PAGE 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from..............to.............
COMMISSION FILE NUMBER 1-5627
ITT CORPORATION
Incorporated in the State of Delaware 13-5158950
(I.R.S. Employer
Identification Number)
1330 Avenue of the Americas, New York, N.Y. 10019-5490
(Principal Executive Office)
Telephone Number: (212) 258-1000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
As of May 2, 1994, there were outstanding 117.3 million shares of common stock
($1 par value) of the registrant.
<PAGE>
PAGE 2
ITT CORPORATION
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION:
ITEM 1. Financial Statements:
Consolidated Income - Three Months
Ended March 31, 1994 and 1993. . . . . . . . . . . . . . 3
Consolidated Balance Sheet -
March 31, 1994 and December 31, 1993 . . . . . . . . . . 4
Consolidated Cash Flow -
Three Months Ended March 31, 1994 and 1993 . . . . . . . 5
Notes to Financial Statements. . . . . . . . . . . . . . 6
Business Segments. . . . . . . . . . . . . . . . . . . . 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations:
Three Months Ended March 31, 1994 and 1993 . . . . . . . 8
PART II. OTHER INFORMATION:
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 11
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
PAGE 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited financial statements, in the opinion of ITT,
reflect all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the financial position, the results of
operations and cash flow for the periods presented. For a description of
accounting policies, see notes to financial statements in the 1993 annual
report on Form 10-K.
ITT CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME
(In millions except per share)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-------------------
1994 1993*
------ ------
<S> <C> <C>
SALES AND REVENUES
Products and Services . . . . . . . . . . . . . . . . . . . . . . . . . $2,567 $2,353
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,642 2,592
Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339 448
----- -----
5,548 5,393
COSTS AND EXPENSES
Products and Services (including selling and
general expenses of $250 and $244). . . . . . . . . . . . . . . . . . 2,457 2,291
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,452 2,436
Finance (including interest expense of $142 and $164) . . . . . . . . . 295 381
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 23
----- -----
327 262
Interest expense (net of interest income of $41 and $45). . . . . . . . . (20) (32)
Miscellaneous (expense) income, net . . . . . . . . . . . . . . . . . . . (3) 1
----- -----
304 231
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (101) (69)
Minority equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) (4)
----- -----
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . 201 158
Discontinued Operations, net of tax of $6 and $9. . . . . . . . . . . . . 12 17
Cumulative Effect of Accounting Changes, net of tax of $3 . . . . . . . . 6 -
----- -----
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 219 $ 175
----- -----
- --------------------------------------------------------------------------------------------------
Earnings Per Share
Income from Continuing Operations
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.63 $ 1.23
Fully Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.54 $ 1.17
Discontinued Operations
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .10 $ .14
Fully Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .09 $ .13
Cumulative Effect of Accounting Changes
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .04 $ -
Fully Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .04 $ -
Net Income per Share
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.77 $ 1.37
Fully Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.67 $ 1.30
Cash Dividends declared per common share. . . . . . . . . . . . . . . . . $ .495 $ .495
</TABLE>
* Restated to reflect ITT Rayonier as a "Discontinued Operation" through
February, 1994 and to include revenues of ITT Sheraton's managed
properties.
