SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 205490

                                -----------------

                                    FORM 10-K
                                  ANNUAL REPORT

(Mark One)
  [X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1996

                                       OR

            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

             For the Transition period from __________ to __________

                           Commission File 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 March 24, 1997, was approximately $7.0
billion.

     As of March 24, 1997, there were outstanding 116,429,113 shares of Common
Stock, no par value, of the registrant.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders, which will be filed with the Securities and Exchange
Commission, are incorporated by reference in Part III of this Form 10-K.
<PAGE>

                                TABLE OF CONTENTS

      Item                                                                  Page
      ----                                                                  ----
PART  1   Business                                                             1
 I    2   Properties                                                          21
      3   Legal Proceedings                                                   22
      4   Submission of Matters to a Vote of Security Holders                 23
      *   Executive Officers                                                  23
PART  5   Market for ITT's Common Stock and Related Stockholder Matters       24
 II   6   Selected Financial Data                                             25
      7   Management's Discussion and Analysis of Financial Condition and
             Results of Operations                                            25
      8   Financial Statements and Supplementary Data                         31
      9   Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure                                         31
PART  10  Directors and Executive Officers                                    31
III   11  Executive Compensation                                              31
      12  Security Ownership of Certain Beneficial Owners and Management      31
      13  Certain Relationships and Related Transactions                      31
PART  14  Exhibits, Financial Statement Schedules, and Reports on
 IV          Form 8-K                                                         32

      Signatures                                                            II-1
      Exhibit Index                                                         II-2

* Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.

                                     PART I

Item 1. Business

     ITT Corporation ("ITT", which also may be referred to as "we" or "us") is
one of the world's largest hotel and gaming companies. We also own an
information services business and are partners in a New York television station.
We conduct these businesses through some of the most recognized brand names in
the world, Sheraton, The Luxury Collection, Four Points Hotels and Caesars. We
conduct our hotel and gaming businesses through ITT Sheraton Corporation
("Sheraton"), Ciga S.p.A. ("Ciga") and Caesars World, Inc. ("Caesars"). Our
information services business is conducted through ITT World Directories, Inc.
("ITT World Directories") and ITT Educational Services, Inc. ("ITT
Educational"). In 1996, our hotel and gaming business segments provided
approximately 87% of our revenues. As part of our strategy to focus on our core
hotel and gaming businesses, we recently entered into an agreement in principle
to sell our 50% interest in Madison Square Garden, L.P. ("MSG") for $650 million
plus the assumption of approximately $115 million of indebtedness. See "Madison
Square Garden."

     Through the Sheraton, The Luxury Collection, Ciga, Four Points Hotels and
Caesars brand names, we are represented in most major markets of the world. In
1996, we hosted approximately 50 million customer nights at our hotel properties
in 62 countries. Sheraton is a worldwide hospitality network of 411 owned,
leased, managed and franchised properties, including hotels, casinos and inns.
Gaming operations are marketed under either the Caesars or Sheraton brand names
and service marks and are currently represented in Las Vegas (Nevada), Atlantic
City (New Jersey), Halifax (Nova Scotia), Sydney (Nova Scotia), Lake Tahoe
(Nevada), Tunica (Mississippi), Lima (Peru), Cairo (Egypt), Windsor (Ontario)
and Townsville (Australia). The acquisition in 1994 of 70.3% of Ciga and the
acquisition or development of other key hotel properties outside the United
States during recent years has enhanced our worldwide presence in hotels.

     Caesars is one of the leading companies in gaming. Caesars' flagship
property is Caesars Palace in Las Vegas, Nevada. Caesars also owns and operates
Caesars Atlantic City in Atlantic City, New Jersey, and Caesars Tahoe in
Stateline, Nevada. In addition, Caesars owns one-half of a management company
that operates Casino Windsor, which was opened in May 1994 in Windsor, Ontario.
In June 1996,
<PAGE>

we announced a capital expenditure program designed to increase and enhance
Caesars' future growth. As part of that program, Caesars Palace in Las Vegas and
Caesars Atlantic City are being expanded and enhanced. We also expect to
construct the largest riverboat in the United States. This riverboat will be
located in Harrison County, Indiana, on the Ohio river, across from Louisville,
Kentucky.

     On July 1, 1996, in partnership with Dow Jones & Co. ("Dow Jones"), we
purchased television station WNYC-TV from The City of New York. The purchase
price of $207 million was split evenly by the two companies and the partnership
is managed on a 50/50 basis. The station has been renamed WBIS+ and, on January
22, 1997, introduced a new format of business and sports programming.

     ITT World Directories and ITT Educational are components of ITT Information
Services. 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 postsecondary career education.

     At December 31, 1996, we owned approximately 7.5 million shares or
approximately 5% of the outstanding capital shares of Alcatel Alsthom, a French
company which owns Alcatel N.V., one of the largest telecommunications equipment
manufacturers in the world. In February 1997, we sold 3 million shares of
Alcatel Alsthom for approximately $300 million. We have agreed to sell our
remaining interest in the capital stock of Alcatel Alsthom for proceeds of
approximately $530 million, subject to final settlement.

     In March 1995, MSG, a partnership between subsidiaries of ITT and
Cablevision Systems Corporation ("Cablevision"), acquired the businesses of
Madison Square Garden Corporation. MSG is the owner of the New York
Knickerbockers basketball and New York Rangers hockey franchises as well as the
Madison Square Garden arena and the MSG cable television network. On March 6,
1997, we entered into an agreement in principle to sell our 50% interest in MSG
to Cablevision for $650 million plus the assumption of approximately $115
million of indebtedness. Under the terms of the agreement in principle, we will
receive $500 million in cash for a 38.5% interest in MSG upon closing, which is
expected to occur by mid-1997. We will also have a "put" option to require
Cablevision to purchase half of our continuing 11.5% interest in MSG for $75
million on June 1, 1998 and the other half of our continuing interest for an
additional $75 million on June 1, 1999 (or, if the first option is not exercised
on June 1, 1988, the entire 11.5% interest for $150 million). The transaction is
subject to the negotiation and execution of definitive documentation, approval
of the National Basketball Association (the "NBA") and the National Hockey
League (the "NHL") and certain other conditions.

     ITT was formerly a wholly owned subsidiary of a Delaware corporation known
as ITT Corporation ("Old ITT"). ITT is a Nevada corporation, with World
Headquarters at 1330 Avenue of the Americas, New York, NY 10019-5490 and was
incorporated in 1995. On December 19, 1995, Old ITT (which has been renamed "ITT
Industries, Inc.") distributed to its shareholders all of the outstanding shares
of common stock of ITT and ITT Hartford Group, Inc. (the "Distribution"). We are
no longer affiliated with ITT Industries, Inc. or ITT Hartford Group, Inc.

Hilton Tender Offer

     On January 31, 1997, a subsidiary of Hilton Hotels Corporation ("Hilton")
commenced a tender offer (the "Hilton Offer") for 50.1% of the outstanding
shares of our common stock at a price of $55 per share in cash. Hilton also
announced that, if the Hilton Offer succeeds, it will merge ITT with Hilton (the
"Proposed Squeeze Out Merger" and, together with the Hilton Offer, the "Hilton
Transaction"). In the Proposed Squeeze Out Merger, all shares of ITT common
stock not accepted in the Hilton Offer would be converted into Hilton common
stock with a value of $55 per share, subject to unspecified collar provisions.
On February 24, 1997, Hilton announced that it would solicit proxies from our
stockholders to elect up to 25 Hilton nominees to our Board of Directors
(the "Board") and to vote in favor of certain shareholder resolutions proposed
by Hilton and intended to facilitate the Hilton Transaction.

     On February 11, 1997, our Board unanimously determined that the Hilton
Transaction, including the Hilton Offer, is inadequate and not in the best
interests of our stockholders or ITT. Accordingly, the Board has unanimously
recommended that our stockholders reject the Hilton Transaction and not tender
their shares to Hilton pursuant to the Hilton Offer.

     In arriving at their decision that the Hilton Transaction, including the
Hilton Offer, is inadequate and not in the best interests of our stockholders
and ITT, the Board gave careful consideration to the interests of our
stockholders, all other factors permitted by applicable law (including the
interests of our employees, suppliers, creditors and customers; the economy of
Nevada and the nation; the interests of the communities in which we operate and
of society; and the long and short-term interests of ITT and its stockholders,
including the possibility


                                       2
<PAGE>

that these interests may be best served by our continued independence) and,
among other factors, the opinions of Lazard Freres & Co. LLC and Goldman, Sachs
& Co., our financial advisors, that the consideration to be received by our
stockholders pursuant to the Hilton Transaction, including the Hilton Offer, is
inadequate.

     The Board and the management of ITT believe that the Hilton Offer fails to
recognize the inherent value of ITT. The Board concluded that the interests of
ITT and our stockholders would be best served if we were to remain an
independent company. In light of the Board's decisions, management of ITT,
together with ITT's advisors, are continuing to refine ITT's strategic plan to
focus on gaming and lodging and are actively exploring opportunities to enhance
the value of ITT. As part of this process, we are taking steps to monetize or
otherwise realize the value of non-core assets. The recent sale of our interest
in the capital stock in Alcatel Alsthom and our agreement in principle with
Cablevision for the sale of our interest in MSG are indicative of our efforts in
this regard. We are also exploring possible transactions to dispose of some or
all of the common stock of ITT Educational that we hold. We have also been
conducting detailed reviews of our options with regard to ITT World Directories,
WBIS+, The Desert Inn in Las Vegas, Nevada and The Sheraton Casino in Tunica,
Mississippi. However, our Board has not taken any action relating to the
disposition of the common stock of ITT Educational or options we may consider
with respect to ITT World Directories, WBIS+, The Desert Inn or The Sheraton
Casino.

     A detailed discussion of the Board's analysis and recommendation in respect
of the Hilton Offer is contained in the statement on Schedule 14D-9 we filed
with the Securities and Exchange Commission on February 12, 1997, which was
distributed to stockholders and is incorporated by reference herein. We urge
our stockholders to read carefully the Schedule 14D-9 in its entirety so that
they will be fully informed as to the Board's recommendation.

     On March 21, 1997, Hilton cleared definitive soliciting material with the
Securities and Exchange Commission through which Hilton intends to solicit
proxies in connection with the business to be conducted at our annual meeting of
stockholders, including the election of our Board.

BUSINESS SEGMENTS*

<TABLE>
<CAPTION>
                                           Revenues                       Income+
                                 ---------------------------   ---------------------------
                                   1996      1995      1994      1996      1995      1994
                                   ----      ----      ----      ----      ----      ----
<S>                              <C>       <C>       <C>       <C>       <C>       <C>
Hotels ........................  $ 4,433   $ 4,164   $ 3,700   $   371   $   197   $   152
Gaming ........................    1,285     1,232       176       211       202         9
Information Services ..........      879       856       833       231       178       155
                                 -------   -------   -------   -------   -------   -------
Total Segments ................    6,597     6,252     4,709       813       577       316
Other .........................     --        --        --         (85)       (9)      (24)
                                 -------   -------   -------   -------   -------   -------
                                   6,597     6,252     4,709       728       568       292
Interest expense, net .........                                   (230)     (291)     (131)
Miscellaneous income
  (expense), net...............                                      1         5       (17)
Provision for income taxes ....                                   (210)     (114)      (58)
Minority equity ...............                                    (40)      (21)      (12)
                                 -------   -------   -------   -------   -------   -------
                                 $ 6,597   $ 6,252   $ 4,709   $   249   $   147++ $    74
                                 =======   =======   =======   =======   =======   =======
</TABLE>

*    Management's Discussion and Analysis of Financial Condition and Results of
     Operations and the Business Segment Information included in the Notes to
     Financial Statements include descriptions of our business segments.

+    "Income" consists of gross profit on revenues less operating expenses
     incurred. "Other" includes non operating income and corporate expenses.
     Intercompany revenues, which are priced on an arm's-length basis, are not
     material.

++   Excluding restructuring charges and adjusted for a full year of Caesars,
     MSG and certain other one-time items, net income would have been $208.

Hotel Operations

     Our revenues from hotel operations are derived worldwide from Sheraton's
owned, leased and managed hotels and our 70.3% ownership interest in Ciga, a
group of luxury hotels in Europe. We also earn franchise fees by licensing the
"Sheraton" and "Four Points Hotels" brands to owners of independent hotels.
Revenues in the hotel business (excluding franchised hotels) are essentially a
function of number of rooms, average daily rate charged for rooms and number of
rooms occupied.

     Our gaming operations in hotels in the Sheraton network and the gaming
operations of Caesars are discussed below under "Gaming Operations." The tables
contained in this section do not include information relating to hotel/casinos
owned by Sheraton or Caesars.


                                       3
<PAGE>

      The following table illustrates the sources of revenues of our hotel
operations.

                                                    Year Ended     Year Ended
                                                     Dec. 31,       Dec. 31,
                                                       1996         1995 (4)
                                                    ----------     ----------
Owned and Leased Hotels...........................       33%           31%
Managed and Joint Venture Hotels (1)..............       64            66
Franchised Hotels (2).............................        1             1
Other (3).........................................        2             2
                                                        ---           ---
                                                        100%          100%
                                                        ===           ===

(1)  Includes 100% of the revenues of managed and joint venture hotels.
(2)  Includes franchise fees paid to Sheraton, not revenues of franchised
     hotels.
(3)  Other revenues primarily include revenues from reservation services and
     Sheraton Club International operations.
(4)  Beginning January 1, 1996, results of Caesars' Pocono resorts were included
     in Hotel operations. The 1995 results assume that the acquisition of
     Caesars' Pocono resorts was completed on January 1, 1995 and have been
     restated for an appropriate comparison with 1996. In addition, certain
     other hotel property results for 1995 have been reclassified for an
     appropriate comparison with 1996.

Owned and Leased Hotels

     The following table illustrates for our owned and leased properties, the
number of properties, available room nights, average daily occupancy rate and
average daily room rate for the years ended December 31, 1996 and December 31,
1995.

                                                    Year Ended     Year Ended
                                                     Dec. 31,       Dec. 31,
                                                       1996         1995 (3)
                                                    ----------     ----------
Number of properties at year-end .........                68               68
Available room nights ....................         8,342,463        7,929,098
Average daily occupancy rate (1) .........                71%              71%
Average daily rate (2) ...................              $150             $135

(1)  Occupied rooms in the period divided by rooms available for sale in the
     same period.
(2)  Room revenues for the period divided by rooms occupied for the same period.
(3)  Beginning January 1, 1996, results of Caesars' Pocono resorts were included
     in Hotel operations. The 1995 results assume that the acquisition of
     Caesars' Pocono resorts was completed on January 1, 1995 and have been
     restated for an appropriate comparison with 1996. In addition, certain
     other hotel property results for 1995 have been reclassified for an
     appropriate comparison with 1996.

     The hotel properties which are owned and leased by Sheraton are, in many
cases, subject to mortgage and lease indebtedness. As of December 31, 1996, the
aggregate mortgage and lease indebtedness relating to these hotels was
approximately $644 million. For our leased properties, a subsidiary of Sheraton
generally leases the land upon which the hotel has been built and the hotel
building. At the end of the lease, the buildings and other leasehold
improvements revert to the landlord. Usually, a Sheraton subsidiary is
responsible for repairs, maintenance, operating expenses and lease rentals and
retains managerial discretion over operations. Generally, Sheraton pays a
percentage rental based on total revenues or gross operating profit for the
facility, but sometimes with a minimum fixed annual rent or a preferential rent.
During the years ended December 31, 1996 and December 31, 1995, Sheraton paid
aggregate rentals, including rentals attributable to the leased properties, of
$19 million and $22 million.


                                       4
<PAGE>

     During 1996, Sheraton acquired three hotel properties: The Regent Hotel,
Fiji; The Sheraton Fiji (which was previously managed by Sheraton); and The Park
Lane Hotel in London. The aggregate purchase price for these hotels was
approximately $135 million. Sheraton also purchased the 50% interest in Sheraton
on the Park (in Sydney, Australia) not previously owned for $40 million and
opened two newly-constructed hotels, the Sheraton Paris Airport Hotel (in
Roissy, France) and the Sheraton Warsaw (in Warsaw, Poland). Late in 1995,
Sheraton also acquired the Sheraton Skyline Hotel (in London, England) and the
Sheraton Cancun (in Cancun, Mexico). These hotels are expected to further
enhance Sheraton's geographic balance of owned hotels.

  Managed and Joint Venture Hotels

     Sheraton, through subsidiaries, manages, usually under long-term agreements
with the owner, 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 for the years ended December 31,
1996 and December 31, 1995 for the hotels managed for third parties and joint
venture hotels in the Sheraton network.

                                                    Year Ended     Year Ended
                                                     Dec. 31,       Dec. 31,
                                                       1996          1995 (3)
                                                    ----------     ----------
Number of properties at year-end .........               135             134
Available room nights ....................        18,401,316      18,419,248
Average daily occupancy rate (1) .........                69%             70%
Average daily rate (2) ...................              $130            $122

(1)  Occupied rooms in the period divided by rooms available for sale in the
     same period.
(2)  Room revenues for the period divided by rooms occupied for the same period.
(3)  Certain hotel property results for 1995 have been reclassified for an
     appropriate comparison with 1996.

     Under its standard management agreement, Sheraton operates lodging
facilities under long-term arrangements with property owners. Sheraton's
responsibilities include hiring, training and supervising the managers and
employees required to operate these facilities. For additional fees, Sheraton
provides reservation services. Sheraton also coordinates national advertising
and certain marketing and promotional services. 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. Sheraton's management fee is generally based on a
percentage of the hotel's total revenues, plus, in certain instances, an
incentive fee based on the hotel's operating performance.

