<PAGE>   1
 
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                       SECURITIES AND EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549
                               ------------------
 
                                   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, 1995
                                       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
                           ---------------------- to
                              -------------------
                          COMMISSION FILE NO. 1-13960
                               ------------------
 
                                ITT CORPORATION
  INCORPORATED IN THE STATE OF NEVADA
                                                  88-0340591
                                               (I.R.S. EMPLOYER
                                              IDENTIFICATION NO.)
 
              1330 AVENUE OF THE AMERICAS, NEW YORK, NY 10019-5490
                         (PRINCIPAL EXECUTIVE OFFICES)
 
                        TELEPHONE NUMBER: (212) 258-1000
                               ------------------
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT, ALL OF WHICH ARE
REGISTERED ON THE NEW YORK STOCK EXCHANGE, INC.:
         COMMON STOCK, NO PAR VALUE
         SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK PURCHASE RIGHTS
         6 1/4% NOTES DUE NOVEMBER 15, 2000
         6 3/4% NOTES DUE NOVEMBER 15, 2005
         7 3/8% DEBENTURES DUE NOVEMBER 15, 2015
         7 3/4% DEBENTURES DUE NOVEMBER 15, 2025
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
                                              ---      ---
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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 Stock of the registrant
held by non-affiliates of the registrant on January 31, 1996, was approximately
$6.5 billion.
 
     As of February 29, 1996, there were outstanding 117,299,221 shares of
Common Stock, no 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 14, 1996, is incorporated by reference in
Part III of this Form 10-K.
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<PAGE>   2
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
         ITEM                                                                            PAGE
<C>    <C>       <S>                                                                     <C>
PART        1    Business of ITT......................................................     1
  I         2    Properties...........................................................    22
            3    Legal Proceedings....................................................    22
            4    Submission of Matters to a Vote of Security Holders..................    23
            *    Executive Officers of ITT............................................    23
PART        5    Market for ITT's Common Stock and Related Stockholder Matters........    24
 II         6    Selected Financial Data..............................................    24
            7    Management's Discussion and Analysis of Financial Condition and
                   Results of Operations..............................................    25
            8    Financial Statements and Supplementary Data..........................    32
            9    Changes in and Disagreements with Accountants on Accounting and
                   Financial Disclosure...............................................    32
PART       10    Directors and Executive Officers of ITT..............................    32
 III       11    Executive Compensation...............................................    32
           12    Security Ownership of Certain Beneficial Owners and Management.......    32
           13    Certain Relationships and Related Transactions.......................    32
PART       14    Exhibits, Financial Statement Schedules, and Reports on Form 8-K.....    32
 IV
          Signatures..................................................................   II-1
          Exhibit Index...............................................................   II-2
</TABLE>
 
------------
* Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
 
                                     PART I
ITEM 1.                         BUSINESS OF ITT
 
     ITT Corporation is a Nevada corporation, with World Headquarters at 1330
Avenue of the Americas, New York, NY 10019-5490. ITT Corporation was
incorporated in 1995. Unless the context otherwise indicates, references herein
to ITT Corporation ("ITT") include its subsidiaries.
 
     On December 19, 1995 (the "Distribution Date"), ITT Corporation, a Delaware
corporation (which has been renamed ITT Industries, Inc. and reincorporated in
the State of Indiana, "Old ITT"), distributed to its shareholders of record at
the close of business on such date all of the outstanding shares of common stock
of ITT, then a wholly owned subsidiary of Old ITT (the "Distribution"). In such
Distribution, holders of common stock of Old ITT received one share of ITT's
common stock for every one share of Old ITT common stock held. In connection
with such Distribution, ITT, which was then named "ITT Destinations, Inc.",
changed its name to "ITT Corporation". References herein to ITT prior to
December 20, 1995 are references to Old ITT, the former parent corporation of
ITT.
 
     ITT is engaged, through subsidiaries, in the hospitality, gaming and
entertainment business and the information services business. ITT conducts its
hospitality and entertainment business through ITT Sheraton Corporation ("ITT
Sheraton"), Ciga S.p.A. ("Ciga"), Caesars World, Inc. ("Caesars") and Madison
Square Garden, L.P. ("MSG") and conducts its information services business
through ITT World Directories, Inc. ("ITT World Directories") and ITT
Educational Services, Inc. ("ITT Educational"). 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., one of the largest
telecommunications equipment manufacturers in the world.
 
     Through the ITT Sheraton trade names and service marks, ITT is represented
in most major markets of the world. In 1995, over 45 million customers stayed at
ITT Sheraton properties in approximately 60 countries. ITT Sheraton is a
worldwide hospitality network of 412 owned, leased, managed and franchised
properties, including hotels, casinos and inns. Gaming operations are marketed
under either the Caesars World or ITT Sheraton trade names and service marks and
are represented in Las Vegas,
 
                                        1
<PAGE>   3
 
Atlantic City, Halifax (Nova Scotia), Sydney (Nova Scotia), Lake Tahoe, Tunica
County (Mississippi), Lima (Peru), Cairo (Egypt), Windsor (Ontario) and
Townsville (Australia). The acquisition in 1994 of 70.3% of Ciga and the
acquisition of other key hotel properties(particularly, The Phoenician in
Scottsdale, Arizona, the Crescent in Phoenix, Arizona, and The Park Grande Hotel
in Sydney, Australia) enhanced ITT's geographic balance of hotels along with its
image and profile.
 
     In January 1995, ITT completed the acquisition of Caesars, one of the
world's most recognized gaming companies. The acquisition of Caesars greatly
enhanced ITT's profile in the rapidly growing gaming business. Caesars' flagship
property is the renowned Caesars Palace in Las Vegas; Caesars also owns and
operates Caesars Atlantic City in Atlantic City, New Jersey, and Caesars Tahoe
in Stateline, Nevada. Caesars also owns one-third of a management company that
operates Casino Windsor, which was opened in May 1994 in Windsor, Ontario, and
Caesars owns and operates four non-gaming resorts in Pennsylvania's Pocono
Mountains.
 
     In March 1995, ITT acquired, through its investment in MSG in partnership
with subsidiaries of Cablevision Systems Corporation, the New York
Knickerbockers basketball and New York Rangers hockey franchises and the Madison
Square Garden arena. The MSG investment also included a special events theater
and the MSG cable television entertainment network.
 
     In August 1995, ITT, in partnership with Dow Jones & Co. ("Dow Jones"),
agreed to purchase television station WNYC-TV from New York City. The purchase,
subject to approval by the Federal Communications Commission and other customary
conditions, is expected to close in the first half of 1996. The purchase price
of $207 million will be split evenly by the two companies, and the partnership
will be managed on a 50/50 basis.
 
     ITT World Directories, an 80%-owned subsidiary, engages in the publication
of telephone directories, including classified directory services for telephone
subscribers, in Europe, Asia, Africa, Puerto Rico and the United States Virgin
Islands. ITT Educational, which is owned 83.3% by ITT and 16.7% by the public,
operates technical colleges offering post-secondary career education.
 
     ITT owns approximately 9.4 million shares, or approximately 6% of the
outstanding capital shares, of Alcatel Alsthom, a French company which owns,
among other things, Alcatel N.V., one of the largest telecommunications
equipment manufacturers in the world. The fair market value of such shares was
$826 million at December 31, 1995.
 
                                        2
<PAGE>   4
 
BUSINESS SEGMENTS*
 
<TABLE>
<CAPTION>
                                                                        REVENUES                            INCOME
                                                             -------------------------------       -------------------------
                                                              1995        1994        1993         1995      1994      1993
                                                             -------     -------     -------       -----     -----     -----
<S>                                                          <C>         <C>         <C>           <C>       <C>       <C>
Hotels...................................................    $ 4,120     $ 3,700     $ 3,160       $ 190     $ 152     $  87
Gaming...................................................      1,370         227          24         209         9        (9)
Information Services.....................................        856         833         800         178       155       162
Dispositions and Other...................................         --          --         185          --         1         8
                                                             -------     -------     -------       -----     -----     -----
Total Segments...........................................      6,346       4,760       4,169         577       317       248
Other....................................................         --          --          --          (6)      (25)     (106)
                                                             -------     -------     -------       -----     -----     -----
                                                               6,346       4,760       4,169         571       292       142
Interest expense, net....................................                                           (291)     (131)      (33)
Miscellaneous income (expense), net......................                                              2       (17)       10
Income tax expense.......................................                                           (114)      (58)      (63)
Minority equity..........................................                                            (21)      (12)      (17)
                                                             -------     -------     -------       -----     -----     -----
                                                             $ 6,346     $ 4,760     $ 4,169       $ 147     $  74     $  39
                                                              ======      ======      ======       =====     =====     =====
</TABLE>
 
---------------
* 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.
 
HOTEL OPERATIONS
 
     ITT's revenues from hotel operations are derived worldwide from ITT
Sheraton's owned, leased and managed hotels and franchise fees. Revenues in the
hotel business are essentially a function of number of rooms, average daily rate
charged for rooms and number of rooms occupied. Six of the hotels in the ITT
Sheraton network have casino operations managed by Sheraton. The gaming
operations in the ITT Sheraton network and the gaming operations of Caesars are
discussed below under "Gaming Operations".
 
     The following table illustrates in percentage terms the sources of revenues
of ITT's hotel operations. The percentages for the 1994 period assume that the
acquisition of the 70.3% interest in Ciga and certain other hotel properties had
been completed on January 1, 1994. Hotel/casinos owned by ITT Sheraton and
Caesars are not included in the table.
 
<TABLE>
<CAPTION>
                                                                                                         PRO FORMA
                                                                                      YEAR ENDED        YEAR ENDED
                                                                                     DEC. 31, 1995     DEC. 31, 1994
                                                                                     -------------     -------------
<S>                                                                                  <C>               <C>
Owned or Leased Hotels.............................................................         32%               30%
Managed and Joint Venture Hotels(1)................................................         65                67
Franchised Hotels(2)...............................................................          1                 1
Other(3)...........................................................................          2                 2
                                                                                           ---               ---
                                                                                           100%              100%
                                                                                           ===               ===
</TABLE>
 
---------------
(1) Includes 100% of the revenues of managed and joint venture hotels.
(2) Includes franchise fees to ITT Sheraton, not revenues of franchise hotels.
(3) Other revenues primarily include reservations fees and Sheraton Club
    International fees.
 
                                        3
<PAGE>   5
 
  Owned and Leased Hotels
 
     The following table illustrates for ITT Sheraton's owned and leased
properties, the number of properties, available room nights, average daily
occupancy rate and average daily room rate, in each case for the years ended
December 31, 1995 and December 31, 1994. For the year ended December 31, 1994,
the table assumes that the acquisition of the 70.3% interest in Ciga and certain
other hotel properties had been completed on January 1, 1994. Hotel/casinos
owned by ITT Sheraton and Caesars are not included in the table.
 
<TABLE>
<CAPTION>
                                                                                                         PRO FORMA
                                                                                      YEAR ENDED        YEAR ENDED
                                                                                     DEC. 31, 1995     DEC. 31, 1994
                                                                                     -------------     -------------
<S>                                                                                  <C>               <C>
Number of properties at period end.................................................           68                66
Available room nights(1)...........................................................    7,929,283         7,467,848
Average daily occupancy rate(2)....................................................         71.2%             70.1%
Average daily rate(3)..............................................................      $135.65           $125.72
</TABLE>
 
---------------
(1) Based on properties held at period end.
(2) Occupied rooms in the period divided by rooms available for sale in the same
    period.
(3) Room revenues for the period divided by rooms occupied for the same period.
 
     The owned and leased properties in the ITT Sheraton network are, in many
cases, subject to mortgage and lease indebtedness. As of December 31, 1995, the
aggregate mortgage and lease indebtedness in respect of such hotels was $334
million. In connection with the leased properties in the ITT Sheraton network,
an ITT Sheraton subsidiary generally leases the land upon which the hotel has
been built and the hotel building. Upon expiration of the lease, the buildings
and other leasehold improvements owned by such subsidiary revert to the
landlord. Usually, such ITT Sheraton subsidiary is responsible for repairs,
maintenance, operating expenses and lease rentals and retains managerial
discretion over operations. Generally, ITT Sheraton pays a percentage rental
based on total revenues (as defined) or gross operating profit (as defined) in
respect of the relevant facility but sometimes with a minimum fixed annual rent
or a preferential rent. During the year ended December 31, 1995 and the year
ended December 31, 1994, ITT Sheraton paid aggregate rentals, including rentals
attributable to the leased properties referenced above, of $22 million and $17
million, respectively.
 
  Managed and Joint Venture Hotels
 
     ITT Sheraton, through subsidiaries, manages, usually under long-term
agreements, a number of hotels throughout the world. The following table
illustrates the number of properties, available room nights, average daily
occupancy rate and average daily room rate, in each case for the years December
31, 1995 and December 31, 1994 for the hotels managed for third parties and
joint venture hotels in the ITT Sheraton network. For the year ended December
31, 1994, the table assumes that the acquisition of the 70.3% interest in Ciga
and certain other hotel properties had been completed on January 1, 1994.
 
<TABLE>
<CAPTION>
                                                                                                         PRO FORMA
                                                                                      YEAR ENDED        YEAR ENDED
                                                                                     DEC. 31, 1995     DEC. 31, 1994
                                                                                     -------------     -------------
<S>                                                                                  <C>               <C>
Number of properties at period end(1)..............................................           130               143
Available room nights(2)...........................................................    18,138,378        18,919,583
Average daily occupancy rate(3)....................................................          70.6%             70.4%
Average daily rate(4)..............................................................       $121.28           $111.12
</TABLE>
 
---------------
(1) The decrease resulted primarily from a reclassification of certain hotels
    from the managed category to the franchised category.
(2) Based on properties held at period end.
(3) Occupied rooms in the period divided by rooms available for sale in the same
    period.
(4) Room revenues for the period divided by rooms occupied for the same period.
 
                                        4
<PAGE>   6
 
     Under its standard management agreement, ITT Sheraton operates lodging
facilities under long-term arrangements with property owners. ITT Sheraton's
responsibilities include hiring, training and supervising the managers and
employees required to operate the facilities. For an additional fee ITT Sheraton
provides reservation services as well as national advertising, marketing and
promotional services. ITT Sheraton prepares and implements annual budgets for
lodging facilities under its management and is responsible for allocating
property-owner funds for periodic maintenance and repair of buildings and
furnishings. ITT Sheraton's management fee is generally based on a percentage of
the hotel's total revenues (as defined), plus, in certain instances, an
incentive fee based on the operating performance.
 
  International Operations
 
     The hotel operations of ITT Sheraton are conducted worldwide. As a general
matter, ITT Sheraton's presence outside of North America consists of contracts
to manage hotels and, to a far more limited extent, equity positions in hotels.
With the acquisition of 70.3% of Ciga, a deluxe hotel group in Europe with 33
hotels, and Sheraton on the Park in Sydney, Australia, ITT Sheraton has expanded
its role as an owner of hotels outside of North America. As of December 31,
1995, ITT Sheraton had an equity interest of 50% or more in 28 properties in
Europe, one property in the Asia/Pacific region, six properties in Latin America
and one property in the Africa/Middle East region.
 
     The source of revenues in geographic terms of ITT's operations (excluding
revenues from gaming operations and reservations-based revenues) is set forth in
the following table for the years ended December 31, 1995 and December 31, 1994.
The data for the year ended December 31, 1994 assumes that the acquisition of
the 70.3% interest in Ciga and certain other hotel properties had been completed
on January 1, 1994. The pro forma financial information includes ITT
management's estimates of results which, among other things, assume revenue and
expense levels based on historical trends and ITT management's views of current
economic conditions. Such information may not be indicative of the results that
would have occurred if the acquisitions had been completed on January 1, 1994.
Hotel/ casinos owned by ITT Sheraton and Caesars are not included in the table.
 
<TABLE>
<CAPTION>
                                                                                                         PRO FORMA
                                                                                      YEAR ENDED        YEAR ENDED
                                                                                     DEC. 31, 1995     DEC. 31, 1994
                                                                                     -------------     -------------
<S>                                                                                  <C>               <C>
REVENUES
  North America(1).................................................................         44%               45%
  Europe...........................................................................         21                18
  Africa/Middle East...............................................................          9                10
  Latin America....................................................................          5                 6
  Asia/Pacific.....................................................................         19                19
  Headquarters and Other...........................................................          2                 2
                                                                                           ---               ---
        Total......................................................................        100%              100%
                                                                                     =============     =============
EBITDA(2)
  North America(1).................................................................         50%               60%
  Europe...........................................................................         24                 6
  Africa/Middle East...............................................................          3                 3
  Latin America....................................................................         15                21
  Asia/Pacific.....................................................................         12                15
  Headquarters and Other...........................................................         (4)               (5)
                                                                                           ---               ---
        Total......................................................................        100%              100%
                                                                                     =============     =============
</TABLE>
 
---------------
(1) Includes franchise fees.
 
(2) EBITDA is presented here as an alternative measure of the ability of ITT to
    generate cash flow and should not be construed as an alternative to
    operating income (as determined in accordance with generally accepted
    accounting principles) or to cash flow from operating activities (as
    determined on the Consolidated Cash Flow Statements in ITT's Consolidated
    Financial Statements contained herein). EBITDA was computed above as
    earnings before interest, taxes, depreciation and amortization.
 
                                        5
<PAGE>   7
 
  Franchise Business
 
     The franchise business of ITT Sheraton largely relates to properties based
in North America. Only 20 of the franchise hotels and inns are located outside
of North America. The following table illustrates for ITT Sheraton's franchise
business (which includes properties operated under the "Four Points Hotels"
trade name), the number of properties, available room nights, average daily
occupancy rate and average daily room rate, in each case for the years ended
December 31, 1995 and December 31, 1994.
 
<TABLE>
<CAPTION>
                                                                                                     PRO FORMA
                                                                                  YEAR ENDED        YEAR ENDED
                                                                                 DEC. 31, 1995     DEC. 31, 1994
                                                                                 -------------     -------------
    <S>                                                                          <C>               <C>
    Number of properties at period end.........................................           214               214
    Available room nights(1)...................................................    19,199,826        20,530,000
    Average daily occupancy rate(2)............................................          67.2%             67.4%
    Average daily rate(3)......................................................        $76.51            $72.89
</TABLE>
 
---------------
(1) Based on properties held at period end.
(2) Occupied rooms in the period divided by rooms available for sale in the same
    period.
(3) Room revenues for the period divided by rooms occupied for the same period.
 
     Sheraton franchise hotels are licensed to operate under the "Sheraton"
trade name and the stylized "S" and Wreath service mark. The franchise hotels
currently operated under the "Sheraton" trade name are generally smaller than
the hotels owned, leased or managed by ITT Sheraton. In each instance, ITT
Sheraton approves the plans for, and the location of, franchise hotels and
reviews their design.
 
     In 1995, ITT Sheraton began offering owners the opportunity to convert
Sheraton franchise inns to the new "Four Points Hotels" trade name. ITT Sheraton
plans for nearly all of its franchise inns to convert to the "Four Points
Hotels" trade name. It is expected that the "Four Points Hotel" will be operated
and marketed by their respective owners with a view toward providing hospitality
services to the business-oriented traveler. Nearly all new franchise hotels are
also expected to be operated under the "Four Points Hotels" trade name.
 
     At December 31, 1995, there were 214 franchise hotels operated by other
business entities under the "Sheraton" or "Four Points Hotels" trade name. In
general, each franchisee pays ITT Sheraton an initial minimum fee, plus an
additional fee for every room over 100. There is a continuing monthly license
fee based on a percentage of the facility's room revenues. Although ITT Sheraton
does not directly participate in the day-to-day management or operation of
franchise hotels, it periodically inspects those facilities to ensure that ITT
Sheraton's standards are maintained.
 
GAMING OPERATIONS
 
     ITT's gaming operations consist primarily of Caesars Palace in Las Vegas,
Caesars Atlantic City in Atlantic City and Caesars Tahoe in Stateline, Nevada
(each acquired in January 1995), ITT Sheraton's Desert Inn Resort & Casino in
Las Vegas, the Sheraton Casino in Tunica County, Mississippi and various
hotel/casino operations of ITT Sheraton and Caesars outside of the United
States.
 
  Caesars World
 
     In January 1995, a subsidiary of Old ITT acquired through a cash tender
offer approximately 92.9% of the outstanding shares of Caesars. Upon the merger
of such subsidiary into Caesars, effective March 2, 1995, Caesars became a
direct, wholly owned subsidiary of Old ITT. The cost of the transaction to Old
ITT was approximately $1.7 billion. In connection with the Distribution, Caesars
became an indirect wholly owned subsidiary of ITT.
 
     Caesars' wholly owned subsidiaries operate three destination gaming
resorts: Caesars Palace in Las Vegas, Nevada; Caesars Tahoe in Stateline,
Nevada; and Caesars Atlantic City in Atlantic City, New Jersey. A Caesars
subsidiary carries on operations of small casinos on two cruise ships in
conjunction with the operator of the ships. Caesars also owns one-third of a
management company which operates Casino Windsor, a casino opened on May 17,
1994 in Windsor, Canada, which is owned by the Government of the Province of
Ontario. Caesars' subsidiaries also own and operate four non-gaming resorts in
the Pocono Mountains of Pennsylvania.
 
                                        6
<PAGE>   8
 
     Nevada Properties.  Caesars Palace, which opened in 1966 and was purchased
by Caesars in 1969, is a casino/hotel complex located on approximately 80 acres
on the "Strip" in Las Vegas, Nevada. At December 31, 1995, Caesars Palace had
1,486 hotel rooms and suites, 10 restaurants, a 1,126-seat showroom, a
convention complex with approximately 100,000 square feet of meeting and banquet
space, numerous bars and lounges, a shopping arcade, two swimming pools, tennis
facilities, a 4,500-seat sports pavilion, a 15,000-seat outdoor stadium, health
spas, and an "Omnimax" theater. Its casino is approximately 118,000 square feet,
and it offers wagering limits among the highest in Nevada.
 