<PAGE>
PAGE 4
ITT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In millions except for shares)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
----------- ------------
<S> <C> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 704 $ 1,136
Finance Receivables, net . . . . . . . . . . . . . . . . . . . . . . 8,535 7,556
Other Receivables, net . . . . . . . . . . . . . . . . . . . . . . . 5,498 5,163
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 991 963
Insurance Investments -
Fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . 27,267 26,870
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,554 3,712
Finance Investments. . . . . . . . . . . . . . . . . . . . . . . . . 3,007 3,097
Reinsurance Recoverables . . . . . . . . . . . . . . . . . . . . . . 11,373 11,577
Deferred Policy Acquisition Costs. . . . . . . . . . . . . . . . . . 2,151 2,024
Plant, Property and Equipment, net . . . . . . . . . . . . . . . . . 3,702 3,416
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,112 5,046
------- -------
$ 71,894 $ 70,560
------- -------
LIABILITIES AND STOCKHOLDERS EQUITY
Liabilities -
Policy liabilities and accruals. . . . . . . . . . . . . . . . . . $ 41,178 $ 40,884
Finance debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,493 9,463
Other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,949 3,874
ESOP debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 583 603
Accounts payable and accrued liabilities . . . . . . . . . . . . . 4,602 4,293
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 4,240 3,793
------- -------
65,045 62,910
------- -------
Stockholders Equity -
Cumulative preferred stock . . . . . . . . . . . . . . . . . . . . 668 673
Common stock: Authorized 200,000,000 shares, $1 par value
Outstanding 117,491,559 and 117,560,877 . . . . . . . . . . . . 117 118
Deferred compensation - ESOP . . . . . . . . . . . . . . . . . . . (583) (603)
Cumulative translation adjustments . . . . . . . . . . . . . . . . (188) (206)
Unrealized (loss) gain on securities, net of tax . . . . . . . . . (270) 80
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . 7,105 7,588
------- -------
6,849 7,650
------- -------
$71,894 $ 70,560
------- -------
</TABLE>
<PAGE>
PAGE 5
ITT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW
(In millions)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------
1994 1993*
---- -----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 219 $ 175
Discontinued Operations (12) (17)
Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . . . (6) -
------ -----
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . 201 158
Adjustments to Income from Continuing Operations:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 153 132
Provision for doubtful receivables. . . . . . . . . . . . . . . . . . . . 31 39
Gain on sale of portfolio securities - pretax . . . . . . . . . . . . . . (64) (63)
Change in receivables, inventories, payables and accrued liabilities. . . (362) (93)
Accrued and deferred taxes. . . . . . . . . . . . . . . . . . . . . . . . (26) 34
Increase in liability for policy benefits and unpaid claims . . . . . . . 203 232
Increase in deferred policy acquisition costs . . . . . . . . . . . . . . (123) (61)
Decrease in reinsurance and other related assets. . . . . . . . . . . . . 178 156
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (73) (178)
------ ------
Cash from operating activities. . . . . . . . . . . . . . . . . . . . . 118 356
------ ------
INVESTING ACTIVITIES
Additions to plant, property and equipment. . . . . . . . . . . . . . . . . (113) (73)
Purchase of insurance and finance investments . . . . . . . . . . . . . . . (10,166) (8,939)
Sale and maturity of insurance and finance investments. . . . . . . . . . . 9,951 8,624
Finance receivables originated or purchased . . . . . . . . . . . . . . . . (5,798) (4,604)
Finance receivables repaid or sold. . . . . . . . . . . . . . . . . . . . . 4,832 4,365
Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (374) -
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 (50)
------ ------
Cash used for investing activities. . . . . . . . . . . . . . . . . . . (1,570) (677)
------ ------
FINANCING ACTIVITIES
Short-term debt, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,164 297
Long-term debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . 416 489
Long-term debt repaid . . . . . . . . . . . . . . . . . . . . . . . . . . . (535) (601)
Investment life contracts, net. . . . . . . . . . . . . . . . . . . . . . . 146 124
Repurchase and redemption of stock. . . . . . . . . . . . . . . . . . . . . (29) (41)
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (140) (68)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) 33
------ ------
Cash from financing activities. . . . . . . . . . . . . . . . . . . . . 1,021 233
------ ------
EXCHANGE RATE EFFECT ON CASH. . . . . . . . . . . . . . . . . . . . . . . . (1) (9)
------ -----
CASH FROM DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . . . . . . - 3
------ -----
Decrease in cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (432) (94)
Cash - beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . 1,136 882
------ ------
Cash - end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 704 $ 788
------ ------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 238 $ 273
------ ------
Income taxes (net of refunds) . . . . . . . . . . . . . . . . . . . . . . $ 25 $ 52
------ ------
</TABLE>
* Restated to reflect ITT Rayonier as a "Discontinued Operation".
<PAGE>
PAGE 6
Notes to Financial Statements
- -----------------------------
1) Change in Accounting Principles:
Statement of Financial Accounting Standards (SFAS) No. 115
----------------------------------------------------------
During the 1994 first quarter, ITT adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". The new standard
requires, among other things, that securities be classified as
"held-to-maturity", "available for sale" or "trading" based on the company'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. Investments in equity
securities had previously been recorded at fair value with the corresponding
impact included in Stockholders Equity. Under SFAS No. 115, the Corporation's
portfolios are generally classified as "available for sale" and accordingly,
investments are reflected at fair value with the corresponding impact included
as a component of Stockholders Equity designated "Unrealized gain (loss) on
securities, net of tax". At March 31, 1994, the unrealized loss on
securities, net of tax was $270 million including an unrealized gain
pertaining to equity securities of $31 million after tax.
