for credit losses......... $ 302 $ 486 $ -- $ (429) $ 359
Trade Receivables--Allowance for doubtful accounts..... 134 52 -- (40) 146
Accumulated depreciation of plant, property and
equipment............................................ 2,539 425 (11) (184)(1) 2,769
</TABLE>
- ---------------
NOTE:
(1) Principally retirements as well as companies sold during the year.
(2) Principally related to the sale of receivables during the year.
S-1
<PAGE> 50
ITT CORPORATION AND SUBSIDIARIES
SHORT-TERM BORROWINGS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
MAXIMUM AVERAGE WEIGHTED
WEIGHTED AMOUNT AMOUNT AVERAGE
BALANCE AVERAGE OUTSTAND. OUTSTAND. INT. RATE
DECEMBER 31 INT. RATE DUR. YEAR(1) DUR. YEAR(1) DUR. YEAR(1)
------------------ -------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
FINANCE Bank Loans -- U.S.......... $ 407 3.5% $ 607 $ 497 3.3%
Bank Loans -- Foreign...... 242 5.8% 242 182 7.5%
Commercial Paper -- U.S.... 2,008 3.4% 4,332 3,269 3.4%
OTHER Bank Loans -- U.S.......... 112 3.4% 113 111 3.0%
Bank Loans -- Foreign...... 534 7.0% 603 529 8.4%
Commercial Paper -- U.S.... 402 4.7% 1,094 718 4.0%
Commercial 116 6.4% 122 36 6.8%
Paper -- Foreign...........
YEAR ENDED DECEMBER 31, 1992
FINANCE Bank Loans -- U.S.......... $ 389 3.3% $ 389 $ 191 4.5%
Bank Loans -- Foreign...... 180 7.5% 184 166 8.6%
Commercial Paper -- U.S.... 3,873 3.6% 3,873 3,606 4.2%
OTHER Bank Loans -- U.S.......... 122 3.3% 183 133 3.8%
Bank Loans -- Foreign...... 527 9.4% 637 522 9.7%
Commercial Paper -- U.S.... 915 3.6% 915 603 4.1%
YEAR ENDED DECEMBER 31, 1991
FINANCE Bank Loans -- U.S.......... $ 240 5.4% $ 254 $ 183 6.7%
Bank Loans -- Foreign...... 174 9.4% 174 141 11.2%
Commercial Paper -- U.S.... 3,740 5.7% 4,411 4,056 6.7%
OTHER Bank Loans -- U.S.......... 257 5.2% 476 346 6.2%
Bank Loans -- Foreign...... 457 8.7% 457 445 12.2%
Commercial Paper -- U.S.... 428 5.2% 725 425 6.4%
</TABLE>
- ---------------
NOTE:
(1) Finance calculations are based primarily on daily balances, and include
commitment fees and the impact of interest rate exchange agreements. Other
calculations are based primarily on month-end balances.
ITT CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
CHARGED TO COSTS AND EXPENSES
YEARS ENDED DECEMBER 31,
--------------------------------------------
ITEM 1993 1992 1991
- ---------------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C> <C>
Taxes, other than payroll and income taxes................................ $ 364 $ 365 $ 356
----- ----- -----
----- ----- -----
</TABLE>
- ---------------
NOTE:Items totalling less than 1% of sales and revenues, or shown elsewhere
herein, have been omitted from this schedule.