     For the year ended December 31, 1995, the average occupancy rate at Caesars
Palace of 88.3% included occupancy of approximately 41.7% of the available rooms
and suites by guests receiving complimentary rooms. The average occupancy rate
at Caesars Palace was 90.8% and 92.0% for the years ended December 31, 1994 and
1993, respectively, including occupancy of 42.7% and 37.1%, respectively, of the
available rooms and suites by guests receiving complimentary rooms.
 
     Recent major capital projects at Caesars Palace include room and public
area refurbishments and completion of luxury suites. Scheduled or ongoing
capital projects include Caesars Magical Empire, a new state-of-the-art magical
and dining entertainment facility scheduled to open in the second quarter of
1996, a second parking garage and guest room and public area refurbishments.
 
     Caesars Tahoe casino/hotel opened in 1979 and is located in Stateline,
Nevada, adjacent to Lake Tahoe. In 1979, Caesars entered into a long-term lease
of the 24-acre property on which the casino/hotel stands. At December 31, 1995,
Caesars Tahoe had 440 hotel rooms and suites, four restaurants, a 1,500-seat
showroom, 25,000 square feet of convention space, a Roman-themed nightclub, a
40,000-square foot casino including a race and sports book, bars, shops, four
outdoor tennis courts and an indoor health spa containing a swimming pool and a
racquetball court.
 
     For the year ended December 31, 1995, the average occupancy rate at Caesars
Tahoe of 86.0% included occupancy of approximately 28.9% of the available rooms
and suites by guests receiving complimentary rooms. The average occupancy rate
at Caesars Tahoe was 88.8% and 90.4% for the years ended December 31, 1994 and
1993, respectively, including occupancy of 32.0% and 33.6%, respectively, of the
available rooms and suites by guests receiving complimentary rooms.
 
     Recent major capital projects at Caesars Tahoe include a themed restaurant,
room renovations and remodeling/refurbishing of the casino floor. Scheduled
capital projects include room renovations and replacement of slot equipment.
 
     Caesars Atlantic City.  Caesars Atlantic City is a 638-room casino/hotel on
the Boardwalk in Atlantic City, New Jersey. At December 31, 1995, it had a
74,000-square foot casino, including table games, slots, keno, poker and race
simulcasting, 12 restaurants and bars, 10,000 square feet of meeting and banquet
space, an 1,100-seat showroom, a shopping arcade, a Roman-themed transportation
center which accommodates 2,500 cars and 11 buses, a health club and 2 tennis
courts. The property on which Caesars Atlantic City stands consists of
approximately 8.1 acres, including contiguous parcels totaling approximately 5.4
acres bounded on three sides by Missouri, Arkansas and Pacific Avenues, with an
entire block of Boardwalk frontage.
 
     For the year ended December 31, 1995, the average occupancy rate at Caesars
Atlantic City of 93.7% included occupancy of approximately 84.4% of the
available rooms and suites by guests receiving complimentary rooms. The average
occupancy rate at Caesars Atlantic City was 92.7% and 90.8% for the years ended
December 31, 1994 and 1993, respectively, including occupancy of 77.0% and
62.6%, respectively, of the available rooms and suites by guests receiving
complimentary rooms.
 
     Recent major capital projects at Caesars Atlantic City include completion
of a casino expansion (including additional slot machines, table games, poker
games, and a keno and simulcasting area), remodeling and refurbishing of guest
rooms and the baccarat casino area and purchase of slot equipment. Scheduled
capital projects include a casino renovation to add slot machines, computer
equipment, themed restaurants, replacement of slot machines and renovation of
guest rooms and suites.
 
                                        7
<PAGE>   9
 
  Sheraton Desert Inn Resort & Casino
 
     The Sheraton Desert Inn Resort & Casino, which was purchased, through a
wholly owned subsidiary, by ITT Sheraton in November 1993, is a casino/hotel
complex located on approximately 200 acres on the "Strip" in Las Vegas, Nevada.
At December 31, 1995, the Sheraton Desert Inn had 821 hotel rooms and suites,
five restaurants, a 636-seat showroom, a convention complex with approximately
24,500 square feet of meeting and banquet space, numerous bars and lounges, a
shopping arcade, three swimming pools, tennis facilities, an 18 hole golf course
and other facilities. Its casino is approximately 20,000 square feet.
 
     For the year ended December 31, 1995, the average occupancy rate at
Sheraton Desert Inn of 74.7% included occupancy of approximately 18.8% of the
available rooms and suites by guests receiving complimentary rooms. The average
hotel occupancy rate at Sheraton Desert Inn was 78.4% and 82.6% in 1994 and
1993, respectively, including occupancy of 18.3% and 18.9%, respectively, of the
available rooms and suites by guests receiving complimentary rooms.
 
  Tunica Casino
 
     The Sheraton Casino opened in Tunica County, Mississippi in August 1994.
The Sheraton Casino has three restaurants, three bars and lounges and other
facilities. Its casino has approximately 31,000 square feet. Casino games
include mini-baccarat, black jack, craps, roulette, slot machines, Caribbean
stud poker, big "6" and "let it ride."
 
  Other
 
     ITT Sheraton also operates a casino gaming operation in Lima, Peru in the
Sheraton Lima Hotel & Casino, which has 438 rooms and suites. In June 1995, ITT
Sheraton added to its foreign gaming operation with the opening of a casino in
Halifax, Nova Scotia in the Sheraton Halifax Hotel, now renamed the Sheraton
Halifax Hotel & Casino. In August 1995, ITT Sheraton expanded its Nova Scotia
gaming operations with the opening of a stand-alone casino in Sydney, Cape
Breton, Nova Scotia, named Sheraton Casino Sydney. ITT Sheraton also operates
casinos in Australia and Egypt. During late 1995, for operational purposes, all
of ITT Sheraton's gaming operations were consolidated under Caesars.
 
     Both ITT Sheraton and Caesars are actively exploring various gaming
opportunities in the United States and internationally.
 
MADISON SQUARE GARDEN
 
     In March 1995, ITT, in partnership with an indirect subsidiary of
Cablevision Systems Corporation, acquired MSG for approximately $1 billion.
MSG's activities include owning and operating (i) the Madison Square Garden
Arena, which seats approximately 20,000 people, (ii) a special events theater
which seats approximately 5,600 people, (iii) the New York Knicks of the
National Basketball Association (the "NBA") and (iv) the New York Rangers of the
National Hockey League (the "NHL"). MSG also supplies and distributes television
programming for cable systems principally in New York, New Jersey and
Connecticut through the MSG Network. MSG Network programming includes its own
sporting events and rights to the New York Yankees baseball games through the
year 2000. In addition, MSG produces, promotes and/or presents live
entertainment.
 
     In addition to its principal assets, MSG currently owns the business which
produces the Miss Universe, Miss USA and Miss Teen USA pageants. On March 12,
1996 MSG sold SRO Motorsports, a division of MSG which produced auto thrill show
events. In connection with the sale of SRO Motorsports, MSG received
approximately $20.1 million in cash.
 
  Ownership Structure
 
     On March 10, 1995, Madison Square Garden, L.P. ("Holdings"), a partnership
among subsidiaries of Rainbow Programming Holdings, Inc. ("Rainbow
Programming"), a wholly owned subsidiary of
 
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<PAGE>   10
 
Cablevision Systems Corporation, and wholly owned subsidiaries of ITT acquired
the business and assets of Madison Square Garden Corporation.
 
     Holdings funded the purchase price of the acquisition through (i)
borrowings of $289.1 million under a bank credit agreement, (ii) an equity
contribution from Rainbow Programming of $110 million and (iii) an equity
contribution from ITT of $610 million. Pursuant to agreements among ITT, Rainbow
Programming and Cablevision Systems Corporation, Rainbow Programming has the
right to acquire interests in Holdings from ITT sufficient to equalize the
interests of ITT and Rainbow Programming in Holdings by making certain scheduled
payments totalling $250 million (plus interest on any unpaid portion thereof) on
specified dates up to and including March 17, 1997. Rainbow Programming may
acquire all or part of such interests in Holdings through (i) the payment of
cash to ITT, (ii) the delivery to ITT, at the option of Rainbow Programming, of
common or preferred stock of the Cablevision Systems Corporation (together with
the commitment of a nationally recognized underwriter to promptly purchase such
common or preferred stock for cash), or a combination of cash and such common or
preferred stock (with such a commitment) or (iii) subject to certain conditions
and in lieu of payment of a limited amount of the required cash or common or
preferred stock for the purchase of a portion of such interests, the delivery to
ITT, at the option of ITT, of certain designated programming interests of
Rainbow Programming. If any scheduled payment is not made on the applicable due
date, then Rainbow Programming will forfeit (a) its right to equalize the
interests in Holdings and (b) certain minority rights. If certain conditions are
met and Rainbow Programming has forfeited its right to equalize the interests in
Holdings, then Rainbow Programming will also have the right to require ITT to
purchase all of Rainbow Programming's interest in Holdings for an amount equal
to (i) the price paid by Rainbow Programming for such interest plus (ii) all
interest paid by Rainbow Programming on the unpaid portion of the $250 million
of scheduled payments (as described above).
 
     Initially, Holdings will be managed on a 50/50 basis by Rainbow Programming
and ITT. If Rainbow Programming does not equalize its ownership interest in
Holdings as discussed above, its management role will effectively be eliminated.
 
  MSG Network
 
     The MSG Network is an advertiser-supported cable television entertainment
program service. The MSG Network's programming is distributed primarily via
satellite for distribution by cable television operators and other video
distributors principally in New York, New Jersey and Connecticut. The MSG
Network currently has over 5,000,000 homes that are subscribers in the New York,
New Jersey and Connecticut.
 
     The MSG Network derives revenue from two principal sources: sale of
advertising time on the network and receipt of per-subscriber license fees paid
by cable operators and other distributors pursuant to negotiated carriage
arrangements. The sale of advertising time is affected by viewer demographics,
viewer ratings and market conditions.
 
     The MSG Network programming generally consists of sporting events and
related programs, primarily focusing on New York Yankees baseball games, New
York Knicks basketball games, New York Rangers hockey games and various other
events held at the Madison Square Garden Arena.
 
     The MSG Network has acquired programming rights from the New York Yankees
to broadcast its baseball games through the year 2000, for an aggregate fee of
$493.5 million. In addition to rights fees paid to the New York Yankees, the MSG
Network pays a fee to (i) the NBA for distribution of New York Knicks games to,
as a general matter, households located outside of a 75 mile radius of New York
City and (ii) the NHL for distribution of New York Rangers games to, as a
general matter, households located outside of a 50 mile radius of New York City.
 
  New York Knicks
 
     MSG owns the New York Knicks, a member of the NBA. The New York Knicks play
their home games in the Madison Square Garden Arena, which is owned and operated
by MSG.
 
     The NBA, through its constitution, has established rules governing club
operations, including drafting of players and trading player contracts. The New
York Knicks are subject to payment of ongoing
 
                                        9
<PAGE>   11
 
assessments and dues to the NBA and to compliance with the constitution and
by-laws of the NBA, as the same may be modified from time to time by the
membership, as well as with rules promulgated by the Commissioner of the NBA.
These rules include standards of conduct for players and front office personnel;
methods of operation; procedures for drafting new players and for purchasing,
selling and trading player contracts; rules for implementing disciplinary action
relative to players, coaches and front office personnel; and certain financial
requirements.
 
     In addition to ticket revenues from home games (basketball clubs in the NBA
do not share in gate receipts from games away from home), a portion of the New
York Knicks' revenues is derived from a pro-rata share of the network broadcast
rights fees received by the NBA, pursuant to a broadcast rights fee agreement
through the 1997-1998 seasons awarded to NBC Sports, a division of the National
Broadcasting Company, and from a pro-rata share of the broadcast rights fees
received by the NBA, pursuant to the broadcast rights fee agreement through the
1997-1998 season awarded to TBS Superstation and Turner Network Television,
Inc., affiliates of Turner Broadcasting System, Inc. The New York Knicks also
receive revenue from local cable rights fees for games broadcast by the MSG
Network and from local radio rights fees for games broadcast by WFAN-AM.
 
     Other sources of revenues for the New York Knicks' operations include
promotional and novelty revenues, including royalties from NBA Properties, Inc.,
and a pro rata share of expansion fees paid by new NBA franchises.
 
  New York Rangers
 
     MSG owns the New York Rangers, a member of the NHL. In addition to owning
the New York Rangers, MSG licenses the Rangers name in connection with the
operation of a minor league hockey team in Binghamton, New York. The New York
Rangers play their home games in the Madison Square Garden Arena.
 
     The NHL, through its constitution, has established rules governing club
operations, including drafting of players and trading player contracts. The New
York Rangers are subject to payment of ongoing assessments and dues to the NHL
and to compliance with the constitution and by-laws of the NHL, as the same may
be modified from time to time by the membership, as well as with rules
promulgated by the Commissioner of the NHL. These rules include standards of
conduct for players and front office personnel; methods of operation; procedures
for drafting new players and for purchasing, selling and trading player
contracts; rules for implementing disciplinary action relative to players,
coaches and front office personnel; and certain financial requirements.
 
     In addition to ticket revenues from home games, a portion of the New York
Rangers' revenues is derived from a pro-rata share of the revenues generated
through contracts negotiated by the NHL with television networks. The principal
broadcast agreements for the NHL are with the Entertainment and Sports
Programming Network ("ESPN"), the Fox Television Network and, in Canada, Molson
Companies, Ltd. Each of these agreements covers the 1994-1995 through 1998-1999
seasons. The New York Rangers also receive revenue from local cable rights fees
for games broadcast by the MSG Network and from local radio rights fees for
games broadcast by WFAN-AM.
 
     Other sources of revenues for the New York Rangers' operations include
promotional and novelty revenues, including royalties from NHL Enterprises,
Inc., and a pro rata share of expansion fees paid by new NHL franchises.
 
  Madison Square Garden Arena
 
     The principal tenants of the Madison Square Garden Arena are the New York
Knicks and the New York Rangers. In addition to the New York Knicks basketball
games and New York Rangers hockey games, MSG derives revenues from various other
activities and events held at the Madison Square Garden Arena and the special
events theater at Madison Square Garden. These events include various other
sporting events, concerts, family shows, the circus, trade shows, conventions
and other special events. MSG generates revenue through luxury suite licensing,
concessions (fast food, restaurants and catering), ticket sales and merchandise
sales.
 
                                       10
<PAGE>   12
 
WBIS+-TV
 
     In August 1995, ITT, in a 50/50 partnership with Dow Jones, agreed to
purchase television station WNYC-TV from New York City. The purchase, subject to
approval by the Federal Communications Commission and other customary
conditions, is expected to close in the first half of 1996. The purchase price
of $207 million will be split evenly by the two companies and the partnership
will be managed on a 50/50 basis. ITT and Dow Jones plan to rename the station
WBIS+, and to replace the station's mix of public-service and ethnic programming
with a broad range of business news during the day and professional sports and
other events at night.
 
INFORMATION SERVICES
 
  ITT World Directories
 
     ITT, through an 80%-owned subsidiary, ITT World Directories, is engaged in
the publication of telephone directories, including classified directory
services for telephone subscribers in several countries outside the United
States, as well as in Puerto Rico and the United States Virgin Islands.
BellSouth Corporation owns the remaining 20% of ITT World Directories through a
subsidiary.
 
     ITT World Directories publishes telephone directories -- alphabetical and
classified -- and also publishes specialized directories. ITT World Directories'
principal source of revenues in connection with its operations is advertising
revenue generated by advertisements published in its directories. Its principal
publications are in Belgium, The Netherlands, Portugal, The Republic of Ireland,
Puerto Rico and the United States Virgin Islands. ITT publishes directories in
these jurisdictions either pursuant to a contract with the existing national
telecommunications provider or as a proprietary directory in such jurisdiction
after expiration of such a contract. ITT World Directories is continuing a
program of product diversification and, where possible, geographic expansion, as
exemplified by its recent return to South Africa and its acquisition of a 60%
controlling interest in the directory sales agent for Telekom in South Africa,
Maister Directories 1981 (Pty) Limited, in late 1995.
 
     Historically, the business of ITT World Directories had consisted of
contracts for the publication of telephone directories with monopoly providers
of telecommunications services. In many jurisdictions, the monopoly provider of
telecommunications services was obligated to publish white pages telephone
directories and the obligation or right (depending on the jurisdiction) to
publish yellow pages directories (and thus claim significant advertising
revenues) went along with the requirement to publish white pages. As a means of
satisfying its publication obligations, various monopoly providers contracted
with ITT World Directories to publish telephone directories. Some of the current
business of ITT World Directories remains consistent with this historical source
of business. However, one of the most important factors currently affecting the
business of ITT World Directories is the changing competitive environment in the
member states of the European Union in which it publishes telephone directories.
Specifically, in Belgium and The Netherlands, the historical contractual
relationship between ITT World Directories and the national telecommunications
entity, namely Belgacom and PTT Telecom, respectively, were not renewed or
extended when the last contract term expired. As contracts are scheduled for
renewal in other jurisdictions within the European Union, the contracts there
may also not be renewed or extended, thereby possibly adversely affecting ITT
World Directories.
 
     A second important factor affecting the business of ITT World Directories
is the challenge presented by new interactive and other technologies (including
as the traditional yellow pages market moves to a paperless product). The
operating performance of ITT World Directories is not expected to be materially
adversely affected by the emergence of new technologies in the immediate future.
However, if ITT World Directories is not successful in implementing a strategy
to apply new technologies to its business, its long-term operating results may
be adversely affected. These new technologies are likely to include information
delivery methods such as CD ROMs and computer diskettes and operator-assisted
yellow pages. ITT World Directories has activities in this arena. Specifically,
in South Africa and Portugal, ITT World Directories has had operator-assisted
yellow pages in operation, in South Africa for nine years and in Portugal for
three years; in Belgium and The Netherlands, and it is publishing its classified
directories on CD ROM and it is publishing a fax directory in Portugal on CD
ROM.
 
                                       11
<PAGE>   13
 
  ITT Educational
 
     Prior to its initial public offering, which was consummated on December 27,
1994, ITT Educational was a wholly owned subsidiary of Old ITT. ITT beneficially
owns 83.3% of the outstanding shares of common stock of ITT Educational. The
shares of common stock of ITT Educational are traded on the New York Stock
Exchange under the symbol "ESI". The term "ITT Technical Institutes" (in
singular or plural form) refers to educational institutions owned and operated
by ITT Educational.
 
     Based on student enrollment, ITT Educational is a leading proprietary
provider of technical post-secondary degree programs in the United States. ITT
Educational offers degree programs and non-degree diploma programs to over
20,000 students through a system of 58 ITT Technical Institutes located in 26
states. These programs are designed, after consultation with employers, to
provide students with the knowledge and skills necessary for entry-level
employment in technical positions in a variety of industries.
 
     ITT entered the education services business in 1966 through the acquisition
of a predecessor of ITT Educational which owned three technical institutes. In
1981, ITT Educational began a strategy of significant expansion, acquiring three
and establishing 45 new technical institutes since that date. Of the 58
institutes currently operating, 20 were established since January 1, 1991. As a
result of adding new institutes and increasing enrollment at existing
institutes, the number of students attending Technical Institutes rose from
16,192 students at December 31, 1990, to 20,618 students at December 31, 1995.
ITT Educational has recently accelerated its expansion program, opening five new
technical institutes in 1993, six institutes in 1994 and four institutes in
1995. Classes at two of the institutes opened in 1995 did not begin until March
1996.
 
ALCATEL ALSTHOM
 
     In July 1992, Old ITT sold its 30% equity interest in Alcatel N.V., a
Netherlands company which is one of the largest telecommunications equipment
manufacturers 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, Old ITT
received, among other things, 9.1 million capital shares of Alcatel Alsthom,
recorded at $806 million. During the 1995 third quarter, Old ITT received
approximately an additional 300,000 capital shares in the form of a stock
dividend. The total 9.4 million capital shares at December 31, 1995 represented
approximately 6% of the outstanding capital shares of Alcatel Alsthom. The
shares of Alcatel Alsthom were transferred to ITT in December 1995. ITT expects
to retain its equity interest in Alcatel Alsthom until at least July 1997,
unless Alcatel Alsthom and ITT agree otherwise. Mr. Rand V. Araskog, Chairman
and Chief Executive of ITT, is a member of the board of directors of Alcatel
Alsthom.
 
EMPLOYEES
 
     As of December 31, 1995, ITT and its subsidiaries employed approximately
38,000 people.
 
OPERATIONS OUTSIDE THE UNITED STATES
 
     In 1995, approximately 46.5% of the ITT's consolidated sales and revenues
were made outside the United States. Of these, Western Europe comprised 46.9%,
the Asia Pacific region 26.8%, Africa and Middle East region 14.3%, and 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.
 
INTELLECTUAL PROPERTY
 
     ITT owns and controls a number of trademarks, trade names, service marks,
copyrights, patents, trade secrets, confidential information, and other
intellectual property rights which are used in the operation of ITT businesses.
These intellectual property rights include such well recognizable trademarks and
trade names as ITT, Sheraton, Caesars Palace, Madison Square Garden, the Knicks
and the
 
                                       12
<PAGE>   14
 
Rangers. However, while these trademarks, trade names, and other intellectual
property rights 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 trademarks, software, patents, technology and other
intellectual property rights owned and controlled by others, and similarly,
other companies are licensed to use certain trademarks, software, 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
ITT furnishes them with insurance, administrative, legal, intellectual property,
tax, personnel, financial, accounting, purchasing and operating advice and
assistance, as well as other services. In certain instances, specialized
employees are engaged for the account of the companies served. In return for
such services, these 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.
 
RELATIONSHIP BETWEEN ITT, ITT INDUSTRIES, INC. AND ITT HARTFORD GROUP, INC.
 