In adopting SFAS No. 115, Emerging Issues Task Force (EITF) issue no. 93-18
prescribes specific accounting treatment with respect to mortgage-backed
interest-only investments. EITF 93-18 reached the conclusion that the measure
of impairment of these instruments should be changed from undiscounted cash
flows to fair value. Accordingly, the amortized cost basis of such
instruments that were determined to have other-than-temporary impairment
losses at the time of the initial adoption of SFAS No. 115 have been written
down to fair value and reflected as a cumulative effect of accounting change
as of January 1, 1994. The writedown totalled $36 million after tax or $0.29
per fully diluted share.
Change in the Discount Rate used to determine certain Workers Compensation
--------------------------------------------------------------------------
Liabilities
- ------------
During the 1994 first quarter, the Corporation changed its method used to
discount long-term tabular workers compensation liabilities from a statutory
insurance rate to an appropriate market interest rate. The market rate, which
approximates 7%, represents the rate of return the Corporation could receive
on risk-free investments with maturities comparable to those of the
liabilities being discounted. At December 31 1993, these liabilities were
discounted at 3 to 3 1/2% in accordance with statutory insurance guidelines.
A $42 million after tax or $0.33 per fully diluted share benefit was recorded
as a cumulative effect of accounting change in the accompanying Consolidated
Statement of Income.
2) Discontinued Operations:
In February 1994, the Corporation spun-off ITT Rayonier, the Corporation's
wholly-owned forest products subsidiary, to ITT shareholders through a
distribution of ITT Rayonier shares. ITT Rayonier has been reflected as a
"Discontinued Operation" in the accompanying financial statements. The
Corporation's consolidated equity was reduced by approximately $600 million as
a result of the spin-off. The Consolidated Statements of Income and Cash Flow
for the three months ended March 31, 1993 have been restated to conform with
the 1994 presentation.
<PAGE>
PAGE 7
BUSINESS SEGMENTS
<TABLE>
<CAPTION>
Sales and Revenues Income
------------------ -------------
Three Months Ended March 31,
----------------------------------------
In millions 1994 1993* 1994 1993*
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial and Business Services
Insurance . . . . . . . . . . . . . . . . . . . . . . .$2,642 $2,592 $ 190 $ 156
Finance . . . . . . . . . . . . . . . . . . . . . . . . 339 327 44 71
Communications & Information Services . . . . . . . . . 78 81 3 4
----- ----- ---- ----
3,059 3,000 237 231
----- ----- ---- ----
Manufactured Products
Automotive. . . . . . . . . . . . . . . . . . . . . . . 986 888 60 32
Defense & Electronics . . . . . . . . . . . . . . . . . 433 370 11 -
Fluid Technology. . . . . . . . . . . . . . . . . . . . 249 225 17 13
----- ----- ---- ----
1,668 1,483 88 45
----- ----- ---- ----
Hotels. . . . . . . . . . . . . . . . . . . . . . . . . . 798 675 29 16
----- ----- ---- ----
Ongoing Segments. . . . . . . . . . . . . . . . . . . . . 5,525 5,158 354 292
Dispositions and Other. . . . . . . . . . . . . . . . . . 23 235 (10) (8)
Interest, net . . . . . . . . . . . . . . . . . . . . . . (20) (32)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (22) (25)
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . (101) (69)
---- ----
Income from Continuing Operations . . . . . . . . . . . . 201 158
Discontinued Operations, net of tax of $6 and $9. . . . . 12 17
Cumulative Effect of Accounting Changes,
net of tax of $3. . . . . . . . . . . . . . . . . . . 6 -
----- ----- ---- ----
$5,548 $5,393 $ 219 $ 175
----- ----- ---- ----
</TABLE>
* Restated to reflect Forest Products as a "Discontinued Operation" and to
include revenues of Hotel's managed properties.
<PAGE>
PAGE 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Income from ongoing segments for the first quarter increased 21% over the
prior year's quarter.