S-2
<PAGE> 51
ITT CORPORATION AND SUBSIDIARIES
SUMMARY OF INSURANCE INVESTMENTS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------------------------------------
AMOUNT AT WHICH
MARKET SHOWN IN THE
TYPE OF INVESTMENT COST VALUE(1) BALANCE SHEET
- ---------------------------------------------------------------------- ------------ ------------ -----------------
<S> <C> <C> <C>
FIXED MATURITIES
Asset-Backed Securities:
U.S. Government and government agencies and authorities
(guaranteed and sponsored)...................................... $ 7,114 $ 7,158 $ 7,114
All other corporate............................................... 3,067 3,153 3,067
Bonds and Notes:
States, municipalities and political subdivisions................. 1,346 1,384 1,346
Foreign governments............................................... 868 928 868
All other corporate............................................... 6,635 6,843 6,635
Short-term investments.............................................. 3,185 3,185 3,185
Other fixed maturity investments.................................... 4,655 4,685 4,655
------------ ------------ --------
Total fixed maturities........................................ 26,870 27,336 26,870
EQUITY SECURITIES..................................................... 1,183 1,302 1,302
------------ ------------ --------
Total fixed maturities and equity securities.............. 28,053 28,638 28,172
REAL ESTATE INVESTMENT PROPERTIES..................................... 504 504 504
OTHER INVESTMENTS..................................................... 1,906 1,971 1,906
------------ ------------ --------
Total investments......................................... $ 30,463 $ 31,113 $ 30,582
------------ ------------ --------
------------ ------------ --------
</TABLE>
- ---------------
Note:
(1) Market values for stocks and bonds approximate those quotations published by
the applicable stock exchanges or are received from other reliable sources.
S-3
<PAGE> 52
ITT CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
FUTURE
POLICY
BENEFITS, OTHER AMORTIZATION
DEFERRED UNPAID CLAIMS POLICY OF DEFERRED
POLICY AND CLAIM CLAIMS AND NET POLICY
ACQUISITION ADJUSTMENT UNEARNED BENEFITS INSURANCE INVESTMENT ACQUISITION PREMIUMS
COSTS EXPENSES(2) PREMIUMS(2) PAYABLE(2) REVENUE INCOME(1) COSTS WRITTEN
------------ ------------- --------- ---------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31,
1993
Property and
Casualty..... $ 593 $17,284 $ 2,493 $ -- $6,338 $ 990 $ 1,300 $ 6,448
Life and
Health....... 1,431 2,699 44 18,364 1,812 1,198 347 --
------------ ------------- --------- ---------- ---------- ----------- ------------- ---------
$2,024 $19,983 $ 2,537 $ 18,364 $8,150 $ 2,188 $ 1,647 $ 6,448
------------ ------------- --------- ---------- ---------- ----------- ------------- ---------
------------ ------------- --------- ---------- ---------- ----------- ------------- ---------
YEAR ENDED
DECEMBER 31,
1992
Property and
Casualty..... $ 572 $17,418 $ 2,409 $ -- $6,094 $ 1,351 $ 1,269 $ 5,974
Life and
Health....... 910 2,721 42 15,115 1,339 1,078 161 --
------------ ------------- --------- ---------- ---------- ----------- ------------- ---------
$1,482 $20,139 $ 2,451 $ 15,115 $7,433 $ 2,429 $ 1,430 $ 5,974
------------ ------------- --------- ---------- ---------- ----------- ------------- ---------
------------ ------------- --------- ---------- ---------- ----------- ------------- ---------
YEAR ENDED
DECEMBER 31,
1991
Property and
Casualty..... $ 560 $15,991 $$2,602 $ -- $6,143 $ 1,122 $ 1,214 $ 6,157
Life and
Health....... 717 2,339 41 8,141 1,076 901 177 --
------------ ------------- --------- ---------- ---------- ----------- ------------- ---------
$1,277 $18,330 $ 2,643 $ 8,141 $7,219 $ 2,023 $ 1,391 $ 6,157
------------ ------------- --------- ---------- ---------- ----------- ------------- ---------
------------ ------------- --------- ---------- ---------- ----------- ------------- ---------
</TABLE>
- ---------------
(1) Net investment income is allocated based on property and casualty and life
and health's share of investable funds.
(2) Restated 1992 and 1991 for the adoption of Statement of Financial Accounting
Standards No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts".