     During 1996, Sheraton invested approximately $51 million in hotel joint
ventures. This amount included investments in the Beijing International Club in
Beijing, China, The Sheraton Suites Santa Fe near Mexico City, Mexico, and the
Hotel Imperial, which is currently under construction in Kuala Lumpur, Malaysia.
In each of these projects, Sheraton owns an equity interest and is, or will be,
the manager of the hotel. During 1997, Sheraton expects to continue to invest
funds in hotel joint ventures which include a management contract.

     During 1996, Sheraton entered into agreements to manage 16 additional
hotels, two of which were opened as of December 31, 1996. In each of these
transactions, Sheraton did not invest in the ownership of the hotel. Of these 16
hotels which are now or will be managed by Sheraton, 12 are in Asia, one is in
Europe, two are in the Middle East and one is in Latin America.

  Global Operations

     Sheraton's hotel operations are conducted worldwide. In North America
Sheraton owns 21 properties. Generally, outside of North America, Sheraton
manages hotels and, to a limited extent, invests equity in hotels. As of
December 31, 1996, Sheraton had an equity interest of 50% or more in 32
properties in Europe, three properties in the Asia/Pacific region, 10 properties
in Latin America and two properties in the Africa/Middle East region.

     The source of revenues, in geographic terms, of our operations (excluding
revenues from gaming operations and revenues based on reservations) is set forth
in the following table for the years ended


                                       5
<PAGE>

December 31, 1996 and December 31, 1995.

                                                    Year Ended     Year Ended
                                                     Dec. 31,       Dec. 31,
                                                       1996         1995 (3)
                                                    ----------     ----------
Revenues
North America (1) .............................          45%             45%
Europe ........................................          21              21
Africa/Middle East ............................           9               8
Latin America .................................           5               5
Asia/Pacific ..................................          18              19
Headquarters and Other ........................           2               2
                                                       ----            ----
      Total ...................................         100%            100%
                                                       ====            ====

EBITDA (2)
North America (1) .............................          48%             53%
Europe ........................................          27              21
Africa/Middle East ............................           3               3
Latin America .................................          12              15
Asia/Pacific ..................................          10              12
Headquarters and Other ........................          --              (4)
                                                       ----            ----
      Total ...................................         100%            100%
                                                       ====            ====

(1)  Includes franchise fees.
(2)  EBITDA is used here as an alternative measure of our ability 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 Statement in our Consolidated Financial
     Statements). EBITDA was computed as earnings before interest, taxes,
     depreciation and amortization.
(3)  Beginning January 1, 1996, results of Caesars' Pocono resorts were included
     in Hotel operations. The 1995 results assume that the acquisition of
     Caesars' Pocono resorts was completed on January 1, 1995 and have been
     restated for an appropriate comparison with 1996.

  Franchise Business

     Sheraton franchises properties located primarily in North America. Of
Sheraton's over 200 franchised hotels and inns, only 21 are located outside of
North America.

     For Sheraton's franchise business (which includes properties operated under
the "Four Points Hotels" name), the following table illustrates the number of
properties, available room nights, average daily occupancy rate and average
daily room rate for the years ended December 31, 1996 and December 31, 1995.

                                                    Year Ended     Year Ended
                                                     Dec. 31,       Dec. 31,
                                                       1996           1995
                                                    ----------     ----------
Number of properties at year-end .............             208            214
Available room nights ........................      18,867,329     19,199,826
Average daily occupancy rate (1) .............              67%            67%
Average daily rate (2) .......................             $81            $77

(1)  Occupied rooms in the period divided by rooms available for sale in the
     same period.
(2)  Room revenues for the period divided by rooms occupied for the same period.

     Hotels which are franchised by Sheraton are permitted to operate under the
"Sheraton" trade name and to use the stylized "S" and wreath service mark.
Sheraton franchised hotels are generally smaller than the hotels owned, leased
or managed by Sheraton. Sheraton approves certain plans for, and the location
of, franchised hotels and reviews their design.


                                       6
<PAGE>

     In general, each franchisee pays 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 Sheraton
does not directly participate in the day-to-day management or operation of its
franchised hotels, Sheraton or an agent of Sheraton periodically inspects the
hotels to ensure that Sheraton's standards are maintained.

     In 1995, Sheraton began offering its franchised hotel owners the
opportunity to convert inns which are franchised by Sheraton to the "Four Points
Hotels" name, a new mid-priced hotel brand. As of December 31, 1996, Sheraton
had 46 franchised properties operating under the Four Points Hotels brand name.
Of these properties, 33 were properties converted from Sheraton franchises and
13 properties were converted from competing brands. Sheraton expects that each
Four Points Hotel will be operated and marketed by its owners with a view toward
providing hospitality services to the business-oriented traveler.

     During 1996, we entered into 34 new franchise license agreements, of which
13 were opened as of the end of the year. Of these, seven will be operated under
the Sheraton name and 27 will be operated under the Four Points Hotels name. At
December 31, 1996, there were 208 franchised hotels in operation under the
Sheraton and Four Points names.

Gaming Operations

     Currently, our gaming operations include Caesars Palace in Las Vegas,
Nevada; Caesars Atlantic City in Atlantic City, New Jersey; Caesars Tahoe in
Stateline, Nevada; The Desert Inn Resort & Casino in Las Vegas, Nevada; The
Sheraton Casino in Tunica, Mississippi; and various other casino/hotel
operations under Sheraton and Caesars outside the United States.

     In June 1996, we announced a capital expenditure program to upgrade and
expand our existing gaming operations. As part of this program, approximately
$625 million is expected to be invested at Caesars Palace and approximately $280
million is expected to be invested at Caesars Atlantic City. We are also in the
process of renovating The Desert Inn Resort & Casino. In addition to the
expansion of the existing gaming operations, we have an agreement in principle
to form a joint venture with Planet Hollywood International, Inc. ("Planet
Hollywood") to develop, construct, manage and operate "Planet Hollywood" themed
casino/hotels. We have also announced that we will construct a riverboat casino
and a hotel in Harrison County, Indiana. A description of these initiatives
appears below.

  Caesars World

     Caesars operates three destination gaming resorts: Caesars Palace in Las
Vegas, Nevada; Caesars Tahoe in Stateline, Nevada; and Caesars Atlantic City in
Atlantic City, New Jersey. Caesars also owns one-half of a management company
which operates Casino Windsor, a casino in Windsor, Canada which is owned by the
Government of the Province of Ontario. A Caesars subsidiary operates small
casinos on two cruise ships.

     Caesars Palace. Caesars Palace, which opened in 1966 as the first themed
casino on the "Strip" in Las Vegas, Nevada, is a casino/hotel complex located on
approximately 80 acres. At December 31, 1996, Caesars Palace had approximately
1,400 hotel rooms and suites in service, 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, The Forum Shops (a retail shopping
arcade), health spas, and an "Omnimax" theater. Currently, its casino is
approximately 118,000 square feet, and it offers wagering limits that are among
the highest in Nevada. In June 1996, Caesars unveiled "Caesars Magical Empire,"
which combines a dining experience with a unique "magical" entertainment program
and theme.

     As part of the capital expenditure program announced for our gaming
operations, Caesars plans to invest approximately $625 million at Caesars Palace
over two years. The project is intended to create a more attractive, exciting
gaming environment, while satisfying substantial unmet room demand. The project
is expected to result in the addition of approximately 1,900 guestrooms, which
will increase the total number of rooms at Caesars Palace to approximately
3,300. Construction of the first of two planned room towers at Caesars Palace
has begun and is expected to be completed during the fourth quarter of 1997.
Construction of the second room tower is expected to begin shortly after the
required approvals are obtained. Enhancements to the casino are expected to
include the addition of gaming space for slot machines and table games. Other
improvements are expected to include the development by a third party of the
second


                                       7
<PAGE>

phase of The Forum Shops with 250,000 square feet of retail space, the addition
of 100,000 square feet of meeting and convention facilities, and construction of
a new heath club and spa. The second phase of The Forum Shops is expected to
open in the third quarter of 1997.

     For the year ended December 31, 1996, the average occupancy rate at Caesars
Palace of 91% included occupancy of approximately 42% of the available rooms and
suites by guests receiving complimentary rooms. The average occupancy rate at
Caesars Palace was 88% and 91% for the years ended December 31, 1995 and 1994,
including occupancy of 42% and 43% of the available rooms and suites by guests
receiving complimentary rooms.

     Caesars Atlantic City. Caesars Atlantic City is a casino/hotel on the
Boardwalk in Atlantic City, New Jersey. At December 31, 1996, it had
approximately 550 rooms in service, a 78,000-square foot casino, including table
games and slots, and approximately 6,000 square feet of gaming space for keno,
poker and race simulcasting. It also has 12 restaurants and bars, 10,000 square
feet of meeting and banquet space, a 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.

     Planned improvements at Caesars Atlantic City are expected to cost
approximately $280 million over two years. These improvements will bring the
total number of guestrooms to approximately 1,125, and will increase casino
space by approximately 30,000 square feet. As part of this project, Caesars
Atlantic City will construct a new entrance and central four-story atrium, a
grand multi-function ballroom and expanded dining facilities. The design
incorporates an elaborate Roman theme with Corinthian columns, large statues and
extensive fountains. These improvements are expected to enable Caesars Atlantic
City to increase its convention business and to satisfy substantial unmet room
demand. The exterior renovations are designed to further enhance Caesar's
visibility on the center of the Boardwalk to attract more "walk-in" patrons.

     In August 1996, Caesars acquired the Ocean One retail mall from The
Equitable Life Assurance Society for approximately $20 million. The Ocean One
mall is constructed on a pier which extends out 900 feet over the Atlantic Ocean
and is located directly in front of the Boardwalk entrance to Caesars Atlantic
City. Ocean One contains approximately 400,000 square feet of restaurant and
retail space on three floors. Under current applicable local and state laws,
Ocean One may not be used for gaming or lodging activities. In the event gaming
is permitted by local and state laws on Ocean One, Caesars intends to evaluate
the use of the property as a hotel and casino.

     For the year ended December 31, 1996, the average occupancy rate at Caesars
Atlantic City of 96% included occupancy of approximately 89% of the available
rooms and suites by guests receiving complimentary rooms. The average occupancy
rate at Caesars Atlantic City was 94% and 93% for the years ended December 31,
1995 and 1994, including occupancy of 84% and 77% of the available rooms and
suites by guests receiving complimentary rooms.


                                       8
<PAGE>

     Caesars Tahoe. Caesars Tahoe casino/hotel opened in 1979 and is located in
Stateline, Nevada, adjacent to Lake Tahoe. At that time, Caesars entered into a
long-term lease of the 24-acre property on which the casino/hotel stands. At
December 31, 1996, Caesars Tahoe had 440 hotel rooms and suites in service, five
restaurants, a 1,500-seat showroom, 16,000 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, 1996, the average occupancy rate at Caesars
Tahoe of 83% included occupancy of approximately 30% of the available rooms and
suites by guests receiving complimentary rooms. The average occupancy rate at
Caesars Tahoe was 86% and 89% for the years ended December 31, 1995 and 1994,
including occupancy of 29% and 32% of the available rooms and suites by guests
receiving complimentary rooms.

     Capital projects at Caesars Tahoe include the renovation of a buffet
restaurant and the upgrading and improvement of gaming equipment.

     Casino Windsor. Caesars owns a one-half interest in Windsor Casino Limited
("Windsor"). Windsor is the operator of Casino Windsor, a 50,000 square foot
interim casino in Windsor, Ontario, which is owned by the Ontario provincial
government. Caesars anticipates that the interim casino will be replaced by a
permanent facility in early 1998, which is expected to include a hotel of
approximately 400 rooms, a 75,000 square foot casino and entertainment and
meeting facilities.

     Harrison County Riverboat Development. In May 1996, Caesars was granted a
certificate of suitability by the Indiana Gaming Commission to construct and
operate what is expected to be the largest riverboat casino in the United
States. The 80,000 square foot facility will be located on the Ohio River and is
expected to dock in Indiana, across the river from Louisville, Kentucky.
Construction of the facility is subject to receipt of various consents, permits
and approvals.

  The Desert Inn Resort & Casino

     The Desert Inn Resort & Casino, which we purchased in November 1993, is a
casino/hotel complex located on approximately 200 acres on the "Strip" in Las
Vegas, Nevada. The Desert Inn is currently undergoing extensive renovations, of
which the total cost is expected to be approximately $175 million. Upon
completion of the current renovations, The Desert Inn is expected to have 715
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 championship golf course, a spa and other facilities. Its
casino is approximately 25,000 square feet. These renovations are expected to be
completed in the third quarter of 1997 and are expected to make The Desert Inn
the premier luxury destination on the Las Vegas "Strip".

     For the year ended December 31, 1996, the average occupancy rate at The
Desert Inn of 75% included occupancy of approximately 30% of the available rooms
and suites by guests receiving complimentary rooms. The average occupancy rate
at The Desert Inn was 75% and 78% for the years ended December 31, 1995 and
December 31, 1994, including occupancy of 19% and 18% of the available rooms and
suites by guests receiving complimentary rooms.

  The Sheraton Casino

     The Sheraton Casino opened in Tunica, 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 of gaming space.
Casino games include mini-baccarat, blackjack, craps, roulette, slot machines,
Caribbean stud poker, big "6" and "let it ride."

     The performance of The Sheraton Casino has been adversely affected by
increased competition in the Tunica market. We expect that this competition
will continue.


                                       9
<PAGE>

  Other

     Sheraton also operates casinos in Lima, Peru, at the Sheraton Lima Hotel &
Casino, which has 438 rooms and suites; in Halifax, Nova Scotia, at the Sheraton
Halifax Hotel & Casino, which has 351 rooms and suites; and in Sydney, Cape
Breton, Nova Scotia at the Sheraton Casino Sydney, which is a stand-alone
casino. Sheraton also operates casinos in Australia and Egypt.

  Planet Hollywood Development

     We have entered into an agreement in principle to form a joint venture to
develop, own and operate "Planet Hollywood" themed casino/hotels. We expect that
the joint venture with Planet Hollywood will provide an exciting new brand name
for the development of casino resort properties targeted at slot
machine-oriented, middle market gaming customers. Planet Hollywood is the
creator of a dining experience inspired by the worlds of film and television
with a well recognized brand name and strong merchandising expertise.

     We expect that the joint venture will initially develop a Planet Hollywood
Hotel and Casino in Las Vegas, Nevada and subsequently in Atlantic City, New
Jersey, as market conditions warrant. Currently, the plans for these properties
are in a preliminary stage, and construction will be conditioned upon receipt of
all necessary consents, permits and approvals. It is not currently anticipated
that construction in Las Vegas would commence prior to the first quarter of 1998
or that construction in Atlantic City would commence prior to the first quarter
of 2000. We expect to control the budget, development, construction, management
and all operations of the joint venture. We expect that Planet Hollywood will be
primarily responsible for the creative aspects of the joint venture, including
the conceptual design of the theme and the implementation of customer-oriented
"Planet Hollywood" attractions, amenities and events. Although ITT and Planet
Hollywood have entered into an agreement in principle, ITT and Planet Hollywood
have not completed the negotiation of definitive documentation. While we believe
these negotiations are in their final stages, there can be no assurances that
definitive agreements relating to the joint venture will be executed or that any
of the proposed projects will be commenced or completed.

     Caesars is actively exploring various gaming opportunities in the United
States and internationally.

Madison Square Garden

     In March 1995, MSG acquired the businesses of Madison Square Garden
Corporation 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 NBA, (iv) the New York Rangers of the NHL and
(v) the MSG cable television network (the "MSG Network"). MSG supplies and
distributes television programming, which currently includes broadcasts of
Knicks, Rangers and Yankees games and other sports programming, to cable systems
located principally in New York, New Jersey and Connecticut. 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
presents live entertainment.

     On March 6, 1997, we entered into an agreement in principle to sell our 50%
interest in MSG to Cablevision for $650 million plus the assumption of
approximately $115 million of indebtedness. Under the terms of the agreement in
principle, Cablevision will pay us $500 million in cash for a 38.5% interest in
MSG upon closing, which is expected to occur by mid-1997. We will also have an
option to require Cablevision to purchase half of our continuing 11.5% interest
in MSG for $75 million on June 1, 1998 and the other half of our continuing
interest for an additional $75 million (or, if the first option is not exercised
on June 1, 1998, the entire 11.5% interest for $150 million) on June 1, 1999. On
the third anniversary of the initial closing or upon a "change of control" of
ITT, Cablevision will have the right to purchase our remaining interest in MSG
at a price determined by an investment banking firm to be fair market value
(which, if such right arises out of a "change of control" may be paid in debt
securities of Cablevision). The transaction is subject to the negotiation and
execution of definitive documentation, approval of the NBA and the NHL and
certain other conditions.

WBIS+

     On July 1, 1996, in partnership with Dow Jones, we purchased television
station WNYC-TV from The City of New York. The purchase price of $207 million
was split evenly by the two companies and the partnership is managed on a 50/50
basis. The station has been renamed WBIS+ and, on January 22, 1997, introduced a
new format of business and sports programming.


                                       10
<PAGE>

Information Services

  ITT World Directories

     Through an 80%-owned subsidiary, ITT World Directories, we are 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 operating revenue 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 World Directories 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 Telkom 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 had the obligation or right (depending on the jurisdiction) to
publish yellow pages directories (and thus claim significant advertising
revenues) that 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. ITT World Directories lost its exclusive
contract with the national provider of telecommunications services in Belgium
(Belgacom) and the Netherlands (PTT Telekom) in 1994 and 1993, respectively.
Despite the loss of its exclusive contract, ITT World Directories maintains a
market share of over 70% in Belgium. In the Netherlands where ITT World
Directories was previously the sole supplier, ITT World Directories maintains a
significant share of the classified directories market despite competition from
the directories of PTT Telekom. In Portugal, ITT World Directories has
contributed its directory operations to a joint venture with Portugal Telecom.
ITT World Directories in Puerto Rico recently entered into a new three-year
contract with the Puerto Rico Telephone company. In Japan, a new three-year
consulting arrangement has been signed with Nippon Telegraph & Telephone in
which ITT World Directories provides consulting services in connection with the
publication of telephone directories.