     In connection with the Distribution, ITT, ITT Industries and ITT Hartford
Group, Inc. ("ITT Hartford") entered into certain agreements, described below,
governing their relationship following the Distribution and providing for the
allocation of tax and certain other liabilities and obligations arising from
periods prior to the Distribution Date.
 
     Distribution Agreement.  ITT, ITT Industries and ITT Hartford entered into
a Distribution Agreement which provided for, among other things, certain
corporate transactions required to effect the Distribution and other
arrangements between ITT, ITT Industries and ITT Hartford subsequent to the
Distribution Date.
 
     The Distribution Agreement provides for, among other things, the assumption
of liabilities and cross-indemnities designed to allocate generally, effective
as of the Distribution Date, financial responsibility for the liabilities of Old
ITT arising out of or in connection with (i) the automotive, defense and
electronics, and fluid technology businesses to ITT Industries and its
subsidiaries, (ii) the hospitality, entertainment and information services
businesses to ITT and its subsidiaries and (iii) the insurance businesses to ITT
Hartford and its subsidiaries. The Distribution Agreement also provides for the
allocation generally of the financial responsibility for the liabilities arising
out of or in connection with former and present businesses not described in the
immediately preceding sentence to or among ITT, ITT Industries and ITT Hartford.
 
     Pursuant to the Distribution Agreement each of ITT, ITT Industries and ITT
Hartford agreed not to take any action that would jeopardize the intended tax
consequences of the Distribution. Specifically, each of ITT, ITT Industries and
ITT Hartford agreed to maintain its status as a company engaged in the active
conduct of a trade or business, as defined in Section 355(b) of the Internal
Revenue Code, until the first anniversary of the Distribution Date.
 
     Under the Distribution Agreement, each of ITT, ITT Industries and ITT
Hartford have also agreed to provide to the other parties, subject to certain
conditions, on an "as-needed" basis such services on such terms as may be agreed
upon between the applicable parties.
 
     Intellectual Property Agreements.  ITT, ITT Industries and ITT Hartford
have entered into certain Intellectual Property License Agreements
(collectively, "IP Agreements") which provide for licensing to or among the
companies of, rights under patents, copyrights, software, technology, trade
secrets and certain other intellectual property (collectively, "Intellectual
Property") owned by ITT, ITT Industries or ITT Hartford and their respective
subsidiaries and associated companies as of the Distribution Date. The purpose
of these IP Agreements was to provide ITT, ITT Industries and ITT Hartford and
their respective subsidiaries and associated companies with those continuing
rights and licenses under such Intellectual Property necessary for the continued
conduct of their respective businesses. Included within the IP Agreements is:
(i) a grant of rights and licenses to ITT Industries and ITT Hartford, with
rights to license their respective subsidiaries and associated companies, to
continue to use the "ITT" name, mark and logo in the operation of their
respective businesses, subject to the maintenance of certain quality standards
for their products and services and other conditions in accordance with the
terms of the IP Agreements, and (ii) a transfer from ITT Industries to ITT of
all the right, title and interest in the "ITT"
 
                                       13
<PAGE>   15
 
name, mark, and logo and the applications, registrations, goodwill, and
contractual rights and obligations associated therewith.
 
     Tax Allocation Agreement.  ITT, ITT Industries and ITT Hartford have also
entered into a Tax Allocation Agreement which generally provides that ITT and
ITT Hartford will pay their respective shares of ITT Industries' consolidated
tax liability for the tax years that ITT and ITT Hartford, as applicable, were
included in ITT Industries' consolidated Federal income tax return. The Tax
Allocation Agreement also provides for sharing, where appropriate, of state,
local and foreign taxes attributable to periods prior to the Distribution Date,
as well as certain other matters.
 
     Employee Benefits Agreement.  ITT, ITT Industries and ITT Hartford have
also entered into an Employee Benefits Services and Liability Agreement
providing for the allocation of retirement, medical, disability and other
employee welfare benefit plans among ITT, ITT Industries and ITT Hartford. The
Agreement provides for the treatment of certain retirement plans for salaried
employees, investment and savings programs, excess benefit plans, retiree
medical and life insurance benefits and stock awards. In addition, the Agreement
provided that, as of the Distribution Date, each of ITT, ITT Industries and ITT
Hartford generally assume all liability for their respective active employees
under their respective employee welfare benefit plans and that each of ITT, ITT
Industries, and ITT Hartford shall be allocated a proportionate share of any
assets of ITT Industries held with respect thereto.
 
GOVERNMENTAL REGULATION AND RELATED MATTERS
 
     General.  In the event that ITT, in partnership with Dow Jones, consummates
the acquisition of WNYC-TV, ownership of ITT common stock by "aliens" (to the
United States) will be subject to limitation under the United States
Communications Act of 1934 due to the license of the United States Federal
Communications Commission held by the partnership. 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 or its owner from being both a wholesaler and retailer of alcoholic
beverages. ITT Educational's technical colleges offering postsecondary career
education are extensively regulated by federal and state agencies.
 
     Restrictions on Alien Ownership.  If, as anticipated, ITT, in partnership
with Dow Jones, consummates the purchase of WNYC-TV from New York City, then the
Communications Act of 1934, as amended (the "Communications Act"), will restrict
the ownership of the common stock of ITT by "aliens." The Communications Act
generally defines "aliens" to include persons who are not citizens of the United
States, entities organized under laws other than those of the United States,
foreign governments, entities controlled directly or indirectly by foreign
nationals, and the representatives of foreign persons or foreign-controlled
entities.
 
     Because ITT will have shared control of a broadcast licensee, the
limitations in Section 310(b)(4) of the Communications Act will govern the
permissible degree of alien ownership and control of the outstanding stock of
ITT. Under Section 310(b)(4), no more than 25 percent of the ownership nor more
than 25 percent of the voting rights in ITT may be held directly or indirectly
by aliens. In assessing compliance with the 25 percent ceiling, the FCC will
consider direct and indirect alien interests using a multiplier, so that, for
example, minority alien interests in U.S.-controlled corporations will count
proportionally against the 25 percent ceiling. Alien voting interests are not
treated proportionally, however, in any corporation that is alien controlled.
The alien interest in any partnership with an alien partner also is not treated
proportionally unless the alien partner is a limited partner that is insulated
from material involvement in the business of the partnership within the meaning
of the FCC's rules and policies.
 
     The ITT By-Laws will provide that under no circumstances shall the amount
of ITT stock owned of record or voted by aliens within the meaning of the FCC's
rules and policies exceed 25 percent of the total outstanding stock of ITT. If
and so long as the stock records of ITT shall at any time disclose 25 percent
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 within the meaning of the FCC's rules and
policies, the holder of such stock shall not be entitled to vote, to receive
 
                                       14
<PAGE>   16
 
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, 1996,
ITT believes that approximately 6 percent of the outstanding common stock of ITT
was owned of record by aliens.
 
     Casino Gaming -- General.  The Sheraton Desert Inn casino/hotel complex is
owned and 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 (Sheraton, SGC and SDI are hereinafter
collectively referred to as the "Sheraton Desert Inn Companies"). In August
1994, ITT expanded its domestic casino gaming operations with the opening of the
Sheraton Casino in Tunica County, Mississippi; that casino is owned and operated
by Sheraton Tunica Corporation ("STC"), which is a wholly-owned subsidiary of
SDI.
 
     Caesars' casino gaming operations in Las Vegas, Nevada and Stateline,
Nevada are conducted by Desert Palace, Inc. ("DPI"), which is a wholly-owned
subsidiary of Caesars Palace Corporation ("CPC"), which is a wholly-owned
subsidiary of Caesars (Caesars, CPC and DPI are hereinafter collectively
referred to as the "Caesars Nevada Companies"). Caesars is a wholly-owned
subsidiary of ITT Sheraton. Caesars' casino gaming operations in Atlantic City,
New Jersey are conducted by Boardwalk Regency Corporation ("BRC"), which is a
wholly-owned subsidiary of Caesars New Jersey, Inc. ("CNJ"), which is a
wholly-owned subsidiary of Caesars (as required by the context, Caesars, CNJ and
BRC are hereinafter collectively referred to as the "Caesars New Jersey
Companies"). In addition, DPI owns all of the issued and outstanding capital
stock of Tele/Info, Inc. ("Tele/Info"), which is a Nevada licensed disseminator
of horse race simulcasts for the purpose of receiving and disseminating live
telecasts of horse racing information.
 
     Casino Gaming Regulation -- General.  The ownership and/or operation of
casino gaming facilities in the United States are subject to extensive federal,
state and local regulations. On the federal level, in addition to all other
relevant federal regulation, ITT's casino gaming operations are specifically
subject to the compliance with the Gambling Devices Act of 1962, as amended, and
the Bank Secrecy Act, as amended; these govern the ownership, possession,
manufacture, distribution and transportation in interstate commerce of gaming
devices and the recording and reporting of currency transactions, respectively.
Due to its casino gaming operations in Nevada, ITT's Nevada casino gaming
operations -- at the Sheraton Desert Inn in Las Vegas, Caesars Palace in Las
Vegas, and Caesars Tahoe in Stateline -- are subject to the Nevada Gaming
Control Act (the "Nevada Act") and the licensing and regulatory control of the
Nevada Gaming Commission (the "Nevada Commission") and the Nevada State Gaming
Control Board (the "Nevada Control Board"), as well as various local, county and
state regulatory agencies (hereinafter collectively referred to as the "Nevada
Gaming Authorities"). Due to its casino gaming operations in New Jersey, ITT's
New Jersey casino gaming operations -- at Caesars Atlantic City -- are subject
to the New Jersey Casino Control Act (the "New Jersey Act") and the licensing
and regulatory control of the New Jersey Casino Control Commission (the "New
Jersey Commission") and the New Jersey Department of Law & Public Safety,
Division of Gaming Enforcement (the "New Jersey DGE"), as well as various local,
county and state regulatory agencies (hereinafter collectively referred to as
the "New Jersey Gaming Authorities"). Due to its casino gaming operations in
Mississippi, ITT's Mississippi casino gaming operations -- at the Sheraton
Casino in Tunica County, Mississippi -- are subject to the Mississippi Gaming
Control Act (the "Mississippi Act") and the licensing and regulatory control of
the Mississippi Gaming Commission (the "Mississippi Commission"), as well as
various local, county and state regulatory agencies (hereinafter collectively
referred to as the "Mississippi Gaming Authorities"). Due to its casino gaming
operations in Ontario, Canada, ITT's Ontario casino gaming operations -- through
its one-third interest in the licensed operator of Casino Windsor,
Ontario -- are subject to the Ontario Gaming Control Act (the "Ontario Act") and
the licensing and regulatory control of the Ontario Gaming Control Commission
(the "Ontario Commission"), as well as various local, provincial and federal
regulatory agencies (hereinafter collectively referred to as the "Ontario Gaming
Authorities"). Due to its casino gaming operations in Nova Scotia, Canada, ITT's
Nova Scotia casino gaming operations -- at the Sheraton Halifax Hotel & Casino
and the Sheraton Casino/Sydney -- are subject to the Nova Scotia Gaming Control
Act (the "Nova Scotia Act") and the licensing and regulatory control of the Nova
Scotia Gaming Control Commission (the "Nova Scotia Commission"), as well as
various local, provincial and federal regulatory agencies (hereinafter
collectively referred to as the "Nova Scotia Gaming Authorities").
 
                                       15
<PAGE>   17
 
     The casino gaming laws, regulations and supervisory procedures of Nevada,
New Jersey, Mississippi, Ontario and Nova Scotia are extensive and reflect
certain public policy considerations as to (i) the integrity of casino gaming
operations and its participants, (ii) the need for strict governmental and
regulatory control of casino gaming operations, (iii) the creation of economic
development, taxes and employment, and (iv) foster and enhance the public
confidence and trust in casino gaming regulation and control. Changes to such
laws, regulations and supervisory procedures could have an adverse effect on
ITT's casino gaming operations.
 
     Nevada Gaming Regulation.  Nevada's casino gaming laws, regulations and
supervisory procedures are extensive and reflect certain broad declarations of
public policy. In general, Nevada's gaming laws, regulations and supervisory
procedures seek to (i) prevent unsavory or unsuitable persons from having any
direct or indirect involvement with gaming at any time or in any capacity, (ii)
establish and maintain responsible accounting practices and procedures, (iii)
maintain effective control over the financial practices of licensees, including
establishing minimum procedures for internal fiscal affairs and the safeguarding
of assets and revenues, providing reliable record-keeping, and making periodic
reports to the applicable casino gaming authority, (iv) prevent cheating and
fraudulent practices, and (v) provide a source of state and local revenues
through taxation and licensing fees.
 
     SDI, as the operator of the Sheraton Desert Inn, and DPI, as the operator
of Caesars Palace and Caesars Tahoe, are required to be licensed by the Nevada
Gaming Authorities. The casino gaming licenses are not transferable and must be
renewed periodically by the payment of casino gaming license fees and taxes. The
Nevada Commission requires that (i) SGC and ITT Sheraton be registered as
intermediary companies of SDI and (ii) CPC be registered as an intermediary
company of DPI; the Nevada Commission also requires that ITT and Caesars be
registered as publicly traded corporations. No person may become a stockholder
of, or receive any percentage of profits from, SDI or DPI without first
obtaining certain required 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, the Sheraton Desert
Inn Companies or the Caesars Nevada Companies in order to determine whether such
individual is suitable or should be licensed as a business associate of either
SDI or DPI. Officers, directors and key employees of each of SDI and DPI 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, 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; similarly, certain officers, directors and key employees of
ITT, Caesars and CPC who are actively and directly involved in the gaming
activities of DPI 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 of the costs of the
investigation.
 
     If the Nevada Gaming Authorities find an officer, director or key employee
unsuitable for licensing or unsuitable to continue having a relationship with
ITT, the Sheraton Desert Inn Companies or the Caesars Nevada Companies, the
companies involved would be required 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 disclosures.
 
     ITT, the Sheraton Desert Inn Companies and the Caesars Nevada Companies are
required to submit detailed financial and operating reports to the Nevada
Commission. Substantially all loans, leases, sales of securities and similar
financing transactions by either SDI or DPI must be reported to or approved by
the Nevada Commission. Nevada law prohibits a corporation registered by the
Nevada Commission from making a public offering of its securities without the
prior approval of the Nevada Commission if any part of the proceeds of the
offering of the securities themselves are to be used either to (i) finance the
construction, acquisition or operation of gaming facilities in Nevada, or (ii)
retire or extend obligations incurred for one or more such purposes.
 
     If it is determined that Nevada gaming laws were violated by SDI or DPI,
the gaming license each respectively holds could be limited, conditioned,
suspended or revoked. In addition, at the discretion of
 
                                       16
<PAGE>   18
 
the Nevada Commission, ITT, the Sheraton Desert Inn Companies and the persons
involved could be subject to substantial fines for each separate violation of
the Nevada gaming laws by the Sheraton Desert Inn; similarly, and also at the
discretion of the Nevada Commission, ITT, the Caesars Nevada Companies and the
persons involved could be subject to substantial fines for each separate
violation of the Nevada gaming laws by either Caesars Palace or Caesars Tahoe.
Further, a supervisor could be appointed by the Nevada Commission to operate
either SDI's or DPI's respective gaming property and, under certain
circumstances, earnings generated during the supervisor's appointment (except
for the reasonable rental value of SDI's or DPI's respective gaming property)
could be forfeited to the State of Nevada. Any suspension or revocation of
either SDI's or DPI's license would have a materially adverse effect on SDI or
DPI, respectively.
 
     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 Nevada Commission and such
person may 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 Nevada Commission within 30 days after
the Nevada Control Board Chairman mails a written notice requiring such filing,
and must pay the costs and fees incurred by the Nevada Control Board in
connection with the investigation. Under certain circumstances, an
"institutional investor," as such term is defined in the Nevada Act and
regulations, which acquires more than 10% but not more than 15% of ITT's voting
securities, may apply to the Nevada Commission for a waiver of such finding of
suitability requirements if such institutional investor holds the voting
securities for investment purposes only; an institutional investor shall not be
deemed to hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the Board of Directors
of ITT, any change in ITT's corporate charter, bylaws, management, policies or
operations or any of its casino gaming operations, or any other action which the
Nevada Commission finds to be inconsistent with holding ITT's voting securities
for investment purposes only. Notwithstanding the foregoing, activities which
are not deemed to be inconsistent with holding voting securities for investment
purposes only include (i) voting on all matters voted on by stockholders, (ii)
making financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations, and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent. 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 holders.
 
     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 Nevada Commission or
by the Chairman of the Nevada Control Board may be found unsuitable. Any holder
of any equity or debt security found unsuitable and who holds, directly or
indirectly, any beneficial ownership of ITT's debt or equity voting securities
beyond such period or periods of time as may be prescribed by the Nevada
Commission may be guilty of a gross misdemeanor. ITT could be subject to
disciplinary action if, without the prior approval of the Nevada Commission and
after ITT receives notice that a person is unsuitable to be an equity or debt
security holder or to have any other relationship with ITT, the Sheraton Desert
Inn Companies or the Caesars Nevada Companies, ITT, the Sheraton Desert Inn
Companies, the Caesars Nevada Companies or any one of them either (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, (iv)
makes any payment to the unsuitable person by way of principal, redemption,
conversion, exchange, liquidation or similar transaction, or (v) fails to pursue
all lawful efforts to require such unsuitable person to relinquish his
securities including, if necessary, the immediate purchase of such securities
for cash at fair market value.
 
     Regulations of the Nevada Commission provide that control of a registered
publicly traded corporation cannot be changed through merger, consolidation,
acquisition of assets, management or consulting agreements, or any form of
takeover without the prior approval of the Nevada Commission. Persons seeking
approval to control a registered publicly traded corporation must satisfy the
Nevada Commission as to a variety of stringent standards prior to assuming
control of such corporation. The
 
                                       17
<PAGE>   19
 
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 Nevada Commission also prohibit certain repurchases of
securities by registered publicly traded corporations without the prior approval
of the Nevada Commission. Transactions covered by these regulations are
generally aimed at discouraging repurchases of securities at a premium over
market price from certain holders of more than 3% of the outstanding securities
of the registered publicly traded corporation. The regulations of the Nevada
Commission also require prior approval for a "plan of recapitalization," as such
term is defined in the Nevada regulations; generally, a plan of recapitalization
is a plan proposed by the management of a registered publicly traded corporation
that contains recommended action in response to a proposed corporate acquisition
opposed by management of the corporation which acquisition itself would require
the prior approval of the Nevada Commission.
 
     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
the State of Nevada is required to deposit with the Nevada Control Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada Control Board of the Licensees'
participation in such foreign gaming; the revolving fund is subject to increase
or decrease in the discretion of the Nevada Commission. Once such revolving fund
is established, the Licensees may engage in gaming activities outside the State
of Nevada without seeking the approval of the Nevada Commission provided (i)
such activities are lawful in the jurisdiction where they are to be conducted
and (ii) the Licensees comply with certain reporting requirements imposed by the
Nevada Act. Licensees are subject to disciplinary action by the Nevada
Commission if they or any one of them (i) knowingly violates any laws of the
foreign jurisdiction pertaining to the foreign gaming operation, (ii) fails to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, (iii) engages in activities
that are harmful to the State of Nevada or its ability to collect gaming taxes
and fees, or (iv) 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.
 
     New Jersey Casino Gaming Regulation.  Casino gaming in New Jersey is
subject to strict compliance with the New Jersey Act, the strict supervision of
the New Jersey Commission and compliance with the regulations adopted by the New
Jersey Commission. The New Jersey gaming laws and regulations primarily concern
(a) the financial stability and character of casino operators, their employees,
their security holders and others financially interested in casino operations,
and (b) the operating methods -- including the rules of the games and credit
issuance procedures -- and the financial and accounting procedures used in
connection with casino operations. The New Jersey gaming laws and regulations
include detailed provisions concerning, among other things, (i) the type, manner
and number of applications and licenses required to conduct casino gaming and
ancillary activities, (ii) the licensing, regulation and curricula of gaming
schools, (iii) the establishment of minimum standards of accounting and internal
control, including the issuance and enforceability of casino credit, (iv) the
manufacture, sale, distribution and possession of gaming equipment, (v) the
rules of the games, (vi) the exclusion of undesirable persons, (vii) the use,
regulation and reporting of junket activities, (viii) the possession, sale and
distribution of alcoholic beverages, (ix) the regulation and licensing of
suppliers to licensed casino operators, (x) the conduct of entertainment within
licensed casino facilities, (xi) equal employment opportunity for employees of
licensed casino operators, contractors for casino facilities and the like, (xii)
the payment of gross revenue taxes and similar fees and expenses, (xiii) the
conduct of casino simulcasting, and (xiv) the imposition and discharge of casino
reinvestment development obligations. A number of these regulations require
practices which are different from those in many casinos elsewhere and some of
them result in casino operating costs greater than those in comparable
facilities elsewhere. As a prerequisite to being licensed, a New Jersey
casino/hotel facility must meet certain facilities requirements concerning,
among other things, the size and number of guest rooms.
 
     In order to operate Caesars Atlantic City, BRC must be licensed by the New
Jersey Commission, which has broad discretion with regard to the issuance,
renewal, revocation or suspension of licenses. A New Jersey casino license is
not transferable and must be renewed at designated periods of up to four years;
renewal is not automatic and involves an extensive review by the New Jersey DGE,
a report by the New Jersey DGE to the New Jersey Commission, an independent
intensive review by the New Jersey
 
                                       18
<PAGE>   20
 
Commission, and the affirmative vote of at least four of the five sitting
Commissioners of the New Jersey Commission sitting in a scheduled open public
meeting. BRC's plenary casino license to operate Caesars Atlantic City was
renewed on October 5, 1994 and expires on November 30, 1996; as a result of
recent legislative changes extending the terms of casino licenses, BRC will
become eligible for a four year license upon consideration of its renewal
application in November 30, 1996.
 