---------------
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND
CASUALTY INSURANCE OPERATIONS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
CLAIMS AND CLAIM
ADJUSTMENT EXPENSE PAID
DISCOUNT INCURRED RELATED TO: CLAIMS &
DEDUCTED --------------------- CLAIM
FROM CURRENT PRIOR ADJUSTMENT
YEARS ENDED DECEMBER 31, LIABILITIES(1) YEARS YEARS EXPENSES
- ---------------------------------------------------------------------- -------------- ------- ------ ----------
<S> <C> <C> <C> <C>
1993.................................................................. $362 $4,611 $ 248 $4,662
1992.................................................................. $325 $4,822 $1,406 $4,806
1991.................................................................. $304 $4,679 $ 328 $4,389
</TABLE>
- ---------------
(1) Reserves for permanently disabled claimants have been discounted to present
value at rates of interest ranging from 3.0% to 3.5% for the three years
ended December 31, 1993. Reserves for terminated reinsurance treaties and
certain reinsurance contracts that fund loss run-offs for unrelated parties
have been discounted to present value at rates of interest ranging from 3%
to 6% for 1993, 6% to 14% for 1992 and from 7% to 13% in 1991.
S-4
<PAGE> 53
ITT CORPORATION AND SUBSIDIARIES
REINSURANCE
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
ASSUMED PERCENTAGE
CEDED TO FROM EARNED OF AMOUNT
GROSS OTHER OTHER NET ASSUMED TO
AMOUNT COMPANIES COMPANIES AMOUNT NET
------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Life insurance in force................... $ 182,784 $54,106 $13,934 $ 142,612 10%
---------- --------- --------- ---------
---------- --------- --------- ---------
Premiums
Life insurance.......................... $ 1,146 $ 147 $ 102 $ 1,101 9%
Accident and health insurance........... 643 55 123 711 17%
Property and casualty insurance......... 6,597 994 735 6,338 12%
---------- --------- --------- ---------
Total premiums...................... $ 8,386 $ 1,196 $ 960 $ 8,150 12%
---------- --------- --------- ---------
---------- --------- --------- ---------
YEAR ENDED DECEMBER 31, 1992
Life insurance in force................... $ 126,447 $48,723 $45,142 $ 122,866 37%
---------- --------- --------- ---------
---------- --------- --------- ---------
Premiums
Life insurance.......................... $ 690 $ 61 $ 26 $ 655 4%
Accident and health insurance........... 573 25 136 684 20%
Property and casualty insurance......... 6,477 1,188 805 6,094 13%
---------- --------- --------- ---------
Total premiums...................... $ 7,740 $ 1,274 $ 967 $ 7,433 13%
---------- --------- --------- ---------
---------- --------- --------- ---------
YEAR ENDED DECEMBER 31, 1991
Life insurance in force................... $ 112,205 $14,682 $ 1,402 $ 98,925 1%
---------- --------- --------- ---------
---------- --------- --------- ---------
Premiums
Life insurance.......................... $ 564 $ 58 $ 5 $ 511 1%
Accident and health insurance........... 580 15 -- 565 --
Property and casualty insurance......... 6,439 1,167 871 6,143 14%
---------- --------- --------- ---------
Total premiums...................... $ 7,583 $ 1,240 $ 876 $ 7,219 12%
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
S-5
<PAGE> 54
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 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, AND BY THE UNDERSIGNED IN THE
CAPACITY INDICATED.
ITT Corporation
By JON F. DANSKI
-----------------------------------
JON F. DANSKI
SENIOR VICE PRESIDENT AND CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
March 24, 1994
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- --------
<C> <S> <C>
RAND V. ARASKOG Chairman, President and Chief Executive and 3/8/94
- ------------------------- Director
RAND V. ARASKOG
(PRINCIPAL EXECUTIVE
OFFICER)
R. A. BOWMAN Executive Vice President and Chief Financial 3/8/94
- ------------------------- Officer
ROBERT A. BOWMAN
(PRINCIPAL FINANCIAL
OFFICER)
</TABLE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE SIGNATURE TITLE DATE
- ---------------------- --------- -------- ---------------------- --------- --------
<S> <C> <C> <C> <C> <C>
BETTE B. ANDERSON Director 3/8/94 PAUL G. KIRK, JR. Director 3/8/94
- ---------------------- ----------------------
BETTE B. ANDERSON PAUL G. KIRK, JR.