     A second important factor affecting the business of ITT World Directories
is the challenge presented by new interactive and other emerging technologies.
ITT World Directories has responded proactively to this challenge and continues
to develop new technologies. 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, it is publishing its classified
directories on CD ROM and it is publishing a fax directory in Portugal on CD
ROM.

  ITT Educational

     Prior to its initial public offering in December 1994, ITT Educational was
a wholly owned subsidiary of Old ITT. We now own 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.


                                       11
<PAGE>

     ITT Educational is a leading proprietary provider of technical
postsecondary degree programs in the United States. ITT Educational offers
associate, bachelor and master degree programs where authorized and, to a lesser
extent, non-degree diploma programs to over 22,500 students through a system of
59 ITT Technical Institutes located in 26 states. The undergraduate 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. As of December 31, 1996, approximately 95% of ITT
Educational students were enrolled in a degree program. Approximately 72% of ITT
Technical Institute students were enrolled in electronics engineering technology
and related programs and 24% were enrolled in computer-aided drafting technology
and related programs. Employers of ITT Technical Institute graduates include
both well-recognized corporations and small, technology-oriented companies.

     In 1981, ITT Educational began a strategy of significant expansion,
acquiring three and establishing 44 new technical institutes since that date. Of
the 59 institutes currently operating, 18 have been established since January 1,
1992. As a result of adding new institutes and increasing enrollment at existing
institutes, the number of students attending ITT Technical Institutes rose from
17,284 students at December 31, 1991, to 22,633 students at December 31, 1996.
ITT Educational is continuing its expansion program, opening six new technical
institutes in 1994, two institutes in 1995 and three institutes in 1996.

Alcatel Alsthom

     At December 31, 1996, we owned approximately 7.5 million shares or
approximately 5% of the outstanding capital shares of Alcatel Alsthom, a French
company which owns Alcatel N.V., one of the largest telecommunications equipment
manufacturers in the world. In February 1997, we sold 3 million shares of
Alcatel Alsthom for approximately $300 million. We have agreed to sell our
remaining interest in the capital stock of Alcatel Alsthom for proceeds of
approximately $530 million, subject to final settlement.

Employees

     As of December 31, 1996, we and our subsidiaries employed on a full-time
basis approximately 38,000 people. Of this number, approximately 60% are
employed in the United States. Approximately one-third of the U.S. employees are
represented by labor unions. Generally, labor relations have been maintained in
a normal and satisfactory manner.

Operations Outside the United States

     In 1996, approximately 47% of our consolidated revenues were made outside
the United States, of which Europe constituted 21%, the Asia-Pacific
region constituted 12%, the Africa and Middle East region constituted 8%, and
other geographic regions constituted the balance.

Competition

     Hotel Operations. Competition in the hotel industry is vigorous and is
generally based on quality and consistency of service, attractiveness of
facilities and locations, availability of a global distribution system, price
and other factors. Room revenues, which are determined by occupancy levels and
room rates, have continued to be constrained in certain of the markets in which
Sheraton hotels are located as a result of economic factors, overbuilt markets,
price sensitive customers and other factors. The principal competitors of
Sheraton hotels include Marriott, Westin, Hyatt, Four Seasons, Hilton and
various other hotels, motels and inns located in the markets in which Sheraton
hotels compete. Ciga faces similar competitive dynamics in its markets.

     Gaming Operations. Our gaming operations face intense competition from
other companies in the gaming industry. Our Las Vegas properties compete
primarily with casino/hotels on the Las Vegas Strip, and to a lesser extent with
operations outside of Las Vegas and the State of Nevada. Although the Las Vegas
market has absorbed recent growth, the trend of industry expansion is expected
to continue over the next several years. It is possible that the expansion of
existing casinos and the opening of additional


                                       12
<PAGE>

hotel/casinos may further increase competition. Our casino facilities in
Stateline, Nevada; Atlantic City, New Jersey; and Tunica, Mississippi also face
intense competition for similar reasons and under similar circumstances. Our
hotel/casino and casino operations are likely to experience increased
competition as other states authorize casino gaming and other gaming activities
and as other countries authorize gaming, and this may adversely affect our
results.

     Competition in the gaming industry is generally based on the quality of the
facilities and services and the entertainment offered at such facilities. In
addition, we believe that name and reputation are significant competitive
factors.

     ITT World Directories. 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. Historically, the national telephone service provider in
countries in the European Union awarded an exclusive contract for the provision
of directories. ITT World Directories lost its exclusive contract with the
national provider of telecommunications services in Belgium (Belgacom) and the
Netherlands (PTT Telekom) in 1994 and 1993, respectively. In Belgium, ITT World
Directories now actively competes with BDS, a joint venture between the local
telecommunications provider, Belgacom, and a subsidiary of GTE Corporation. In
the Netherlands, ITT World Directories now actively competes with directories
published by a joint venture between the local telecommunications provider, PTT
Telekom, and Telemedia Group. Although currently there is no meaningful
competition for directory services in the other principal countries in which ITT
World Directories' operates, there can be no assurance that such conditions will
continue.

     ITT Educational. The postsecondary education market in the United States is
highly fragmented and competitive, with no private or public institution
enjoying a significant market share. ITT Technical Institutes compete for
students with four-year and two-year degree granting institutions, which include
not-for-profit public and private colleges and proprietary institutions, as well
as with alternatives to higher education, such as military service or immediate
employment. Competition among educational institutes is believed to be based on
the quality of the educational program, perceived reputation of the institution,
cost of the program and employability of graduates. Certain public and private
colleges may offer programs similar to those of ITT Technical Institutes at a
lower tuition cost due in part to government subsidies, foundation grants, tax
deductible contributions or other financial resources not available to
proprietary institutions. Other proprietary institutions offer programs that
compete with those of the ITT Technical Institutes. Certain of ITT Educational's
competitors in both the public and private sectors have greater financial and
other resources than ITT Educational.

Exposure to Currency Fluctuations

     Certain of our subsidiaries conduct operations worldwide. We are,
therefore, exposed to the effects of fluctuations in relative currency values.
Accordingly, our operating results will be impacted by fluctuations in relative
currency values.

Intellectual Property

     We own and control 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 our businesses.
These intellectual property rights include such recognizable trademarks and
trade names as ITT, Sheraton and Caesars Palace. However, while these
trademarks, trade names and other intellectual property rights in the aggregate
are of material importance to our business, we believe that our business, as a
whole, is not materially dependent upon any one intellectual property or related
group of such properties. We are 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 us.


                                       13
<PAGE>

Governmental Regulation and Related Matters

     General. As a result of the acquisition of WBIS+, ownership of our common
stock by "aliens" (to the United States) is subject to the limitations contained
in the United States Communications Act of 1934. In addition, 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 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. The Communications Act of 1934, as amended
(the "Communications Act"), restricts the ownership of our common stock by
"aliens." Because we have shared control of a broadcast licensee, the
limitations in Section 310(b)(4) of the Communications Act govern the
permissible degree of alien ownership and control of the outstanding common
stock. Under Section 310(b)(4), no more than 25% of the ownership nor more than
25% of the voting rights of a broadcast licensee may be held directly or
indirectly by aliens. In assessing compliance with the 25% ceiling, the Federal
Communication Commission ("FCC") will consider direct and indirect alien
interests using a multiplier, so, for example, minority alien interests in
U.S.-controlled corporations will count proportionally against the 25% 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.

     Our Amended and Restated By-laws provide that the amount of common stock
owned of record or voted by aliens within the meaning of the FCC's rules and
policies may not exceed 25% of the total outstanding common stock. As of
December 31, 1996, we believe that less than one percent of our outstanding
common stock was owned of record by aliens.

     Casino Gaming Regulation--General. The 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 Sheraton (Sheraton, SGC and SDI are collectively referred to as
the "Sheraton Desert Inn Companies"). The Sheraton Casino in Tunica,
Mississippi, 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 Sheraton. Caesars' casino gaming operations in Atlantic City 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
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.

     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, our 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 statutes govern the ownership, possession,
manufacture, distribution and transportation in interstate commerce of gaming
devices and the recording and reporting of currency transactions. Our Nevada
casino gaming operations 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 (collectively referred to as the "Nevada Gaming
Authorities"). Our New Jersey casino gaming operations 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,


                                       14
<PAGE>

county and state regulatory agencies (collectively referred to as the "New
Jersey Gaming Authorities"). Our Mississippi casino gaming operations 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 (collectively referred to as the "Mississippi Gaming Authorities"). Our
Ontario casino gaming operations 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 (collectively referred to as the
"Ontario Gaming Authorities"). Our Nova Scotia casino gaming operations 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 (collectively referred to as the "Nova Scotia Gaming
Authorities").

     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 their 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) the maintenance and development of
public confidence and trust in casino gaming regulation and control. Changes to
such laws, regulations and supervisory procedures could have an adverse effect
on our casino gaming operations.

     Nevada Gaming Regulation. 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 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 transferrable and must be
renewed periodically by the payment of casino gaming license fees and taxes. The
Nevada Commission requires that (i) SGC and 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, a corporation which is
involved in gaming activities. 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 of our
officers, directors and key employees and those of our subsidiaries who are
actively and directly involved in our gaming activities 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.

     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 is to be used either to (i) finance the construction,


                                       15
<PAGE>

acquisition or operation of gaming facilities in Nevada, or (ii) retire or
extend obligations incurred for one or more such purposes.

     If it were determined that Nevada gaming laws were violated by SDI or DPI,
the gaming license each holds could be limited, conditioned, suspended or
revoked. In addition, at the discretion of 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
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 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 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 material adverse effect
on SDI or DPI, as the case may be.

     The Nevada Gaming Authorities may investigate and require a finding of
suitability of any holder of any class of our voting securities at any time.
Nevada law requires any person who acquires more than 5% of any class of our
voting securities to report the acquisition to the Nevada Commission and such
person may be investigated and found suitable or not suitable. Any person who
becomes a beneficial owner of more than 10% of any class of our 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" that acquires more than 10% but not more than 15% of
our voting securities may apply to the Nevada Commission for a waiver of such
finding of suitability if such institutional investor holds the voting
securities for investment purposes only; an institutional investor will 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 our Board of Directors,
any change in our corporate charter, bylaws, management, policies or operations
or any of our casino gaming operations, or any other action which the Nevada
Commission finds to be inconsistent with holding our voting securities for
investment purposes only. 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 of its ownership interests.

     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 person
found unsuitable who holds, directly or indirectly, any beneficial ownership of
our 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.
We could be subject to disciplinary action if, without the prior approval of the
Nevada Commission and after we receive 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, any of such
entities 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 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.


                                       16
<PAGE>

     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."
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 if such acquisition 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 (i) knowingly violate any laws of the foreign jurisdiction
pertaining to the foreign gaming operation, (ii) fail to conduct the foreign
gaming operation in accordance with the standards of honesty and integrity
required of Nevada gaming operations, (iii) engage in activities that are
harmful to the State of Nevada or its ability to collect gaming taxes and fees,
or (iv) employ 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. 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 extension 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 other entities, (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 hotel/casino 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
review by the New Jersey 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. The casino license to operate Caesars Atlantic
City was renewed on November 30, 1996 and is currently scheduled to expire on
November 30, 2000.

     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 our New Jersey hotel/casino 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


                                       17
<PAGE>

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 holder of our debt or equity securities or those of Caesars or
CNJ must be found qualified; the qualification requirement 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". The New Jersey Act presumes
that any non-"institutional investor" security holder who owns or beneficially
holds 5% or more of our equity securities 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
our equity securities or (b) debt securities constituting less than 20% of our
outstanding debt 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 our affairs, 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 our affairs; notwithstanding the foregoing, the institutional investor is
permitted to vote on matters put to the vote of our outstanding security
holders. 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 that institutional investor 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 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.

     Any holder of our debt or equity securities--including institutional
investors--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 our securities 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, the trustee will be empowered with
all rights of ownership pertaining to such security holder's securities,
including all voting rights and the power to sell the securities; in any event,
the unqualified security holder will not be entitled to


                                       18
<PAGE>

receive in exchange for its 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. 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 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.

     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" 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 period, which includes the previous 36 calendar
months and the upcoming license period, average at least 5% of net revenue per
annum. We believe 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 were 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. The New
Jersey Commission, however, will not take any action against ITT, Caesars, CNJ
or BRC in connection with a disqualified holder if the New Jersey Commission
finds that (i) we have provided in our corporate charter that our securities are
held subject to the condition that, if a holder is found to be disqualified by
the New Jersey Commission pursuant to the provisions of the New Jersey Act, such
holder shall dispose of its interest in ITT, (ii) we have 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 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 has priority over all prior and subsequent
liens.


                                       19
<PAGE>

     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, 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 periodically to submit detailed financial and operating reports to the
Mississippi Commission and to 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, such entity 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 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.

     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 gaming operations are located. Generally, 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-half 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. The Sheraton subsidiary which owns
and operates the casino in the City of Halifax, Nova Scotia, and operates the
casino in the City of Sydney,


                                       20
<PAGE>

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.

     Indiana Gaming Regulation. As a result of Caesars' planned riverboat casino
development in Harrison County, Indiana, we are subject to the gaming
regulations in force in that state. Indiana currently imposes regulations on
gaming companies similar to, and in our opinion, no more restrictive than, the
gaming regulations in force in Nevada and New Jersey.

     Casino Gaming--Related Provisions of our Restated Articles of
Incorporation. Our Restated Articles of Incorporation provide that (i) all our
securities are subject to redemption by us to the extent necessary to prevent
the loss, or to secure the reinstatement, of any casino gaming license held by
us or any of our subsidiaries in any jurisdiction within or without the United
States, (ii) all our securities are held subject to the condition that if a
holder is found by a gaming authority in any jurisdiction to be disqualified or
unsuitable pursuant to any gaming law, such holder will be required to dispose
of all such securities, and (iii) it is unlawful for any such disqualified
person to (a) receive payments of interest or dividends on any such securities,
(b) exercise, directly or indirectly, any rights conferred by any such
securities or (c) receive any remuneration in any form, for services rendered or
otherwise, from the subsidiary that holds the gaming license in the applicable
jurisdiction.

     ITT Educational. The postsecondary education industry is highly regulated.
ITT Educational must be authorized by each state in which it operates an ITT
Technical Institute. In order to become eligible to participate in Federal
student financial aid programs, each ITT Technical Institute must also be
accredited by a national or regional accrediting commission, and that commission
in turn must satisfy applicable Federal requirements. Most students at the ITT
Technical Institutes rely on funds received under various government-sponsored
student financial aid programs, especially Federal programs, to pay a
substantial portion of their tuition and other education-related expenses.
Accordingly, a substantial majority of ITT Educational's revenues are indirectly
derived from Federal student financial aid programs. In order for an individual
ITT Technical Institute to continue to participate in such programs, the
institute must comply with applicable Federal standards for these programs. Some
of the standards and regulations governing institutions such as the ITT
Technical Institutes recently have been expanded and made more stringent.
Because such a substantial portion of ITT Educational's revenues are derived
from student aid programs, the direct and indirect application of these and
other standards and regulations could have a material adverse impact on such
institutions and the expansion plans of ITT Educational. In addition, any
failure of ITT Educational or any ITT Technical Institute to be in compliance
with such regulations and standards could have a material adverse effect on the
operating performance of ITT Educational and the ability of ITT Educational to
participate in Federal student financial aid programs. For the year ended
December 31, 1996, ITT Educational derived approximately 76% of its revenues
from Federal or state student aid programs (with only approximately 2% of
revenues coming from various state student aid programs). We believe that the
Hilton Transaction (as well as the related proxy solicitation) would, if
successful, constitute a change in ownership resulting in a change in control of
ITT Educational under the regulations of the U.S. Department of Education, all
or virtually all of the state education authorities that regulate ITT
Educational's business and the accrediting institutions that accredit each ITT
Technical Institute. A change of control of ITT Educational would immediately
result in the suspension of access to certain Federal educational funds for ITT
Educational and its students and could result in the loss of accreditation for
individual ITT Technical Institutes. Any of the foregoing could result in a
material adverse change in the business, financial condition and results of
operations of ITT Educational.

Private Securities Litigation Reform Act

     The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. Certain information included in
this Form 10-K and other materials filed or to be filed by us with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by us) contains
statements that are forward-looking, such as statements relating to plans for
future expansion and other business development activities as well as other
capital spending, financing sources and the effects of regulation (including
gaming and tax regulation) and competition. Such forward-looking information
involves important risks and uncertainties that could significantly affect
anticipated results in the future and, accordingly, such results may differ from
those expressed in any forward-looking statements made by or on behalf of us.
These risks and uncertainties include, but are not limited to, those relating to
development and construction activities, dependence on existing management,
leverage and debt service (including sensitivity to fluctuations in interest
rates), domestic or global economic conditions, whether the Hilton Transaction
is successful, changes in Federal or state tax laws or the administration of
such laws and changes in gaming laws or regulations (including the legalization
of gaming in certain jurisdictions).

Item 2. Properties

     Reference is made to "Business."


                                       21
<PAGE>

Item 3. Legal Proceedings

     On January 27, 1997, a complaint (the "Hilton Complaint") captioned Hilton
Hotels Corporation and HLT Corporation v. ITT Corporation was filed against us
in the U.S. District Court for the District of Nevada (the "Court"). The Hilton
Complaint asks the Court, among other things: (i) to enjoin us from amending our
by-laws "in any way that would impede the effective exercise of the stockholder
franchise in connection with the 1997 annual meeting", from materially delaying
our annual meeting, and from increasing the size of the Board "in order to
preserve the position of incumbent directors", (ii) to require the Board to
redeem our preferred stock purchase rights and to make inapplicable to the
Hilton Transaction the Nevada Control Share Acquisition Statute and the Nevada
Business Combination Statute and (iii) to declare that we do not have standing
to institute an action under the Federal anti-trust laws to block or impede the
Hilton Transaction and that, in any event, the consummation of the Hilton
Transaction would not violate such laws.