     Except for certain banking and lending institutions exempted under the New
Jersey Act, all financial backers, investors, mortgagees, debt holders,
landlords under leases relating to New Jersey casino/hotel facilities, all
lenders to BRC, all officers and directors of BRC and all employees who work at
Caesars Atlantic City have to be qualified, licensed, approved or registered by
or with the New Jersey Commission. In addition, all contracts and leases entered
into by BRC are subject to approval by the New Jersey Commission.
 
     As a prerequisite to BRC holding a license, ITT, Caesars and CNJ have to be
approved by the New Jersey Commission due to their corporate relationship to
BRC. Thus, any debt or equity security holder of ITT, Caesars or CNJ will have
to be found qualified; the qualification requirement of any debt or equity
security holder of ITT may be waived based on an express finding by the New
Jersey Commission, with the consent of the Director of the New Jersey DGE, that
the security holder either (a)(i) is not significantly involved in the
activities of BRC, (ii) does not have the ability to control ITT, Caesars, CNJ
or BRC, and (iii) does not have the ability to elect one or more members of the
respective boards of directors of ITT, Caesars, CNJ or BRC, or (b) is an
"institutional investor," as such term is defined in the New Jersey Act and
regulations; for purposes of the former, the New Jersey Act presumes that any
non-"institutional investor" security holder who owns or beneficially holds 5%
or more of the equity securities of ITT has the ability to control ITT, Caesars,
CNJ or BRC, unless such presumption is rebutted by clear and convincing
evidence.
 
     The New Jersey Act and regulations define an "institutional investor" as
(i) any retirement fund administered by a public agency for the exclusive
benefit of federal, state or local public employees, (ii) an investment company
registered under the Investment Company Act of 1940, (iii) a collective
investment trust organized by banks under Part Nine of the Rules of the
Comptroller of the Currency, (iv) a closed end investment trust, (v) a chartered
or licensed life insurance company or property and casualty insurance company,
(vi) banking or other licensed or chartered lending institutions, (vii) an
investment advisor registered under the Investment Advisors Act of 1940, or
(viii) such other persons as the New Jersey Commission may determine for reasons
consistent with the policies of the New Jersey Act. In the absence of a prima
facie showing by the Director of the DGE that there is any cause to believe that
such institutional investor may be found unqualified, upon application and for
good cause shown, an institutional investor holding either (a) less than 10% of
the equity securities of ITT or (b) ITT debt securities constituting less than
20% of the outstanding debt of ITT and less than 50% of the issue involved may
be granted a waiver of qualification as to such holdings if (i) such securities
are those of a publicly traded corporation, (ii) the institutional investor's
holdings of such securities were purchased for investment purposes only, and
(iii) upon request by the New Jersey Commission, the institutional investor
files with the New Jersey Commission a certified statement to the effect that
the institutional investor has no intention of influencing or affecting the
affairs of ITT, Caesars, CNJ or BRC; notwithstanding the foregoing, the
institutional investor is permitted to vote on matters put to the vote of the
outstanding security holders of ITT.
 
     If an institutional investor who has been granted a waiver subsequently
determines to influence or affect the affairs of ITT, the institutional investor
must provide to the New Jersey Commission not less than 30 days prior notice of
such intent and the institutional investor must file with the New Jersey
Commission an application for qualification before taking any action that may
influence or affect the affairs of ITT; notwithstanding the foregoing, the
institutional investor is permitted to vote on matters put to the vote of the
outstanding security holders of ITT. If an institutional investor changes its
investment intent, or if the New Jersey Commission finds reasonable cause to
believe that the institutional investor may be found unqualified, no action
other than divestiture shall be taken by such institutional investor with
respect to its security holdings until there has been compliance with the
interim casino authorization provisions of the New Jersey Act, including the
execution of a trust agreement. ITT, Caesars, CNJ and BRC are required to
immediately notify the New Jersey Commission and the New Jersey DGE of any
information about, or action of, an institutional investor holding its equity or
debt securities where such
 
                                       19
<PAGE>   21
 
information or action may impact on the eligibility of such institutional
investor for a waiver. If the New Jersey Commission finds an institutional
investor unqualified or if the New Jersey Commission finds that, by reason of
the extent or nature of its holdings, an institutional investor is in the
position to exercise a substantial impact on the controlling interests of BRC so
that qualification of the institutional investor is necessary to protect the
public interest, the New Jersey Act vests in the New Jersey Commission the power
to take all necessary action to protect the public interest, including the power
to require that the institutional investor submit to qualification and become
qualified under the New Jersey Act.
 
     An equity or debt security holder -- including institutional
investors -- of ITT, Caesars, CNJ or BRC who is required to be found qualified
by the New Jersey Commission must submit an application for qualification within
30 days after being ordered to do so or divest all security holdings within 120
days after the New Jersey Commission determines such qualification is required.
The application for qualification must include a trust agreement by which the
security holder places its interest in ITT in trust with a trustee qualified by
the New Jersey Commission. If the security holder is ultimately found qualified,
the trust agreement is terminated. If the security holder is not found qualified
or withdraws its application for qualification prior to a determination on
qualification being made, the trustee will be empowered with all rights of
ownership pertaining to such security holder's ITT securities, including all
voting rights and the power to sell the securities; in any event, the
unqualified security holder will not be entitled to receive in exchange for its
ITT securities an amount in excess of the lower of (i) the actual cost the
security holder incurred in acquiring the securities or (ii) the value of such
securities calculated as if the investment had been made on the date the trust
became operative. By the same token, if the security holder is not found
qualified, it is unlawful for the security holder to (i) receive any dividends
or interest on such securities, (ii) exercise, directly or through any trustee
or nominee, any right conferred by such securities, or (iii) receive any
remuneration in any form from ITT, Caesars, CNJ or BRC for services rendered or
otherwise.
 
     Each officer, director, lender and certain other persons of ITT, Caesars
and CNJ must be found qualified unless the New Jersey Commission, with the
consent of the Director of the New Jersey DGE, finds that such officer,
director, lender or other person of ITT, Caesars or CNJ is not significantly
involved in the affairs of BRC and is thus waived from qualification. New Jersey
law requires that an officer or director of ITT, Caesars or CNJ must apply for
temporary qualification at least 30 days before assuming any duties; such
temporary qualification, if granted by the New Jersey Commission, will be valid
for a period not to exceed the earlier of (i) nine consecutive calendar months
or (ii) the effective date of BRC's next casino license renewal.
 
     The New Jersey Act requires that each of ITT, Caesars, CNJ and BRC maintain
financial stability and capability. For purposes of these requirements, the New
Jersey Commission has adopted regulations defining "financial stability" as the
same applies to the licensed casino operation and has set forth certain
standards for determining compliance with the financial stability regulations.
Under the regulations of the New Jersey Commission, "financial stability" has
been defined as (i) the ability to assure the financial integrity of casino
operations by the maintenance of a casino bankroll or equivalent provisions
adequate to pay winning wagers to casino patrons when due, (ii) the ability to
meet ongoing operating expenses which are essential to the maintenance of
continuous and stable casino operations, (iii) the ability to pay, as and when
due, all local, state and federal taxes and any and all fees imposed by the New
Jersey Act, (iv) the ability to make necessary capital and maintenance
expenditures in a timely manner which are adequate to insure maintenance of a
superior first class facility of exceptional quality as required by the New
Jersey Act, and (v) the ability to pay, exchange, refinance or extend debts,
including long-term and short-term principal and interest and capital lease
obligations, which will mature or otherwise come due and payable during either
the license term or within 12 months after the end of the license term or to
otherwise manage such debts and any default with respect to the debts. The New
Jersey Commission regulations provide that the financial stability standards
concerning casino bankroll, operating expenses and capital and maintenance
expenditures are met if the following is shown by clear and convincing evidence:
(i) casino bankroll -- the maintenance, on a daily basis, of a casino bankroll
at least equal to the average daily casino bankroll, calculated on a monthly
basis, for the corresponding month in the previous year, (ii) operating
expenses -- the demonstration of the ability to achieve positive gross operating
profit measured on an annual basis, and (iii) capital and maintenance
expenditures -- the demonstration that its capital and maintenance expenditures
over the five year
 
                                       20
<PAGE>   22
 
period, which includes the previous 36 calendar months and the upcoming license
period, average at least 5% of net revenue per annum. ITT believes that, at
current operating levels, BRC will have no difficulty in complying with these
requirements.
 
     The New Jersey Commission has the authority to restrict or prohibit the
transfer of cash or the assumption of liabilities by BRC if such action will
adversely impact the financial stability of BRC and the prior approval of the
New Jersey Commission is required to incur indebtedness and guarantees of
affiliated indebtedness by BRC involving amounts greater than $25 million.
 
     If it is determined that New Jersey gaming laws were violated by BRC, BRC
could be subject to fines or its casino license could be limited, conditioned,
suspended or revoked. In addition, if a security holder of ITT, Caesars, CNJ or
BRC is found disqualified but does not dispose of the securities, the New Jersey
Commission is authorized to take any necessary action to protect the public
interest, including the suspension or revocation of the casino license; however,
the New Jersey Commission shall not take any action against ITT, Caesars, CNJ or
BRC with respect to the continued ownership of the security interest by the
disqualified holder if the New Jersey Commission finds that (i) ITT has provided
in its corporate charter that any ITT securities are held subject to the
condition that, if a holder thereof is found to be disqualified by the New
Jersey Commission pursuant to the provisions of the New Jersey Act, such holder
shall dispose of his interest in ITT, (ii) ITT has made a good faith effort,
including the prosecution of all legal remedies, to comply with any order of the
New Jersey Commission requiring the divestiture of the security interest held by
the disqualified holder, and (iii) such disqualified holder does not have the
ability to control ITT, Caesars, CNJ or BRC or to elect one or more members of
the boards of directors of ITT, Caesars, CNJ or BRC. If BRC's license is
revoked, not renewed or suspended for a period in excess of 120 days, the New
Jersey Commission is empowered to appoint a conservator to operate, and to
dispose of, BRC's casino/hotel facilities. If a conservator operates the
casino/hotel facilities, payments to shareholders would be limited to a "fair
return" on their investment, with any excess going to the State of New Jersey.
If a conservator is appointed, the conservator's charges and expenses become a
lien against the property which is paramount to all prior and subsequent liens.
 
     Mississippi Casino Gaming Regulation.  Gaming in Mississippi can be legally
conducted only on vessels of a certain minimum size either in navigable waters
of counties bordering the Mississippi River or in the waters of the State of
Mississippi which lie adjacent to the coastline of the three counties bordering
the Gulf of Mexico. STC possesses a license for the ownership and operation of
the Sheraton Casino in Tunica County, Mississippi issued by the Mississippi
Commission pursuant to the Mississippi Act.
 
     The Mississippi Act does not restrict the amount or percentage of space on
a vessel that may be utilized for casino gaming; the Mississippi Act also does
not limit the number of licenses that the Mississippi Commission can grant for a
particular area.
 
     ITT and STC are required to submit detailed financial, operating and other
reports to the Mississippi Commission. Substantially all loans, leases, sales of
securities and similar financing transactions entered into by ITT or by STC must
be reported to or approved by the Mississippi Commission. ITT and STC are also
required to periodically submit detailed financial and operating reports to the
Mississippi Commission and furnish any other information which the Mississippi
Commission may require.
 
     Each of the directors, officers and certain key employees of ITT and STC
who are actively and directly engaged in the administration or supervision of
casino gaming in Mississippi, or who have any other significant involvement with
the activities of STC, must be found suitable therefor and may be required to be
licensed by the Mississippi Commission. A finding of suitability is comparable
to licensing, and both require the submission of detailed personal financial
information followed by a thorough investigation. An application for licensing
may be denied for any cause deemed reasonable by the Mississippi Commission.
Changes in licensed positions must be reported to the Mississippi Commission. In
addition to its authority to deny an application for a license, the Mississippi
Commission has the authority to disapprove a change in corporate position. If
the Mississippi Commission finds a director, officer or key employee of ITT or
STC unsuitable for licensing or unsuitable to continue having a relationship
with ITT or STC, ITT or STC, as the case may be, is required to suspend, dismiss
and sever all relationships with such person. ITT and STC have similar
obligations with regard to any person who fails or refuses to file appropriate
applications. Each gaming employee must obtain a work permit; the Mississippi
Commission may refuse to issue a work permit to a gaming employee (i) if the
employee has
 
                                       21
<PAGE>   23
 
committed larceny, embezzlement or any other crime of moral turpitude or
knowingly violated the Mississippi Act or the regulations of the Mississippi
Commission, or (ii) for any other reasonable cause.
 
     Mississippi gaming licenses are not transferable and must be renewed
periodically. The Mississippi Commission is empowered to deny, limit, condition,
revoke and/or suspend any license, finding of suitability or registration, and
to fine any person as it deems reasonable and in the public interest, subject to
the due process considerations of notice and an opportunity for a hearing. The
Mississippi Commission may fine any licensee or other person who is subject to
the Mississippi Act up to $100,000 for each violation of the Mississippi Act
which is the subject of an initial complaint and up to $250,000 for each
violation of the Mississippi Act which is the subject of any subsequent
complaint. The Mississippi Act provides for judicial review of certain decisions
of the Mississippi Commission; however, the filing for such judicial review does
not automatically stay the action taken by the Mississippi Commission pending
the court's review.
 
     License fees and taxes, computed in various ways depending on the type of
casino gaming involved, are payable to the State of Mississippi and to the
counties and cities in which the gaming operations are located. Depending on the
particular fee or tax imposed, these fees and taxes are based on a percentage of
the gross gaming revenues received by the casino operation, the number of slot
machines operated by such casino, or the number of table games operated by such
casino. Moreover, several local governments have been authorized to impose
either additional gross fees on adjusted gross gaming revenues or,
alternatively, per person boarding fees and annual license fees based on the
number of gaming devices aboard the vessel. License fees paid to the State of
Mississippi are allowed as a credit against Mississippi state income taxes.
 
     In all other material respects, casino gaming regulation in Mississippi is
similar to the regulation of casino gaming in Nevada and New Jersey.
 
     Windsor, Ontario Casino Gaming Regulation.  Casino Windsor Ltd., Caesars'
unconsolidated one-third owned Canadian corporation which operates the casino in
Windsor, Ontario, Canada, is required to comply with licensing requirements
similar to Nevada and New Jersey and is also subject to operational regulation
by the Province of Ontario.
 
     Nova Scotia Casino Gaming Regulation.  ITT Sheraton's subsidiary, which
both (i) owns and operates the casino in the City of Halifax, Nova Scotia, and
(ii) operates the casino in the City of Sydney, Nova Scotia, is required to
comply with licensing requirements similar to the Province of Ontario and is
also subject to operational regulation by the Province of Nova Scotia.
 
     Casino Gaming -- Related Provisions of the Certificate of
Incorporation.  ITT's Restated Articles of Incorporation provide 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 casino gaming license
held by ITT or any of its subsidiaries in any jurisdiction within or without 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.
 
ITEM 2.                            PROPERTIES
 
     Reference is made to "Business of ITT."
 
ITEM 3.                        LEGAL PROCEEDINGS
 
     There are various lawsuits pending against ITT and its subsidiaries some of
which involve claims for substantial amounts. However, the ultimate liability
with respect to these lawsuits is not considered material in relation to the
consolidated financial condition of ITT and its subsidiaries.
 
                                       22
<PAGE>   24
 
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                  1996                      POSITION                   AS AN OFFICER        POSITION
---------------------------------------------   ---------------------------------------  ----------------     ----------
<S>                               <C>           <C>                                      <C>                  <C>
Rand V. Araskog...................      64      Chairman and Chief Executive and               1995            12/19/95
                                                Director
Robert A. Bowman..................      40      President and Chief Operating Officer          1995            12/19/95
                                                and Director
Peter G. Boynton..................      53      Senior Vice President; President and           1995            12/19/95
                                                Chief Executive Officer of Caesars
                                                  World, Inc.
Juan C. Cappello..................      57      Senior Vice President, Director of             1995            12/19/95
                                                  Corporate Relations
Gerald C. Crotty..................      44      Senior Vice President                          1995            12/19/95
Jon F. Danski.....................      43      Senior Vice President and Controller           1995            12/19/95
Nicholas J. Glakas................      51      Senior Vice President                          1995            12/19/95
Ralph W. Pausig...................      61      Senior Vice President                          1995            12/19/95
Ann N. Reese......................      42      Executive Vice President and Chief             1995            12/19/95
                                                  Financial Officer
Elizabeth A. Tuttle...............      39      Senior Vice President and Treasurer            1995            12/19/95
Richard S. Ward...................      55      Executive Vice President, General              1995            12/19/95
                                                Counsel and Corporate Secretary
Daniel P. Weadock.................      57      Senior Vice President; President and           1995            12/19/95
                                                Chief Executive Officer of ITT Sheraton
                                                  Corporation
</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.
 
     For the five years immediately preceding the Distribution, all of the
above-named officers held executive positions with Old ITT bearing at least
substantially the same responsibilities as those borne in their present offices,
except that (i) Mr. Araskog, prior to his election as Chairman and Chief
Executive, was Chairman, President and Chief Executive of Old ITT; (ii) Mr.
Bowman, prior to his election as President and Chief Operating Officer, was
Executive Vice President and Chief Financial Officer of Old ITT since September
1992, Executive Vice President and Chief Financial Officer of ITT Sheraton
Corporation from April 1991 to September 1992, Senior Vice President and Chief
Financial Officer of ITT Sheraton Corporation from January to April 1991 and
prior to that Treasurer of the State of Michigan; (iii) Mr. Boynton, prior to
his election as Senior Vice President of ITT and President and Chief Executive
Officer of Caesars World, Inc., was Senior Vice President of Old ITT since July
1995, President and Chief Operating Officer of Caesars World, Inc. since
February 1995 and President and Chief Operating Officer of Caesars Atlantic City
Hotel/Casino from 1982 to February 1995; (iv) Mr. Crotty, prior to his election
as Senior Vice President, was Senior Vice President of Old ITT since October
1994, Chairman, President and Chief Operating Officer of ITT Information
Services, Inc. from October 1993 to present, President and Chief Operating
Officer of ITT Consumer Financial Corporation from February 1992 until September
1993, Vice President of Old ITT from August 1991 until September 1994 and
Secretary to the Governor of the State of New York ending in July 1991; (v) Mr.
Danski, prior to his election as Senior Vice President and Controller, was
Senior Vice President and Controller of Old ITT since October 1993 and prior to
that Vice President and General Auditor of RJR Nabisco; (vi) Mr. Glakas, prior
to his election as Senior Vice President, was Vice President, Associate General
Counsel & Director of Government Affairs of Old ITT from September 1992 to
October 1995 and Director of Government Affairs of Old ITT prior thereto; (vii)
Ms. Reese, prior to her election as Executive Vice President and Chief Financial
Officer, was Senior Vice President and Treasurer of Old ITT since September 1992
and Vice President and Assistant Treasurer of Old ITT prior thereto; (viii) Ms.
Tuttle, prior to her election as Senior Vice President and Treasurer, was Vice
President and Assistant Treasurer of Old ITT since February 1995, Assistant
Treasurer & Director of Capital Markets of Old ITT from October 1993 to February
1995, Assistant Treasurer & Manager of Financial Planning and Operations of Old
ITT from July 1992 to October 1993 and Manager of Financial Planning and
Operations of Old ITT prior thereto; (ix) Mr. Ward, prior to his election as
Executive Vice President, General Counsel and Corporate Secretary, was Executive
Vice President and General Counsel of Old ITT since May 1994, Senior Vice
President and General Counsel of Old ITT from September 1992 to May 1994 and
Vice President and Associate General Counsel of Old ITT prior thereto; and (x)
Mr. Weadock, prior to his election as Senior Vice President and President and
Chief Executive Officer of ITT Sheraton Corporation, was Senior Vice President
of Old ITT since July 1995, President and Chief Operating Officer of ITT
Sheraton Corporation since November 1993 and Chairman, President and Chief
Executive Officer of ITT Communications and Information Services, Inc. prior
thereto.
 
                                       23
<PAGE>   25
 
                                    PART II
 
ITEM 5.                  MARKET FOR ITT'S COMMON STOCK
                        AND RELATED STOCKHOLDER MATTERS
 
ITT COMMON STOCK -- MARKET PRICES AND DIVIDENDS
 
<TABLE>
<CAPTION>
                                                                                                1995
                                                                                          -----------------
                                                                                           HIGH       LOW
                                                                                          ------     ------
        <S>                                                                               <C>        <C>
        Period commencing December 20, 1995
          and ending December 31, 1995..................................................  $53.13     $48.25
</TABLE>
 
     On December 19, 1995, Old ITT distributed to its shareholders of record at
the close of business on such date all of the outstanding shares of common stock
of ITT, then a wholly owned subsidiary of Old ITT. In the Distribution, holders
of common stock of Old ITT received one share of ITT's common stock for every
one share of Old ITT common stock held. On December 20, 1995, the common stock
of ITT commenced "regular way" trading on the New York Stock Exchange under the
symbol "ITT".
 
     During the period from January 1, 1996 through February 29, 1996, the high
and the low reported market prices of ITT common stock were $60.75 and $47.38,
respectively.
 
     ITT has not declared any dividends to date and ITT presently has no plans
to declare and pay any dividends.
 
     There were approximately 54,000 holders of record of ITT Common Stock on
February 29, 1996.
 
     ITT Common Stock is listed on the New York Stock Exchange.
 
