PAGE 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 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 August 9, 1994, there were outstanding 116.4 million shares of common
stock ($1 par value) of the registrant.
PAGE 2
ITT CORPORATION
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION:
ITEM 1. Financial Statements:
Consolidated Income - Second Quarter
and Six Months Ended June 30, 1994 and 1993 . . . . . . . . 3
Consolidated Balance Sheet -
June 30, 1994 and December 31, 1993 . . . . . . . . . . . . 4
Consolidated Cash Flow -
Six Months Ended June 30, 1994 and 1993 . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . 6
Business Segments . . . . . . . . . . . . . . . . . . . . . 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations:
Second Quarter and Six Months Ended
June 30, 1994 and 1993. . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION:
ITEM 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . . . . . . . 12
ITEM 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 13
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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)
Six Months
Second Quarter Ended June 30,
------------------- -------------------
1994 1993* 1994 1993*
------ ------ ------ ------
SALES AND REVENUES
Products and Services . . . . . . . . . . . . . . . $3,276 $2,904 $5,843 $5,257
Insurance . . . . . . . . . . . . . . . . . . . . . 2,725 2,515 5,367 5,107
Finance . . . . . . . . . . . . . . . . . . . . . . 353 422 692 870
------ ------ ------ ------
6,354 5,841 11,902 11,234
------ ------ ------ ------
COSTS AND EXPENSES
Products and Services (including selling and
general expenses of $275, $267, $525 and $511). . 3,027 2,722 5,484 5,013
Insurance . . . . . . . . . . . . . . . . . . . . . 2,545 2,328 4,997 4,764
Finance (including interest expense of
$154, $158, $296 and $322). . . . . . . . . . . . 303 352 598 733
Other . . . . . . . . . . . . . . . . . . . . . . . 36 59 53 82
------ ------ ------ ------
443 380 770 642
Interest expense (net of interest income
of $36, $44, $77 and $89). . . . . . . . . . . . . . (50) (36) (70) (68)
Gain on sale of loan portfolio. . . . . . . . . . . . - 95 - 95
Miscellaneous expense, net. . . . . . . . . . . . . . (5) (2) (8) (1)
------ ------ ------ ------
388 437 692 668
Income taxes. . . . . . . . . . . . . . . . . . . . . (122) (136) (223) (205)
Minority equity . . . . . . . . . . . . . . . . . . . (8) (10) (10) (14)
------ ------ ------ ------
Income from Continuing Operations . . . . . . . . . . 258 291 459 449
Discontinued Operations, net of tax of $-, $12, $6,
and $21 . . . . . . . . . . . . . . . . . . . . . . - 26 12 43
Extraordinary Item, net of tax benefit of $25 . . . . - (50) - (50)
Cumulative Effect of Accounting Changes,
net of tax of $3. . . . . . . . . . . . . . . . . . - - 6 -
------ ------ ------ ------
Net Income . . . . . . . . . . . . . . . . . . . . . $ 258 $ 267 $ 477 $ 442
------ ------ ------ ------
- - ----------------------------------------------------------------------------------------------------
Earnings Per Share
Income from Continuing Operations
Primary . . . . . . . . . . . . . . . . . . . . . $ 2.11 $ 1.53 $ 3.74 $ 2.76
Fully Diluted . . . . . . . . . . . . . . . . . . $ 1.97 $ 1.44 $ 3.51 $ 2.61
Discontinued Operations
Primary . . . . . . . . . . . . . . . . . . . . . $ - $ .21 $ .10 $ .35
Fully Diluted . . . . . . . . . . . . . . . . . . $ - $ .20 $ .09 $ .33
Extraordinary Item
Primary . . . . . . . . . . . . . . . . . . . . . $ - $ .41 $ - $ .41
Fully Diluted . . . . . . . . . . . . . . . . . . $ - $ .38 $ - $ .38
Cumulative Effect of Accounting Changes
Primary . . . . . . . . . . . . . . . . . . . . . $ - $ - $ .04 $ -
Fully Diluted . . . . . . . . . . . . . . . . . . $ - $ - $ .04 $ -
Net Income Per Share
Primary . . . . . . . . . . . . . . . . . . . . . $ 2.11 $ 2.15 $ 3.88 $ 3.52
Fully Diluted . . . . . . . . . . . . . . . . . . $ 1.97 $ 2.02 $ 3.64 $ 3.32
Cash Dividends declared per common share. . . . . . . $ .495 $ .495 $ .99 $ .99
* Restated to reflect ITT Rayonier as a "Discontinued Operation" through
February, 1994 and to include revenues and expenses of ITT Sheraton's
managed and partially owned properties.