     On January 27, 1997, Hilton and HLT filed a motion for a preliminary
injunction (the "Hilton Preliminary Injunction Motion") seeking to enjoin us (i)
from increasing the size of the Board or, alternatively, requiring us to give
Hilton the opportunity to supplement the individuals it nominates for the Board
and (ii) from amending our by-laws "to impede in any way the effective exercise
of the stockholder franchise in connection with electing directors" at the 1997
annual meeting. Following a hearing on the preliminary injunction on March 5,
1997, the Court issued an order denying the Hilton Preliminary Injunction
Motion.

     On February 12, 1997, we filed an answer and counterclaims to the Hilton
Complaint denying all material allegations of the Hilton Complaint. The
counterclaims seek injunctive relief prohibiting Hilton from proceeding with the
Hilton Offer which is tainted by Hilton's misappropriation and misuse of our
confidential information and other relief to prevent Hilton from benefitting
from access to our confidential information. These counterclaims also seek
injunctive relief, in the event the Hilton Offer is not enjoined, requiring
Hilton to correct material inadequacies in the Schedule 14D-1 filed by Hilton
with the Securities and Exchange Commission by disclosing and filing the
information required under the Federal securities laws.

     On February 26, 1997, Hilton filed a motion for a preliminary injunction
seeking to require us to hold our annual meeting in May 1997. On March 13, 1997,
we filed a memorandum in opposition to Hilton's motion. On March 25, 1997,
Hilton filed a reply memorandum. The Court has not yet informed the parties
whether it will hold a hearing prior to deciding the motion.

     Following the Hilton Offer, a total of eight purported class action suits
were filed on behalf of individual plaintiffs against ITT and the Board in
various state courts in Nevada. These complaints were captioned Cohen v. ITT
Corp. N.V., et al.; Kostick v. Araskog, et al.; Bernstein, et al. v. ITT Corp.
N.V., et al.; Feuerstein, et al. v. ITT Corp. N.V., et al.; Marks, et al. v.
Araskog, et al.; Huntley v. ITT Corporation, et al.; Steiner v. Araskog, et al.;
and Cohen v. Araskog, et al. Five purported class action suits were also filed
on behalf of individual plaintiffs against ITT and the Board in the Nevada
Federal court. The complaints were captioned Collins v. Anderson, et al.; Taub,
et al. v. Araskog, et al.; Kanarek v. Araskog, et al.; Halebian v. Araskog, et
al.; and Cohen, et al. v. Araskog, et al. In addition, four purported class
action suits were filed on behalf of individual plaintiffs against ITT and the
Board in the Supreme Court of the State of New York. The complaints were
captioned Siegel v. Araskog, et al.; Waltzman v. Anderson., et al.; Hack v. ITT
Corp., et al.; and Rand, et al. v. ITT Corporation, et al. The complaints
allege, among other things, that the defendants have breached their fiduciary
duties to ITT's stockholders by failing to maximize stockholder value. The
complaints seek, among other things, to compel the defendants to carry out their
fiduciary duties and to cooperate with any person having a bona fide interest in
proposing a transaction with ITT which would maximize stockholder value. There
have been no other material developments in any of the foregoing actions.

     In October 1996, a jury sitting in the California Superior Court, San Diego
County, returned a verdict in Eldredge, et al. v. ITT Educational Services, et
al. against both ITT and ITT Educational. The plaintiffs in Eldredge, seven 1995
graduates of ITT Educational's school in San Diego, alleged,


                                       22
<PAGE>

among other things, misrepresentation and violations of a provision of the
California Education Code. In the aggregate, the plaintiffs were awarded
approximately $0.2 million in compensatory damages and $6.6 million in punitive
damages, consisting of $2.6 million against ITT Educational and $4.0 million
against ITT. As a result of post trial motions decided in December 1996 and
January 1997, the verdict against ITT was set aside and ITT Educational was
assessed in excess of $0.9 million in counsel fees, so that the judgment, as
entered against only ITT Educational, is in the approximate amount of $3.8
million. All parties have appealed. We believe that it is probable that the
judgment against ITT Educational will ultimately be reversed, in whole or
substantial part, and that the decision setting aside the verdict against ITT
will be affirmed; however, there can be no assurance that these outcomes will
occur. Various purported class action suits have been filed against ITT and ITT
Educational in California alleging similar claims to those alleged in Eldridge.

     In addition to the suits described above, there are various lawsuits
pending against us and our 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 our consolidated financial
condition.

Item 4. Submission of Matters to a Vote of Security Holders

     No matter was submitted to a vote of our security holders during the fourth
quarter of the year ended December 31, 1996.

Executive Officers

     Each of our executive officers listed below held executive positions with
Old ITT prior to the Distribution.

     Rand V. Araskog (age 65) is our Chairman and Chief Executive and a
director. In December 1996, he was also elected Chairman of Sheraton and
Caesars. Prior to his election as our Chairman and Chief Executive, he was
Chairman, President and Chief Executive of Old ITT.

     Robert A. Bowman (age 41) is our President and Chief Operating Officer and
a director. From September 1992 to December 1995, he was Executive Vice
President and Chief Financial Officer of Old ITT. From April 1991 to September
1992, he was Executive Vice President and Chief Financial Officer of Sheraton.

     Ann N. Reese (age 44) is our Executive Vice President and Chief Financial
Officer. From September 1992 to December 1995, she was Senior Vice President and
Treasurer of Old ITT; and prior to that time, she was Vice President and
Treasurer of Old ITT.

     Richard S. Ward (age 56) is our Executive Vice President, General Counsel
and Corporate Secretary. From May 1994 to December 1995, he was Executive Vice
President and General Counsel of Old ITT. From September 1992 to May 1994, he
was Senior Vice President and General Counsel of Old ITT; and prior to that
time, he was Vice President and Associate General Counsel of Old ITT.

     Peter G. Boynton (age 53) is one of our Senior Vice Presidents and is
President and Chief Executive Officer of Caesars. From July 1995 to December
1995, he was a Senior Vice President of Old ITT. From February 1995 to December
1995, he was also President and Chief Operating Officer of Caesars. From 1982 to
February 1995, he was President and Chief Operating Officer of Caesars Atlantic
City.

     Juan C. Cappello (age 58) is a one of our Senior Vice Presidents and is
our Director of Corporate Relations. He was also a Senior Vice President and
Director of Corporate Relations of Old ITT, a position he held since 1984.

     Gerald C. Crotty (age 45) is one of our Senior Vice Presidents and is
Chairman, President and Chief Executive Officer of ITT Information Services,
Inc. From October 1994 to December 1995, he was a Senior Vice President of Old
ITT. From October 1993 to December 1995, he was also President and Chief
Operating Officer of ITT Consumer Financial Corporation. From February 1992
until September 1993, he was a Vice President of Old ITT.

     Jon F. Danski (age 44) is one of our Senior Vice Presidents and is our
Controller. From October 1993 to December 1995, he was Senior Vice President and
Controller of Old ITT. Prior to that time, he was Vice President and General
Auditor of RJR Nabisco.


                                       23
<PAGE>

     Nicholas J. Glakas (age 52) is one of our Senior Vice Presidents and is our
Associate General Counsel and Director of Government Relations. From October
1995 to December 1995, he was a Senior Vice President of Old ITT. From September
1992 to October 1995, he was Vice President, Associate General Counsel &
Director of Government Affairs of Old ITT; and prior to that time, he was
Director of Government Affairs of Old ITT.

     Ralph W. Pausig (age 62) is one of our Senior Vice Presidents and is our
Director of Human Resources. He was also a Senior Vice President and the
Director of Human Resources of Old ITT, a position he held since 1987.

     Elizabeth A. Tuttle (age 40) is one of our Senior Vice Presidents and is
our Treasurer. From February 1995 to December 1995, she was Vice President and
Assistant Treasurer of Old ITT. From October 1993 to February 1995, she was
Assistant Treasurer and Director of Capital Markets of Old ITT. From July 1992
to October 1993, she was Assistant Treasurer and Manager of Financial Planning
Operations of Old ITT; and prior to that time, she was Manager of Financial
Planning Operations of Old ITT.

     Daniel P. Weadock (age 57) is one of our Senior Vice Presidents and is
President and Chief Executive Officer of Sheraton. From July 1995 to December
1995, he was a Senior Vice President of Old ITT. From November 1993 to December
1995, he was also the President and Chief Operating Officer of Sheraton. Prior
to that time, he was Chairman, President and Chief Executive Officer of ITT
Communications and Information Services, Inc.

                                     PART II

Item 5. Market for ITT's Common Stock and Related Stockholder Matters

ITT Common Stock--Market Prices and Dividends

                                                              Three Months Ended
                                                                     1996
                                                              ------------------
                                                                 High     Low
                                                                 ----     ---
March 31,                                                       $62.63  $47.38
June 30,                                                        $68.25  $56.88
September 30,                                                   $66.63  $43.00
December 31,                                                    $46.50  $40.88

                                                                     1995
                                                              ------------------
                                                                 High     Low
                                                                 ----     ---
Period commencing December 20, 1995 and ending
December 31, 1995                                               $53.13  $48.25

     The above table reflects the range of market prices of our common stock
subsequent to the Distribution, as reported in the consolidated transaction
reporting system of the New York Stock Exchange, the principal market in which
our common stock is traded, under the trading symbol "ITT."

     During the period from January 1, 1997 through March 24, 1997, the high and
the low reported market prices of our common stock were $60 and $41.13.

     We have not declared any dividends to date and at present have no plans to
declare or pay any dividends.

     There were approximately 56,000 holders of record of our common stock on
March 24, 1997.

     Our common stock is listed on the New York Stock Exchange.


                                       24
<PAGE>

Item 6. Selected Financial Data
        Dollars in millions except per share

<TABLE>
<CAPTION>
                                                   1996    1995    1994    1993    1992
                                                   ----    ----    ----    ----    ----
<S>                                               <C>     <C>     <C>     <C>     <C>
Income Statement Data:
Revenues ..................................       $6,597  $6,252  $4,709  $4,169  $4,253
Income before Accounting Changes(1) .......       $  249  $  147  $   74  $   39  $    2
Earnings per share before Accounting
  Changes (Pro Forma for 1994 and prior
  years)(1)................................       $ 2.11  $ 1.24  $  .63  $  .33  $  .02

Balance Sheet Data:
Total Assets ..............................       $9,275  $8,692  $5,012  $3,791  $3,375
Long-term Debt, including Capital Leases ..       $3,894  $3,575  $  600  $  169  $  186

Operating Data:
Operating Income ..........................       $  728  $  568  $  292  $  142  $   34
EBITDA (2) ................................       $1,004  $  821  $  424  $  251  $  114
Cash from Operating Activities ............       $  525  $  504  $  230  $  186  $  143
Number of Employees (in thousands) ........           38      38      25      18      18
</TABLE>

(1)  In 1995, excluding restructuring charges and adjusted for a full year of
     Caesars, MSG and certain other one-time items, Income before Accounting
     Changes and Earnings per share would have been $208 and $1.76,
     respectively.

(2)  EBITDA is presented here as an alternative measure of our ability to
     generate cash flow and should not be construed as a substitute to operating
     income (as determined in accordance with generally accepted accounting
     principles) or to cash flows from operating activities (as determined on
     the Cash Flow Statement in our Financial Statements contained herein).
     EBITDA was computed above as earnings before interest, taxes, depreciation
     and amortization.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations (Dollar amounts are in millions unless otherwise stated)

     This discussion and analysis of financial condition and results of
operations is prepared as if ITT were a separate entity for all periods
discussed.

Year ended December 31, 1996 compared with year ended December 31, 1995

     Revenues of $6,597 in 1996 increased 6% compared with $6,252 in 1995. This
growth was fueled by the Hotels segment, which realized an 11% increase in
average room rates in its owned and leased properties as well as the benefit
from hotel acquisitions which were made in late 1995 and during 1996. Gaming
revenues rose 4% in 1996 due to the inclusion of a full year of Caesars results
versus eleven months in 1995. Excluding this benefit, Gaming revenues decreased
2% due to construction disruption at The Desert Inn which impacted casino
operations for almost the entire year and increased competition in the Tunica,
Mississippi market where The Sheraton Casino results were substantially below
the previous year. Revenues at ITT World Directories were basically unchanged
during 1996 at $647 compared with $654 in 1995 as the benefits from the November
1995 acquisition of Maister Directories were offset by the impacts of foreign
exchange and increased competition with certain telephone companies. Revenues at
ITT Educational grew 15% to $232 due to a continuing expansion of curricula and
degree offerings, tuition price increases and increased census. Management
continues to aggressively pursue revenue growth as well as cost savings
opportunities in each of its market segments


                                       25
<PAGE>

     through a variety of strategies including the cross promotion of our assets
and continued domestic and international expansion.

     Salaries, benefits and other operating costs increased 4% in 1996 to $4,755
from $4,576 representing the costs of the acquired properties and smaller
increases in the cost of services. Overall, salaries, benefits and other
operating costs represented 72% of revenues in 1996, down from 73% in 1995. This
decrease reflects management's ongoing cost containment programs as well as
increases in average room rates as noted above outpacing the increases in costs.

     Selling, general and administrative expenses decreased 2% to $838 in 1996
compared with $855 in 1995. Included in the 1995 period is a charge of $80 for
severance and other costs associated with restructuring the headquarters of the
Hotels and Information Services business segments and a charge of $6 associated
with the consolidation of certain administrative and other functions in the
Gaming segment. The 1995 results also include a benefit of $96 representing the
reimbursement of overhead expenses related to world headquarters management and
supervision of the entities which comprised Old ITT prior to the Distribution
("service fee income"). Excluding the impact of these items, selling, general
and administrative expenses declined approximately 3% in 1996, reflecting
management's continuing commitment to cost containment.

     Excluding the prior year restructuring charges and service fee income, we
generated earnings before interest, taxes, depreciation and amortization
("EBITDA") of $1,004 in 1996 compared with $811 in 1995, a 24% improvement. This
improvement reflects the aforementioned significant average room rate increases,
the benefits from acquisitions in both the Hotels and Information Services
business segments as well as operational improvements. These overall increases
were mitigated by significant adverse conditions at two of ITT's gaming
properties, The Desert Inn and The Sheraton Casino. Management is reviewing
alternatives regarding both of these properties. Depreciation and amortization
increased 9% compared with the prior year due to the impact of the acquisitions
discussed above. Excluding the prior year restructuring charges and service fee
income, operating income rose 31% in 1996 to $728 compared with $558 in 1995.

     Interest expense (before interest income of $74 in 1996 and $54 in 1995)
decreased to $304 from $345 in 1995. During 1995, Old ITT allocated certain
indebtedness between ITT and ITT Industries, Inc. ("ITT Industries") in
anticipation of the Distribution. As a result of such allocation, the interest
expense recorded in 1995 is not necessarily indicative of the interest expense
which would have been incurred if ITT was an independent entity during such
period.

     The provision for income taxes increased in 1996 due to higher pretax
earnings and a higher effective tax rate which was caused by a difference in the
mix of our worldwide earnings. In addition, during 1995 Old ITT allocated
certain tax attributes between the companies in anticipation of the
Distribution. Such allocation reflects results which are not necessarily
indicative of the income tax expense which ITT would have incurred if ITT was an
independent entity during such period.

     The minority equity represents the net income attributable to the minority
shareholders of Ciga, ITT World Directories and ITT Educational and increased
due to higher earnings. Net income of $249 in 1996 improved 69% compared with
$147 in 1995 as a result of the factors discussed above.

Business Segments

     Revenues, EBITDA and operating income, excluding the effects of corporate
overhead, 1995 restructuring charges ($51 in Hotels, $29 in Information Services
and $6 in Gaming) and minority equity, for each of our three major business
segments were as follows:

        Year Ended 1996                                Year Ended 1995
--------------------------------              ----------------------------------
                       Operating                                       Operating
Revenues     EBITDA      Income               Revenues      EBITDA       Income
--------     ------    ---------              --------      ------     ---------
 $4,433       $530        $371   ...Hotels...  $4,164        $376         $248

     Hotels 1996 results reflect average rate increases of 11% at owned and
leased properties throughout the world. Revenues at owned and leased properties
increased 14%. Revenue per available room ("REVPAR") increased 13% in North
America and 10% on a worldwide basis. As a result of these improvements,
worldwide REVPAR increased to $106 in 1996 compared with $96 in 1995.
Improvements in the owned and leased 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. Despite
strong average rate gains,


                                       26
<PAGE>

managed property revenues increased by only 3% in 1996 due to our decision to
terminate several unprofitable hotel management contracts.

     Owned and leased properties, which generate 75% of the Hotels segment's
EBITDA, reflect a 37% EBITDA improvement. Excluding the effects of acquisitions,
EBITDA from owned and leased properties improved 27%; notable improvements
included a 42% improvement in New York (four properties), an 82% improvement in
San Diego, California, a 58% improvement in Miami, Florida and a 63% improvement
in Rome (three properties). The primary contributors to the improved results at
owned and leased properties were increased average rates and cost containment
programs. Acquisitions, which consist of properties purchased and constructed,
contributed $32 of EBITDA in 1996 and include properties in London, Paris,
Warsaw (Poland), Cancun (Mexico) and the Fiji Islands. EBITDA from franchised
properties increased 7% on a 6% average rate increase. The 1996 results, which
reflect a 41% EBITDA improvement and a 50% operating income improvement,
reinforce management's philosophy of maximizing operating results by attaining
an optimal combination of rate and occupancy while enhancing the level of
service and value to our customers. We will continue to expand and enhance our
image among world travelers through targeted renovations, upgrading standards
and strategic acquisitions.