NOLAN D. ARCHIBALD Director 3/8/94 E. C. MEYER Director 3/8/94
- ---------------------- ----------------------
NOLAN D. ARCHIBALD EDWARD C. MEYER
ROBERT A. BURNETT Director 3/8/94 BENJAMIN F. PAYTON Director 3/8/94
- ---------------------- ----------------------
ROBERT A. BURNETT BENJAMIN F. PAYTON
M. DAVID-WEILL Director 3/8/94 MARGITA E. WHITE Director 3/8/94
- ---------------------- ----------------------
MICHEL DAVID-WEILL MARGITA E. WHITE
S. PARKER GILBERT Director 3/8/94
- ----------------------
S. PARKER GILBERT
</TABLE>
II-1
<PAGE> 55
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
<C> <S> <C>
3(i) Restated Certificate of Incorporation.............. Incorporated by reference to
ITT's Form 10-Q for the quarterly
period ended June 30, 1993.
(File No. 1-5627).
3(ii) By-laws............................................ Incorporated by reference to
ITT's Form SE dated March 22,
1993 (CIK No. 216228) relating
to ITT's Form 10-K for the
fiscal year ended December 31,
1992 (File No. 1-5627).
4 Instruments defining the rights of security
holders,
including indentures............................. Not required to be filed. The
Registrant hereby agrees to
file with the Commission a copy
of any instrument defining the
rights of holders of long-term
debt of the Registrant and its
consolidated subsidiaries upon
request of the Commission.
9 Voting Trust Agreement............................. None.
10 Material contracts
(a) Stock Option Incentive Plan (1977)............. Incorporated by reference to
ITT's Registration Statement on
Form S-8 (Registration No.
33-5412).
(b) ITT Long-Term Performance Plan (as amended).... Incorporated by reference to
ITT's Form SE dated March 25,
1992 (CIK No. 216228) relating
to ITT's Form 10-K for the
fiscal year ended December 31,
1991 (File No. 1-5627).
(c) Incentive Bonus Plan........................... Incorporated by reference to
ITT's Form SE dated March 29,
1989 (CIK No. 216228) relating
to ITT's Form 10-K for the
fiscal year ended December 31,
1988 (File No. 1-5627).
(d) R. V. Araskog employment agreement............. Incorporated by reference to
ITT's Form SE dated March 28,
1990 (CIK No. 216228) relating
to ITT's Form 10-K for the
fiscal year ended December 31,
1989 (File No. 1-5627).
(e) Form of Pension Plan for non-employee members
of the Board of Directors...................... Incorporated by reference to
exhibits to ITT's Form 10-K for
the fiscal year ended December
31, 1980 (File No. 1-5627).
(f) Form of group life insurance plan for
nonemployee members of the Board of Directors.. Incorporated by reference to
exhibits to ITT's Form 10-K for
the fiscal year ended December
31, 1983 (File No. 1-5627).
(g) ITT Corporation 1986 Incentive Stock Plan...... Incorporated by reference to
ITT's Registration Statement on
Form S-8 (Registration No.
33-5412).
</TABLE>
II-2
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION LOCATION
<C> <S> <C>
(h) Form of indemnification agreement with
directors........................................ Incorporated by reference to
ITT's Form SE dated March 28,
1988 (CIK No. 216228) relating
to ITT's Form 10-K for the
fiscal year ended December 31,
1987 (File No. 1-5627).
(i) ITT Senior Executive Severance Pay Plan........ Incorporated by reference to
ITT's Form SE dated August 12,
1991 (CIK No. 216228) relating
to ITT's Form 10-Q for the
quarterly period ended June 30,
1991 (File No. 1-5627).
11 Statement re computation of per share earnings..... Filed herewith.
12 Statement re computation of ratios................. Filed herewith.
13 Annual report to security holders, Form 10-Q or
quarterly report to security holders............. Not required to be filed.
16 Letter re change in certifying accountant.......... None.
18 Letter re change in accounting principles.......... None.
21 Subsidiaries of the Registrant..................... Filed herewith.
22 Published report regarding matters submitted to
vote of security holders......................... Not required to be filed.