PAGE 4
ITT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In millions except for shares)
June 30, December 31,
1994 1993
----------- ------------
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 569 $ 1,136
Finance Receivables, net . . . . . . . . . . . . . . . . . 7,315 7,556
Other Receivables, net . . . . . . . . . . . . . . . . . . 5,634 5,163
Inventories. . . . . . . . . . . . . . . . . . . . . . . . 1,018 963
Insurance Investments -
Fixed maturities . . . . . . . . . . . . . . . . . . . . 26,701 26,870
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 4,378 3,712
Finance Investments. . . . . . . . . . . . . . . . . . . . 4,529 3,097
Reinsurance Recoverables . . . . . . . . . . . . . . . . . 11,418 11,577
Deferred Policy Acquisition Costs. . . . . . . . . . . . . 2,240 2,024
Plant, Property and Equipment, net . . . . . . . . . . . . 4,123 3,416
Other Assets . . . . . . . . . . . . . . . . . . . . . . . 5,405 5,046
-------- --------
$ 73,330 $ 70,560
-------- --------
LIABILITIES AND STOCKHOLDERS EQUITY
Liabilities -
Policy liabilities and accruals. . . . . . . . . . . . . $ 42,523 $ 40,884
Finance debt . . . . . . . . . . . . . . . . . . . . . . 10,824 9,463
Other debt . . . . . . . . . . . . . . . . . . . . . . . 4,745 3,874
ESOP debt. . . . . . . . . . . . . . . . . . . . . . . . 583 603
Accounts payable and accrued liabilities . . . . . . . . 4,296 4,293
Other liabilities. . . . . . . . . . . . . . . . . . . . 3,852 3,793
-------- --------
66,823 62,910
-------- --------
Stockholders Equity -
Cumulative preferred stock . . . . . . . . . . . . . . . 660 673
Common stock: Authorized 200,000,000 shares, $1 par
value, Outstanding 117,056,489 and 117,560,877 . . . . 117 118
Deferred compensation - ESOP . . . . . . . . . . . . . . (583) (603)
Cumulative translation adjustments . . . . . . . . . . . (130) (206)
Unrealized (loss) gain on securities, net of tax . . . . (813) 80
Retained earnings. . . . . . . . . . . . . . . . . . . . 7,256 7,588
-------- --------
6,507 7,650
-------- --------
$ 73,330 $ 70,560
-------- --------
PAGE 5
ITT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW
(In millions)
Six Months
Ended June 30,
-----------------
1994 1993*
---- ----
OPERATING ACTIVITIES
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 477 $ 442
Extraordinary Item - Early Extinguishment of Debt . . . . . . . . . . . . . - 50
Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . . . (6) -
Discontinued Operations . . . . . . . . . . . . . . . . . . . . . . . . . . (12) (43)
------ ------
Income before Extraordinary Item and
Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . 459 449
Adjustments to Income before Extraordinary Item and
Cumulative Effect of Accounting Changes:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 304 279
Provision for doubtful receivables. . . . . . . . . . . . . . . . . . . . 82 49
Gain on divestments - pretax. . . . . . . . . . . . . . . . . . . . . . . - (99)
Gain on sale of portfolio securities - pretax . . . . . . . . . . . . . . (65) (102)
Change in receivables, inventories, payables and accrued liabilities. . . (440) (260)
Accrued and deferred taxes. . . . . . . . . . . . . . . . . . . . . . . . (100) 60
Increase in liability for policy benefits and unpaid claims . . . . . . . 223 447
Increase in deferred policy acquisition costs . . . . . . . . . . . . . . (203) (124)
(Increase)/decrease in reinsurance and other related assets . . . . . . . 160 (14)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (124) (180)
------ ------
Cash from operating activities. . . . . . . . . . . . . . . . . . . . . 296 505
------ ------
INVESTING ACTIVITIES
Additions to plant, property and equipment. . . . . . . . . . . . . . . . . (283) (167)
Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (782) (20)
Proceeds from divestments . . . . . . . . . . . . . . . . . . . . . . . . . - 1,487
Purchase of insurance and finance investments . . . . . . . . . . . . . . . (19,340) (17,677)
Sale and maturity of insurance and finance investments. . . . . . . . . . . 16,380 16,768