ITEM 6.                     SELECTED FINANCIAL DATA
 
<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,
                                                                            ------------------------------------------
                                                                             1995     1994     1993     1992     1991
                                                                            ------   ------   ------   ------   ------
                                                                              ($ IN MILLIONS, EXCEPT PER SHARE DATA)
<S>                                                                         <C>      <C>      <C>      <C>      <C>
INCOME STATEMENT DATA:
Revenues................................................................... $6,346   $4,760   $4,169   $4,253   $3,855
Income before Accounting Changes........................................... $  147   $   74   $   39   $    2   $   43
Earnings per share (Pro Forma for 1994 and prior years) before Accounting
  Changes.................................................................. $ 1.24   $  .63   $  .33   $  .02   $  .37
BALANCE SHEET DATA:
Total Assets............................................................... $8,692   $5,012   $3,791   $3,375   $2,462
Long-Term Debt, including Capital Leases................................... $3,575   $  600   $  169   $  186   $  160
OPERATING DATA:
Operating Income........................................................... $  571   $  292   $  142   $   34   $  126
EBITDA(1).................................................................. $  797   $  396   $  222   $   81   $  163
Cash from Operating Activities............................................. $  504   $  230   $  186   $  143   $  133
Number of Employees (in thousands).........................................     38       25       18       18       20
</TABLE>
 
---------------
(1) EBITDA is presented here as an alternative measure of the ability of ITT to
    generate cash flow and should not be construed as an alternative to
    operating income (as determined in accordance with generally accepted
    accounting principles) or to cash flows from operating activities (as
    determined on the Consolidated Cash Flow Statement in ITT Corporation's
    Financial Statements contained herein). EBITDA was computed above as
    earnings before interest, taxes, depreciation and amortization.
 
                                       24
<PAGE>   26
 
ITEM 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS
 
            (DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED)
 
     On December 19, 1995, Old ITT distributed to its shareholders of record at
the close of business on such date all of the outstanding shares of common stock
of ITT, then a wholly owned subsidiary of Old ITT (the "Distribution"). In the
Distribution, holders of common stock of Old ITT received one share of ITT
common stock for every one share of Old ITT common stock held, creating a
separate publicly traded entity. This discussion and analysis of financial
condition and results of operations is prepared as if ITT were a separate entity
for all periods discussed.
 
BACKGROUND AND BUSINESS CONDITIONS
 
     ITT combines the world's largest hotel and gaming company with a premier
sports and entertainment company and information services businesses to create a
dynamic and rapidly growing enterprise. Management believes ITT's strategic
complement of assets, unmatched international presence and leading brand names
uniquely position it to be a highly competitive participant in each of its
operating segments. Moreover, ITT has the financial flexibility, as evidenced by
1995 comparable pro forma earnings before interest, taxes, depreciation,
amortization and one time unusual items ("comparable pro forma EBITDA") of $892,
to pursue opportunities worldwide. The 1995 comparable pro forma EBITDA results
(which assume all acquisitions during 1994 and 1995 had been consummated on
January 1, 1994) represent a 48% increase over the 1994 pro forma EBITDA of
$604. The comparable pro forma results presented herein may not be indicative of
the results of operations that would actually have been reported had the
transactions underlying the pro forma amounts actually been consummated on such
a date or of the results of operations that may be reported by ITT in the
future.
 
     ITT completed the acquisition of one of the world's most recognized gaming
companies, Caesars in January 1995. In March 1995, ITT, in partnership with
subsidiaries of Cablevision Systems Corporation, acquired the well-known New
York Knickerbockers and New York Rangers sports franchises, the MSG television
network, and the Madison Square Garden Arena, through its investment in MSG. In
addition, the acquisition in 1994 of 70.3% of Ciga, as well as other key hotel
property acquisitions in both 1995 and 1994 have enhanced ITT's geographic
balance along with its image and profile. Furthermore, in August 1995, ITT, in
partnership with Dow Jones, agreed to purchase television station WNYC-TV from
New York City. The purchase, subject to approval by the Federal Communications
Commission and other customary conditions, is expected to close in the first
half of 1996. Together, ITT and Dow Jones hope to transform the station into a
preeminent business and sports television station based in New York City. The
purchase price of $207 will be split evenly by the two companies and the
partnership will be managed on a 50/50 basis.
 
     ITT also operates a telephone directory publishing business for telephone
subscribers outside the United States, as well as in Puerto Rico and the U.S.
Virgin Islands, and a United States-based provider of post-secondary career
education and owns approximately 6% of Alcatel Alsthom, a French
telecommunications equipment company.
 
     Through the ITT Sheraton brand name, ITT is represented in most major
markets of the world. In 1995, over 45 million customers stayed at ITT Sheraton
properties in approximately 60 countries. ITT Sheraton had a worldwide
hospitality network of 412 owned, leased, managed and franchised properties
including hotels, casinos and inns at December 31, 1995. Gaming operations are
marketed under either the Caesars or ITT Sheraton brand names and are
represented in Las Vegas, Atlantic City, Halifax (Nova Scotia), Sydney (Nova
Scotia), Lake Tahoe, Tunica County (Mississippi), Lima (Peru), Cairo (Egypt),
Windsor (Ontario) and Townsville (Australia). The Information Services segment
consists of an 80% interest in ITT World Directories, a directory publishing
business, and an 83.3% interest in ITT Educational, a provider of post-secondary
degree technical education.
 
                                       25
<PAGE>   27
 
     ITT's revenues, operating income and earnings before interest, taxes,
depreciation and amortization ("EBITDA") have historically been lowest in the
first quarter and highest in the fourth quarter, the result of seasonality in
the Hotels segment and the timing of the directory publishing schedule at ITT
World Directories. In the Gaming segment, results have not been particularly
seasonal as a result of its mix of gaming jurisdictions; however, such results
may be volatile as a result of the nature of high limit baccarat wagering. High
limit baccarat wagering has been confined primarily to the Las Vegas properties
and comprised approximately 23%, 23% and 24% of total Gaming revenues in 1995,
1994 and 1993, respectively. These seasonality factors are not expected to
differ significantly in 1996, although there can be no assurance that the
historical seasonality trends will continue. The following table reflects the
historical seasonality of ITT:
 
<TABLE>
<CAPTION>
                                                            PERCENT OF TOTAL YEAR
                                            -----------------------------------------------------
                                             FIRST      SECOND       THIRD      FOURTH
                                            QUARTER     QUARTER     QUARTER     QUARTER     TOTAL
                                            -------     -------     -------     -------     -----
    <S>                                     <C>         <C>         <C>         <C>         <C>
    Revenues
      1995................................    20%         27%         26%         27%        100%
      1994................................    18%         26%         23%         33%        100%
      1993................................    19%         28%         24%         29%        100%
    EBITDA
      1995................................    15%         28%         28%         29%        100%
      1994................................    13%         30%         24%         33%        100%
      1993................................    12%         31%         24%         33%        100%
                                            ======      ======      ======      ======      =====
</TABLE>
 
     Operating performance in the Hotels segment has historically been somewhat
cyclical and has fluctuated to some degree based upon general economic
conditions as well as specific factors affecting relevant local markets. In the
Gaming segment, operating performance is impacted by, among other things,
competition in the markets in which ITT operates. Increased competition in this
segment is likely, as other states and countries authorize casino gaming. In the
Information Services segment, ITT World Directories has historically been the
sole provider of yellow page directories in specific markets and has performed
its services on behalf of the local telephone companies. However, due in large
measure to a changing competitive environment in the member states of the
European Union, certain historical contractual relationships existing between
ITT World Directories and the national telecommunications entity (specifically
in Belgium and The Netherlands) were not renewed or extended upon expiration of
the last contract term. ITT World Directories is currently competing with the
national telecommunications entities in these countries. Such competition could
adversely impact the operating results of ITT World Directories, although there
has been no adverse impact to date and 1995 operating results improved; however,
it is not certain that such trends will continue. Additionally, as contracts are
scheduled for renewal in other jurisdictions within the European Union, such
contracts may also not be renewed or extended, thereby possibly adversely
affecting ITT World Directories. The higher-education industry is dependent upon
the health of the national economy, with student enrollment generally softening
in periods of strong job creation. ITT Educational continues to grow through new
school openings and added curricula. Management believes it is well positioned
to benefit from the expected rise in high school graduates entering the work
force over the next ten years (as currently forecast by the U.S. Department of
Labor).
 
     The following table reflects pro forma results of operations which assume
that the acquisitions of Caesars, the 70.3% interest in Ciga, certain other
hotel properties and MSG, in partnership with another entity, were completed on
January 1, 1994. This pro forma information relates to a large degree to periods
prior to ITT's ownership and does not take into account synergies that may be
derived or ongoing
 
                                       26
<PAGE>   28
 
cost reduction efforts. Such information may not be indicative of the results
that would have occurred if the acquisitions were completed on January 1, 1994:
 
<TABLE>
<CAPTION>
                               REVENUES                               EBITDA                           OPERATING INCOME
                  -----------------------------------   -----------------------------------   -----------------------------------
                  PRO FORMA    PRO FORMA    PRO FORMA   PRO FORMA    PRO FORMA    PRO FORMA   PRO FORMA    PRO FORMA    PRO FORMA
                  YEAR ENDED   YEAR ENDED       %       YEAR ENDED   YEAR ENDED       %       YEAR ENDED   YEAR ENDED       %
                   12/31/95     12/31/94     CHANGE      12/31/95     12/31/94     CHANGE      12/31/95     12/31/94     CHANGE
                  ----------   ----------   ---------   ----------   ----------   ---------   ----------   ----------   ---------
<S>               <C>          <C>          <C>         <C>          <C>          <C>         <C>          <C>          <C>
Hotels...........   $4,120       $3,896          6%        $383         $263          46%        $259         $150          73%
Gaming...........    1,452        1,232         18          316          212          49          218          129          69
Information
 Services........      856          833          3          237          181          31          207          155          34
Corporate
 Overhead, MSG,
 and Minority....       --           --         --          (44)         (52)         --          (71)         (77)         --
                                                --                                    --                                    --
                    ------       ------                  ------       ------                   ------       ------
                    $6,428       $5,961          8%        $892         $604          48%        $613         $357          72%
                    ======       ======         ==       ======       ======          ==       ======       ======          ==
</TABLE>
 
     A substantial portion of the remaining discussion and analysis of results
of operations relates to the historical periods of ITT which, for the most part,
do not include the results of the acquisitions completed in late 1994 and the
1995 first quarter.
 
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH DECEMBER 31, 1994
 
     Revenues of $6,346 in 1995 increased 33% compared with $4,760 in 1994,
reflecting the eleven-month contribution of the Caesars acquisition as well as
the full year contribution of Ciga and other significant hotel acquisitions
completed during the second half of 1994. Caesars revenues totaled $979 from the
date of acquisition while Ciga and other hotel acquisitions contributed $542 in
1995 compared with $271 in 1994 from the dates of acquisition of these
properties. Excluding the effect of acquisitions, hotel revenues increased 4%
primarily due to higher average room rates, particularly in owned and leased
properties in North America. Revenues at ITT World Directories were basically
unchanged during 1995 at $654 compared to $646 in 1994 reflecting increased
competition with certain telephone companies. Revenues at ITT Educational
increased 8% to $202 from $187 in 1994 reflecting additional school openings,
increased census and a continuing expansion of curricula and degree offerings.
Excluding the Caesars and hotel acquisitions discussed above, revenues increased
7%.
 
     Salaries, benefits and other operating costs increased 24% in 1995 to
$4,747 from $3,837 representing the costs of the acquired properties and smaller
increases in the cost of services. Overall, salaries, benefits and other
operating costs represented 75% of revenues in 1995, down from 81% in the
comparable 1994 period, as higher average rates and occupancy outpaced the
increase in costs. In addition, improved performance in the Information Services
segment, representing lower telephone company fees in Belgium; continuing
benefits of cost control programs; and favorable foreign exchange experience,
contributed to the positive results.
 
     Selling, general and administrative expenses increased 48% to $871 in 1995
compared with $587 in 1994, due primarily to the costs associated with Caesars,
Ciga and the other hotel acquisitions. ITT has embarked on several company-wide
cost rationalization programs aimed at reducing administrative costs. In June
1995, ITT announced the closing of the Caesars headquarters in Los Angeles; in
September 1995, ITT provided for severance and other costs associated with
restructuring the headquarters of the hotels and information services business
segments totaling $80 pretax, and in December 1995, ITT recorded charges
associated with the consolidation of certain administrative and other functions
in its gaming segment of $6 pretax. In addition, ITT is undertaking an
aggressive information systems rationalization program. This program is designed
to reduce operating costs and increase efficiency as well as improve
management's ability to access operational and financial data.
 
     Selling, general and administrative expenses include $96 and $88 in 1995
and 1994, respectively, representing reimbursement of overhead expenses related
to world headquarters management and supervision of the entities comprising Old
ITT prior to the Distribution. These expenses represent fees for advice and
assistance provided by ITT in connection with legal, accounting, tax, treasury
and insurance services. In the opinion of management, the methods for allocating
these costs are reasonable. However, the net cost of these services to ITT are
not necessarily indicative of the costs that would have been
 
                                       27
<PAGE>   29
 
incurred if ITT had been operated as an unaffiliated entity. It is not practical
to estimate such costs on a stand-alone basis.
 
     Operating income rose 96% in 1995 reflecting the impact of the acquisitions
discussed above, as well as the impact of one-time charges related to the
planned disposals of certain non-core assets and restructuring charges referred
to above. Excluding the acquisitions and restructuring charges, operating income
increased 43% primarily due to higher average room rates, particularly in owned
properties in North America, and the aforementioned improvement in the
Information Services segment. Depreciation and amortization increased 92%
compared with 1994 due primarily to the acquisitions discussed above.
 
     Interest expense (before interest income of $54 in 1995 and $16 in 1994)
increased to $345 from $147 in 1994. In connection with the Distribution, Old
ITT allocated certain indebtedness between ITT and ITT Industries, Inc. As a
result of such allocation, the interest expense incurred in prior periods may
not be indicative of the interest expense which would have been incurred if ITT
was an independent entity during such periods.
 
     Income tax expense rose during 1995 in direct proportion to the higher
pretax earnings as ITT maintained an effective rate of 40% in both years.
 
     Minority equity in 1995 reflects the minority ownership in ITT World
Directories, ITT Educational and Ciga and increased due to higher earnings. Net
income of $147 in 1995 improved 99% compared with $74 in 1994, the results of
the factors discussed above.
 
     Cash from operating activities, as defined by SFAS No. 95, increased to
$504 in 1995 from $230 in 1994 reflecting the improved operating results and the
accretive impact of the acquisitions discussed above. The SFAS definition of
cash from operating activities differs from EBITDA largely due to the inclusion
of interest, income taxes and changes in working capital.
 
BUSINESS SEGMENTS
 
     Revenues, EBITDA and operating income (excluding the effect of corporate
overhead and minority income) for each of ITT's three major business segments
were as follows:
 
<TABLE>
<CAPTION>
         YEAR ENDED 1995                                                     YEAR ENDED 1994
---------------------------------                                   ---------------------------------
                        OPERATING                                                           OPERATING
REVENUES     EBITDA      INCOME                                     REVENUES     EBITDA      INCOME
--------     ------     ---------                                   --------     ------     ---------
<C>          <C>        <C>       <S>                               <C>          <C>        <C>
 $4,120       $314        $ 190   .............Hotels.............   $3,700       $239        $ 152
</TABLE>
 
     Hotels 1995 results reflect the full-year benefit of the Ciga and other
significant hotel acquisitions made during 1994 and the $51 restructuring
charge. At December 31, 1995, Hotel properties include 198 properties (48%)
which are owned, leased or managed under long-term agreements and 214 properties
(52%) which are franchised. During 1995, significant benefits were realized at
the owned and leased properties in EBITDA and operating income due to improved
operations and cost control programs. Improvements in these properties have a
greater impact on the Hotels segment results than do improvements in managed
properties, where the majority of the improvements are realized by those
property owners. In addition, during 1995 the average daily room rate at ITT's
owned, leased and managed properties increased 10% to $126 and revenue per
available room rose 10% to $89. These increases reflect management's focus on
attaining the optimal combination of rate and occupancy while enhancing the
level of service and value to ITT's customers. ITT has continued to focus on
expanding and enhancing its image among world travelers, through ongoing
renovations of key properties, upgrading standards, defranchising nonconforming
properties and strategic acquisitions. Management continues to aggressively
pursue revenue growth as well as cost saving opportunities in each of its market
segments through a variety of strategies including: maximizing the integration
of the Ciga hotels; cross promoting ITT's gaming and entertainment assets; and
continued domestic and international expansion.
 
<TABLE>
<CAPTION>
         YEAR ENDED 1995                                                     YEAR ENDED 1994
---------------------------------                                   ---------------------------------
                        OPERATING                                                           OPERATING
REVENUES     EBITDA      INCOME                                     REVENUES     EBITDA      INCOME
--------     ------     ---------                                   --------     ------     ---------
<C>          <C>        <C>       <S>                               <C>          <C>        <C>
 $1,370       $301        $ 209   .............Gaming.............    $227        $ 19         $ 9
</TABLE>
 
                                       28
<PAGE>   30
 
     The January 1995 acquisition of one of the most internationally recognized
brand names in gaming, Caesars, positions ITT to be a competitive force in this
rapidly expanding industry. The Gaming segment has key properties in both major
U.S. jurisdictions, Las Vegas, Nevada and Atlantic City, New Jersey as well as
other properties both domestically and internationally. The 1995 results also
reflect a full year of operating results from the Sheraton Casino in Tunica
County, Mississippi which opened in August 1994. In the future, the Gaming
segment is expected to contribute an increasing portion of ITT's results.
 
<TABLE>
<CAPTION>
         YEAR ENDED 1995                                                     YEAR ENDED 1994
---------------------------------                                   ---------------------------------
                        OPERATING                                                           OPERATING
REVENUES     EBITDA      INCOME                                     REVENUES     EBITDA      INCOME
--------     ------     ---------                                   --------     ------     ---------
<C>          <C>        <C>       <S>                               <C>          <C>        <C>
  $856        $208        $ 178   .......Information Services.......   $833       $181        $ 155
</TABLE>
 
     Revenues at ITT World Directories were basically unchanged compared with
1994. Excluding the restructuring charge of $29, margins improved reflecting
lower telephone company fees in Belgium as ITT World Directories has begun to
compete with the local telephone company. As more fully discussed in the Notes
to Financial Statements, ITT Promedia, a subsidiary of ITT World Directories, is
involved in a dispute with the Belgium Telephone Company ("Belgacom")
challenging Belgacom's current published fee schedule as being unfair,
unreasonable and discriminatory.
 
     ITT Educational achieved record results in its first year as a publicly
traded company reflecting the benefit of four additional school openings,
ongoing cost control measures and a continuing expansion of curricula and degree
offerings. ITT Educational maintained its enrollment base (20,618 students at
December 31, 1995 compared with 20,668 at December 31, 1994) despite a strong
job market in 1995.
 
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH DECEMBER 31, 1993
 
     Revenues of $4,760 in 1994 increased 14% over 1993 results, reflecting the
contribution of 70.3% of Ciga, which was purchased in stages during the second
half of the year, The Phoenician, the Crescent and The Park Grande Hotel, all
acquired in 1994, along with improved results at Hotels in the North American
and Asia-Pacific regions. The improvement was partially offset by the loss of
revenues from the ITT World Directories United Kingdom unit disposed of in 1993.
Revenues of Ciga and the other acquisitions totaled $271 in 1994. Excluding
these acquisitions, revenues increased 3%. Average occupancy of owned, leased
and managed hotels (excluding the newly acquired Ciga hotels) improved 3.8% to
72.9% in 1994.
 
     Salaries, benefits and other operating costs increased 11% in 1994 over
1993 levels, representing the costs of the acquired properties as well as
smaller increases in the cost of services. Overall, salaries, benefits and other
operating costs represented 81% of revenues in 1994, down from 83% in 1993 as
high average rates and occupancy outpaced the increase in direct costs.
 
     Selling, general and administrative expenses include $118 in 1994 and $122
in 1993, representing overhead expenses related to the management and
supervision of the entities comprising ITT before the Distribution. Of these
amounts, $88 and $73 were charged in the respective years to affiliated
companies and represented fees for advice and assistance provided by ITT in
connection with cash management, legal, accounting, tax and insurance services.
The fees for these services were based upon a general relations agreement with
each affiliate. Excluding these overhead expenses and related service fee
income, selling, general and administrative expenses increased approximately 12%
due primarily to the overhead of the acquired companies and hotels.
 
     Operating income rose 106% in 1994, reflecting the aforementioned North
American occupancy and rate improvement at Hotels, a full year of Gaming
operations and benefits from cost reduction actions initiated in 1993 in all
major business segments. Operating income in 1993 included restructuring
provisions totaling $49 aimed at increasing the efficiency and productivity of
overhead functions at the segment and regional headquarters locations. These
provisions yielded the desired improvements as evidenced, in part, by the
increased operating cash flow in 1994. In addition, the 1993 results included a
$29 provision for the accelerated write-off of capitalized development expenses
stemming from a reevaluation of future plans and projects. Depreciation and
amortization rose 21% due primarily to the fixed asset additions made through
acquisition and the goodwill amortization associated with the Ciga and The
Phoenician acquisitions.
 
                                       29
<PAGE>   31
 
     Interest expense (before interest income of $16 in 1994 and $14 in 1993)
increased to $147 compared with $47 in 1993, the result of additional debt
required to fund the Desert Inn purchase in 1993 and the 1994 acquisitions
discussed above. Average interest-bearing debt of $1.4 billion in 1994 compares
with $0.4 billion in 1993. Interest-bearing debt represents external borrowings
(averaging $0.4 billion in 1994 and $0.2 billion in 1993) and interest-bearing
advances from ITT Industries, Inc. ($1.0 billion in 1994 and $0.2 billion in
1993).
 
     Miscellaneous income (expense), net reflects non-operating items of a
non-recurring nature including gains and losses on the sale of investments. In
1994, miscellaneous expense of $17 primarily relates to the write-off of
expenses incurred in connection with a terminated gaming project, partly offset
by the gain on the public offering of 16.7% of ITT Educational. In 1993,
miscellaneous income of $10 related primarily to the gain on the sale of an ITT
World Directories unit.
 
     Income taxes of $58 in 1994 were provided on pretax income of $144
representing a 40% effective tax rate. Tax on repatriation of foreign earnings
in addition to U.S. state and local income taxes raises ITT's effective tax rate
above the U.S. statutory rate. The decrease from the 1993 53% effective tax rate
results primarily from the absence of the 1993 tax cost associated with
repatriating cash to the United States from ITT World Directories units in
Portugal, Belgium and The Netherlands.
 