Operating results in the Insurance segment, either before or after
extraordinary catastrophe losses and capital gains, were
significantly higher than the 1993 quarter, primarily due to improved domestic
casualty underwriting results. Life insurance operations, before portfolio
gains, also improved. The Insurance improvement in operating results was
accomplished on a revenue increase of 2%. Despite the extraordinary
catastrophes, the worldwide combined ratio, excluding operations in runoff,
improved from 108.5% in the 1993 quarter to 104.7% in 1994 due largely to
improved Domestic Property and Casualty underwriting experience.
Insurance operating costs and expenses were as follows:
<TABLE>
<CAPTION>
First Quarter
---------------
1994 1993
---- ----
<S> <C> <C>
Benefits, claims and claim adjustment expenses . . $1,693 $1,700
Amortization of deferred policy acquisition costs. 394 385
Other insurance expenses . . . . . . . . . . . . . 365 351
----- -----
$2,452 $2,436
----- -----
</TABLE>
First quarter operating income for the Finance segment declined 38% to
$44 million reflecting the strategic shift to improve asset quality and
enhance its risk profile through secured lending at lower yields. In
addition, results reflected the adverse impact of the California earthquake on
certain loans. Revenues increased 4% from the 1993 quarter, reflecting higher
average receivables.
First quarter sales and operating income at Communications and Information
Services are historically the lowest of the year as most yellow page
directories are published later in the year. Results approximated prior year
levels.
Sales for the Automotive segment increased by 11% over the 1993 quarter to
$986 million, reflecting primarily higher car production in North America and
higher installation rates of anti-lock brakes. Operating income grew from
$32 million to $60 million in the 1994 quarter, largely the result of higher
sales volume and continued cost improvement actions. On March 31, 1994, the
Corporation completed the previously announced purchase of 80% of General
Motors' Motors and Actuator Business Unit for $374 million. The acquisition,
hereafter called ITT Electrical Systems, Inc., will add geographic balance to
ITT Automotive's North American and European product mix. Annual sales are
expected to approximate $900 million.
ITT Defense & Electronics operating income increased $11 million due
primarily to continuing improvement in operating margins at the Electronics
units. Results at the Defense units approximated the 1993 first quarter.
Sales increased 17% from the 1993 quarter. Order backlog was $2.1 billion at
March 31, 1994 compared with $2.2 billion at March 31, 1993.
<PAGE>
PAGE 9
ITEM 2. (Continued)
Operating income improved 31% at Fluid Technology from $13 million to
$17 million on an 11% increase in sales reflecting volume increases and the
benefits of cost reduction programs.
The contribution of gaming operations was a major part of the improvement in
ITT Sheraton's results as the Sheraton Desert Inn in Las Vegas exceeded
expectations during its first full quarter under ITT Sheraton. In addition,
hotel operations improved reflecting lower corporate overhead and increases in
operating income at several ITT owned properties.
Dispositions and Other reflects the sales and operating losses of companies
previously divested as well as ITT Community Development. The 1993 quarter
primarily included ITT Financial's domestic unsecured consumer loan business
(divested in June, 1993) and ITT Components Distribution (divested in
December, 1993).
Net interest costs were lower than 1993 due principally to lower average
debt levels. "Other" consists of corporate expenses and nonoperating income
and approximated the 1993 quarter. Taxes increased in 1994 in line with the
higher level of earnings. The effective tax rate, excluding the Cumulative
Effect of Accounting Changes and Discontinued Operations, increased from 30%
to 33% due primarily to increases in the U.S. and foreign tax rates.
Net income for the first quarter of 1994 was $219 million or $1.67 per common
equivalent share on a fully diluted basis ($1.77 per primary share), compared
with $175 million or $1.30 per fully diluted share ($1.37 per primary share) in
the 1993 first quarter. The 1994 quarter included two cumulative catch-up
adjustments for accounting changes as discussed more fully in Notes to
Consolidated Financial Statements; (1) a favorable adjustment of $42 million
after tax or $0.33 per fully diluted share for a change in the discount rate
used to determine certain workers compensation liabilities at the Insurance
segment and, (2) a charge of $36 million after tax or $0.29 per fully diluted
share for the adoption of SFAS No. 115 related to accounting for certain
investments in debt and equity securities. The results of ITT Rayonier have
been reflected on a one-line basis in "Discontinued Operations" through the
spin-off date of February 28, 1994. Excluding the accounting changes and ITT
Rayonier, income from continuing operations in the 1994 and 1993 quarters was
$201 million or $1.54 per fully diluted share and $158 million or $1.17 per
fully diluted share. The 32% improvement in fully diluted earnings per share
from continuing operations was generated on sales of $5.55 billion, a 3%
increase over the 1993 quarter. On a primary basis, earnings per share from
continuing operations was $1.63 for the 1994 quarter compared to $1.23 per
share in the year-ago period.