23 Consents of experts and counsel
Consent of Arthur Andersen & Co.................... Filed herewith.
24 Power of attorney.................................. None.
27 Financial data schedule............................ Not applicable for this filing.
28P Information from reports furnished to state
insurance regulatory authorities................. Incorporated by reference to
ITT's Form SE dated March 25,
1994 (CIK No. 216228) relating
to ITT's Form 10-K for the
fiscal year ended December 31,
1993 (File No. 1-5627).
99 Additional exhibits................................ None.
</TABLE>
II-3
<PAGE> 1
EXHIBIT 11
ITT CORPORATION AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1993 1992 1991
------ ------- ------
<S> <C> <C> <C>
PRIMARY BASIS --
Net income (loss)........................................................ $ 913 $ (885) $ 749
ESOP preferred dividends -- net of tax................................... (35) (34) (34)
Dividend requirement on other preferred stock............................ (1) (10) (21)
Preferred dividends on common stock equivalents.......................... 1 -- 16
------ ------- ------
Net income (loss) applicable to primary earnings per share............... $ 878 $ (929) $ 710
------ ------- ------
------ ------- ------
Average common shares outstanding........................................ 118 117 114
Common shares issuable in respect to common stock equivalents............ 2 -- 8
------ ------- ------
Average common equivalent shares......................................... 120 117 122
------ ------- ------
------ ------- ------
EARNINGS PER SHARE
Continuing operations.................................................... $ 7.29 $ (1.85) $ 5.40
Discontinued operations.................................................. .44 (.62) .44
Extraordinary item....................................................... (.41) -- --
Cumulative effect of accounting changes.................................. -- (5.46) --
------ ------- ------
Net income (loss)........................................................ $ 7.32 $ (7.93) $ 5.84
------ ------- ------
------ ------- ------
FULLY DILUTED BASIS* --
Net income (loss) applicable to primary earnings per share............... $ 878 $ (929) $ 710
ESOP preferred dividends -- net of tax................................... 35 34 34
If converted ESOP expense adjustment -- net of tax benefit............... (22) (22) (23)
Preferred dividends on other securities not considered common
stock equivalents...................................................... -- 10 5
------ ------- ------
Net income (loss) applicable to fully diluted earnings per share......... $ 891 $ (907) $ 726
------ ------- ------
------ ------- ------
Average common equivalent shares......................................... 120 117 122
Additional common shares issuable assuming full dilution................. 9 15 10
------ ------- ------
Average common equivalent shares assuming full dilution.................. 129 132 132
------ ------- ------
------ ------- ------
EARNINGS PER SHARE
Continuing operations.................................................... $ 6.87 $ (1.64) $ 5.08
Discontinued operations.................................................. .41 (.55) .41
Extraordinary item....................................................... (.38) -- --
Cumulative effect of accounting changes.................................. -- (4.71) --
------ ------- ------
Net income (loss)........................................................ $ 6.90 $ (6.90) $ 5.49
------ ------- ------
------ ------- ------
</TABLE>
Securities considered common stock equivalents include all convertible
preferred stocks (except for Series O and ESOP Series) in 1993 and 1991.
With respect to options, it is assumed that the proceeds received upon
exercise are used to acquire common stock of the Corporation.
The dilutive nature of securities is determined quarterly based on the
forecast of annual earnings.
- ---------------
* The reported net loss in 1992 causes the calculation of the fully diluted loss
per share in 1992 to be anti-dilutive. In such a case, generally accepted
accounting principles suggest the fully diluted loss per share to be the same
as the primary loss per share; however, the Corporation has presented the
actual calculated amount in order that all calculations and comparisons with
previously reported and future amounts be on a consistent basis.