     During 1996, we signed agreements to manage seven new hotels to be opened
in China. Included in the seven hotels is the Beijing International Club, which
is expected to open in 1997 and will include a 286-room hotel, an office
building with more than 75,000 square feet of space for lease, a sports and
recreation complex, 112 upscale apartments and a private membership club. We
will also own a 31% interest in this property. The remaining six hotels will be
located in the cities of Suzhou, Guangzhou, Dongguan, Shenyang, Wuxi and Haikou
and are scheduled for opening in the next two years. These seven hotels,
combined with the five hotels currently managed in China, will give ITT more
than 5,500 rooms in China and make it one of the largest managers and investors
in full-scale hotels in the Asia-Pacific region.

     At December 31, 1996, Hotel properties included 68 properties (17%), which
are owned or leased, 135 properties (33%) which are managed under long-term
agreements and 208 properties (50%) which are franchised, totaling over 128,000
rooms worldwide.

        Year Ended 1996                                Year Ended 1995
--------------------------------              ----------------------------------
                       Operating                                       Operating
Revenues     EBITDA      Income               Revenues      EBITDA       Income
--------     ------    ---------              --------      ------     ---------
 $1,285       $291        $211   ...Gaming...  $1,232        $296         $208

     Gaming's 1996 results include strong performances at Caesars Atlantic City
in Atlantic City, New Jersey, at Caesars Palace in Las Vegas, Nevada, and at
Caesars Tahoe in Stateline, Nevada which were offset by construction disruption
and excess market capacity conditions at The Desert Inn and The Sheraton Casino,
respectively. At Caesars Atlantic City, record revenues, EBITDA and operating
income were the result of improved table and slot results despite higher
marketing costs. Caesars Palace recorded improved revenues and flat EBITDA and
operating income despite a third quarter decline in the premium play business
and the negative effect that construction has had on operations. Caesars Tahoe
improved its results through successful cost containment programs while
maintaining gaming volume. All three of these properties also benefited from
strong increases in average room rates and high occupancy levels. The Desert Inn
opened its newly renovated casino on December 26; however, construction
disruption prior to the opening severely limited casino operations during the
year. Increased competition in the Tunica market, which is expected to continue
throughout 1997, contributed to results substantially below 1995 at The Sheraton
Casino.

     We have ongoing expansion projects at Caesars Palace, The Desert Inn and
Caesars Atlantic City. These projects are expected to have a negative impact on
operations until they are completed. These negative impacts are expected to
result primarily from the noise, appearance and physical condition of the
properties caused by the construction and, to a lesser extent, a slight
reduction in


                                       27
<PAGE>

the number of available rooms during certain project phases. A discussion of our
program to upgrade and expand our existing gaming operations appears under
"Liquidity and Capital Resources".

        Year Ended 1996                                Year Ended 1995
--------------------------------              ----------------------------------
                       Operating                                       Operating
Revenues     EBITDA      Income               Revenues      EBITDA       Income
--------     ------    ---------              --------      ------     ---------
 $879         $260        $231   .Information.   $856        $237         $207
                                   Services

     Revenues at ITT World Directories were basically unchanged from 1995 as the
full year benefit of the Maister Directories acquisition was offset by the
impacts of foreign exchange and increased competition with certain telephone
companies. EBITDA and operating income improved due mainly to continuing cost
controls throughout the organization and the Maister Directories acquisition.

     ITT Educational revenues increased 15% while EBITDA and operating income
increased 24% and 44%, respectively. This growth was attributable to a 10%
increase in total student enrollments during 1996, which resulted primarily from
an increase in same-college student enrollments, improved results at new
colleges opened over the last few years, expanded curricula offerings at many of
its colleges and the introduction of new baccalaureate programs. At December 31,
1996, student enrollments were 22,633 compared with 20,618 at December 31, 1995,
a 10% increase.

Year ended December 31, 1995 compared with year ended December 31, 1994

     Revenues of $6,252 in 1995 increased 33% compared with $4,709 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 latter half of 1994. Caesars revenues totaled $910 from the
date of acquisition while Ciga and other hotel acquisitions contributed $586 in
1995 compared with $271 in 1994 from the dates of acquisition of these
properties. Excluding the Caesars and hotel acquisitions, revenues increased 7%
in 1995 primarily due to higher average room rates in owned and leased
properties in North America and the inclusion of a full year's results of The
Sheraton Casino. Revenues at ITT World Directories were basically unchanged
during 1995 at $654 compared with $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.

     Salaries, benefits and other operating costs increased 21% in 1995 to
$4,576 from $3,786 representing the costs of the acquired properties and smaller
increases in the cost of services. Overall, salaries, benefits and other
operating costs represented 73% of revenues in 1995, down from 80% in 1994, 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, continued benefits of cost control programs,
and favorable foreign exchange experience, contributed to the positive results.

     Selling, general and administrative expenses increased 62% to $951 in 1995
compared with $587 in 1994, due primarily to the costs associated with the
Caesars, Ciga and other hotel acquisitions. In 1995, we embarked on a
company-wide cost rationalization program aimed at reducing administrative
costs. In June 1995, we announced the closing of the Caesars headquarters in Los
Angeles; in September 1995, we provided for severance and other costs associated
with the restructuring of the headquarters operations of the Hotels and
Information Services segments totaling $80 pretax, and in December 1995, we
recorded charges associated with the consolidation of certain administrative and
other functions in our Gaming segment of $6 pretax.

     Selling, general and administrative expenses have been reduced by service
fee income of $96 and $88 in 1995 and 1994, respectively, representing amounts
received for overhead expenses related to world headquarters management and
supervision of the entities comprising Old ITT prior to the Distribution,
including advice and assistance provided by ITT in connection with cash
management, legal, accounting, tax and insurance services. 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.

     Operating income rose to $568 in 1995 compared with $292 in 1994,
reflecting the impact of the acquisitions discussed above, as well as the impact
of the restructuring charges referred to above. Excluding the acquisitions and
restructuring charges, operating income increased 42% primarily due to higher
average room rates, particularly in owned properties in North America, and the
aforementioned


                                       28
<PAGE>

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. This increase is primarily the result of
the acquisition of Caesars and the hotels discussed above as well as the March
10, 1995 acquisition of Madison Square Garden Corporation.

     Provision for income taxes rose during 1995 in direct proportion to the
higher pretax earnings as ITT maintained an effective rate of 40% in both years.
Net income, after minority equity, was $147 in 1995, compared with $74 in 1994
as a result of the factors discussed above.

Business Segments

     Revenues, EBITDA and operating income, excluding the effects of corporate
overhead, 1995 restructuring charges ($51 in Hotels, $29 in Information Services
and $6 in Gaming) and minority equity, for each of our three major business
segments were as follows:

        Year Ended 1995                                Year Ended 1994
--------------------------------              ----------------------------------
                       Operating                                       Operating
Revenues     EBITDA      Income               Revenues      EBITDA       Income
--------     ------    ---------              --------      ------     ---------
 $4,164       $376        $248   ...Hotels...  $3,700        $239         $152

     The 1995 results reflect the full-year benefit of the Ciga and other
significant hotel acquisitions made during 1994. Average daily rate at our owned
and leased properties increased 10% and was the primary contributor to a 10%
increase in REVPAR to $96. EBITDA from owned and leased properties more than
doubled in 1995. Excluding the effects of 1994 acquisitions, EBITDA from owned
and leased properties improved 51%, with strong improvements throughout North
America. The primary contributors to the improved results were the increase in
average rates and the benefits of cost containment programs. These increases
reflected management's focus on attaining the optimal combination of rate and
occupancy while enhancing the level of service and value to our customers.
EBITDA from managed properties increased 24% due to the addition of several new
management agreements. At December 31, 1995, Hotel properties included 68
properties (17%) which were owned or leased, 134 properties (32%) which were
managed under long-term agreements and 214 properties (51%) which were
franchised, totaling over 129,000 rooms worldwide.

        Year Ended 1995                                Year Ended 1994
--------------------------------              ----------------------------------
                       Operating                                       Operating
Revenues     EBITDA      Income               Revenues      EBITDA       Income
--------     ------    ---------              --------      ------     ---------
 $1,232       $296        $208   ...Gaming...    $176         $19           $9

     The January 1995 acquisition of one of the most internationally recognized
brand names in gaming, Caesars, positioned us 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 domestic and international properties. In addition to Caesars, the 1995
results also reflect a full year of operating results from The Sheraton Casino,
which opened in August, 1994.

        Year Ended 1995                                Year Ended 1994
--------------------------------              ----------------------------------
                       Operating                                       Operating
Revenues     EBITDA      Income               Revenues      EBITDA       Income
--------     ------    ---------              --------      ------     ---------
   $856       $237        $207   .Information.   $833        $181         $155
                                   Services

     Revenues at ITT World Directories were basically unchanged compared with
1994 while margins improved somewhat, reflecting lower telephone company fees in
Belgium as the company began to compete with the local telephone company. ITT
Educational achieved record results in its first year as a publicly traded
company, reflecting the benefit of 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.


                                       29
<PAGE>

Liquidity and Capital Resources

     Our EBITDA increased 24% in 1996 reflecting strong earnings growth in both
the Hotels and Information Services segments, the continuing benefits of
management's cost rationalization strategies and the accretive impact of the
Caesars acquisition. Cash flows are expected to be sufficient to service
indebtedness, satisfy tax obligations and fund maintenance capital expenditures
and other liquidity needs. Additional liquidity needs are expected to be funded
through traditional debt or equity financing, asset sales or any combination
thereof.

     Cash from operating activities, as defined by SFAS No. 95 "Statement of
Cash Flows," increased to $525 in 1996 from $504 in 1995 due primarily to higher
earnings. 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.

     On May 2, 1996, we sold 2.1 million shares in Alcatel Alsthom for
approximately $200. On February 11, 1997, we sold an additional 3 million
Alcatel Alsthom shares for approximately $300. We have agreed to sell our
remaining interest in the capital stock of Alcatel Alsthom for proceeds of
approximately $530, subject to final settlement. Proceeds from these sales have
been (and will be) used for general corporate purposes, including debt
reduction.

     On June 27, 1996, we announced a capital expenditure program to upgrade and
expand our existing gaming operations. Approximately $625 is expected to be
invested at Caesars Palace and approximately $280 is expected to be invested at
Caesars Atlantic City. We are also in the process of renovating The Desert Inn.
This renovation commenced in 1995 and is expected to be completed in the third
quarter of 1997 with a total cost of approximately $175. In addition to the
expansion of existing gaming operations, we have announced that we will
construct a riverboat casino and a hotel in Harrison County, Indiana at a cost
of approximately $270. Construction on certain of these projects has commenced.
Total capital expenditures related to these projects during 1996 was
approximately $160. Total capital spending for the remainder of these projects
is estimated to be $900 and $290 in 1997 and 1998, respectively. We plan to
finance this capital expenditure program from a combination of cash generated
from operations, net proceeds received from the issuance of securities and the
sale of non-strategic assets. These capital expenditures, and the timing of
these capital expenditures, are dependent upon many factors, including business
conditions during the construction period.

     We have entered into an agreement in principle to form a joint venture with
Planet Hollywood to develop, own and operate "Planet Hollywood" themed
hotel/casinos. We expect that the joint venture will initially develop a Planet
Hollywood Hotel and Casino in Las Vegas, Nevada and later in Atlantic City, New
Jersey, as market conditions warrant. Currently, the plans for these properties
are in a preliminary stage, and the construction will be conditioned upon
receipt of all necessary consents, permits and approvals. It is not currently
anticipated that construction in Las Vegas would commence prior to the first
quarter of 1998 or that construction in Atlantic City would commence prior to
the first quarter of 2000. Although ITT and Planet Hollywood have entered into
an agreement in principle, ITT and Planet Hollywood have not completed the
negotiation of definitive documentation. While we believe these negotiations are
in their final stages, there can be no assurances that definitive agreements
relating to the joint venture will be executed or that any of the proposed
projects will be commenced or completed.

     Capital expenditures totaled $577 in 1996, 91% of which occurred in roughly
equal parts at the Hotels and Gaming segments, compared with $431 in 1995, 96%
of which occurred at the Hotels and Gaming segments. We completed certain hotel
acquisitions which totaled approximately $260, and on July 1, 1996 paid
approximately $105 in connection with our acquisition of WBIS+ (formerly
WNYC-TV) in partnership with Dow Jones. Also during July 1996, we acquired the
remaining 50% interest in the Sheraton on the Park in Sydney, Australia, which
resulted in approximately $150 in additional consolidated indebtedness. During
1995, we completed the acquisitions of Caesars ($1.76 billion) and a 50%
interest in the businesses which comprise Madison Square Garden ($610), in
January and March, respectively.

     External borrowings were $4.19 billion and $3.84 billion at December 31,
1996 and December 31, 1995, respectively. This increase is primarily
attributable to the 1996 acquisitions discussed above.

     On October 15, 1996, and February 18, 1997, we received $81 and $169,
respectively, as payment of the remaining amount necessary to equalize the
partnership interests of Cablevision and


                                       30
<PAGE>

ITT in MSG. On March 6, 1997, we entered into an agreement in principle to sell
our 50% interest in MSG to Cablevision for $650 plus the assumption of
approximately $115 of indebtedness. Under the terms of this agreement in
principle, Cablevision will pay us $500 in cash for a 38.5% interest in MSG upon
closing, which is expected to occur by mid-1997. We will also have a "put"
option to require Cablevision to purchase half of our continuing 11.5% interest
in MSG for $75 on June 1, 1998 and the other half of this continuing interest
for an additional $75 (or if the first option is not exercised on June 1, 1998,
the entire 11.5% interest for $150) on June 1, 1999. On the third anniversary of
the initial closing or upon a "change of control" of ITT, Cablevision will have
the right to purchase our remaining interest in MSG at a price determined by an
investment banking firm to be fair market value (which, if such right arises out
of a "change of control" may be paid in debt securities of Cablevision). This
transaction is subject to the negotiation and execution of definitive
documentation, approval of the NBA and the NHL and certain other conditions.

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.

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

     The information called for by Item 10 with respect to directors will be
incorporated by reference to the definitive Proxy Statement for Annual Meeting
of Stockholders or filed by an amendment to this Form 10-K.

     The information called for by this Item 10 with respect to executive
officers is set forth above in Part I under the caption "Executive Officers."

Item 11. Executive Compensation

     The information called for by Item 11 will be incorporated herein by
reference to the definitive proxy statement for Annual Meeting of Stockholders
or filed by an amendment to this Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management

     The information called for by Item 12 will be incorporated by reference to
the definitive Proxy Statement for Annual Meeting of Stockholders or filed by an
amendment to this Form 10-K.

Item 13. Certain Relationships and Related Transactions

     The information called for by Item 13 will be incorporated by reference to
the definitive Proxy Statement for Annual Meeting of Stockholders or filed by an
amendment to this Form 10-K.


                                       31
<PAGE>

                                     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 part of this
     report.

     2. See Exhibit Index appearing on pages II-2 through II-5 for a list of the
     exhibits filed or incorporated herein as a part of this report.

     (b) On November 15, 1996, we filed a Current Report on Form 8-K which
attached as exhibits the Underwriting Agreement between us and Goldman, Sachs &
Co., as representative of the several Underwriters, dated November 12, 1996; the
definitive form of our 6 3/4% Notes Due November 15, 2003 (the "Notes"); the
Amended and Restated Indenture between us and The First National Bank of
Chicago, Trustee, dated as of November 15, 1995, as Amended and Restated as of
December 19, 1995; and an opinion of Margaret M. Foran, Associate General
Counsel, as to the legality of the Notes.


                                       32
<PAGE>

                                    INDEX TO
                 CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

                                                                           PAGE
                                                                           ----

Report of Management...................................................    F-2

Report of Independent Public Accountants...............................    F-3

Consolidated Income for the three years ended December 31, 1996........    F-4

Consolidated Balance Sheet as of December 31, 1996 and 1995............    F-5

Consolidated Cash Flow for the three years ended December 31, 1996.....    F-6

Consolidated Stockholders Equity for the three years ended
  December 31, 1996....................................................    F-7

Notes to Financial Statements..........................................    F-8

Quarterly Results for 1996 and 1995 (Unaudited)........................   F-23

Business Segment Information...........................................   F-24

Geographical Information - Total Segments..............................   F-25

Valuation and Qualifying Accounts......................................    S-1


                                      F-1
<PAGE>

                              Report of Management

     The management of ITT Corporation ("ITT") 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 and policies and procedures that are
communicated to ITT's employees. Management continually monitors the system of
internal controls for compliance. An important element of the monitoring process
is an internal audit program which independently assesses the effectiveness of
internal controls and which results in recommendations for improvements 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 audit program 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 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>

                    Report of Independent Public Accountants

To the Stockholders of ITT Corporation:

     We have audited the accompanying consolidated balance sheet of ITT
Corporation (a Nevada corporation) and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, cash flow and
stockholders equity for each of the three years in the period ended December 31,
1996, 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, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, 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  23, 1997 (except with respect to
         the matters discussed in the
         Subsequent Events note as to
         which the date is March 27, 1997)


                                      F-3
<PAGE>

                        ITT CORPORATION AND SUBSIDIARIES

                              CONSOLIDATED INCOME
                          In millions except per share

<TABLE>
<CAPTION>
                                                                      Years Ended December 31,
                                                                   ----------------------------
                                                                     1996       1995       1994
                                                                     ----       ----       ----
<S>                                                                <C>        <C>        <C>
Revenues .......................................................   $ 6,597    $ 6,252    $ 4,709
Costs and expenses:
  Salaries, benefits and other operating .......................     4,755      4,576      3,786
  Selling, general and administrative, net of service fee income
      of $-, $96 and $88 .......................................       838        855        499
  Depreciation and amortization ................................       276        253        132
                                                                   -------    -------    -------
                                                                     5,869      5,684      4,417
                                                                   -------    -------    -------
                                                                       728        568        292

Interest expense (net of interest income of $74, $54 and $16) ..      (230)      (291)      (131)
Miscellaneous income (expense), net ............................         1          5        (17)
                                                                   -------    -------    -------
                                                                       499        282        144

Provision for income taxes .....................................      (210)      (114)       (58)
Minority equity ................................................       (40)       (21)       (12)
                                                                   -------    -------    -------
Net income .....................................................   $   249    $   147    $    74
                                                                   =======    =======    =======

Earnings per share (Pro Forma for 1994 -
  See Notes to Financial Statements) ...........................   $  2.11    $  1.24    $  0.63
                                                                   =======    =======    =======

Weighted average common and common equivalent shares
  (Pro Forma for 1994 - See Notes to Financial Statements) .....       118        118        117
                                                                   =======    =======    =======
</TABLE>

The accompanying notes to financial statements are an integral part of the above
statement.