Net income in the current quarter was unfavorably impacted by $40 million
after tax or $0.31 per fully diluted share for catastrophe losses in excess of
expectations at the Insurance segment related to the California earthquake and
winter freezes. Winter Storm Josh and the bombing of the World Trade Center
in New York adversely impacted earnings in the 1993 quarter by $41 million or
$0.32 per fully diluted share. The comparison to 1993 also included a
reduction in after tax capital gains at the Insurance and Finance segments.
After tax capital gains in the current quarter totalled $35 million or
$0.27 per fully diluted share compared to $42 million or $0.32 per fully
diluted share in the 1993 quarter.
<PAGE>
PAGE 10
ITEM 2. (Continued)
Cash Flow
During the 1994 first quarter, the Corporation generated $118 million of cash
from operating activities, down from $356 million in last year's quarter, due
primarily to quarterly timing of cash flows and higher working capital needed
to fund growth. This cash, along with additional borrowings, was used to fund
the acquisition of ITT Electrical Systems, Inc. and was reinvested in
insurance investments, finance receivables and capital additions.
Additionally, cash was used to pay dividends to shareholders which totalled
$140 million and $68 million for the first three months of 1994 and 1993,
respectively. The 1994 amount included the payment of the 1993 fourth quarter
and the 1994 first quarter. Both quarters also included repurchases and
redemption of common stock of $29 million and $41 million, respectively.
There were no significant asset divestments during the quarter. Accumulated
depreciation amounted to 46% of gross plant at March 31, 1994, compared
with 47% at December 31, 1993.
Cash expenditures for plant, property and equipment, including insurance and
finance activities, were $113 million in the 1994 quarter and are projected to
aggregate approximately $800 million for the full year compared with
$505 million in 1993. Depreciation for the first three months of 1994 was
$117 million compared with $108 million in the corresponding 1993 period.
Debt and Liquidity
Excluding Insurance and Finance debt, outstanding debt at March 31, 1994 was
$3.6 billion compared with the December 31, 1993 balance of $3.5 billion
resulting in a debt to total capitalization ratio of 34% at March 31, 1994
compared with 33% at year-end 1993. Insurance and Finance debt increased
from the December 31, 1993 level of approximately $10.4 billion to
$11.5 billion reflecting the growth in secured lending at Finance. Debt was
68% of total capitalization including Insurance and Finance debt at
March 31, 1994 compared with 64% at year-end 1993.
Stockholders equity decreased $800 million, to $6.8 billion from
December 31, 1993 due to the spin-off of ITT Rayonier, a change in the
unrealized loss on securities, net of tax, dividends and share repurchases,
partially offset by first quarter income. Under its share repurchase program,
the Corporation repurchased approximately 227,000 common equivalent shares in
the first three months of 1994 at an average price of $90.66 per share for a
cash cost, including commissions, of $21 million. The Corporation was not
actively repurchasing shares during the quarter. An additional 190,000 shares
were purchased through April 30 at an average price of $87.23 per share for a
cash cost, including commissions, of $17 million.
Subsequent Event
On April 28, 1994, ITT Educational Services, Inc., a wholly-owned subsidiary
of the Corporation, filed a registration statement on Form S-1 with the
Securities and Exchange Commission for the public sale of 2,300,000 shares of
its common stock. ITT Educational Services, Inc. is a leading proprietary
provider of technical post-secondary degree programs in the United States
through 48 ITT Technical Institutes in 24 states. Proceeds will be used for
general corporate purposes, including the expansion of its operations through
opening additional technical institutes and adding academic programs at
existing technical institutes.
<PAGE>
PAGE 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See the Exhibit Index for a list of exhibits filed herewith.
(b) There were no Form 8-K Current Reports filed by ITT during the
quarter for which this report is filed.