Finance receivables originated or purchased . . . . . . . . . . . . . . . . (11,430) (9,366)
Finance receivables repaid or sold. . . . . . . . . . . . . . . . . . . . . 11,611 8,961
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 50
------ ------
Cash (used for)/from investing activities . . . . . . . . . . . . . . . (3,762) 36
------ ------
FINANCING ACTIVITIES
Short-term debt, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,822 (1,185)
Long-term debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . 418 1,422
Long-term debt repaid . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,150) (1,269)
Investment life contracts, net. . . . . . . . . . . . . . . . . . . . . . . 1,247 788
Repurchase and redemption of stock. . . . . . . . . . . . . . . . . . . . . (89) (95)
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (210) (139)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (153) 27
------ ------
Cash (used for)/from financing activities . . . . . . . . . . . . . . . 2,885 (451)
------ ------
EXCHANGE RATE EFFECT ON CASH. . . . . . . . . . . . . . . . . . . . . . . . 14 (14)
------ ------
Cash from discontinued operations . . . . . . . . . . . . . . . . . . . . . - 22
------ ------
Increase/(decrease) in cash . . . . . . . . . . . . . . . . . . . . . . . . (567) 98
Cash - beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . 1,136 882
------ ------
Cash - end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 569 $ 980
------ ------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 497 $ 527
------ ------
Income taxes (net of refunds) . . . . . . . . . . . . . . . . . . . . . . $ 256 $ 156
------ ------
* Restated to reflect ITT Rayonier as a "Discontinued Operation".
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 June 30, 1994, the unrealized loss on securities,
net of tax was $813 million including an unrealized loss pertaining to equity
securities of $8 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 six months ended June 30, 1993 have been restated to conform with the
1994 presentation.
PAGE 7
BUSINESS SEGMENTS
(In millions)
Sales and Revenues Income
----------------------------------- ----------------------------------
Six Months Six Months
Second Quarter Ended June 30, Second Quarter Ended June 30,
-------------- -------------- -------------- --------------
1994 1993* 1994 1993* 1994 1993* 1994 1993*
---- ---- ---- ---- ---- ---- ---- ----
Financial and Business Services
$2,725 $2,515 $5,367 $5,107 Insurance. . . . . . . . . $180 $187 $370 $343
353 350 692 677 Finance. . . . . . . . . . 49 75 93 146
295 296 373 377 Comm. & Info. Services . . 62 65 65 69
----- ----- ----- ----- --- --- --- ---
3,373 3,161 6,432 6,161 291 327 528 558
----- ----- ----- ----- --- --- --- ---
Manufactured Products
1,297 949 2,283 1,837 Automotive . . . . . . . . 104 54 164 86
442 444 868 808 Defense & Electronics. . . 20 17 31 17
270 259 519 484 Fluid Technology . . . . . 21 25 38 38
----- ----- ----- ------ --- --- --- ---
2,009 1,652 3,670 3,129 145 96 233 141
----- ----- ----- ------ --- --- --- ---
945 807 1,743 1,482 Hotels. . . . . . . . . . . . . 44 21 73 37
----- ----- ------ ------ --- --- --- ---
6,327 5,620 11,845 10,772 Ongoing Segments. . . . . . . . 480 444 834 736
27 221 57 462 Dispositions and Other. . . . . (1) 90 (11) 82
Interest, net . . . . . . . . . (50) (36) (70) (68)
Other . . . . . . . . . . . . . (49) (71) (71) (96)
Taxes . . . . . . . . . . . . . (122) (136) (223) (205)
---- ---- ---- ----
Income from Continuing Operations 258 291 459 449
Discontinued Operations, net of
tax of $-, $12, $6 and $21. . - 26 12 43
Extraordinary Item, net of
tax benefit of $25. . . . . . - (50) - (50)
Cumulative Effect of
Accounting Changes,
net of tax of $3. . . . . . . - - 6 -
----- ----- ------ ------ --- --- --- ---
$6,354 $5,841 $11,902 $11,234 $258 $267 $477 $442
----- ----- ------ ------ --- --- --- ---
* Restated to reflect Forest Products as a "Discontinued Operation" and to
include revenues and expenses of Hotels'managed and partially owned
properties.