                                      F-4
<PAGE>

                        ITT CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET
                          In millions except for shares

<TABLE>
<CAPTION>
                                                                               December 31,
                                                                             ---------------
                                                                             1996       1995
                                                                             ----       ----
<S>                                                                        <C>        <C>
Assets
Current assets:
   Cash and cash equivalents ...........................................   $   224    $   177
   Marketable securities ...............................................       599       --
   Receivables, net ....................................................       659        784
   Inventories .........................................................       103         86
   Prepaid expenses and other ..........................................       113         96
                                                                           -------    -------
      Total current assets .............................................     1,698      1,143

Plant, property and equipment, net .....................................     4,746      3,979
Investments ............................................................       920      1,757
Goodwill, net ..........................................................     1,358      1,332
Long-term receivables, net .............................................       186        150
Other assets ...........................................................       367        331
                                                                           -------    -------
                                                                           $ 9,275    $ 8,692
                                                                           =======    =======
Liabilities and Stockholders Equity
Current liabilities:
   Accounts payable ....................................................   $   312    $   309
   Accrued expenses ....................................................       551        695
   Notes payable and current maturities of long-term debt ..............       297        265
   Other current liabilities ...........................................       231        190
                                                                           -------    -------
      Total current liabilities ........................................     1,391      1,459

Long-term debt .........................................................     3,894      3,575
Deferred income taxes ..................................................       196        112
Other liabilities ......................................................       430        350
Minority interest ......................................................       290        260
                                                                           -------    -------
                                                                             6,201      5,756
                                                                           -------    -------
Stockholders Equity:
   Common stock:  authorized 200,000,000 shares, no par or stated value,
      outstanding 116,366,176 and 117,196,370 shares, respectively .....     2,897      2,944
   Cumulative translation adjustment ...................................        (2)      --
   Unrealized loss on securities .......................................       (62)      --
   Retained earnings/(accumulated deficit) .............................       241         (8)
                                                                           -------    -------
      Total stockholders equity ........................................     3,074      2,936
                                                                           -------    -------
                                                                           $ 9,275    $ 8,692
                                                                           =======    =======
</TABLE>

The accompanying notes to financial statements are an integral part of the above
statement.


                                      F-5
<PAGE>

                        ITT CORPORATION AND SUBSIDIARIES

                             CONSOLIDATED CASH FLOW
                                   In millions

<TABLE>
<CAPTION>
                                                                Years Ended December 31,
                                                               --------------------------
                                                                1996      1995       1994
                                                                ----      ----       ----
<S>                                                            <C>      <C>        <C>
Operating Activities
Net Income .................................................   $ 249    $   147    $    74
Adjustments to net income:
   Depreciation and amortization ...........................     276        253        132
   Provision for doubtful receivables ......................      55         68         43
   Minority equity in net income ...........................      40         21         12
   Equity income, net of dividends received ................       8         21         16
Changes in working capital:
   Receivables .............................................     (50)      (155)       (66)
   Inventories .............................................     (19)        (4)        (5)
   Accounts payable ........................................     (40)        59         (6)
   Accrued expenses ........................................     (21)        77         29
Accrued and deferred taxes .................................      45         44         11
Other, net .................................................     (18)       (27)       (10)
                                                               -----    -------    -------
   Cash from operating activities ..........................     525        504        230
                                                               -----    -------    -------

Investing Activities
Additions to plant, property and equipment .................    (577)      (431)      (242)
Proceeds from divestments ..................................     282         10         18
Acquisitions, net of acquired cash .........................    (364)    (2,328)    (1,249)
Other, net .................................................      51        110          6
                                                               -----    -------    -------
   Cash used for investing activities ......................    (608)    (2,639)    (1,467)
                                                               -----    -------    -------

Financing Activities
Short-term debt, net .......................................      20         94         13
Long-term debt issued ......................................     461      3,132        260
Long-term debt repaid ......................................    (307)      (121)      (124)
Repurchases of common stock ................................     (57)      --         --
Change in investments and advances from ITT Industries, Inc.    --         (929)       457
Other, net .................................................      13        (55)       (11)
                                                               -----    -------    -------
   Cash from financing activities ..........................     130      2,121        595
                                                               -----    -------    -------

Exchange Rate Effect on Cash and Cash Equivalents ..........    --         --           (1)
                                                               -----    -------    -------

Increase/(decrease) in cash and cash equivalents ...........      47        (14)      (643)
Cash and Cash Equivalents - Beginning of Year ..............     177        191        834
                                                               -----    -------    -------
Cash and Cash Equivalents - End of Year ....................   $ 224    $   177    $   191
                                                               =====    =======    =======

Supplemental disclosures of cash flow information:
Cash paid during the year for:
   Interest ................................................   $ 252    $   314    $   119
                                                               =====    =======    =======
   Income taxes ............................................   $ 163    $    55    $   117
                                                               =====    =======    =======
</TABLE>

The accompanying notes to financial statements are an integral part of the above
statement.


                                      F-6
<PAGE>

                        ITT CORPORATION AND SUBSIDIARIES

                        CONSOLIDATED STOCKHOLDERS EQUITY
                          In millions except for shares

<TABLE>
<CAPTION>
                                                                                       Currency     Retained
                                      Investments and            Common Stock        Translation    Earnings/
                                       Advances from         ---------------------    and Other   (Accumulated
                                   ITT Industries, Inc.(1)   Shares         Amount    Adjustment    Deficit)
                                   -----------------------   ------         ------    ----------  ------------
<S>                                     <C>               <C>               <C>          <C>          <C>
Balance - January 1, 1994 .........     $ 2,765                   --        $  --        $--          $--
Net income ........................          74                   --           --         --           --
Transfers from ITT Industries, net          549                   --           --         --           --
Translation of financial statements         (35)                  --           --         --           --
                                        -------           ------------      -------      ----         -----
Balance - December 31, 1994 .......       3,353                   --           --         --           --
Net income ........................         155                   --           --         --           --
Transfers to ITT Industries, 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)
Net income ........................        --                     --           --         --            249
Stock option transactions .........        --                  293,332           10       --           --
Common stock repurchases ..........        --               (1,123,526)         (57)      --           --
Translation of financial statements        --                     --           --          (2)         --
Unrealized loss on securities .....        --                     --           --         (62)         --
                                        -------           ------------      -------      ----         -----
Balance - December 31, 1996 .......     $  --              116,366,176      $ 2,897      $(64)        $ 241
                                        =======           ============      =======      ====         =====
</TABLE>

(1)  Investments and Advances from ITT Industries, Inc. represents the means by
     which ITT was funded by ITT Industries 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>

                        ITT CORPORATION AND SUBSIDIARIES

                          Notes to Financial Statements
             Dollar amounts are in millions unless otherwise stated

Basis of Presentation

     ITT Corporation ("ITT") is one of the world's largest hotel and gaming
companies. ITT's principal lines of business are hotels, gaming and information
services. The hotels segment is comprised of a worldwide hospitality network of
over 410 full-service hotels serving three markets: luxury, upscale and
mid-price. ITT's hotel operations are represented on every continent and in
nearly every major world market. ITT's gaming operations are located in several
key domestic jurisdictions. ITT also operates various hotel/casino ventures
outside the United States. ITT's information services segment publishes
telephone directories in many countries outside the United States and 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.

     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's business segments:

     Hotels Operations: At December 31, 1996, ITT operated 135 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 consolidated financial statements. Revenues related to these
hotel properties were $2.8 billion, $2.8 billion and $2.7 billion for 1996, 1995
and 1994, respectively, and amounts provided for payments to the property owners
for the use of the hotel properties were $.6 billion, $.5 billion and $.5
billion for 1996, 1995 and 1994, respectively.


                                      F-8
<PAGE>

     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
$161, $144 and $17 for the years ended December 31, 1996, 1995 and 1994,
respectively. The estimated cost of such promotional allowances was $111, $99
and $11 for the years ended December 31, 1996, 1995 and 1994, 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, 1996, 1995 and 1994:

<TABLE>
<CAPTION>
                                                           Years Ended December 31,
                                       -------------------------------------------------------------
                                              1996                   1995               1994
                                       --------------------  -------------------- ------------------
                                                  Costs and             Costs and          Costs and
                                       Revenues   Expenses   Revenues   Expenses  Revenues Expenses
                                       --------   --------   --------   --------  -------- --------
<S>                                     <C>        <C>        <C>        <C>        <C>      <C>
Gaming                                  $1,032     $  592     $1,004     $  516     $139     $ 62
Rooms                                       70         25         70         25       20        9
Food and beverage                           79         71         70         80       12       17
Other operations                           104         57         88         99        5       10
Selling, general and administrative       --          215       --          172      --        37
Depreciation and amortization             --           80       --           88      --        10
Provision for doubtful accounts           --           34       --           50      --        22
                                        ------     ------     ------     ------     ----     ----
     Total                              $1,285     $1,074     $1,232     $1,030     $176     $167
                                        ======     ======     ======     ======     ====     ====
</TABLE>

     Information Services Operations: Revenues for the directories unit of
Information Services, ITT World Directories, Inc. ("ITT World Directories"), are
comprised of the total value of advertising contracts sold by ITT World
Directories. Costs and expenses include remuneration and franchise fees paid to
telephone authorities in places where ITT World Directories operates as a
publisher of directories or operates as an agent.

     Tuition revenue at ITT Educational Services, Inc. ("ITT Educational") 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 of $13 in 1996 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 the sale or retirement of assets are included in income.


                                      F-9
<PAGE>

     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 currency and/or interest rate risks.
Forward exchange contracts and foreign currency swaps are accounted for in
accordance with SFAS No. 52 "Foreign Currency Translation". ITT is an end-user
and does not utilize these instruments for speculative purposes. ITT has strict
policies regarding the financial stability and credit standing of its major
counterparties. Changes in the spot rate of derivative instruments designated as
hedges of foreign currency denominated assets have been classified in the same
manner as the classification of the changes in the underlying assets.

     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 arrangement 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 pretax gain of $10, from the sale of 16.7% of the
common stock of ITT Educational.

     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
$80, $38, and $6 at December 31, 1996, 1995 and 1994, 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 which were outstanding on
the Distribution Date. Earnings per share from the Distribution Date through
December 31, 1996 were determined based upon the weighted average of common and
common equivalent shares outstanding during the period.

     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 for legal, accounting, tax,
treasury and insurance services. ITT received fees for such services which
ranged between 0.5% and 1% of net sales of the affiliate and totaled $96 and $88
in 1995 and 1994, respectively. Service fee income has been recorded in Costs
and Expenses in the accompanying statement of Consolidated Income.

     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 and $86 in 1995 and 1994, respectively.


                                      F-10
<PAGE>

     ITT was one of 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").

Acquisitions

     ITT completed various hotel acquisitions during 1996. These acquisitions
were accounted for using the purchase method of accounting. The aggregate
purchase price of $371, including assumed liabilities of $176, was approximately
equal to the fair value of the assets acquired. The results of operations of
these acquisitions have been included in Consolidated Income from their
respective dates of acquisition. ITT also made minority investments in certain
hotel properties during 1996 in the aggregate amount of $65. The pro forma
effects of these transactions on revenues, net income and earnings per share
were not material.

     On July 1, 1996, ITT, in partnership with Dow Jones & Co., launched a new
television station, WBIS+, which operates the broadcasting license of the former
WNYC-TV. The partnership purchased the broadcasting license from New York City
for $207. This purchase was funded equally by the partners. ITT's investment in
this partnership is reported using the equity method of accounting. ITT's share
of WBIS+'s results of operations are included in Consolidated Income from the
date of acquisition.

     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.("Rainbow"), a subsidiary of Cablevision Systems Corporation
("Cablevision"), completed the acquisition of the businesses comprising Madison
Square Garden ("MSG") for approximately $1 billion. The acquisition was funded
by equity contributions from the partners of approximately $720 and the
remainder was financed through bank debt. 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:

                                                    Years Ended December 31,
                                                    ------------------------
                                                     1995             1994
                                                     ----             ----
     Revenues                                       $6,334           $5,883
     Net income                                     $  132           $    8
                                                    ======           ======
     Earnings per share                             $ 1.11           $ 0.07
                                                    ======           ======

     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.


                                      F-11
<PAGE>

Marketable Securities

     Marketable securities consist of ITT's investment in Alcatel Alsthom. This
investment has been classified as "available for sale" in accordance with SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities" and
carried at fair value with the change from cost basis reported in stockholders
equity. The cost basis of this investment at December 31, 1996 was $661.
Dividend income from Alcatel Alsthom was $12 and $29 in 1996 and 1995,
respectively.

Receivables

     Current receivables of $659 and $784 at December 31, 1996 and 1995,
including current maturities of notes receivable, are reported net of allowances
for doubtful accounts of $141 and $106, respectively.

     Long-term receivables of $186 and $150 at December 31, 1996 and 1995, are
net of allowances for doubtful accounts of $50 and $98, exclude current
maturities of $15 and $21, respectively, and approximate fair value.

Plant, Property and Equipment

     Plant, property and equipment consisted of the following:

                                                                 December 31,
                                                               ---------------
                                                               1996       1995
                                                               ----       ----
Land and improvements                                        $ 1,337    $ 1,178
Buildings and improvements                                     2,685      2,311
Machinery, furniture, fixtures and equipment                   1,072        789
Construction work in process                                     295        250
Other                                                            143         97
                                                             -------    -------
                                                               5,532      4,625
Less: Accumulated depreciation and amortization                 (786)      (646)
                                                             -------    -------
                                                             $ 4,746    $ 3,979
                                                             =======    =======
Investments

     Investments consisted of the following:

                                                                 December 31,
                                                               ---------------
                                                               1996       1995
                                                               ----       ----
Equity in MSG                                                $   533    $   607
Equity in WBIS+                                                  109       --
Equity in and advances to other
    20-50% owned companies                                       261        261
Alcatel Alsthom at cost                                         --          834
Other investments at cost                                         17         55
                                                             -------    -------
                                                             $   920    $ 1,757
                                                             =======    =======

     Equity in earnings of unconsolidated subsidiaries accounted for on the
equity basis were $8, $1, and $- in 1996, 1995 and 1994, respectively.


                                      F-12
<PAGE>

Restructuring

     ITT recorded an $80 pretax charge in the 1995 third quarter to restructure
and rationalize headquarters 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 represented severance and
other related employee termination costs associated with the elimination of
nearly 275 positions worldwide. The balance of the restructuring charges ($52
pretax) related primarily to asset write-offs, lease commitments and termination
penalties and reserve actions in connection with the disposal of non-core assets
and reduced facilities utilization. As of December 31, 1996, substantially all
of these restructuring costs have been paid.

     In addition, during the 1995 fourth quarter, ITT recorded a $6 pretax
charge in the Gaming segment to consolidate certain administrative functions in
its Las Vegas operations. As of December 31, 1996, all of these restructuring
costs have been paid.

Income Tax
     Income tax data is as follows:
                                                    1996      1995        1994
                                                    ----      ----        ----
Pretax income (loss)
    U.S.                                            $214      $  64       $ (23)
    Foreign                                          285        218         167
                                                    ----      -----       -----
                                                    $499      $ 282       $ 144
                                                    ====      =====       =====
Provision (benefit) for income taxes *
   Current
       U.S. Federal                                 $ 57      $ (27)      $  36
       State and local                                12         13           6
       Foreign                                        99         99          73
                                                    ----      -----       -----
                                                     168         85         115
                                                    ----      -----       -----
   Deferred
       U.S. Federal                                   23         33         (54)
       Foreign and other                              19         (4)         (3)
                                                    ----      -----       -----
                                                      42         29         (57)
                                                    ----      -----       -----
                                                    $210      $ 114       $  58
                                                    ====      =====       =====

* The 1995 and 1994 provision (benefit) for income taxes was computed in
accordance with a tax sharing arrangement 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 arrangement
allows for the realization of such credits since they were 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 $268 since these amounts are permanently
reinvested.