<PAGE> 1
EXHIBIT 12
ITT CORPORATION AND SUBSIDIARIES
CALCULATION OF RATIOS OF EARNINGS TO TOTAL FIXED CHARGES
AND CALCULATION OF EARNINGS TO TOTAL FIXED CHARGES AND
PREFERRED DIVIDEND REQUIREMENTS OF ITT
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1993 1992* 1991* 1990* 1989*
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Earnings:
Income (loss) from continuing operations.............. $ 910 $ (188) $ 695 $ 903 $ 716
Add (deduct):
Adjustment for distributions in excess of (less
than) undistributed equity earnings and losses.... 11 (10) (146) (129) (116)
Income tax (benefit) expense........................ 345 (241) 166 249 260
Minority equity in net income....................... 27 27 32 39 44
Amortization of interest capitalized................ 8 8 20 3 2
------- ------- ------- ------- -------
1,301 (404) 767 1,065 906
------- ------- ------- ------- -------
Fixed Charges:
Interest and other financial charges:
Finance............................................. 605 699 781 814 773
Other............................................... 365 393 333 296 359
------- ------- ------- ------- -------
970 1,092 1,114 1,110 1,132
Interest factor attributable to rentals............... 107 114 109 103 110
------- ------- ------- ------- -------
1,077 1,206 1,223 1,213 1,242
------- ------- ------- ------- -------
Earnings, as adjusted, from continuing operations....... $ 2,378 $ 802 $ 1,990 $ 2,278 $ 2,148
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Fixed Charges:
Fixed charges above................................... $ 1,077 $ 1,206 $ 1,223 $ 1,213 $ 1,242
Dividends on preferred stock of subsidiaries included
in minority equity.................................. 10 12 16 24 34
Interest capitalized.................................. 9 21 29 43 21
------- ------- ------- ------- -------
Total fixed charges............................. 1,096 1,239 1,268 1,280 1,297
Dividends on preferred stock of ITT (pre-income tax
basis)................................................ 49 73 75 77 61
------- ------- ------- ------- -------
Total fixed charges and preferred dividend
requirements.................................. $ 1,145 $ 1,312 $ 1,343 $ 1,357 $ 1,358
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratios:
Earnings, as adjusted, from continuing operations to
total fixed charges................................. 2.17 ** 1.57 1.78 1.66
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Earnings, as adjusted, from continuing operations to
total fixed charges and preferred dividend
requirements of ITT................................. 2.08 ** 1.48 1.68 1.58
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
- ---------------
NOTES:
* As restated to exclude Rayonier now treated as a "Discontinued Operation."
** Earnings are inadequate to cover total fixed charges by $437 and total fixed
charges and preferred dividend requirements by $510.
(a) The adjustment for distributions in excess of (less than) undistributed
equity earnings and losses represents the adjustment 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 was computed by calculating the
estimated present value of all long-term rental commitments and applying
the approximate weighted average interest rate inherent in the lease
obligations and adding thereto the interest element assumed in short-term
cancelable and contingent rentals excluded from the commitment data but
included in rental expense.
(c) The dividend requirements on preferred stock of ITT have been determined by
adding to the total preferred dividends an allowance for income taxes,
calculated on the effective income tax rate.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
OTHER WHOLLY-OWNED DIRECT OR
INDIRECT SUBSIDIARIES OF ITT
CARRYING ON THE SAME
LINE OF BUSINESS
AS NAMED SUBSIDIARIES
PERCENTAGE --------------------------------
JURISDICTION OF VOTING OPERATING OPERATING IN
IN WHICH SECURITIES IN THE FOREIGN
NAME ORGANIZED PARENT OWNED UNITED STATES COUNTRIES
- ----------------------------------------- -------------- ------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
ITT Corporation ("ITT").................. Delaware -- -- -- --
First State Insurance Company.......... Connecticut ITT 100 2 --