PAGE 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net income for the second quarter was $258 million or $1.97 per fully
diluted share ($2.11 per primary share), compared with $267 million or $2.02
per fully diluted share ($2.15 per primary share) in the 1993 second quarter.
There were no significant items in the 1994 second quarter which distort
comparisons with other periods. The 1993 second quarter included after-tax
portfolio gains of $25 million or $0.20 per fully diluted share. Results for
the 1993 quarter also included; (1) an after-tax gain of $63 million or $0.48
per fully diluted share on the sale of the unsecured consumer small loan
business at ITT Financial, (2) an extraordinary after-tax charge of $50
million, or $0.38 per share representing the loss on the early extinguishment
of debt at ITT Financial, (3) $26 million, or $0.20 per share, from the
company's discontinued forest products operation, ITT Rayonier, (which was
spun off to shareholders in February 1994), and (4) a $13 million after-tax
charge, or $0.10 per fully diluted share, for the first phase of restructuring
of Headquarter's operations. Excluding these 1993 items, net income and
earnings per share rose 19% and 22%, respectively, in the 1994 second quarter.
Sales and revenues for the second quarter were $6.4 billion, a 9% increase
over the $5.8 billion in the 1993 quarter.
Net income for the 1994 six months was $477 million, or $3.64 per fully
diluted share ($3.88 primary) compared with $442 million, or $3.32 per share
($3.52 primary) in 1993. The 1994 period included two cumulative catch-up
adjustments for accounting changes as fully discussed in the 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 SFAS No.115 related to accounting for certain
investments in debt and equity securities, while the 1993 period included
those items discussed previously. The results for six months of 1994 included
after-tax portfolio gains of $35 million or $0.27 per fully diluted share
compared with $67 million or $0.52 per fully diluted share in 1993. The 1994
period was unfavorably impacted by $40 million after tax or $0.31 fully
diluted share for catastrophe losses in excess of expectations at the
Insurance segment related to the California earthquake and winter freezes.
The 1993 period was adversely impacted by Winter Storm Josh and the bombing of
the World Trade Center in New York in the first quarter by $41 million or
$0.32 per fully diluted share. Excluding these items in both the 1994 and
1993 six month periods, comparable net income and earnings per share rose 24%
and 27%, respectively. Sales and revenues for the first six months were $11.9
billion, compared with $11.2 billion in 1993, an increase of 6%.
Income from ongoing segments for the second quarter and six months rose by
$36 million (8%) and $98 million (13%) compared with the respective 1993
periods.
In the Insurance segment, excluding portfolio gains which were $35 million
higher in the 1993 quarter, both revenues and operating income rose over the
1993 second quarter reflecting improved underwriting results in several lines
(particularly commercial) of the domestic property and casualty business as
well as strong revenue growth in the Life operations.
PAGE 9
ITEM 2. (Continued)
Excluding operations in runoff, the worldwide combined ratio improved to
103.5% compared with 104.8% in the 1993 quarter. For the six month period,
revenues and operating income improved significantly compared with 1993 either
before or after both portfolio gains and the effects of excessive catastrophe
losses, again due to improved domestic underwriting results. The combined
ratio for the six months, excluding operations in runoff, improved to 104.1%
from 106.6% in 1993.
Insurance operating costs and expenses were as follows:
Six Months
Second Quarter Ended June 30,
-------------- --------------
1994 1993 1994 1993
---- ---- ---- ----
Benefits, claims and claim adjustment expenses. . . . . . $1,753 $1,667 $3,446 $3,367
Amortization of deferred policy acquisition costs . . . . 407 310 801 695
Other insurance expenses. . . . . . . . . . . . . . . . . 385 351 750 702
----- ----- ----- -----
$2,545 $2,328 $4,997 $4,764
----- ----- ----- -----
Operating income in the Finance segment declined $26 million and $53 million
for the second quarter and six months reflecting the strategic shift to
improve asset quality and enhance risk portfolio through secured lending at
lower yields. In addition, results for the six months reflected the adverse
impact of the California earthquake on certain loans. The California
portfolio is being closely monitored as the economic climate in that state
remains depressed. Revenues for the second quarter and six months were flat
compared with 1993.