                                      F-13
<PAGE>

     Deferred income taxes represent the tax effect of the differences between
the book and tax bases of assets and liabilities. Deferred tax assets
(liabilities) include the following:

                                                      December 31,
                                         ---------------------------------------
                                                1996                1995
                                         ------------------   ------------------
                                         U.S.       Foreign   U.S.       Foreign
                                         Federal    & Other   Federal    & Other
                                         -------    -------   -------    -------

Plant, property and equipment             $(177)     $(75)     $(183)     $(14)
Allowances for doubtful accounts             50       --          45       --
Employee benefits                            35         1         33       --
Other                                        (5)      (25)        21       (14)
                                          -----      ----      -----      ----
                                          $ (97)     $(99)     $ (84)     $(28)
                                          =====      ====      =====      ====

     A reconciliation of the tax provision at the U.S. statutory rate to the
provision for income taxes as reported is as follows:

                                                     1996      1995        1994
                                                     ----      ----        ----
Tax provision at U.S. statutory rate                 $175      $  99       $ 50
Tax on repatriation of foreign earnings                 5        (16)         3
Non-deductible goodwill                                11          9        --
Foreign tax rate differential                           9         12         (1)
U.S. state and local income taxes                       9          9          4
Other                                                   1          1          2
                                                     ----      -----       ----
Provision for income taxes                           $210      $ 114       $ 58
                                                     ====      =====       ====

Debt

     Debt consisted of the following:

                                                              December 31,
                                                          ---------------------
                                                          1996             1995
                                                          ----             ----
Bank loans and other short-term                          $  276           $  252
Long-term                                                 3,915            3,588
                                                         ------           ------
                                                         $4,191           $3,840
                                                         ======           ======

     The weighted average interest rate for bank loans and other short-term
borrowings was 7.85% at December 31, 1996 and 10.11% at December 31, 1995 and
their fair values approximated carrying value. This average is composed of
interest rates on non-U.S. dollar denominated indebtedness. The estimated fair
value of long-term debt at December 31, 1996 and 1995 was $3,871 and $3,637,
respectively, and was determined based on quoted market prices and/or 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. On November 4, 1996, ITT renewed its two major revolving credit
facilities ("Revolvers"), 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. ITT had
approximately $1.8 billion of available borrowing capacity under the Revolvers
as of December 31, 1996. As of December 31, 1996 and 1995, $1,102 and $1,329 of
commercial paper has been classified as long-term since ITT intends to renew or
refinance these obligations through 1997 and future periods.


                                      F-14
<PAGE>

     Long-term debt consisted of the following:

                                                                  December 31,
                                                                ---------------
Description                                                     1996       1995
-----------                                                     ----       ----
Commercial paper
     (5.75% and 5.94% weighted average rate
       in 1996 and 1995, respectively)                         $1,102     $1,329
6.25% notes due 2000                                              698        698
6.75% notes due 2003                                              250       --
6.75% notes due 2005                                              449        449
7.375% debentures due 2015                                        448        448
7.75% debentures due 2025                                         148        148
8.875% senior subordinated notes due 2002                         150        150
5.9%-10.1% domestic mortgage loans due 1998-2001                  152        151
4.75%-14.26% foreign loans due 1997-2009                          517        204
Other                                                               1         11
                                                               ------     ------
Total                                                           3,915      3,588
Less current maturities                                            21         13
                                                               ------     ------
                                                               $3,894     $3,575
                                                               ======     ======

     The aggregate maturities of long-term debt are $21 in 1997, $51 in 1998, $-
in 1999, $714 in 2000, $1,357 in 2001, and $1,772 thereafter. Assets pledged to
secure indebtedness (including mortgage loans) amounted to $535 as of December
31, 1996.

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:
                                                           1996    1995    1994
                                                           ----    ----    ----
Defined Benefit Plans
      Service cost                                         $ 27    $ 19    $ 14
      Interest cost                                          28      19      16
      Return on assets                                      (35)    (35)     (1)
      Net amortization and deferral                          16      17     (14)
                                                           ----    ----    ----
      Net periodic pension cost                              36      20      15
Other Pension Cost
      Allocated cost of ITT Salaried Retirement Plan        --        3       4
      Defined contribution savings plans                     13      10       5
      Other                                                  10       9       3
                                                           ----    ----    ----
      Total pension expense                                $ 59    $ 42    $ 27
                                                           ====    ====    ====

     U.S. pension expenses included in the net periodic pension costs in the
table above were $23, $10 and $10 for 1996, 1995 and 1994, respectively.


                                      F-15
<PAGE>

     The following table sets forth the funded status of ITT's pension plans,
amounts recognized in ITT's Consolidated Balance Sheet at December 31, 1996 and
1995:

<TABLE>
<CAPTION>
                                                                         1996
                                                 ----------------------------------------------------
                                                        Domestic                  Foreign
                                                        --------                  -------
                                                 Assets        Accumulated  Assets        Accumulated
                                                 Exceed        Benefits     Exceed        Benefits
                                                 Accumulated   Exceed       Accumulated   Exceed
                                                 Benefits      Assets       Benefits      Assets
                                                 -----------   -----------  -----------   -----------
<S>                                                <C>           <C>          <C>           <C>
Actuarial present value of benefit
      obligations-
     Vested benefit obligation                     $ 138         $ 50         $  99         $ 29
     Accumulated benefit obligation                $ 154         $ 54         $ 102         $ 30
                                                   =====         ====         =====         ====

Projected benefit obligation                       $ 198         $ 70         $ 120         $ 32
Plan assets at fair value                            183            2           146          --
                                                   -----         ----         -----         ----
Projected benefit obligation
      (in excess) of plan assets                     (15)         (68)           26          (32)
Unrecognized net (gain)/loss                          (6)           5           (21)         --
Unrecognized net obligation                           17            7             3            2
                                                   -----         ----         -----         ----
Pension (liability) asset recognized in the
     consolidated balance sheet                    $  (4)        $(56)        $   8         $(30)
                                                   =====         ====         =====         ====

<CAPTION>
                                                                         1995
                                                 ----------------------------------------------------
                                                        Domestic                  Foreign
                                                        --------                  -------
                                                 Assets        Accumulated  Assets        Accumulated
                                                 Exceed        Benefits     Exceed        Benefits
                                                 Accumulated   Exceed       Accumulated   Exceed
                                                 Benefits      Assets       Benefits      Assets
                                                 -----------   -----------  -----------   -----------
<S>                                                <C>           <C>          <C>          <C>
Actuarial present value of benefit
      obligations-
     Vested benefit obligation                     $ 121         $ 49         $ 55         $ 28
     Accumulated benefit obligation                $ 137         $ 51         $ 59         $ 29
                                                   =====         ====         ====         ====

Projected benefit obligation                       $ 190         $ 67         $ 78         $ 31
Plan assets at fair value                            167            1           81            1
                                                   -----         ----         ----         ----
Projected benefit obligation
      (in excess) of plan assets                     (23)         (66)           3          (30)
Unrecognized net (gain)/loss                          33           16           (6)           1
Unrecognized net obligation                         --              8            4            2
                                                   -----         ----         ----         ----
Pension asset (liability) recognized in the
     consolidated balance sheet                    $  10         $(42)        $  1         $(27)
                                                   =====         ====         ====         ====
</TABLE>


                                      F-16
<PAGE>

     The principal weighted average assumptions used to determine the pension
expense and the value of the projected benefit obligation were as shown below:

                                             Domestic              Foreign
                                         -----------------    -----------------
                                         1996         1995    1996         1995
                                         ----         ----    ----         ----
Discount rate                            7.50%        7.50%   7.44%        7.08%
Rate of return on invested assets        9.75%        9.75%   8.09%        7.51%
Salary increase assumption               4.50%        6.00%   5.43%        5.42%

     Retirement Savings Plan: ITT maintains a qualified retirement savings plan
under Section 401(k) of the Internal Revenue Code. This plan allows eligible
employees to contribute from 2% to 16% of their pretax pay subject to certain
limits, as defined. ITT contributes an amount equal to 1% of an eligible
employee's pay to the plan regardless of each employee's individual contribution
decision. Employees are 100% vested in this contribution at all times. In
addition, ITT matches 50% of eligible employees' contributions to the plan up to
a maximum of 5% of pretax pay. This matching contribution is 20% vested each
year and fully vested after five years of employment with ITT. Both the 1% and
matching contributions made by ITT are invested in ITT common stock.
Contribution expense related to this plan was $12 in 1996. Prior to the
Distribution, eligible ITT employees participated in ITT Industries' Investment
and Savings Plans or in the Caesars 401(k) plan (which was merged into the ITT
plan). The contribution expenses related to these plans, which were charged to
ITT, were $10 in 1995 and $5 in 1994.

     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 expenses were comprised
of the following:

                                               1996          1995          1994
                                               ----          ----          ----
Service cost                                    $ 1           $ 1           $ 1
Interest cost                                     2             2             1
Return on assets                                 (2)           (2)           --
Net amortization and deferral                    (1)           --            (1)
                                                ---           ---           ---
Net periodic expense                            $--           $ 1           $ 1
                                                ===           ===           ===


                                      F-17
<PAGE>

     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, 1996 and 1995 and the principal weighted average
assumptions inherent in their determination:

                                                                1996      1995
                                                                ----      ----
Accumulated postretirement benefit obligation                   $ 23      $ 26
Plan assets at fair value                                         14        10
                                                                ----      ----
Accumulated postretirement benefit obligation in
  excess of plan assets                                           (9)      (16)
Unrecognized net gain                                             (8)      ( 2)
Unrecognized past service liability                               (4)      ( 4)
                                                                ----      ----
Liability recognized in the consolidated balance sheet          $(21)     $(22)
                                                                ====      ====

Discount rate                                                   7.50%     7.50%
Rate of return on invested assets                               9.75%     9.75%
Ultimate health care trend rate                                 5.00%     6.00%

     The assumed rate of future increases in the per capita cost of health care
(the "health care trend rate") was 8.3% for 1996, decreasing ratably to 5.0% in
the year 2001 and remaining at that level thereafter. 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, 1996, minimum rental commitments under operating leases
were $63, $58, $50, $45 and $40 for 1997, 1998, 1999, 2000 and 2001,
respectively. For the remaining years, such commitments amounted to $229,
aggregating total minimum lease payments of $485.

     Rental expenses for operating leases were $75, $77 and $76 in 1996, 1995
and 1994, respectively.

Capital Stock

     ITT is authorized to issue 50 million shares of preferred stock, none of
which was outstanding at December 31, 1996.

     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 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.


                                      F-18
<PAGE>

Stock Incentive Plans

     Concurrent with the Distribution, ITT adopted the 1995 ITT Corporation
Incentive Stock Plan (the "1995 Plan") for key employees. Awards may be made
under the 1995 Plan through the year 2005. The 1995 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 ITT's common shares, all of which were outstanding at
December 31, 1995. These substitute options replaced 2,627,591 options which
were outstanding prior to the Distribution, and maintain the same economic
value, vesting, expiration dates and other restrictions, terms and conditions
which existed under the Old ITT stock incentive plans.

     The 1995 Plan limits awards to employees to no more than 1.5% of the issued
and outstanding shares (including treasury shares) on the last day of each year
plus any unused portions of such limit carried over from prior years.
Additionally, 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 1995 Plan. No more than 10% of
the annual limit may be granted to any one person. The exercise price of each
stock option granted is equal to the closing price of ITT's common stock on the
date of grant. Generally, stock options have a maximum term of ten years and
vest ratably over a three year period from the date of grant. Options granted to
senior officers of ITT vest after nine years from the grant date or upon
attaining certain defined market price levels of ITT's common stock, whichever
occurs first.

     The following table summarizes ITT's stock option activity as of and for
the year ended December 31, 1996:

                                                            Weighted-Average
                                          Options       Exercise Price Per Share
                                          -------       ------------------------
Outstanding at the Distribution
   Date and at December 31, 1995         6,276,596            $   37.24
Granted                                  1,741,546            $   55.80
Exercised                                 (288,107)           $   33.84
Forfeited                                 (116,256)           $   49.66
                                         ---------
Outstanding at December 31, 1996         7,613,779            $   41.43
                                         ---------

Exercisable at December 31, 1996         5,035,111            $   36.31

     The following table summarizes information about ITT's outstanding stock
options at December 31, 1996:

<TABLE>
<CAPTION>
                                        Options Outstanding                                Options Exercisable
                      ------------------------------------------------------       -----------------------------------
                         Number      Weighted-Average                                 Number
Range of              Outstanding        Remaining         Weighted-Average        Exercisable      Weighted-Average
Exercise Prices       at 12/31/96*   Contractual Life    Exercise Price/Share        12/31/96     Exercise Price/Share
---------------       ------------   ----------------    --------------------        --------     ---------------------
<C>                    <C>              <C>                      <C>                <C>                  <C>
$18.00 - $25.04          609,456        4.5 years                $20.03               609,456            $20.03
$27.81 - $40.14        3,180,439        7.3 years                $35.17             2,972,005            $35.14
$41.97 - $62.13        3,823,884        8.7 years                $50.04             1,453,650            $45.54
                       ---------                                                    ---------
                       7,613,779                                                    5,035,111
                       ---------                                                    ---------
</TABLE>

*Included in the number of shares outstanding at 12/31/96, are 696,000 non
exercisable options, granted on February 6, 1996 at an exercise price of $55.88,
that will become exercisable in whole or in part upon achievement of specified
market prices for ITT's common stock or fully exercisable after the passage of
nine years from the date of grant, whichever occurs first.


                                      F-19
<PAGE>

     ITT applies APB Opinion 25 "Accounting for Stock Issued to Employees" and
related interpretations in accounting for the 1995 Plan. Accordingly, no
compensation cost has been recognized for grants of stock options from the 1995
Plan. Had compensation cost for those grants been determined based on the fair
value at the grant dates consistent with SFAS No.123 "Accounting for Stock-Based
Compensation", ITT's net income and earnings per share would have been reduced
by $20 ($0.18 per share ) and $6 ($0.05 per share) in 1996 and 1995,
respectively . During the initial phase-in period, the effects of applying SFAS
No.123 for pro forma disclosures are not likely to be representative of the
effects on reported net income for future years because options vest over
several years and additional awards generally are made each year. In addition,
pro forma compensation expense may vary due to the impact of accelerated vesting
of certain employee stock options. The fair value of each option grant used in
the above pro forma amounts is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: dividend yield of
zero for all years; expected volatility of 33 percent for all years; risk free
interest rates of 5.3 percent and 6.4 percent; and an expected life of 4 years
for all options. The weighted-average fair value of each option granted during
1996 was $19.12.

     In addition to the 1995 Plan, ITT maintains a restricted stock plan for
non-employee directors called the 1996 Restricted Stock Plan for Non-Employee
Directors (the "1996 Restricted Stock Plan"). ITT has reserved 120,000 common
shares for grants under the 1996 Restricted Stock Plan. Under this plan, grants
of restricted shares are made automatically on the date of each Annual Meeting
of Stockholders to each non-employee director elected at the meeting, or
continuing in office following the meeting. The amount of each award is equal to
(and in lieu of) the annual retainer in effect for the calendar year within
which the award date falls, divided by the fair market value of ITT's common
stock. Grants of approximately 7,000 restricted shares, resulting in $1 of
expense, were made under this plan in 1996, all of which were outstanding on
December 31, 1996. These shares are expected to vest on various dates from June
1999 through May 2001.

     ITT converted 127,401 substitute restricted common shares from the Old ITT
employee stock incentive plans on the Distribution Date, all of which were
outstanding at December 31, 1995. During 1996, 7,964 of these restricted shares
vested. The remaining 119,437 restricted shares, which were outstanding at
December 31, 1996, are expected to vest on various dates from April 1997 through
January 2001. Amortization expense recorded during 1996 was $1 related to these
employee restricted stock awards.

     Upon the occurrence of an acceleration event, as defined, all outstanding
stock options will become immediately exercisable for 60 days beginning on the
date of the event. Additionally, limited stock appreciation rights will be
automatically granted for each outstanding option and become exercisable for 60
days beginning with the day after the acceleration event. Such limited stock
appreciation rights allow option holders to receive, when exercised, cash
payments equal to the spread between a formula market price and the applicable
option price, less withholding taxes.

Derivative Financial Instruments

     ITT has entered into three forward exchange contracts with major financial
institutions to hedge exchange rate exposure on ITT's foreign currency
denominated assets. The contractual amounts of these hedges at December 31, 1996
and 1995, were $300 and $250, respectively. The contracts mature in 1997. Under
these contracts, $250 represents hedges of dollars against French francs while
$50 represents a hedge of U.K. pounds against Belgian francs. The total
unrealized losses on these contracts at December 31, 1996 and 1995 were $25 and
$36, respectively, and approximate the fair value of these contracts. The fair
value of forward exchange contracts is the estimated amount ITT would pay to
terminate the contracts at the reporting date.


                                      F-20
<PAGE>

     From time to time ITT uses derivatives to manage its exposure to interest
rate fluctuations on its variable rate debt in U.S. dollars and other
currencies. ITT currently has three interest rate swaps in place with an
aggregate notional amount of $95 in which ITT pays fixed rates and receives
variable rates. The estimated unrealized loss on these interest rate swaps was
$8 at December 31, 1996. The unrealized loss represents the amount ITT would pay
to terminate the swap agreements based on current interest rates.

Commitments and Contingencies

     In October 1996, a jury sitting in the California Superior Court, San Diego
County, returned a verdict in Eldredge, et.al. v. ITT Educational, et.al.
against both ITT and its subsidiary, ITT Educational. The plaintiffs, seven 1995
graduates of ITT Educational's school in San Diego, alleged misrepresentation
and violations of a segment of the California Education Code. In the aggregate,
the plaintiffs were awarded approximately $0.2 in compensatory damages and $6.6
in punitive damages, consisting of $2.6 against ITT Educational and $4.0 against
ITT. The verdict against ITT was set aside in a post verdict motion. The verdict
is subject to various post-trial motions and appeal. Management believes that it
is probable the verdict will ultimately be reversed, in whole or in substantial
part and accordingly no provision has been recorded in the accompanying
financial statements.

     ITT and its subsidiaries are involved in various 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
results 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 $130 at December 31, 1996, are not expected to have a material
adverse effect on ITT's consolidated financial position or results of
operations.

     For purposes of governing certain 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.

Subsequent Events

     On January 31, 1997, Hilton Hotels Corporation ("Hilton") commenced a
tender offer for approximately 50.1% of the outstanding shares of ITT's common
stock (the "Hilton Tender Offer") at $55 per share, net to the seller in cash
and without interest upon the terms and subject to the conditions set forth in
the Offer to Purchase dated January 31, 1997 and the related Letter of
Transmittal. On February 28, 1997, Hilton extended the Hilton Tender Offer to
March 28, 1997.