     Minority income in 1994 represents the effect of minority ownership in ITT
World Directories and Ciga. In 1993, minority income related solely to ITT World
Directories. Net income of $74 in 1994 improved 90% compared with $39 in 1993,
the result of the factors discussed above.
 
     EBITDA increased a substantial 78% in 1994 to $396 from the $222 generated
in 1993. Improved occupancy and rates in the Hotels segment (primarily in the
North American region) and lower overhead costs coupled with the absence of 1993
restructuring provisions, which totaled $49, are the primary contributors to the
improvement. Acquisitions made throughout 1994 impacted revenues to a much
larger degree than EBITDA. EBITDA represented 8.3% of revenues in 1994 compared
with 5.3% in 1993.
 
     Cash from operating activities, as defined by SFAS No. 95, increased to
$230 in 1994 from $186 in 1993 for the reasons described above. The SFAS
definition of cash from operating activities differs from EBITDA largely due to
the inclusion of interest, income taxes and changes in working capital.
 
BUSINESS SEGMENTS
 
     Revenues, EBITDA and operating income (excluding the effect of corporate
overhead, minority income and dispositions) for each of ITT's three major
business segments were as follows:
 
<TABLE>
<CAPTION>
         YEAR ENDED 1994                                                     YEAR ENDED 1993
---------------------------------                                   ---------------------------------
                        OPERATING                                                           OPERATING
REVENUES     EBITDA      INCOME                                     REVENUES     EBITDA      INCOME
--------     ------     ---------                                   --------     ------     ---------
<C>          <C>        <C>       <S>                               <C>          <C>        <C>
 $3,700       $239        $ 152   .............Hotels.............   $3,160       $167         $87
</TABLE>
 
     Properties in the Hotels segment are marketed under the ITT Sheraton brand
name and include 209 properties (49%) which are owned, leased or managed under
long-term agreements and 214 properties (51%) which are franchised at December
31, 1994. At year end 1993, 176 properties (43%) were owned, leased or managed
and 230 properties (57%) were franchised. The shift in mix toward owned hotels,
including the purchase of a controlling interest in Ciga in 1994, is indicative
of ITT's focus on improving the standards of properties carrying the ITT
Sheraton trade names and service marks. Hotels revenues increased in 1994 due to
improved results in the North American and Asia-Pacific regions and the
contribution of new acquisitions, namely Ciga, The Phoenician and The Park
Grande. EBITDA improved a substantial 43% from 1993, partly as a result of
acquisitions. Operating income in 1994 reflected, among other things, the
improvements in the North American region and benefits from cost reductions. In
1993, operating income reflected the accelerated write-off of capitalized
development expenses totaling $23, partly offset by an $11 gain on the sale of
an investment in Bally's Las Vegas operations. Room rates of owned and leased
properties (excluding the newly acquired Ciga hotels) averaged $110 in 1994,
compared with $105 in 1993, while occupancy rates rose to 72.9% from 70.2% in
the prior year.
 
                                       30
<PAGE>   32
 
     Hotels segment revenues are geographically diverse with 45% and 48%
generated in North America in 1994 and 1993, respectively. New York, Boston and
Miami are among the larger markets served.
 
<TABLE>
<CAPTION>
         YEAR ENDED 1994                                                     YEAR ENDED 1993
---------------------------------                                   ---------------------------------
                        OPERATING                                                           OPERATING
REVENUES     EBITDA      INCOME                                     REVENUES     EBITDA      INCOME
--------     ------     ---------                                   --------     ------     ---------
<C>          <C>        <C>       <S>                               <C>          <C>        <C>
  $227        $ 19         $ 9    .............Gaming.............    $ 24        $(3)        $ (9)
</TABLE>
 
     The Sheraton Desert Inn is included in the Gaming segment for the full year
in 1994 compared with two months in 1993. ITT Sheraton opened the Sheraton
Casino in Tunica County, Mississippi in August 1994. Gaming contributed $19 to
ITT's EBITDA in 1994, up $22 from $(3) in 1993, when ITT began its gaming
efforts in the United States.
 
<TABLE>
<CAPTION>
         YEAR ENDED 1994                                                     YEAR ENDED 1993
---------------------------------                                   ---------------------------------
                        OPERATING                                                           OPERATING
REVENUES     EBITDA      INCOME                                     REVENUES     EBITDA      INCOME
--------     ------     ---------                                   --------     ------     ---------
<C>          <C>        <C>       <S>                               <C>          <C>        <C>
  $833        $181        $ 155   .......Information Services.......   $800       $178        $ 162
</TABLE>
 
     Operating income fell at the Information Services segment in 1994 on
modestly higher revenues, reflecting additional expenses of publishing in
competitive markets and ITT World Directories' share of the costs of
establishing a directory joint venture. Both revenues and income improved at ITT
Educational.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The preceding discussion of the results of operations describes ITT over a
period of significant transformation and growth. ITT has historically incurred
debt at the parent level to a greater extent than at the operating level,
particularly when funding major capital programs or acquisitions. On November
16, 1995, in preparation for the post-Distribution recapitalization, ITT issued
$1.75 billion of notes and debentures ranging in maturity from 5 to 30 years and
yielding a weighted average interest rate of 6.97%. The proceeds from this
offering were used for the repayment of commercial paper. Effective with the
Distribution, ITT entered into two revolving credit agreements with syndicate
banks totaling $3 billion (five-year facility of $2 billion; 364-day facility of
$1 billion). In addition, ITT maintains lesser credit lines at certain operating
units. These commitments are used to assure working capital needs and to support
commercial paper. As of December 31, 1995, $1,329 of commercial paper has been
classified as long-term since ITT intends to renew or refinance these
obligations through 1996 and future periods. The future liquidity of ITT will,
to a large degree, depend upon the integration and performance of its recent
acquisitions as well as the previously existing businesses of ITT. Additionally,
income taxes have been assessed to ITT in accordance with a tax allocation
agreement with Old ITT that generally requires the computation of income taxes
as if ITT had been a stand-alone entity. In all years presented, credits for
income taxes paid in foreign jurisdictions were fully utilizable in the United
States in the Old ITT consolidated tax return, which may not be achieved in the
future. To the extent foreign tax credits cannot be used to reduce the U.S. tax
obligation, a higher effective income tax rate will be incurred.
 
     ITT generated EBITDA of $797 in 1995 compared with $396 in 1994, which was
prior to the acquisitions of Caesars, MSG, Ciga and other significant hotels.
Comparable pro forma EBITDA was $892 in 1995 compared with $604 in 1994, a 48%
increase. These cash flows are expected to be sufficient to service
indebtedness, satisfy tax obligations and cover maintenance capital expenditures
and other liquidity needs. Additional liquidity needs would be funded through
traditional debt or equity financings, asset sales or any combination thereof.
 
     Funds used in capital expenditures and acquisitions totaled $2.8 billion
and $1.5 billion in 1995 and 1994, respectively, representing combined
expenditures of $4.3 billion since January 1, 1994. Of this amount, the
acquisition of Caesars ($1.7 billion), MSG ($0.6 billion), Ciga ($0.5 billion)
and other significant hotel acquisitions ($0.7 billion) comprised 81%. A portion
of these expenditures were financed through the sale by Old ITT of its ITT
Financial assets. The balance was used for smaller acquisitions and to maintain
ITT's facilities. The Corporation expects to pay $103.5 in connection with its
proposed acquisition of WNYC-TV in partnership with Dow Jones. This transaction
is expected to close in the first half of 1996.
 
EFFECT OF INFLATION
 
     The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on the revenues or operating results of ITT
during the three most recent fiscal years.
 
                                       31
<PAGE>   33
 
ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     See Index to Financial Statements and Schedule contained 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.
 
                                    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 Schedule appearing on page
     F-1 for a list of the financial statements and schedule 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) On November 27, 1995, ITT filed a Current Report on Form 8-K which
attached as exhibits the definitive form of ITT's 6 1/4% Notes Due November 15,
2000, 6 3/4% Notes Due November 15, 2005, 7 3/8% Debentures Due November 15,
2015 and 7 3/4% Debentures Due November 15, 2025 and an opinion of counsel as to
the legality of such securities. On December 22, 1995, ITT filed a Current
Report on Form 8-K to report that on December 19, 1995 the outstanding common
stock of ITT was distributed to the shareholders of Old ITT of record on the
close of business on such date and that, as part of such distribution, "ITT
Destinations, Inc." changed its name to "ITT Corporation".
 
                                       32
<PAGE>   34
 
                         INDEX TO FINANCIAL STATEMENTS
                                  AND SCHEDULE
 
<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, 1995......................  F-4
Consolidated Balance Sheet as of December 31, 1995 and 1994..........................  F-5
Consolidated Cash Flow for the three years ended December 31, 1995...................  F-6
Consolidated Stockholders Equity for the three years ended December 31, 1995.........  F-7
Notes to Financial Statements........................................................  F-8
Quarterly Results for 1995 and 1994 (unaudited)......................................  F-19
Business Segment Information.........................................................  F-19
Geographical Information -- Total Segments...........................................  F-19
Valuation and Qualifying Accounts....................................................  S-1
</TABLE>
 
                                       F-1
<PAGE>   35
 
                              REPORT OF MANAGEMENT
 
     The management of ITT Corporation is responsible for the preparation and
integrity of the information 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 LLP, independent
public accountants, elected by the shareholders. Management has made ITT's
financial records and related data available to Arthur Andersen LLP, 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 ITT'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 independence and free access to the Committee.
 
                                       F-2
<PAGE>   36
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
TO THE SHAREHOLDERS OF ITT CORPORATION:
 
     We have audited the accompanying consolidated balance sheet of ITT
Corporation (a Nevada corporation) and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of income, cash flow and
stockholders equity for each of the three years in the period ended December 31,
1995, as described in the accompanying Index to Financial Statements and
Schedule. These financial statements and the schedule referred to below are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements and schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ITT
Corporation and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
 
     Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Financial Statements and Schedule is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states 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 LLP
 
New York, New York
January 24, 1996
 
                                       F-3
<PAGE>   37
 
                        ITT CORPORATION AND SUBSIDIARIES
 
                              CONSOLIDATED INCOME
                          IN MILLIONS EXCEPT PER SHARE
 
<TABLE>
<CAPTION>
                                                                   YEARS ENDED DECEMBER 31,
                                                                 ----------------------------
                                                                  1995       1994       1993
                                                                 ------     ------     ------
<S>                                                              <C>        <C>        <C>
Revenues.......................................................  $6,346     $4,760     $4,169
Costs and Expenses:
  Salaries, benefits and other operating.......................   4,747      3,837      3,451
  Selling, general and administrative, net of service fee
     income of $96, $88 and $73................................     775        499        467
  Depreciation and amortization................................     253        132        109
                                                                 ------     ------     ------
                                                                  5,775      4,468      4,027
                                                                 ------     ------     ------
                                                                    571        292        142
Interest expense (net of interest income of $54, $16 and
  $14).........................................................    (291)      (131)       (33)
Miscellaneous income (expense), net............................       2        (17)        10
                                                                 ------     ------     ------
                                                                    282        144        119
Income tax expense.............................................    (114)       (58)       (63)
Minority equity................................................     (21)       (12)       (17)
                                                                 ------     ------     ------
Net income.....................................................  $  147     $   74     $   39
                                                                 ======     ======     ======
Earnings per share (Pro Forma for 1994 and 1993 --
  See Notes to Financial Statements)...........................  $ 1.24     $ 0.63     $ 0.33
                                                                 ======     ======     ======
Weighted average common equivalent shares
  (Pro Forma for 1994 and 1993 -- See Notes to Financial
  Statements)..................................................     118        117        117
                                                                 ======     ======     ======
</TABLE>
 
The accompanying notes to financial statements are an integral part of the above
                                   statement.
 
                                       F-4
<PAGE>   38
 
                        ITT CORPORATION AND SUBSIDIARIES
 
                           CONSOLIDATED BALANCE SHEET
                         IN MILLIONS EXCEPT FOR SHARES
 
<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                                           -----------------
                                                                            1995       1994
                                                                           ------     ------
<S>                                                                        <C>        <C>
ASSETS
Current assets:
     Cash and cash equivalents...........................................  $  177     $  191
     Receivables, net....................................................     784        498
     Inventories.........................................................      86         59
     Prepaid expenses and other..........................................      96        217
                                                                           ------     ------
          Total current assets...........................................   1,143        965
Plant, property and equipment, net.......................................   3,979      2,882
Investments..............................................................   1,757        655
Goodwill, net............................................................   1,332        232
Long-term receivables, net...............................................     150        133
Other assets.............................................................     331        145
                                                                           ------     ------
                                                                           $8,692     $5,012
                                                                           ======     ======
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
     Accounts payable....................................................  $  309     $   72
     Accrued expenses....................................................     695        426
     Notes payable and current maturities of long-term debt..............     265         31
     Other current liabilities...........................................     161         95
                                                                           ------     ------
          Total current liabilities......................................   1,430        624
Long-term debt...........................................................   3,575        600
Deferred income taxes....................................................     141         39
Other liabilities........................................................     350        192
Minority interest........................................................     260        204
                                                                           ------     ------
                                                                            5,756      1,659
                                                                           ------     ------
Stockholders Equity:
     Common stock: authorized 200,000,000 shares, no par or stated value,
      outstanding 117,196,370 shares.....................................   2,944         --
     Accumulated deficit.................................................      (8)        --
     Investments and advances from ITT Industries, Inc.(1)...............      --      3,353
                                                                           ------     ------
          Total stockholders equity......................................   2,936      3,353
                                                                           ------     ------
                                                                           $8,692     $5,012
                                                                           ======     ======
</TABLE>
 
---------------
 
(1) Investments and Advances From ITT Industries, Inc. represents the means by
    which ITT was funded by Old ITT prior to the Distribution and consisted of
    both equity and interest bearing advances.
 
The accompanying notes to financial statements are an integral part of the above
                                   statement.
 
                                       F-5
<PAGE>   39
 
                        ITT CORPORATION AND SUBSIDIARIES
 
                             CONSOLIDATED CASH FLOW
                                  IN MILLIONS
 
<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                                -----------------------------
                                                                 1995        1994       1993
                                                                -------     -------     -----
<S>                                                             <C>         <C>         <C>
OPERATING ACTIVITIES
Net Income....................................................  $   147     $    74     $  39
Adjustments to net income:
  Depreciation and amortization...............................      253         132       109
  Provision for doubtful receivables..........................      132          69        26
  Equity income, net of dividends received....................       21          16        15
  Loss (gain) on divestments -- pretax........................        2          --       (19)
Changes in working capital:
  Accounts receivable.........................................     (219)        (92)        2
  Inventories.................................................       (4)         (5)       (7)
  Accounts payable............................................       59          (6)        9
  Accrued expenses............................................       77          29       117
Accrued and deferred taxes....................................       44          11       (52)
Other, net....................................................       (8)          2       (53)
                                                                -------     -------     -----
     Cash from operating activities...........................      504         230       186
                                                                -------     -------     -----
INVESTING ACTIVITIES
Additions to plant, property and equipment....................     (571)       (453)      (91)
Proceeds from divestments.....................................       10          18        41
Acquisitions, net of acquired cash of $164 in 1995............   (2,188)     (1,038)     (180)
Other, net....................................................      110           6       (99)
                                                                -------     -------     -----
     Cash used for investing activities.......................   (2,639)     (1,467)     (329)
                                                                -------     -------     -----
FINANCING ACTIVITIES
Short-term debt, net..........................................       94          13       (19)
Long-term debt issued.........................................    3,132         260        --
Long-term debt repaid.........................................     (121)       (124)      (18)
Change in investments and advances from ITT Industries,
  Inc.........................................................     (929)        457       428
Other, net....................................................      (55)        (11)      (45)
                                                                -------     -------     -----
     Cash from financing activities...........................    2,121         595       346
                                                                -------     -------     -----
EXCHANGE RATE EFFECT ON CASH AND CASH EQUIVALENTS.............       --          (1)       (5)
                                                                -------     -------     -----
(Decrease) increase in cash and cash equivalents..............      (14)       (643)      198
Cash and Cash Equivalents -- Beginning of Year................      191         834       636
                                                                -------     -------     -----
CASH AND CASH EQUIVALENTS -- END OF YEAR......................  $   177     $   191     $ 834
                                                                =======     =======     =====
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest......................................................  $   314     $   119     $  27
                                                                =======     =======     =====
Income taxes..................................................  $    55     $   117     $  19
                                                                =======     =======     =====
</TABLE>
 
The accompanying notes to financial statements are an integral part of the above
                                   statement.
 
                                       F-6
<PAGE>   40
 
                        ITT CORPORATION AND SUBSIDIARIES
 
                        CONSOLIDATED STOCKHOLDERS EQUITY
                         IN MILLIONS EXCEPT FOR SHARES
 
<TABLE>
<CAPTION>
                                           INVESTMENTS               COMMON STOCK
                                        AND ADVANCES FROM       ----------------------    ACCUMULATED
                                     ITT INDUSTRIES, INC.(1)      SHARES        AMOUNT      DEFICIT
                                     -----------------------    -----------     ------    -----------
<S>                                  <C>                        <C>             <C>       <C>
Balance -- January 1, 1993..........         $ 2,313                     --     $   --        $--
Net Income..........................              39                     --         --         --
Transfers from ITT Industries,
  Inc...............................             431                     --         --         --
Translation of financial
  statements........................             (18)                    --         --         --
                                              ------            -----------     ------        ---
Balance -- December 31, 1993........           2,765                     --         --         --
Net Income..........................              74                     --         --         --
Transfers from ITT Industries,
  Inc...............................             549                     --         --         --
Translation of financial
  statements........................             (35)                    --         --         --
                                              ------            -----------     ------        ---
Balance -- December 31, 1994........           3,353                     --         --         --
Net Income..........................             155                     --         --         --
Transfers to ITT Industries, Inc.,
  net...............................            (539)                    --         --         --
Translation of financial
  statements........................             (25)                    --         --         --
Issuance of common stock in
  connection with the
  Distribution......................          (2,944)           117,196,370      2,944         --
                                              ------            -----------     ------        ---
Balance -- December 19, 1995........              --            117,196,370      2,944         --
Net Loss............................              --                     --         --         (8)
                                              ------            -----------     ------        ---
Balance -- December 31, 1995........         $    --            117,196,370     $2,944        $(8)
                                              ======            ===========     ======        ===
</TABLE>
 
---------------
(1) Investments and Advances From ITT Industries, Inc. represents the means by
    which ITT was funded by Old ITT prior to the Distribution and consisted of
    both equity and interest bearing advances. As of December 19, 1995, ITT was
    recapitalized through issuances of its own debt and equity securities.
 
The accompanying notes to financial statements are an integral part of the above
                                   statement.
 
                                       F-7
<PAGE>   41
 
                        ITT CORPORATION AND SUBSIDIARIES
 
                         NOTES TO FINANCIAL STATEMENTS
             DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED
 
BASIS OF PRESENTATION
 
     ITT Corporation ("ITT") is the world's largest hotel and gaming company.
ITT's principal lines of business are hotels, gaming and information services.
The hotels segment is comprised of a worldwide hospitality network of over 400
full-service hotels serving three markets: luxury, upscale and mid-price. ITT's
hotel operations are represented on every continent and in nearly every major
world market. ITT's gaming operations are located in several key domestic
jurisdictions. ITT also operates various hotel/casino ventures outside the
United States. ITT's information services segment publishes telephone
directories in many countries outside the United States and provides
post-secondary career education in the United States.
 
     On December 19, 1995 (the "Distribution Date"), the former ITT Corporation
("Old ITT", which has been renamed ITT Industries, Inc.), distributed to its
shareholders of record at the close of business on such date all of the
outstanding shares of common stock of ITT, then a wholly owned subsidiary of Old
ITT (the "Distribution"). In such distribution, holders of common stock of Old
ITT received one share of ITT common stock for every one share of Old ITT common
stock held. In connection with such distribution, ITT, which was then named "ITT
Destinations, Inc.", changed its name to ITT Corporation.
 
     These financial statements present the financial position, results of
operations and cash flows of ITT as if it were a separate entity for all periods
presented. Old ITT's historical basis in the assets and liabilities of ITT has
been carried over and all majority-owned subsidiaries have been consolidated.
All material intercompany transactions and balances between ITT and its
subsidiaries have been eliminated.
 
     ITT included many of the corporate functions of Old ITT and provided to Old
ITT centralized systems for legal, accounting, tax, treasury and insurance
services. ITT charged fees for these services to Old ITT and its affiliates (see
"Transactions with Companies Affiliated with ITT Industries"). The net cost to
ITT of providing these services, after allocation to Old ITT and its affiliates,
is $34, $39 and $56 for 1995, 1994 and 1993, respectively. In the opinion of
management, ITT's methods for allocating costs are believed to be reasonable.
However, the net cost of these services to ITT are not necessarily indicative of
the costs that would have been incurred if ITT had been operated as an
unaffiliated entity. It is not practicable to estimate such costs on a
stand-alone basis.
 
     For purposes of governing certain of the ongoing relationships between ITT
and Old ITT after the Distribution and to provide for an orderly transition, ITT
and Old ITT have entered into various agreements including a Distribution
Agreement, Employee Benefits Services and Liability Agreement, Tax Allocation
Agreement and Intellectual Property Transfer and License Agreements. ITT may be
liable to or due reimbursement from Old ITT relating to the resolution of
certain pre-Distribution matters under these agreements.
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
ACCOUNTING POLICIES
 
     Revenue Recognition:  Generally, revenues are recognized when the services
have been rendered. The following is a description of the composition of
revenues for each of ITT Corporation's business segments:
 
     Hotels Operations:  At December 31, 1995 ITT operated 130 hotels under
long-term management agreements. These agreements effectively convey to ITT the
right to use the hotel properties in exchange for payments to the property
owners which are based primarily on the hotels' profitability. Accordingly, ITT
includes the operating results of hotel properties under long-term management
agreements in its
 
                                       F-8
<PAGE>   42
 
                        ITT CORPORATION AND SUBSIDIARIES
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
             DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED
 
consolidated financial statements. Revenues related to these hotel properties
were $2.7 billion, $2.6 billion and $2.4 billion for 1995, 1994 and 1993,
respectively, and amounts provided for payments to the property owners for the
use of the hotel properties were $.5 billion, $.5 billion and $.4 billion for
1995, 1994 and 1993, respectively.
 