Both sales and operating income at Communications and Information Services
were slightly below 1993 for both the second quarter and six months due to
lower volume at several ITT World Directories units partially offset by
increased enrollments at ITT Educational Services.
Operating income at the Automotive segment, which included the first full
quarter of Electrical Systems, Inc., its newly acquired motors and actuators
business, improved 93% and 91% for the second quarter and six months compared
with the 1993 periods. Even excluding Electrical Systems, Inc., operating
income rose dramatically as a result of increased sales volume in most product
lines including domestic and European anti-lock brakes and the continuing
benefits from cost reduction programs. Sales improved 37% for the second
quarter and 24% for the six months compared with the 1993 periods.
ITT Defense & Electronics operating income increased 18% and 82% for the
second quarter and six months, compared with 1993, primarily due to continuing
improvement in operating margins at the Electronics units which, as a group,
has returned to profitability. Sales were flat for the quarter but increased
over 7% for the six month period. Order backlog was $2.3 billion at June 30,
1994 compared with $2.2 million at June 30, 1993.
Operating income at Fluid Technology was down slightly for the quarter and
was flat for the six months, when compared with the prior year, mainly the
result of favorable foreign exchange impacts in the 1993 period. Sales,
however, improved 4% and 7% for the respective periods.
PAGE 10
ITEM 2. (Continued)
Significant improvements continued at Sheraton resulting in operating income
increasing by more than 100% on a 17% increase in revenues compared with the
1993 second quarter. Strong results in the North American division coupled
with a reduction in corporate overhead were the primary contributors to the
improvement. A significant increase in occupancy levels and average rates in
the 1994 second quarter compared with the 1993 quarter were indicative of the
results. For the six months, the corresponding increases in operating income
and revenues were 97% and 18%, respectively.
Dispositions and Other reflects the sales and operating losses of companies
previously divested as well as ITT Community Development. The 1993 second
quarter and six months also included the results of ITT Financial's domestic
unsecured consumer small loan business (divested in June, 1993), the related
$95 million pretax gain on the sale of the business, and ITT Components
Distribution (divested in December, 1993.)
Net interest costs increased in the second quarter and six months, primarily
the result of higher average net interest rates. "Other" consists of
corporate expenses, minority equity and non-operating income, which decreased
in the second quarter, primarily the result of the absence of a $20 million
pretax ($13 million after-tax) charge to cover costs associated with the first
phase of a restructuring program aimed at increasing the effectiveness and
productivity of support staff at ITT World Headquarters and the headquarters
of the company's businesses which was recorded in the second quarter of 1993.
Income taxes decreased in the second quarter of 1994 versus 1993 due to a
decrease in pretax income from continuing operations. Income taxes related to
Discontinued Operations, Extraordinary Item and Cumulative Effect of Accounting
Changes are reflected within those captions separately on the income statement.
For the six months, income taxes increased due to an increase in pretax income
and higher U.S. and foreign income tax rates. The Corporation's effective tax
rate was 32% in the 1994 six months versus 31% in the comparable 1993 period.
Cash Flow
During the first six months of 1994, the Corporation generated $296 million
of cash from operating activities, down from $505 million in the same period
last year, due primarily to the timing of cash flows, higher income tax
payments reflecting higher taxable income and higher working capital
requirements needed to fund growth. This cash, along with additional
borrowings, was used to fund the acquisition of ITT Electrical Systems, Inc.,
and various hotel properties in addition to reinvestment in insurance
investments and capital additions. Additionally, cash was used to repurchase
common shares as well as redeem preferred stock ($89 million in 1994 and $95
million in 1993) and to pay dividends to shareholders which totalled $210
million and $139 million for the first six months of 1994 and 1993,
respectively. The 1994 amount included payment of the 1993 fourth quarter and
the 1994 first and second quarters. There were no significant asset
divestments during the 1994 period, however, 1993 included the divestment of
the unsecured consumer small loan portfolio at ITT Financial Corporation.