     Hilton has announced that, if its offer succeeds, it will obtain the entire
equity interests in ITT by merging ITT with Hilton or a subsidiary of Hilton
(such merger, together with the Hilton Tender Offer, the "Hilton Transaction")
pursuant to which all shares not tendered and purchased pursuant to the Hilton
Tender Offer (other than shares owned by Hilton and its subsidiaries or held in
ITT's treasury) would be converted into the right to receive a number of shares
of Hilton common stock, par value $2.50 per share, having a nominal value of $55
per share, subject to unspecified collar provisions. The Hilton Transaction is
more fully described in the Tender Offer Statement on Schedule 14D-1 filed by
Hilton with the Securities and Exchange Commission.


                                      F-21
<PAGE>

     In February 1997, ITT sold 3 million shares of Alcatel Alsthom for
approximately $300. In late March 1997, ITT agreed to sell its remaining
interest in the capital stock of Alcatel Alsthom for proceeds of approximately
$530, subject to final settlement.

     On February 18, 1997, ITT received $169 as the remaining amount necessary
to equalize the partnership interest of ITT and Rainbow in MSG. On March 6,
1997, ITT entered into an agreement in principle to sell its 50% interest in MSG
to Cablevision for $650 plus the assumption of approximately $115 of
indebtedness. Under the terms of this agreement in principle, Cablevision will
pay ITT $500 in cash for a 38.5% interest in MSG upon closing, which is expected
to occur in mid-1997. ITT will also have a "put" option to require Cablevision
to purchase half of ITT's continuing 11.5% interest in MSG for $75 on June 1,
1998 and the other half of this continuing interest for an additional $75 on
June 1, 1999 (or, if the first option is not exercised on June 1, 1998, the
entire 11.5% interest for $150). On the third anniversary of the initial closing
or upon a "change of control" of ITT, Cablevision will have the right to
purchase ITT's remaining interest in MSG at a price determined by an investment
banking firm to be fair market value (which, if such right arises out of a
"change of control" may be paid in debt securities of Cablevision). This
transaction is subject to the negotiation and execution of definitive
documentation, approval of the National Basketball Association and the National
Hockey League and certain other conditions.


                                      F-22
<PAGE>

                        ITT CORPORATION AND SUBSIDIARIES

                       QUARTERLY RESULTS FOR 1996 AND 1995
                          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>
1996
Revenues                                 $1,388     $1,752     $1,665     $1,792     $6,597
Costs and Expenses                       $1,288     $1,510     $1,480     $1,591     $5,869
Net Income                               $   20     $   96     $   67     $   66     $  249
Earnings Per Share                       $  .17     $  .81     $  .57     $  .57     $ 2.11
                                         ======     ======     ======     ======     ======
1995
Revenues                                 $1,261     $1,673     $1,624     $1,694     $6,252
Costs and Expenses                       $1,195     $1,474     $1,495     $1,520     $5,684
Net Income                               $    7     $   46     $   50     $   44     $  147
Earnings Per Share
    (Pro Forma through September 30)     $  .06     $  .39     $  .42     $  .37     $ 1.24
                                         ======     ======     ======     ======     ======
</TABLE>


                                      F-23
<PAGE>

                          BUSINESS SEGMENT INFORMATION*
                                   In millions

<TABLE>
<CAPTION>
                               Identifiable Assets             Gross Plant Additions           Depreciation
                           --------------------------       -------------------------     -------------------------
                           1996       1995       1994       1996       1995      1994     1996       1995      1994
                           ----       ----       ----       ----       ----      ----     ----       ----      ----
<S>                      <C>        <C>        <C>          <C>        <C>       <C>      <C>        <C>        <C>
Hotels                   $4,543     $3,774     $3,484       $267       $278      $123     $125       $106       $70
Gaming                    2,893      2,641        345        257        135       102       44         55         6
Information Services        404        448        378         14         15        14       15         16        15
                         ------     ------     ------       ----       ----      ----     ----       ----       ---
Total Segments            7,840      6,863      4,207        538        428       239      184        177        91
Other                     1,435      1,829        805         39          3         3        7          8         8
                         ------     ------     ------       ----       ----      ----     ----       ----       ---
                         $9,275     $8,692     $5,012       $577       $431      $242     $191       $185       $99
                         ======     ======     ======       ====       ====      ====     ====       ====       ===
</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 operations of Caesars. Caesars owns
and operates three hotel/casinos in Las Vegas and Stateline, Nevada, and in
Atlantic City, New Jersey. With a partner, 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 postsecondary career education in the U.S.

*Refer to page 3 where Business Segments revenues and income information are
provided.


                                      F-24
<PAGE>

                    GEOGRAPHICAL INFORMATION - TOTAL SEGMENTS
                                   In millions

<TABLE>
<CAPTION>
                             Revenues                  Operating Income        Identifiable Assets
                             --------                  ----------------        -------------------
                    1996       1995       1994     1996     1995     1994     1996     1995      1994
                    ----       ----       ----     ----     ----     ----     ----     ----      ----
<S>               <C>        <C>        <C>        <C>      <C>     <C>     <C>      <C>       <C>
U.S.              $3,501     $3,299     $2,088     $386     $245    $  75   $4,672   $4,345    $2,249
Western Europe     1,402      1,385      1,203      272      194      134    2,156    1,811     1,311
Canada and Other   1,694      1,568      1,418      155      138      107    1,012      707       647
                  ------     ------     ------     ----     ----     ----   ------   ------    ------
Total Segments    $6,597     $6,252     $4,709     $813     $577     $316   $7,840   $6,863    $4,207
                  ======     ======     ======     ====     ====     ====   ======   ======    ======
</TABLE>


                                      F-25
<PAGE>

                                   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 /s/ JON F. DANSKI
                                           ------------------------------------
                                           Jon F. Danski
                                           Senior Vice President and Controller
                                           (Principal accounting officer)

March 28, 1997

     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.

         Signature                          Title                      Date
         ---------                          -----                      ----


         *
--------------------------
Rand V. Araskog
(Principal executive officer)   Chairman and Chief Executive
                                and Director                      March 28, 1997

         *
--------------------------
Ann N. Reese
(Principal financial officer)   Executive Vice President and
                                Chief Financial Officer           March 28, 1997

<TABLE>
<CAPTION>
Signature             Title        Date             Signature                Title      Date
---------             -----        ----             ---------                -----      ----


<S>                   <C>          <C>              <C>                      <C>        <C>
         *            Director     March 28, 1997          *                 Director   March 28, 1997
--------------------                                ----------------------
Bette B. Anderson                                   Edward C. Meyer


         *            Director     March 28, 1997          *                 Director   March 28, 1997
--------------------                                ----------------------
Nolan D. Archibald                                  Benjamin F. Payton


         *                                                 *
--------------------                                ----------------------
Robert A. Bowman      Director,    March 28, 1997   Vin Weber                Director   March 28, 1997
                      President
                      and Chief
                      Operating
                      Officer


         *            Director     March 28, 1997          *                 Director   March 28, 1997
--------------------                                ----------------------
Robert A. Burnett                                   Margita E. White


         *            Director     March 28, 1997          *                 Director   March 28, 1997
--------------------                                ----------------------
Paul G. Kirk, Jr.                                   Kendrick R. Wilson III
</TABLE>


__________________________

*By: /s/ Margaret M. Foran
     ---------------------
         Attorney-in-fact


                                      II-1
<PAGE>

                                  EXHIBIT INDEX

Exhibit
Number              Description                                Location
-------             -----------                                --------

3.1      Restated Articles of Incorporation ..........  Incorporated by
                                                          reference to Exhibit
                                                          3.1 to the
                                                          Registrant's Amendment
                                                          No. 1 to Form 10/A
                                                          dated November 13,
                                                          1995 (File No.
                                                          1-13960).

3.2      Certificate of Amendment of Articles
         of Incorporation ............................  Incorporated by
                                                          reference to Exhibit 1
                                                          to the Registrant's
                                                          Current Report on Form
                                                          8-K dated December 22,
                                                          1995 (File No.
                                                          1-13960).

3.3      Amended and Restated By-Laws ................  Incorporated by
                                                          reference to Exhibit
                                                          3.3 to the
                                                          Registrant's Quarterly
                                                          Report on Form 10-Q
                                                          for the quarterly
                                                          period ended June 30,
                                                          1996 (File No.
                                                          1-13960).

4.1      Specimen common share certificate ...........  Incorporated by
                                                          reference to Exhibit
                                                          4.1 to the
                                                          Registrant's Amendment
                                                          No. 1 to Form 10/A
                                                          dated November 13,
                                                          1995 (File No.
                                                          1-13960).

4.2      Rights Agreement dated as of November 1,
            1995 between the Registrant and The Bank
            of New York ..............................  Incorporated by
                                                          reference to Exhibit
                                                          4.4 to the
                                                          Registrant's Amendment
                                                          No. 1 to Form 10/A
                                                          dated November 13,
                                                          1995 (File No.
                                                          1-13960).

4.3      Form of Certificate of Voting Powers,
            Preferences and Relative Participating,
            Optional and Other Special Rights and
            Qualifications, Limitations or Restrictions
            of Series A Participating Cumulative
            Preferred Stock ..........................  Incorporated by
                                                          reference to Exhibit
                                                          4.4 (attached as
                                                          Exhibit A thereto) to
                                                          the Registrant's
                                                          Amendment No. 1 to
                                                          Form 10/A dated
                                                          November 13, 1995
                                                          (File No. 1-13960).

4.4      Form of Right Certificate ...................  Incorporated by
                                                          reference to Exhibit
                                                          4.4 (attached as
                                                          Exhibit B thereto) to
                                                          the Registrant's
                                                          Amendment No. 1 to
                                                          Form 10/A dated
                                                          November 13, 1995
                                                          (File No. 1-13960).


                                      II-2
<PAGE>

Exhibit
Number              Description                                Location
-------             -----------                                --------

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 the
                                                          request of the
                                                          Commission.

10.1     Distribution Agreement among ITT Industries,
           Inc., the Registrant and ITT Hartford
           Group, Inc. ...............................  Incorporated by
                                                          reference to Exhibit
                                                          10.1 to the
                                                          Registrant's Annual
                                                          Report on Form 10-K
                                                          for the year ended
                                                          December 31, 1995
                                                          (File No. 1-13960).

10.2     Intellectual Property License Agreement
           between and among ITT Industries, Inc., the
           Registrant and ITT Hartford Group, Inc. ...  Incorporated by
                                                          reference to Exhibit
                                                          10.2 to the
                                                          Registrant's Annual
                                                          Report on Form 10-K
                                                          for the year ended
                                                          December 31, 1995
                                                          (File No. 1-13960).

10.3     Trademark Assignment Agreement between ITT
           Industries, Inc. and the Registrant .......  Incorporated by
                                                          reference to Exhibit
                                                          10.3 to the
                                                          Registrant's Annual
                                                          Report on Form 10-K
                                                          for the year ended
                                                          December 31, 1995
                                                          (File No. 1-13960).

10.4     License Assignment Agreement between ITT
           Industries, Inc. and the Registrant .......  Incorporated by
                                                          reference to Exhibit
                                                          10.4 to the
                                                          Registrant's Annual
                                                          Report on Form 10-K
                                                          for the year ended
                                                          December 31, 1995
                                                          (File No. 1-13960).

10.5     License Assignment Agreement among the
           Registrant, ITT Hartford Group, Inc. and
           Nutmeg Insurance Company ..................  Incorporated by
                                                          reference to Exhibit
                                                          10.5 to the
                                                          Registrant's Annual
                                                          Report on Form 10-K
                                                          for the year ended
                                                          December 31, 1995
                                                          (File No. 1-13960).

10.6     License Assignment Agreement among the
           Registrant, Nutmeg Insurance Company and
           Hartford Fire Insurance Company ...........  Incorporated by
                                                          reference to Exhibit
                                                          10.6 to the
                                                          Registrant's Annual
                                                          Report on Form 10-K
                                                          for the year ended
                                                          December 31, 1995
                                                          (File No. 1-13960).


                                      II-3
<PAGE>

Exhibit
Number              Description                                Location
-------             -----------                                --------

10.7     Tax Allocation Agreement among ITT
           Industries, Inc., the Registrant and
           ITT Hartford Group, Inc. ..................  Incorporated by
                                                          reference to Exhibit
                                                          10.7 to the
                                                          Registrant's Annual
                                                          Report on Form 10-K
                                                          for the year ended
                                                          December 31, 1995
                                                          (File No. 1-13960).

10.8     Employee Benefit Services and Liability
           Agreement among ITT Industries, Inc.,
           the Registrant and ITT Hartford Group, Inc.  Incorporated by
                                                          reference to Exhibit
                                                          10.8 to the
                                                          Registrant's Annual
                                                          Report on Form 10-K
                                                          for the year ended
                                                          December 31, 1995
                                                          (File No. 1-13960).

10.9     Form of ITT Corporation 1996 Restricted
           Stock Plan for Non-Employee Directors .....  Incorporated by
                                                          reference to Exhibit
                                                          10.9 to the
                                                          Registrant's Annual
                                                          Report on Form 10-K
                                                          for the year ended
                                                          December 31, 1995
                                                          (File No. 1-13960).

10.10    Form of indemnification agreement with
           members of the Board of Directors .........  Incorporated by
                                                          reference to Exhibit
                                                          10.10 to the
                                                          Registrant's Form 10
                                                          dated September 18,
                                                          1995 (File No.
                                                          1-13960).

10.11    Form of 1995 ITT Corporation Incentive
           Stock Plan ................................  Incorporated by
                                                          reference to Exhibit
                                                          10.11 to the
                                                          Registrant's Form 10
                                                          dated September 18,
                                                          1995 (File No.
                                                          1-13960).

10.12    Form of ITT Corporation Senior Executive
           Severance Pay Plan ........................  Incorporated by
                                                          reference to Exhibit
                                                          99.4 to the
                                                          Registrant's Schedule
                                                          14D-9 dated February
                                                          12, 1997 (File No.
                                                          1-13960).

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).


                                      II-4
<PAGE>

Exhibit
Number              Description                                Location
-------             -----------                                --------

10.14    364-Day Competitive Advance and Revolving
           Credit Facility Agreement dated as of
           November 5, 1996 among the Registrant,
           the lenders parties thereto and The Chase
           Manhattan Bank, as administrative agent ...  Incorporated by
                                                          reference to Exhibit
                                                          10.14 to the
                                                          Registrant's Quarterly
                                                          Report on Form 10-Q
                                                          for the quarterly
                                                          period ended September
                                                          30, 1996 (File No.
                                                          1-13960).

10.15    Five-Year Competitive Advance and
           Revolving Credit Facility Agreement dated
           as of November 5, 1996 among the Registrant,
           the lenders parties thereto and The Chase
           Manhattan Bank, as issuing bank and
           administrative agent ......................  Incorporated by
                                                          reference to Exhibit
                                                          10.15 to the
                                                          Registrant's Quarterly
                                                          Report on Form 10-Q
                                                          for the quarterly
                                                          period ended September
                                                          30, 1996 (File No.
                                                          1-13960).

10.16    First Amendment to Employment and Consulting
           Agreement dated as of December 19, 1995
           between the Registrant and R.V. Araskog ...  Incorporated by
                                                          reference to Exhibit
                                                          99.2 to the
                                                          Registrant's Schedule
                                                          14D-9 dated February
                                                          12, 1997 (File No.
                                                          1-13960).

10.17    Form of Severance Agreement between the
           Registrant and certain executives .........  Incorporated by
                                                          reference to Exhibit
                                                          99.3 to the
                                                          Registrant's Schedule
                                                          14D-9 dated February
                                                          12, 1997 (File No.
                                                          1-13960).


11       Statement re computation of per share
           earnings ..................................  None.

12       Statement re computation of ratios ..........  Filed herewith.

13       Annual report to security holders ...........  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 ...............  None.

23       Consents of experts and counsel .............  Filed herewith.

24       Power of attorney ...........................  Filed herewith.

27       Financial data schedule .....................  Filed herewith.

99.1     Schedule 14D-9 of the Registrant dated
           February 12, 1997..........................  Incorporated by
                                                          reference to the
                                                          Registrant's Schedule
                                                          14D-9 dated February
                                                          12, 1997 (File No.
                                                          1-13960).

99.2     Certain Information relating to the Private
           Securities Litigation Reform Act...........  Filed herewith.


                                      II-5
<PAGE>

                                                                     SCHEDULE II

                        ITT CORPORATION AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                                   In millions

<TABLE>
<CAPTION>
                                                                   Additions (Deductions)
                                             --------------------------------------------------------------
                                                         Charged to                Write-offs/
                                              Balance     costs and   Translation  recoveries/    Balance
               Description                   January 1    expenses     adjustment    other      December 31
               -----------                   ---------   ----------   -----------  -----------  -----------
<S>                                            <C>         <C>           <C>          <C>         <C>
Year Ended December 31, 1996
Trade Receivables-Allowance for doubtful
  accounts ..................................  $106        $ 55          $ (1)        $(19)       $141
Notes Receivables-Allowance for doubtful
  accounts ..................................    98         --            --           (48)         50

Year Ended December 31, 1995
Trade Receivables-Allowance for doubtful
  accounts ..................................  $ 55        $ 68          $  1         $(18)       $106
Notes Receivables-Allowance for doubtful
  accounts ..................................    78         --            --            20          98

Year Ended December 31, 1994
Trade Receivables-Allowance for doubtful
  accounts ..................................  $ 38        $ 37          $  3         $(23)       $ 55
Notes Receivable-Allowance for doubtful
  accounts ..................................    76           6           --            (4)         78
</TABLE>


                                      S-1