<PAGE>
PAGE 12
SIGNATURE
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ITT Corporation
(Registrant)
By Jon F. DANSKI
-------------
Jon F. Danski
Senior Vice President and Controller
(Chief Accounting Officer)
May 12, 1994
(Date)
<PAGE>
PAGE 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Location
- ------- ----------- --------
<C> <S> <C>
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession None
(4) Instruments defining the rights of security holders,
including indentures None
(10)(j) Support agreement dated April 28, 1994 between
ITT Corporation and ITT Financial Corporation Filed Herewith
(11) Statement re computation of per share earnings Filed Herewith
(12) Statements re computation of ratios Filed Herewith
Calculation of ratio of earnings to
total fixed charges
Calculation of ratio of earnings to
total fixed charges and preferred
dividend requirements of ITT
(15) Letter re unaudited interim financial information None
(18) Letter re change in accounting principles None
(19) Previously unfiled documents None
(20) Report furnished to security holders None
(23) Published report regarding matters submitted to vote
of security holders None
(24) Consents of experts and counsel None
(25) Power of attorney None
(28) Additional exhibits None
</TABLE>
<PAGE>
Exhibit 10(j)
SUPPORT AGREEMENT
DATED APRIL 28, 1994
BETWEEN
ITT CORPORATION AND ITT FINANCIAL CORPORATION
This agreement entered into as of this 28th day of April, 1994, by and
between ITT CORPORATION, a Delaware corporation ("ITT"), and ITT FINANCIAL
CORPORATION, a Delaware corporation ("Financial"),
WITNESSETH:
WHEREAS, ITT is the owner of all of the issued and outstanding voting
capital stock of Financial;
WHEREAS, Financial regularly borrows funds in the public and private
capital markets to conduct its business;
WHEREAS, ITT is willing to provide certain support to Financial in order to
assure the ability of Financial to engage in financings at favorable terms; and
WHEREAS, the execution and delivery of this Agreement has been duly
authorized by ITT and Financial and this Agreement will constitute the legal,
valid and binding obligations of the parties thereto in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization
and other laws of general applicability relating to or affecting creditors'
rights and to general equity principles;
NOW THEREFORE, in consideration of the provisions contained herein, the
parties hereto agree as follows:
1. Ownership. ITT or one or more of its direct or indirect wholly-owned
subsidiaries or a combination thereof will continue to own at least a majority
of the shares of capital stock of Financial having voting power for the
election of directors, and ITT will not create or permit the creation of any
mortgage, pledge or other lien on any of such shares so owned.
2. Maintenance of Debt to Equity Ratio. ITT will assure that the debt to
equity ratio (as determined on a consolidated basis - excluding depository
institutions - and in accordance with generally accepted accounting principles)
for Financial, as determined from Financial's balance sheet as at the end of
each calendar quarter, does not exceed 6.75 to 1.
3. Commitment to Make Loans. If Financial should at any time lack
sufficient cash, other liquid assets or credit facilities to meet an obligation
to pay principal of, or premium or interest on any commercial paper or other
short-term debt for borrowed money of Financial on a timely basis, then ITT
will lend to Financial on a subordinated basis up to $300 million in cash which
Financial may use only for the purpose of meeting any such payment obligation.
Any such loan by ITT to Financial will bear interest at a fluctuating interest
rate per annum equal to the announced prime commercial lending rate of The
Chase Manhattan Bank, N.A. and will be repayable on demand at any time after
the business day following the 29th day after such loan was made to Financial,
except that no repayment of any such loan will be made during a period of
default in the payment of any unsubordinated indebtedness for borrowed money of
Financial. The aggregate principal amount of loans to Financial hereunder at
any one time outstanding is limited to $300 million.
<PAGE>
4. Commercial Paper Coverage. ITT will take all reasonable actions
necessary to cause and assure that Financial at all times maintains unused
committed bank lines of credit to back up its commercial paper borrowings in
an amount not less than such commercial paper borrowings.
5. Term. This Agreement shall remain in full force and effect while any
debt for borrowed money of Financial is outstanding unless terminated by
either party. Each party reserves the right to terminate its obligations
hereunder by notice to the other party delivered not less than 60 nor more
than 90 days prior to such termination, but in no event shall such termination
be earlier than July 31, 1995. In no event shall this Agreement be terminated
if such termination would result in the downgrading of ITT Financial
Corporation's outstanding debt by any one of the agencies engaged by the
Company to rate its debt.