PAGE 11
ITEM 2. (Continued)
Cash expenditures for plant, property and equipment, including insurance and
finance activities, were $283 million in the first six months of 1994 and are
projected to aggregate approximately $800 million for the full year compared
with $505 million in 1993. Depreciation for the first six months of 1994 was
$214 million compared with $190 million in the corresponding 1993 period.
Accumulated depreciation amounted to 45% of gross plant at June 30, 1994,
compared with the 47% at December 31, 1993.
Debt and Liquidity
Excluding Insurance and Finance debt, outstanding debt at June 30, 1994 was
$3.9 billion compared with the December 31, 1993 balance of $3.5 billion
resulting in a debt to total capitalization ratio of 38% at June 30, 1994
compared with 33% at year-end 1993. Insurance and Finance debt increased from
the December 1993 level of $10.4 billion to $12.2 billion, reflecting the
growth in secured lending at Finance. Debt was 71% of the total
capitalization when including Insurance and Finance debt at June 30, 1994,
compared with 64% at year-end 1993. The debt to total capitalization ratios
in 1994 have been impacted by the adoption of SFAS No.115, Accounting for
Certain Investments in Debt and Equity Securities, which requires investments
to be reflected at market value with the corresponding impact reported as a
separate component of Stockholders Equity. Excluding this impact, debt to
total capitalization would be 35% without Insurance and Finance and 68% on a
fully consolidated basis.
Stockholders equity decreased $1.1 billion, to $6.5 billion from December
31, 1993 due primarily to the spin-off of ITT Rayonier and the effect of a
market value adjustment to the carrying value of the insurance and finance
investment portfolios as required under SFAS No.115. Dividends and share
repurchases along with the six months net income also impacted stockholders
equity. Under its share repurchases program, the Corporation repurchased
approximately 896,000 common equivalent shares in the first six months of 1994
at an average price of $86.61 per share for a cash cost, including
commissions, of $78 million. An additional 445,000 shares were repurchased
through July 31 at an average price of $82.04 per share for a cash cost,
including commissions, of $36 million.
PAGE 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At ITT's annual meeting of shareholders held on May 17, 1994, the
persons whose names are set forth below were elected as directors,
constituting the entire Board of Directors, with relevant voting
information for each person:
Votes Cast Broker
---------------------------
Name For Withheld Nonvotes
----------------- ----------- --------- --------
Bette B. Anderson 110,681,051 1,420,564 0
Rand V. Araskog 110,142,804 1,958,811 0
Nolan D. Archibald 110,817,515 1,284,100 0
Robert A. Burnett 110,747,562 1,354,053 0
Michel David-Weill 110,684,105 1,417,510 0
S. Parker Gilbert 110,814,353 1,287,262 0
Paul G. Kirk, Jr. 110,698,417 1,403,198 0
Edward C. Meyer 110,731,780 1,369,835 0
Benjamin F. Payton 110,762,158 1,339,457 0
Margita E. White 110,750,139 1,351,476 0
In addition to the election of directors, the following matters
were acted upon:
(a) The reappointment of Arthur Andersen & Co. as independent
auditors for 1994 was ratified by a vote of 110,491,043 shares
in favor, 1,040,726 shares against, 569,846 shares abstained,
and no broker nonvotes.
(b) The proposed ITT Corporation 1994 Incentive Stock Plan was
approved by a vote of 84,257,138 shares in favor, 25,356,012
shares against, 1,294,849 shares abstained, and 1,193,616
broker nonvotes.
(c) The proposed ITT Corporation Annual Performance-Based
Incentive Plan for Executive Officers was approved by a vote
of 103,428,403 shares in favor, 6,416,310 shares against,
1,325,003 shares abstained, and 931,899 broker nonvotes.
(d) A shareholder proposal calling for ITT to list in the proxy
statement the executive officers earning more than $100,000
annually was not approved by a vote of 89,313,267 shares
against, 10,985,499 shares in favor, 2,108,583 shares
abstained, and 9,694,266 broker nonvotes.