     Gaming Operations:  Casino revenues represent the net win from gaming wins
and losses. Revenues exclude the retail value of rooms, food, beverage,
entertainment and other promotional allowances provided on a complimentary basis
to customers. The estimated retail value of these promotional allowances was
$144, $17 and $-- for the years ended December 31, 1995, 1994 and 1993,
respectively. The estimated cost of such promotional allowances was $99, $11 and
$- for the years ended December 31, 1995, 1994 and 1993, respectively, and has
been included in Costs and Expenses in the accompanying statement of
Consolidated Income.
 
     Revenues and costs and expenses of the Gaming operations are comprised of
the following for the years ended December 31, 1995, 1994 and 1993:
 
<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                 ----------------------------------------------------------------------------
                                                          1995                       1994                       1993
                                                 ----------------------     ----------------------     ----------------------
                                                              COSTS AND                  COSTS AND                  COSTS AND
                                                 REVENUES     EXPENSES      REVENUES     EXPENSES      REVENUES     EXPENSES
                                                 --------     ---------     --------     ---------     --------     ---------
<S>                                              <C>          <C>           <C>          <C>           <C>          <C>
Gaming.........................................   $1,068       $   535        $165         $  75         $ 15         $  12
Rooms..........................................      101            31          28            12            4             2
Food and beverage..............................      108            93          22            23            3             3
Other operations...............................       93           105          12            13            2             6
Selling, general and administrative............       --           191          --            37           --             3
Depreciation and amortization..................       --            92          --            10           --             6
Provision for doubtful accounts................       --           114          --            48           --             1
                                                  ------        ------        ----          ----          ---           ---
        Total..................................   $1,370       $ 1,161        $227         $ 218         $ 24         $  33
                                                  ======        ======        ====          ====          ===           ===
</TABLE>
 
     Information Services Operations:  Revenues for the Directories unit of
Information Services are
comprised of the total value of advertising contracts sold by ITT. Costs and
expenses include remuneration and franchise fees paid to telephone authorities
in places where ITT operates as a publisher of directories or operates as an
agent.
 
     Tuition revenue at ITT Educational Services is recorded on a straight-line
basis over the length of the applicable course. If a student discontinues
training, the revenue related to the remainder of that quarter is recorded with
the amount of refund resulting from the application of federal, state, or
accreditation requirements recorded as an expense.
 
     Cash and Cash Equivalents:  ITT considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
 
     Inventories:  Inventories, comprised principally of hotel and gaming
supplies, are generally valued at the lower of cost (first-in, first-out) or
market 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. ITT 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
as follows: Buildings and improvements -- primarily 15 to 40 years, Machinery
and equipment -- 2 to 10 years, and Other -- 5 to 40 years. Gains or losses on
sale or retirement of assets are included in income.
 
     Derivative Financial Instruments:  ITT uses derivative financial
instruments from time to time, including foreign currency forward contracts
and/or swaps, as a means of hedging exposure to foreign
 
                                       F-9
<PAGE>   43
 
                        ITT CORPORATION AND SUBSIDIARIES
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
             DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED
 
currency risks. ITT is an end-user and does not utilize these instruments for
speculative purposes. ITT has strict policies regarding financial stability and
credit standing of its major counterparties.
 
     Forward exchange contracts and foreign currency swaps are accounted for in
accordance with SFAS No. 52. Changes in the spot rate of instruments designated
as hedges of the net investment in a foreign subsidiary are reflected in
Stockholders Equity.
 
     Foreign Currency:  Balance sheet accounts are translated at the exchange
rates in effect at each year end and income and expense accounts are translated
at the average rates of exchange prevailing during the year. The national
currencies of foreign operations are generally the functional currencies. Gains
and (losses) from foreign currency transactions are reported currently in costs
and expenses and were insignificant for all periods presented.
 
     Income Tax:  Prior to the Distribution, ITT and its subsidiaries were
included in the consolidated U.S. Federal tax return of Old ITT and remitted to
(received from) Old ITT an income tax provision (benefit) computed in accordance
with a tax sharing arrangement. This arrangement generally required that ITT
determine its tax provision (benefit) as if it were filing a separate U.S.
Federal income tax return. However, the agreement allowed ITT to record benefits
of certain tax attributes, primarily foreign tax credits, utilizable on the Old
ITT consolidated tax return, which may not have been available on a separate
company basis.
 
     Subsidiary Stock Issuance:  ITT recognizes gains (losses) on sales of
subsidiary stock. For the year ended December 31, 1994, Miscellaneous income
(expense), net includes a gain of $10, pretax, from the sale for 16.7% of the
common stock of ITT Educational Services, Inc.
 
     Goodwill:  The excess of cost over the fair value of net assets acquired is
amortized on a straight-line basis over 40 years. Accumulated amortization was
$38, $6 and $3 at December 31, 1995, 1994 and 1993, respectively. ITT
continually reviews goodwill to assess recoverability from future operations
using undiscounted cash flows. Impairments would be recognized in operating
results if a permanent diminution in value is deemed to have occurred.
 
     Earnings Per Share:  Earnings per share through the Distribution Date were
computed based upon the number of ITT common shares that were outstanding on the
Distribution Date. Earnings per share from the Distribution Date through
December 31, 1995 were determined based upon the weighted average of common and
common equivalent shares outstanding during the period. For purposes of this
calculation, common equivalent shares were assumed to have been outstanding from
the beginning of 1995.
 
     Reclassifications:  Certain amounts in the prior years' financial
statements have been reclassified to conform to the current year presentation.
 
TRANSACTIONS WITH COMPANIES AFFILIATED WITH ITT INDUSTRIES, INC.
 
     ITT included many of the corporate functions of Old ITT and provided Old
ITT and other affiliates certain centralized systems (see "Basis of
Presentation"). ITT received fees for such services which ranged between 0.5%
and 1% of net sales of the affiliate. Service fee income is recorded in costs
and expenses as earned.
 
     Interest expense was charged to ITT on the portion of its Investments and
Advances from ITT Industries, Inc. which was deemed debt. Interest expense was
charged at 8% and totaled $232, $86 and $13 for the years 1995, 1994 and 1993,
respectively.
 
     ITT was one of the several affiliates participating in the ITT Salaried
Retirement Plan as well as health care and life insurance programs for salaried
employees and retirees sponsored by Old ITT through the time of the Distribution
(see "Employee Benefit Plans").
 
                                      F-10
<PAGE>   44
 
                        ITT CORPORATION AND SUBSIDIARIES
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
             DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED
 
ACQUISITIONS
 
     On January 30, 1995, ITT completed a cash tender offer for the outstanding
shares of Caesars World, Inc. ("Caesars") for approximately $1.76 billion
(including expenses directly attributable to the acquisition of approximately
$10). The acquisition was accounted for using the purchase method. Accordingly,
the purchase price was allocated to assets based on their estimated fair values.
The purchase price, including assumed liabilities of $450, exceeded the fair
value of assets acquired by approximately $1.1 billion. Caesars results of
operations are included in Consolidated Income from the date of acquisition.
 
     On March 10, 1995, ITT, in a joint venture with Rainbow Programming
Holdings, Inc., a subsidiary of Cablevision Systems Corporation, completed the
acquisition of the businesses comprising Madison Square Garden ("MSG") for
approximately $1 billion. The acquisition was funded by equity contributions
from the venture partners of approximately $720 and the remainder was financed
through bank debt. ITT's initial investment ($610) is reported using the equity
method as ITT's venture partner is expected to increase its equity investment to
50%. ITT's share of the results of MSG are included in Consolidated Income from
the date of acquisition.
 
     During 1994, ITT completed several acquisitions in its Hotel operations.
The acquisitions were accounted for using the purchase method. The purchase
price of each acquisition was allocated to assets based on their estimated fair
values. The aggregate purchase price, including assumed liabilities of $400,
exceeded the fair value of assets acquired by approximately $200. The results of
operations of these acquisitions are included in Consolidated Income from the
dates of their respective acquisitions.
 
     The following unaudited pro forma summary presents information as if the
acquisitions had occurred at the beginning of the respective periods:
 
<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER
                                                                                               31,
                                                                                      ---------------------
                                                                                       1995           1994
                                                                                      ------         ------
        <S>                                                                           <C>            <C>
        Net revenues................................................................  $6,428         $5,961
        Net income..................................................................  $  132         $    8
                                                                                      ======         ======
        Earnings per share..........................................................  $ 1.11         $ 0.07
                                                                                      ======         ======
</TABLE>
 
     The pro forma information is not necessarily indicative of the results that
would have occurred had the acquisitions taken place at the beginning of the
respective periods.
 
RECEIVABLES
 
     Current receivables of $784 and $498 at December 31, 1995 and 1994,
including current maturities of notes receivable, are reported net of allowances
for doubtful accounts of $106 and $55.
 
     Long-term receivables of $150 and $133 at December 31, 1995 and 1994, are
net of allowances for doubtful accounts of $98 and $78, exclude current
maturities of $21 and $126 and approximate fair value.
 
                                      F-11
<PAGE>   45
 
                        ITT CORPORATION AND SUBSIDIARIES
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
             DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED
 
PLANT, PROPERTY AND EQUIPMENT
 
     Plant, property and equipment consisted of the following:
 
<TABLE>
<CAPTION>
                                                                                                  DECEMBER 31,
                                                                                              ---------------------
                                                                                               1995           1994
                                                                                              ------         ------
<S>                                                                                           <C>            <C>
Land and improvements.......................................................................  $1,178         $  598
Buildings and improvements..................................................................   2,311          2,095
Machinery, furniture, fixtures and equipment................................................     789            505
Construction work in process................................................................     250              1
Other.......................................................................................      97            164
                                                                                              ------         ------
                                                                                               4,625          3,363
Less: Accumulated depreciation and amortization.............................................    (646)          (481)
                                                                                              ------         ------
                                                                                              $3,979         $2,882
                                                                                              ======         ======
</TABLE>
 
INVESTMENTS
 
     Investments consisted of the following:
 
<TABLE>
<CAPTION>
                                                                                                  DECEMBER 31,
                                                                                              ---------------------
                                                                                               1995           1994
                                                                                              ------         ------
<S>                                                                                           <C>            <C>
Equity in Madison Square Garden.............................................................  $  607         $   --
Equity in and advances to other 20-50% owned companies......................................     261            164
Alcatel Alsthom at cost.....................................................................     834            426
Other investments at cost...................................................................      55             65
                                                                                              ------         ------
                                                                                              $1,757         $  655
                                                                                              ======         ======
</TABLE>
 
     Equity in earnings (losses) of unconsolidated subsidiaries accounted for on
the equity basis was $1, $ -- and $(5) in 1995, 1994 and 1993, respectively. At
December 31, 1995 and 1994, the market value of the Alcatel Alsthom stock, which
is restricted through 1997, was approximately $826 and $410, respectively, based
on the quoted market prices. Dividend income from Alcatel Alsthom was $29 in
1995.
 
RESTRUCTURING
 
     ITT recorded an $80 pretax charge in the 1995 third quarter to restructure
and rationalize headquarter operations and provide for the planned disposal of
non-core assets. These charges related to operations in the Hotels ($51 pretax)
and Information Services ($29 pretax) business segments.
 
     Of the total pretax charges, approximately $28 represents severance and
other related employee termination costs associated with the elimination of
nearly 275 positions worldwide. The employee groups affected included field
sales personnel as well as headquarters and divisional managerial and
administrative staff from a number of disciplines, primarily finance/accounting,
human resources, information technology, operations, purchasing and corporate
development. Of the 275 positions eliminated, approximately 130 employees have
been terminated at a cost of approximately $11 as of December 31, 1995. It is
expected that the majority of the severance costs will be paid by the end of
1996.
 
     The balance of the restructuring charges ($52 pretax) relate primarily to
asset write-offs, lease commitments and termination penalties and reserve
actions in connection with the planned disposal of non-core assets and reduced
facilities utilization. At December 31, 1995, approximately $32 of costs for the
aforementioned items have been charged against this reserve. The balance of the
reserve is expected to be utilized by the end of 1997.
 
                                      F-12
<PAGE>   46
 
                        ITT CORPORATION AND SUBSIDIARIES
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
             DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED
 
INCOME TAX
 
     Income tax data is as follows:
 
<TABLE>
<CAPTION>
                                                                                         1995       1994       1993
                                                                                         ----       ----       ----
<S>                                                                                      <C>        <C>        <C>
Pretax income (loss)
        U.S..........................................................................    $ 64       $(23)      $(34)
        Foreign......................................................................     218        167        153
                                                                                         ----       ----       ----
                                                                                         $282       $144       $119
                                                                                         ====       ====       ====
Provision (benefit) for income tax*
    Current
        U.S. Federal.................................................................    $(27)      $ 36       $(80)
        State and local..............................................................      13          6          6
        Foreign......................................................................      99         73         85
                                                                                         ----       ----       ----
                                                                                           85        115         11
                                                                                         ----       ----       ----
Deferred
        U.S. Federal.................................................................      33        (54)        73
        Foreign and other............................................................      (4)        (3)       (21)
                                                                                         ----       ----       ----
                                                                                           29        (57)        52
                                                                                         ----       ----       ----
                                                                                         $114       $ 58       $ 63
                                                                                         ====       ====       ====
</TABLE>
 
---------------
* The provision (benefit) for income taxes has been computed in accordance with
  a tax sharing agreement between ITT and ITT Industries, Inc. that generally
  requires that such provision (benefit) be computed as if the enterprise were a
  stand-alone entity. The primary exception to the stand-alone computation
  relates to the utilization of foreign tax credits. The agreement allows for
  the realization of such credits since they have been utilized by ITT
  Industries, Inc. in the consolidated tax return.
 
     No provision was made for U.S. taxes payable on undistributed foreign
earnings amounting to approximately $211 since these amounts are permanently
reinvested.
 
     Deferred income taxes represent the tax effect of the differences between
the book and tax bases of assets and liabilities. The December 31, 1995 and 1994
Consolidated Balance Sheets include net U.S. Federal deferred tax liabilities of
$113 and $10, and net foreign and other deferred tax liabilities of $28 and $29,
respectively.
 
     Deferred tax assets (liabilities) include the following:
 
<TABLE>
<CAPTION>
                                                                               1995                          1994
                                                                      -----------------------       -----------------------
                                                                       U.S.          FOREIGN         U.S.          FOREIGN
                                                                      FEDERAL        & OTHER        FEDERAL        & OTHER
                                                                      -------       ---------       -------       ---------
<S>                                                                   <C>           <C>             <C>           <C>
Employee benefits.................................................     $  33          $  --          $  49          $  --
Reserve for bad debts.............................................        45             --             11             --
Plant, property and equipment.....................................      (183)           (14)           (66)           (11)
Other.............................................................        (8)           (14)            (4)           (18)
                                                                       -----           ----           ----
                                                                       $(113)         $ (28)         $ (10)         $ (29)
                                                                       =====           ====           ====
</TABLE>
 
                                      F-13
<PAGE>   47
 
                        ITT CORPORATION AND SUBSIDIARIES
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
             DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED
 
     A reconciliation of the tax provision at the U.S. statutory rate to the
provision for income tax as reported is as follows:
 
<TABLE>
<CAPTION>
                                                                                       1995         1994         1993
                                                                                       ----         ----         ----
<S>                                                                                    <C>          <C>          <C>
Tax provision at U.S. statutory rate...............................................    $ 99         $50          $42
Tax on repatriation of foreign earnings............................................     (16)          3           22
Non-deductible goodwill............................................................       9          --           --
Foreign tax rate differential......................................................      12          (1 )         (1 )
U.S. state and local income taxes..................................................       9           4            4
Other..............................................................................       1           2           (4 )
                                                                                       ----         ---          ---
Provision for income tax...........................................................    $114         $58          $63
                                                                                       ====         ===          ===
</TABLE>
 
DEBT
 
     Debt consisted of the following:
 
<TABLE>
<CAPTION>
                                                                                           DECEMBER 31,
                                                                                        -------------------
                                                                                         1995          1994
                                                                                        ------         ----
        <S>                                                                             <C>            <C>
        Bank loans and other short-term.............................................    $  252         $ 28
        Long-term...................................................................     3,588          603
                                                                                        ------         ----
                                                                                        $3,840         $631
                                                                                        ======         ====
</TABLE>
 
     The weighted average interest rate for bank loans and other short-term
borrowings was 10.11% at December 31, 1995 and 8.26% at December 31, 1994 and
their fair values approximated carrying value. The estimated fair value of
long-term debt at December 31, 1995 and 1994 is $3,637 and $605, based on
discounted cash flows using ITT's incremental borrowing rates for similar
arrangements.
 
     ITT maintains lines of credit under which bank loans and other short-term
debt are drawn. In November 1995, ITT entered into two major revolving credit
facilities, effective December 19, 1995, with syndicate banks totaling $3.0
billion (five-year facility of $2.0 billion; 364-day facility of $1.0 billion).
In addition, smaller credit lines are maintained by ITT's foreign subsidiaries.
As of December 31, 1995, ITT had unused credit lines of approximately $3.0
billion, 45% of which supports outstanding commercial paper. As of December 31,
1995, $1,329 of commercial paper has been classified as long-term since ITT
intends to renew or refinance these obligations through 1996 and future periods.
 
     Long-term debt consisted of the following at December 31:
 
<TABLE>
<CAPTION>
                                        Description                                      1995          1994
        ----------------------------------------------------------------------------    ------         ----
        <S>                                                                             <C>            <C>
        Commercial paper (5.94% weighted average rate)..............................    $1,329         $ --
        6.25% notes due 2000........................................................       698           --
        6.75% notes due 2005........................................................       449           --
        7.375% debentures due 2015..................................................       448           --
        7.75% debentures due 2025...................................................       148           --
        8.875% senior subordinated notes due 2002...................................       150           --
        5.9%-10.1% domestic mortgage loans due 1998-2001............................       151          149
        6.2%-14.4% foreign loans due 1996-2009......................................       204          448
        Other.......................................................................        11            6
                                                                                        ------         ----
        Total.......................................................................     3,588          603
        Less current maturities.....................................................        13            3
                                                                                        ------         ----
                                                                                        $3,575..       $600
                                                                                        ======         ====
</TABLE>
 
     The aggregate maturities of long-term debt, excluding debt discount of $7,
are $13 in 1996, $89 in 1997, $40 in 1998, $10 in 1999, $2,054 in 2000, and
$1,389 thereafter. Assets pledged to secure indebtedness (including mortgage
loans) amounted to $330 as of December 31, 1995.
 
                                      F-14
<PAGE>   48
 
                        ITT CORPORATION AND SUBSIDIARIES
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
             DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED
 
EMPLOYEE BENEFIT PLANS
 
     Pension Plans -- ITT 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. The plans' assets are comprised of a broad range
of domestic and foreign equity securities, fixed income investments and real
estate. Prior to the Distribution, certain employees of ITT participated in the
ITT Salaried Retirement Plan sponsored by Old ITT. Subsequent to the
Distribution, those employees became participants of ITT plans.
 
     Total pension expenses were:
 
<TABLE>
<CAPTION>
                                                                                     1995       1994       1993
                                                                                     ----       ----       ----
    <S>                                                                              <C>        <C>        <C>
    Defined Benefit Plans
        Service cost.............................................................    $ 19       $ 14       $ 11
        Interest cost............................................................      19         16         15
        Return on assets.........................................................     (35)        (1)       (27)
        Net amortization and deferral............................................      17        (14)        13
                                                                                     ----       ----       ----
        Net periodic pension cost................................................      20         15         12
    Other Pension Cost
        Allocated cost of ITT
            Salaried Retirement Plan.............................................       3          4          3
        Defined contribution (savings) plans.....................................       5          5          5
        Other....................................................................       6          3          3
                                                                                     ----       ----       ----
                Total Pension Expense............................................    $ 34       $ 27       $ 23
                                                                                     ====       ====       ====
</TABLE>
 
     U.S. pension expenses included in the net periodic pension costs in the
table above were $10, $10 and $8 for 1995, 1994 and 1993, respectively.
 
     The following table sets forth the funded status of ITT's pension plans,
amounts recognized in ITT's Consolidated Balance Sheet at December 31, 1995 and
1994, and the principal weighted average assumptions inherent in their
determination:
 
<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,
                                                                      ---------------------------------------------
                                                                              1995                     1994
                                                                      --------------------     --------------------
                                                                      DOMESTIC     FOREIGN     DOMESTIC     FOREIGN
                                                                      --------     -------     --------     -------
<S>                                                                   <C>          <C>         <C>          <C>
Actuarial present value of benefit obligations --
  Vested benefit obligation.........................................   $  169       $  83       $  101       $  43
  Accumulated benefit obligation....................................   $  189       $  88       $  112       $  48
                                                                         ====        ====         ====        ====
Projected benefit obligation........................................   $  257       $ 109       $  141       $  65
Plan assets at fair value...........................................      168          82          133          64
                                                                         ----        ----         ----        ----
Projected benefit obligation (in excess of) plan assets.............      (89)        (27)          (8)         (1)
Unrecognized net (gain)/loss........................................       59          (2)           8          (1)
Unrecognized net obligation/(asset).................................       (2)          4           (3)          4
                                                                         ----        ----         ----        ----
Pension asset (liability) recognized in the consolidated balance
  sheet.............................................................   $  (32)      $ (25)      $   (3)      $   2
                                                                         ====        ====         ====        ====
Discount rate.......................................................     7.50%       7.08%        8.50%       7.38%
Rate of return on invested assets...................................     9.75%       7.51%        9.75%       7.69%
Salary increase assumption..........................................     6.00%       5.42%        6.10%       5.38%
                                                                         ====        ====         ====        ====
</TABLE>
 
     For substantially all domestic and foreign plans, the total of assets and
recorded liabilities exceed accumulated benefits.
 