International Standard Electric
Corporation
("ISEC")............................. Delaware ITT 100 -- --
ITT Delaware Investments, Inc. ...... Delaware ISEC 100 -- --
ITT Flygt AB......................... Sweden ISEC 100 1 15
ITT Gesellschaft fur
Beteiligungen mbH ("ITTG")....... Germany ISEC 100 -- 12
Deutsche ITT Handelsgesellschaft
mbH.............................. Germany ITTG 100 -- 5
ITT Automotive Europe GmbH......... Germany ITTG 100 -- 4
ITT Reiss International GmbH....... Germany ITTG 100 -- 1
Transatlantische Beteiligungs AG... Germany ITTG 100 -- 3
ITT World Directories Enterprises,
Inc. ("ITTWDE").................... Delaware ISEC 100 -- --
ITT World Directories Inc.......... Delaware ITTWDE 80 2 13
ITT Canada Limited ("Canada").......... Canada ITT 100 -- 1
ITT Industries of Canada Limited..... Canada Canada 100 -- 1
ITT Communications and Information
Services, Inc........................ Delaware ITT 100 -- --
ITT Federal Services Corporation....... Delaware ITT 100 7 3
ITT Financial Corporation ("ITTFC").... Delaware ITT 100 79 7
Computer & Equipment Leasing
Corporation ("CELCO").............. Wisconsin ITTFC 100 -- --
ITT Federal Bank, f.s.b............ U.S. CELCO 100 1 --
ITT Residential Capital Corporation
("ITTRC")........................ Delaware CELCO 100 -- --
ITT Residential Capital Servicing
Corporation.................... California ITTRC 100 -- --
ITT Business Services Corporation
("ITTBSC")....................... Missouri ITTFC 100 1 --
ITT Commercial Finance Corp........ Nevada ITTBSC 100 -- --
ITT Consumer Financial Corporation
("ITTCFC")......................... Delaware ITTFC 100 3 --
Aetna Finance Company.............. Delaware ITTCFC 100 -- --
ITT Lyndon Life Insurance Company.... Missouri ITTFC 100 -- --
ITT Lyndon National Life Insurance
Company............................ Missouri ITTFC 100 -- --
ITT Lyndon Property Insurance
Company............................ Missouri ITTFC 100 -- --
Lyndon Insurance Company............. Wisconsin ITTFC 100 -- 1
ITT Hartford Group, Inc. ("HGI")....... Delaware ITT 100 -- --
Hartford Fire Insurance Company
("Hartford")....................... Connecticut HGI 100 7 9
Hartford Accident & Indemnity
Company
("HAI").......................... Connecticut Hartford 100 1 --
Hartford Life and Accident
Insurance Company ("HLAI")..... Connecticut HAI 100 -- --
Hartford Life Insurance Company
("HLIC")..................... Connecticut HLAI 100 1 --
ITT Hartford Life and Annuity
Insurance Company.......... Wisconsin HLIC 100 -- --
Hartford International Insurance
Company
("HIIC")......................... Delaware Hartford 100 1 --
Hartford International Insurance
Company
SANV........................... Belgium HIIC 100 -- --
London & Edinburgh Insurance
Group,
Limited........................ England HIIC 100 -- 3
Zwolsche Algemeene N.V........... Netherlands HIIC 100 -- 3
ITT Industries, Inc.................... Delaware ITT 100 -- --
ITT Investment Holdings Inc.
("ITTIH")............................ Delaware ITT 100 -- --
ITT Resource Development Corporation
("ITTRDC")......................... Delaware ITTIH 100 2 --
Carbon Industries, Inc............. West Virginia ITTRDC 100 16 --
ITT Community Development
Corporation...................... Delaware ITTRDC 100 37 --
ITT Lester Industries, Inc............. Ohio ITT 100 -- --
ITT Sheraton Corporation............... Delaware ITT 100 68 28
</TABLE>
Note: The names of some consolidated wholly-owned subsidiaries of ITT carrying
on the same lines of business as other subsidiaries named above have been
omitted, the number of such omitted subsidiaries operating in the United
States and in foreign countries being shown. Also omitted from the list
are the names of other subsidiaries since, if considered in the aggregate
as a single subsidiary, they would not constitute a significant
subsidiary.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ITT CORPORATION:
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Corporation's previously
filed Registration Statements (i) on Form S-3 (File Nos. 33-37894 and 33-45756),
(ii) on Form S-4 (File No. 33-13982) and (iii) on Form S-8 (File Nos. 33-5412
and 33-6004).
ARTHUR ANDERSEN & CO.
New York, New York
March 24, 1994