6. Notices. Any notice or other communication required or contemplated by
this Agreement shall be in writing and delivered as follows:
If to ITT: ITT Corporation
1330 Avenue of the Americas
New York, NY 10019-5490
Attention: Treasurer
If to Financial: ITT Financial Corporation
645 Maryville Centre Drive
St. Louis, MO 63141-5832
Attention: Treasurer
7. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date set forth above.
ITT CORPORATION
By:A.N. Reese
-------------------------------
Ann N. Reese
ITT FINANCIAL CORPORATION
By:R.H. Schumacker
-------------------------------
Richard H. Schumacker
PAGE 14
EXHIBIT 11
ITT CORPORATION AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(In millions except per share data)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------------
1994 1993
------- --------
<S> <C> <C>
PRIMARY BASIS -
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 219 $ 175
ESOP preferred dividends - net of tax. . . . . . . . . . . . . . . . (9) (9)
----- ------
Net income applicable to primary earnings per share. . . . . . . . . $ 210 $ 166
----- ------
Average common shares outstanding. . . . . . . . . . . . . . . . . . 118 119
Common shares issuable in respect to common stock equivalents. . . . 1 2
----- ------
Average common equivalent shares . . . . . . . . . . . . . . . . . . 119 121
----- ------
Earnings Per Share
Continuing operations. . . . . . . . . . . . . . . . . . . . . . . . $ 1.63 $ 1.23
Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . .10 .14
Cumulative effect of accounting changes. . . . . . . . . . . . . . . .04 -
----- ------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.77 $ 1.37
----- ------
FULLY DILUTED BASIS -
Net income applicable to primary earnings per share. . . . . . . . . $ 210 $ 166
ESOP preferred dividends - net of tax. . . . . . . . . . . . . . . . 9 9
If converted ESOP expense adjustment - net of tax benefit. . . . . . (5) (6)
----- -----
Net income applicable to fully diluted
earnings per share . . . . . . . . . . . . . . . . . . . . . . . . $ 214 $ 169
----- ------
Average common equivalent shares . . . . . . . . . . . . . . . . . . 119 121
Additional common shares issuable assuming full dilution . . . . . . 9 9
----- ------
Average common equivalent shares assuming full dilution. . . . . . . 128 130
----- ------
Earnings Per Share
Continuing operations. . . . . . . . . . . . . . . . . . . . . . . . $ 1.54 $ 1.17
Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . .09 .13
Cumulative effect of accounting changes. . . . . . . . . . . . . . . .04 -
----- ------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.67 $ 1.30
----- ------
</TABLE>
The Series N convertible preferred stock is considered a common stock
equivalent in 1994 and 1993.
With respect to options, it is assumed that the proceeds to be 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.
PAGE 15
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>
Three Months Ended
March 31, 1994
------------------
<S> <C>
Earnings:
Income from continuing operations. . . . . . . . . . . . . . . . . . . . . $ 201
Adjustment for distributions in excess of (less than)
undistributed equity earnings and losses . . . . . . . . . . . . . . . . 5
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Minority equity in net income. . . . . . . . . . . . . . . . . . . . . . . 2
Amortization of interest capitalized . . . . . . . . . . . . . . . . . . . 2
-----
311
-----
Fixed Charges:
Interest and other financial charges:
Finance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
------
216
Interest factor attributable to rentals. . . . . . . . . . . . . . . . . . 27
------
243
------
Earnings, as adjusted, from continuing operations . . . . . . . . . . . . . $ 554
-----
Fixed Charges:
Fixed charges above. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 243
Dividends on preferred stock of insurance subsidiary
included in minority equity. . . . . . . . . . . . . . . . . . . . . . . 2
Interest capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
------
Total fixed charges. . . . . . . . . . . . . . . . . . . . . . . . . . . 247
Dividends on preferred stock of ITT (pre-income tax basis) . . . . . . . . . 12
------
Total fixed charges and preferred dividend requirements. . . . . . . . . $ 259
------
Ratios:
Earnings, as adjusted, from continuing operations
to total fixed charges . . . . . . . . . . . . . . . . . . . . . . . . . 2.24
----
Earnings, as adjusted, from continuing operations to total fixed
charges and preferred dividend requirements of ITT . . . . . . . . . . . 2.14
----
</TABLE>
NOTES:
(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.