     Investment and Savings Plan -- Employees of ITT have participated in ITT
Industries' Investment and Savings Plans. ITT contributions to the plan are
determined annually and are based, in part, on contributions of participating
employees. The cost of this plan charged to ITT was $5 in 1995, 1994 and 1993.
As part of the Distribution, ITT has established a similar plan. Subsequent to
December 31, 1995,
 
                                      F-15
<PAGE>   49
 
                        ITT CORPORATION AND SUBSIDIARIES
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
             DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED
 
ITT employees' balances in the ITT Industries, Inc. plan were transferred to the
newly established ITT plan.
 
     Postretirement Health and Life -- ITT and its subsidiaries provide health
care and life insurance benefits for certain eligible retired employees. ITT 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 was comprised of
the following:
 
<TABLE>
<CAPTION>
                                                                                             1995     1994     1993
                                                                                             ----     ----     ----
<S>                                                                                          <C>      <C>      <C>
Service cost...............................................................................  $ 1      $ 1      $ 1
Interest cost..............................................................................    2        1        1
Return on assets...........................................................................   (2 )     --       --
Net amortization and deferral..............................................................   --       (1 )     (1 )
                                                                                             ---      ---      ---
        Net periodic expense...............................................................  $ 1      $ 1      $ 1
                                                                                             ===      ===      ===
</TABLE>
 
     The following table sets forth the funded status of the postretirement
benefit plans other than pensions, amounts recognized in ITT's Consolidated
Balance Sheet at December 31, 1995 and 1994 and the principal weighted average
assumptions inherent in their determination:
 
<TABLE>
<CAPTION>
                                                                                                 1995        1994
                                                                                                 -----       -----
<S>                                                                                              <C>         <C>
Accumulated postretirement benefit obligation..................................................  $  26       $  18
Plan assets at fair value......................................................................     10           7
                                                                                                 -----       -----
Accumulated postretirement benefit obligation (in excess of) plan assets.......................    (16)        (11)
Unrecognized net (gain)........................................................................     (2)         (4)
Unrecognized past service liability............................................................     (4)         (5)
                                                                                                 -----       -----
Liability recognized in the consolidated balance sheet.........................................  $ (22)      $ (20)
                                                                                                 =====       =====
Discount rate..................................................................................   7.50%       8.50%
Rate of return on invested assets..............................................................   9.75%       9.75%
Ultimate health care trend rate................................................................   6.00%       6.00%
                                                                                                 =====       =====
</TABLE>
 
     The assumed rate of future increases in the per capita cost of health care
(the health care trend rate) was 10% for 1995, decreasing ratably to 6% in the
year 2001. Increasing the table of health care trend rates by 1% per year would
have the effect of increasing the accumulated postretirement benefit obligation
by $1 and the annual expense by $--. 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.
 
LEASES AND RENTALS
 
     As of December 31, 1995, minimum rental commitments under operating leases
were $62, $56, $52, $46 and $42 for 1996, 1997, 1998, 1999 and 2000,
respectively. For the remaining years, such commitments amounted to $312,
aggregating total minimum lease payments of $570. Rental expenses for operating
leases were $77, $76 and $83 for 1995, 1994 and 1993, respectively.
 
CAPITAL STOCK
 
     ITT is authorized to issue 50 million shares of preferred stock, none of
which was outstanding at December 31, 1995.
 
     In connection with the Distribution, ITT issued one Series A Participating
Cumulative Preferred Stock Purchase Right (the "Right") for each share of ITT
common stock outstanding. Additionally, Rights will be issued in respect of
common stock subsequently issued until the Rights Distribution Date, as defined,
and, in certain circumstances, with respect to common stock issued after the
Rights Distribution Date. In the event a person or group has acquired, or has
obtained the right to acquire, beneficial ownership of
 
                                      F-16
<PAGE>   50
 
                        ITT CORPORATION AND SUBSIDIARIES
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
             DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED
 
more than 15% of the outstanding shares of common stock or certain specified
tender offers occur for more than 15% of the common stock, or in the event ITT
is acquired in a merger or other business combination or certain other specified
events occur, the Right entitles each holder, subject to certain exceptions, to
purchase the number of 1/1,000ths of a share of Series A Participating
Cumulative Preferred Stock of ITT equivalent to the number of shares of ITT
common stock or common stock of the surviving corporation or other specified
entity, as applicable, which have a market value of twice the specified Purchase
Price at the relevant date. The Rights, which do not have voting rights, expire
on the tenth anniversary of the related rights agreement and are redeemable by
ITT at any time at a price of $.01 per Right.
 
STOCK INCENTIVE PLAN
 
     Concurrent with the Distribution, the Company adopted the 1995 ITT
Corporation Incentive Stock Plan (the "Plan") for key employees. Awards may be
made under the Plan through the year 2005. The Plan provides for the granting of
nonqualified or incentive stock options, stock appreciation rights payable in
stock or cash, performance shares, restricted stock or any combination of the
foregoing.
 
     In connection with the Distribution, ITT granted substitute stock options
to acquire 6,276,596 of the Company's common shares. These substitute options
replaced 2,627,591 options which were outstanding prior to the Distribution. At
December 31, 1995, all of these options were outstanding and 3,414,809 were
exercisable. These substitute options were granted at exercise prices ranging
from $18.00 to $45.53 per share and maintain the same economic value, vesting,
expiration dates and other restrictions, terms and conditions which existed
under Old ITT Incentive Plans prior to the Distribution. In addition to the
stock options noted above, ITT granted 127,401 substitute shares of restricted
stock. These substitute shares replaced 53,334 restricted shares which were
outstanding prior to the Distribution. These shares vest at various dates
through January 1, 2001. None of these shares were vested at December 31, 1995.
 
     Under the Plan the total number of shares available with respect to which
awards may be made shall not exceed 1.5% of the issued and outstanding shares
(including treasury shares) on the last day of each year, plus unused portions
of such limit carried over from prior years. No more than 5,000,000 shares may
be available for incentive stock options and no more than 20% of the total may
be available for awards of restricted stock or performance shares under the
Plan. During 1996, approximately 1,758,000 shares are available for grant in
accordance with the Plan's allotment formula. The Plan limits the award of stock
options to any one person to no more than 10% of the annual limit of available
shares that year.
 
DERIVATIVE FINANCIAL INSTRUMENTS
 
     ITT has entered into two foreign currency swaps with a major financial
institution to hedge exchange rate exposure on ITT's net investment in a foreign
country. The contractual amounts of these foreign currency swaps at December 31,
1995 and 1994 totaled $250 and mature in 1997. The entire amount hedges dollars
against French francs. The unrealized loss at December 31, 1995 was $36 and the
estimated fair value was a loss of $31. At December 31, 1994, there was no
significant gain or loss on these contracts and the estimated fair value
approximated 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.
 
COMMITMENTS AND CONTINGENCIES
 
     In 1994, at the expiration of its contract with the Belgium Telephone
Company ("Belgacom"), ITT Promedia decided to continue publishing its
directories in competition with a newly created Belgacom Directory Services. A
Belgian Royal Decree was issued in July 1994, which required Belgacom to provide
subscriber data information at fair, reasonable and nondiscriminatory tariffs.
ITT Promedia has challenged
 
                                      F-17
<PAGE>   51
 
                        ITT CORPORATION AND SUBSIDIARIES
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
             DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED
 
Belgacom's current fee schedule as being unfair, unreasonable and discriminatory
in both the European Commission and in the Commercial Court of Brussels. ITT
Promedia has accrued a fee to Belgacom which it believes is adequate considering
the issues involved. Hearings in the European Commission and the Court are
scheduled for April 1996 with decisions expected by the end of 1996.
 
     ITT and its subsidiaries are involved in various other legal matters, some
of which 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, ITT does not expect that
the resolution of all legal matters will have a material adverse effect on its
consolidated results of operations, financial position or cash flow.
 
     ITT has guaranteed certain loans and commitments of various ventures to
which it is a party. These commitments, which in the aggregate were
approximately $290 at December 31, 1995, are not expected to have a material
adverse effect on ITT's consolidated financial position or results of
operations.
 
                                      F-18
<PAGE>   52
 
                        ITT CORORATION AND SUBSIDIARIES
 
                      QUARTERLY RESULTS FOR 1995 AND 1994
                          IN MILLIONS EXCEPT PER SHARE
                                   UNAUDITED
 
<TABLE>
<CAPTION>
                                                                                 THREE MONTHS ENDED
                                                                    --------------------------------------------
                                                                    MAR. 31     JUNE 30     SEPT. 30     DEC. 31      YEAR
                                                                    -------     -------     --------     -------     ------
<S>                                                                 <C>         <C>         <C>          <C>         <C>
1995
Revenues..........................................................  $ 1,285     $ 1,697      $1,647      $ 1,717     $6,346
Costs and Expenses................................................  $ 1,219     $ 1,498      $1,510      $ 1,548     $5,775
Net Income........................................................  $     7     $    46      $   50      $    44     $  147
Earnings Per Share (Pro Forma through September 30)...............  $   .06     $   .39      $  .42      $   .37     $ 1.24
1994
Revenues..........................................................  $   876     $ 1,240      $1,108      $ 1,536     $4,760
Costs and Expenses................................................  $   848     $ 1,140      $1,046      $ 1,434     $4,468
Net Income........................................................  $     8     $    29      $   22      $    15     $   74
Pro Forma Earnings Per Share......................................  $   .07     $   .24      $  .19      $   .13     $  .63
</TABLE>
 
                          BUSINESS SEGMENT INFORMATION
                                  IN MILLIONS
 
<TABLE>
<CAPTION>
                                         IDENTIFIABLE ASSETS          GROSS PLANT ADDITIONS           DEPRECIATION
                                     ----------------------------     ----------------------     ----------------------
                                      1995       1994       1993      1995     1994     1993     1995     1994     1993
                                     ------     ------     ------     ----     ----     ----     ----     ----     ----
<S>                                  <C>        <C>        <C>        <C>      <C>      <C>      <C>      <C>      <C>
Hotels.............................  $3,685     $3,484     $1,754     $380     $328     $62      $102     $70      $56
Gaming.............................   2,730        345        217      173      108       9        59       6        1
Information Services...............     448        378        371       15       14      15        16      15       14
Dispositions and Other.............      --        (17)         7       --       --      --        --      --       --
                                     ------     ------     ------     ----     ----     ---      ----     ---      ---
Total Segments.....................   6,863      4,190      2,349      568      450      86       177      91       71
Other..............................   1,829        822      1,442        3        4       4         8       8        8
                                     ------     ------     ------     ----     ----     ---      ----     ---      ---
                                     $8,692     $5,012     $3,791     $571     $454     $90      $185     $99      $79
                                     ======     ======     ======     ====     ====     ===      ====     ===      ===
</TABLE>
 
     HOTELS:  Operates a worldwide network of hotels and resorts under the
Sheraton name, including the hotels and resorts in the ITT Sheraton Luxury
Collection.
 
     GAMING:  Includes the casino operations of ITT Sheraton Gaming Corporation
and effective January 31, 1995, includes the newly acquired operations of
Caesars. Caesars owns and operates three hotel/casinos in Las Vegas and
Stateline, Nevada, and in Atlantic City, New Jersey. In conjunction with two
other partners, Caesars manages a casino owned by the Ontario government in
Windsor, Canada.
 
     INFORMATION SERVICES:  Engages 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, and in providing post-secondary career education in the U.S.
 
     "Dispositions and Other" includes the operating results of units sold and
includes World Directories' U.K. and Turkey operations.
 
     "Other" includes non-operating income, corporate expenses and minority
equity. Intercompany revenues, which are priced on an arm's-length basis, are
not material.
 
                   GEOGRAPHICAL INFORMATION -- TOTAL SEGMENTS
                                  IN MILLIONS
 
<TABLE>
<CAPTION>
                                          REVENUES                  OPERATING INCOME            IDENTIFIABLE ASSETS
                                ----------------------------     ----------------------     ----------------------------
                                 1995       1994       1993      1995     1994     1993      1995       1994       1993
                                ------     ------     ------     ----     ----     ----     ------     ------     ------
<S>                             <C>        <C>        <C>        <C>      <C>      <C>      <C>        <C>        <C>
U.S...........................  $3,393     $2,139     $1,723     $245     $ 75     $ 21     $4,345     $2,249     $1,694
Western Europe................   1,385      1,203      1,154      194      135      157      1,811      1,311        353
Canada and Other..............   1,568      1,418      1,292      138      107       70        707        630        302
                                ------     ------     ------     ----     ----     ----     ------     ------     ------
Total Segments................  $6,346     $4,760     $4,169     $577     $317     $248     $6,863     $4,190     $2,349
                                ======     ======     ======     ====     ====     ====     ======     ======     ======
</TABLE>
 
                                      F-19
<PAGE>   53
 
                                                                     SCHEDULE II
 
                        ITT CORPORATION AND SUBSIDIARIES
 
                       VALUATION AND QUALIFYING ACCOUNTS
                                  IN MILLIONS
 
<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, 1995
Trade Receivables -- Allowance for
  doubtful accounts...................      $  55           $ 132           $   1           $ (82)            $ 106
Notes Receivable -- Allowance for
  doubtful accounts...................         78              --              --              20                98
Accumulated depreciation of plant,
  property and equipment..............        481             185               9             (29)(1)           646
YEAR ENDED DECEMBER 31, 1994
Trade Receivables -- Allowance for
  doubtful accounts...................      $  38           $  63           $   3           $ (49)            $  55
Notes Receivable -- Allowance for
  doubtful accounts...................         76               6              --              (4)               78
Accumulated depreciation of plant,
  property and equipment..............        353              99              --              29(2)            481
YEAR ENDED DECEMBER 31, 1993
Trade Receivables -- Allowance for
  doubtful accounts...................      $  52           $  21           $  (3)          $ (32)            $  38
Notes Receivable -- Allowance for
  doubtful accounts...................         72               5              --              (1)               76
Accumulated depreciation of plant,
  property and equipment..............        323              79             (10)            (39)(1)           353
</TABLE>
 
---------------
 
(1) Principally retirements as well as companies sold during the year.
 
(2) Primarily reflects the consolidation of properties previously accounted for
    on the equity method.
 
                                       S-1
<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 29, 1996
 
     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 and Chief Executive and                    March 29, 1996
     RAND V. ARASKOG                   Director
  (PRINCIPAL EXECUTIVE
         OFFICER)
             ANN N.                  Executive Vice President and Chief                  March 29, 1996
           REESE                       Financial Officer
      ANN N. REESE
  (PRINCIPAL FINANCIAL
        OFFICER)
</TABLE>
 
<TABLE>
<CAPTION>
      SIGNATURE                  TITLE                 DATE                SIGNATURE             TITLE           DATE
----------------------    --------------------    ---------------    ----------------------    ---------    ---------------
<S>                       <C>                     <C>                <C>                       <C>          <C>
   BETTE B. ANDERSON            Director          March 29, 1996        EDWARD C. MEYER        Director     March 29, 1996
  BETTE B. ANDERSON                                                     EDWARD C. MEYER
  NOLAN D. ARCHIBALD            Director          March 29, 1996       BENJAMIN F. PAYTON      Director     March 29, 1996
  NOLAN D. ARCHIBALD                                                   BENJAMIN F. PAYTON
    ROBERT A. BOWMAN      Director, President     March 29, 1996           VIN WEBER           Director     March 29, 1996
   ROBERT A. BOWMAN       and Chief Operating                              VIN WEBER
                                Officer
   ROBERT A. BURNETT            Director          March 29, 1996        MARGITA E. WHITE       Director     March 29, 1996
  ROBERT A. BURNETT                                                     MARGITA E. WHITE
      PAUL G. KIRK,             Director          March 29, 1996       KENDRICK R. WILSON      Director     March 29, 1996
          JR.                                                                 III
  PAUL G. KIRK, JR.                                                  KENDRICK R. WILSON III
</TABLE>
 
                                      II-1
<PAGE>   55
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                  DESCRIPTION                                 LOCATION
<C>      <S>                                        <C>
  3.1    Restated Articles of Incorporation.......  Incorporated by reference to Exhibit 3.1
                                                    to the Registrant's Amendment No. 1 to
                                                      Form 10/A dated November 13, 1995 (File
                                                      No. 1-13960).
  3.2    Certificate of Amendment of Articles of
           Incorporation..........................  Incorporated by reference to Exhibit No.
                                                    1 to the Registrant's Current Report on
                                                      Form 8-K dated December 22, 1995 (File
                                                      No. 1-13960).
  3.3    By-Laws..................................  Incorporated by reference to Exhibit 3.2
                                                    to the Registrant's Amendment No. 1 for
                                                      Form 10/A dated November 13, 1995 (File
                                                      No. 1-13960).
  4.1    Specimen common share certificate........  Incorporated by reference to Exhibit 4.1
                                                    to the Registrant's Amendment No. 1 to
                                                      Form 10/A dated November 13, 1995 (File
                                                      No. 1-13960).
  4.2    Rights Agreement dated as of November 1,
           1995 between the Registrant and The
           Bank of New York, as Rights Agent......  Incorporated by reference to Exhibit 4.4
                                                    to the Registrant's Amendment No. 1 for
                                                      Form 10/A dated November 13, 1995 (File
                                                      No. 1-13960).
  4.3    Form of Certificate of Voting Powers,
           Preferences and Relative Participating,
           Optional and Other Special Rights and
           Qualifications, Limitations or
           Restrictions of Series A Participating
           Cumulative Preferred Stock.............  Incorporated by reference to Exhibit 4.4
                                                      (attached as Exhibit A thereto) to the
                                                      Registrant's Amendment No. 1 for Form
                                                      10/A dated November 13, 1995 (File No.
                                                      1-13960).
  4.4    Form of Right Certificate................  Incorporated by reference to Exhibit 4.4
                                                      (attached as Exhibit B thereto) to the
                                                      Registrant's Amendment No. 1 to Form
                                                      10/A dated November 13, 1995 (File No.
                                                      1-13960).
  4.5    Other instruments defining rights of
           security holders, including
           indentures.............................  The Registrant hereby agrees to file with
                                                    the Commission a copy of any instrument
                                                      defining the rights of long-term debt
                                                      holders of the Registrant and its
                                                      consolidated subsidiaries upon request
                                                      of the Commission.
  9.     Voting Trust Agreement...................  None.
 10.1    Distribution Agreement among ITT
           Industries, Inc., the Registrant and
           ITT Hartford Group, Inc. ..............  Filed herewith.
 10.2    Intellectual Property License Agreement
           between and among ITT Industries, Inc.,
           the Registrant and ITT Hartford Group,
           Inc. ..................................  Filed herewith.
 10.3    Trademark Assignment Agreement between
           ITT Industries, Inc. and the
           Registrant ............................  Filed herewith.
 10.4    License Assignment Agreement between ITT
           Industries, Inc. and the Registrant ...  Filed herewith.
</TABLE>
 
                                      II-2
<PAGE>   56
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                  DESCRIPTION                                 LOCATION
<C>      <S>                                        <C>
 10.5    License Assignment Agreement among the
           Registrant, ITT Hartford Group, Inc.
           and Nutmeg Insurance Company...........  Filed herewith.
 10.6    License Assignment Agreement among the
           Registrant, Nutmeg Insurance Company
           and Hartford Fire Insurance Company....  Filed herewith.
 10.7    Tax Allocation Agreement among ITT
           Industries, Inc., the Registrant and
           ITT Hartford Group, Inc. ..............  Filed herewith.
 10.8    Employee Benefit Services and Liability
           Agreement among ITT Industries, Inc.,
           the Registrant and ITT Hartford Group,
           Inc. ..................................  Filed herewith.
 10.9    Form of ITT Corporation 1996 Restricted
           Stock Plan for Non-Employee
           Directors..............................  Incorporated by reference to Exhibit 10.9
                                                    to the Registrant's Amendment No. 1 to
                                                      Form 10/A dated November 13, 1995 (File
                                                      No. 1-13960).
 10.10   Form of indemnification agreement with
           members of the Board of Directors......  Incorporated by reference to Exhibit
                                                    10.10 to the Registrant's Form 10 dated
                                                      September 18, 1995 (File No. 1-13960).
 10.11   Form of 1995 Corporation Incentive Stock
           Plan...................................  Incorporated by reference to Exhibit
                                                    10.11 to the Registrant's Form 10 dated
                                                      September 18, 1995 (File No. 1-13960).
 10.12   Form of ITT Corporation Senior Executive
           Severance Pay Plan.....................  Incorporated by reference to Exhibit
                                                    10.12 to the Registrant's Form 10 dated
                                                      September 18, 1995 (File No. 1-13960).
 10.13   Form of R.V. Araskog employment
           agreement..............................  Incorporated by reference to Exhibit
                                                    10.13 to the Registrant's Form 10 dated
                                                      September 18, 1995 (File No. 1-13960).
 10.14   364-Day Competitive Advance and Revolving
           Credit Facility Agreement dated as of
           November 10, 1995 among the Registrant,
           the lenders parties thereto and
           Chemical Bank, as administrative
           agent..................................  Filed herewith.
 10.15   Five-Year Competitive Advance and
           Revolving Credit Facility Agreement
           dated as of November 10, 1995 among the
           Registrant, the lenders parties thereto
           and Chemical Bank, as issuing bank and
           administrative agent...................  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 LLP...........  Filed herewith.
 24      Power of attorney........................  None.
 27      Financial data schedule..................  Filed herewith.
 99      Additional exhibits......................  None.
</TABLE>
 
                                      II-3