(e) A shareholder proposal requesting ITT to endorse the
principles of corporate environmental accountability as
developed by the Coalition for Environmentally Responsible
Economies was not approved by a vote of 83,035,443 shares
against, 8,974,107 shares in favor, 10,346,537 shares
abstained, and 9,745,528 broker nonvotes.
PAGE 13
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 14
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 J.F. Danski
-------------------------
J.F. Danski
Senior Vice President and Controller
(Chief Accounting Officer)
August 11, 1994
(Date)
PAGE 15
EXHIBIT INDEX
Exhibit
No. Description Location
- - ------- ----------- --------
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession None
(3) Articles of Incorporation and by-laws None
(4) Instruments defining the rights of security holders,
including indentures None
(10) Material Contracts None
(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) Report furnished to security holders None
(22) Published report regarding matters submitted
to vote of security holders None
(23) Consents of experts and counsel None
(24) Power of attorney None
(27) Financial Data Schedule None
(99) Additional exhibits None
PAGE 16
EXHIBIT 11
ITT CORPORATION AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(In millions except per share)
Six Months
Ended June 30,
----------------------
1994 1993
-------- --------
PRIMARY BASIS -
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 477 $ 442
ESOP preferred dividends - net of tax. . . . . . . . . . . . . (17) (18)
------- -------
Net income applicable to primary earnings per share. . . . . . $ 460 $ 424
------- -------
Average common shares outstanding. . . . . . . . . . . . . . . 117 119
Common shares issuable in respect to common stock
equivalents. . . . . . . . . . . . . . . . . . . . . . . . . 2 2
------- -------
Average common equivalent shares . . . . . . . . . . . . . . . 119 121
------- -------
Earnings Per Share
Continuing operations. . . . . . . . . . . . . . . . . . . . . $ 3.74 $ 2.76
Discontinued operations. . . . . . . . . . . . . . . . . . . . .10 .35
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . - .41
Cumulative effect of accounting changes. . . . . . . . . . . . .04 -
------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.88 $ 3.52
------- -------
FULLY DILUTED BASIS -
Net income applicable to primary earnings per share. . . . . . $ 460 $ 424
ESOP preferred dividends - net of tax. . . . . . . . . . . . . 17 18
If converted ESOP expense adjustment - net of tax benefit. . . (10) (11)
------- -------
Net income applicable to fully diluted earnings per share. . . $ 467 $ 431
------- -------
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. . . . . . . . . . . . . . . . . . . . . $ 3.51 $ 2.61
Discontinued operations. . . . . . . . . . . . . . . . . . . . .09 .33
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . - .38
Cumulative effect of accounting changes. . . . . . . . . . . . .04 -
------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.64 $ 3.32
------- -------
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 17
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)
Six Months Ended
June 30, 1994
-----------------
Earnings:
Income from continuing operations. . . . . . . . . . . . . . . . . . . $ 459
Adjustment for distributions in excess of (less than)
undistributed equity earnings and losses . . . . . . . . . . . . . . 8
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . 223
Minority equity in net income. . . . . . . . . . . . . . . . . . . . . 10
Amortization of interest capitalized . . . . . . . . . . . . . . . . . 4
------
704
------
Fixed Charges:
Interest and other financial charges:
Finance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
------
469
Interest factor attributable to rentals. . . . . . . . . . . . . . . . 54
------
523
------
Earnings, as adjusted, from continuing operations. . . . . . . . . . . . $1,227
------
Fixed Charges:
Fixed charges above. . . . . . . . . . . . . . . . . . . . . . . . . . $ 523
Dividends on preferred stock of insurance subsidiary
included in minority equity. . . . . . . . . . . . . . . . . . . . . 4
Interest capitalized . . . . . . . . . . . . . . . . . . . . . . . . . 4
------
Total fixed charges. . . . . . . . . . . . . . . . . . . . . . . . . 531
Dividends on preferred stock of ITT (pre-income tax basis) . . . . . . . 24
------
Total fixed charges and preferred dividend requirements. . . . . . . $ 555
------
Ratios:
Earnings, as adjusted, from continuing operations
to total fixed charges . . . . . . . . . . . . . . . . . . . . . . . . 2.31
------
Earnings, as adjusted, from continuing operations to total fixed
charges and preferred dividend requirements of ITT . . . . . . . . . 2.21
------
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.
