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Filed pursuant to Rule 424(b)(1)
Registration No. 33-63445
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED NOVEMBER 16, 1995
$1,750,000,000
ITT DESTINATIONS, INC.
$700,000,000 6 1/4% NOTES DUE NOVEMBER 15, 2000
$450,000,000 6 3/4% NOTES DUE NOVEMBER 15, 2005
$450,000,000 7 3/8% DEBENTURES DUE NOVEMBER 15, 2015
$150,000,000 7 3/4% DEBENTURES DUE NOVEMBER 15, 2025
UNCONDITIONALLY GUARANTEED (WHICH GUARANTEES SHALL TERMINATE
UPON THE DISTRIBUTION) AS TO PAYMENT OF PRINCIPAL,
PREMIUM, IF ANY, AND INTEREST BY
ITT CORPORATION
------------------------------
In connection with the Distribution, which is expected to occur prior to
December 31, 1995, ITT Destinations, Inc. will change its name to "ITT
Corporation" and the present ITT Corporation will change its name to "ITT
Industries, Inc." See "The Distribution."
Interest on the 6 1/4% Notes Due November 15, 2000 (the "6 1/4% Notes"), the
6 3/4% Notes Due November 15, 2005 (the "6 3/4% Notes"), the 7 3/8% Debentures
Due November 15, 2015 (the "7 3/8% Debentures") and the 7 3/4% Debentures Due
November 15, 2025 (the "7 3/4% Debentures" and, collectively with the 6 1/4%
Notes, the 6 3/4% Notes and the 7 3/8% Debentures, the "Securities") is payable
on May 15 and November 15 of each year, commencing May 15, 1996. The 6 1/4%
Notes, the 6 3/4% Notes and the 7 3/8% Debentures are not redeemable prior to
maturity, except for the redemption of a particular holder's Securities pursuant
to the application of certain gaming laws. See "Description of Debt
Securities -- Redemption Pursuant to Gaming Laws" in the accompanying
Prospectus. The 7 3/4% Debentures are not redeemable prior to November 15, 2005,
and on and after such date will be redeemable at the option of ITT Destinations,
Inc., as a whole or in part, on at least 30 days' notice as set forth under
"Description of the Securities" herein; the 7 3/4% Debentures are also
redeemable pursuant to the aforementioned application of certain gaming laws.
The Securities have been approved for listing on The New York Stock Exchange,
subject to official notice of issuance.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NEITHER THE NEVADA STATE GAMING CONTROL BOARD, THE NEVADA GAMING COMMISSION,
THE MISSISSIPPI GAMING COMMISSION, NOR THE NEW JERSEY CASINO CONTROL
COMMISSION HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES OR
THE INVESTMENT MERITS OF THE SECURITIES OFFERED HEREBY.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COMPANY(1)(2)
---------------------------------------------------------------
Per 6 1/4% Note....................... 99.660% .600% 99.060%
Total................................. $697,620,000 $4,200,000 $693,420,000
Per 6 3/4% Note....................... 99.853% .650% 99.203%
Total................................. $449,338,500 $2,925,000 $446,413,500
Per 7 3/8% Debenture.................. 99.530% .875% 98.655%
Total................................. $447,885,000 $3,937,500 $443,947,500
Per 7 3/4% Debenture.................. 98.621% .875% 97.746%
Total................................. $147,931,500 $1,312,500 $146,619,000
- ---------------
(1) Plus accrued interest from November 15, 1995 to date of delivery.
(2) Before deducting expenses payable by ITT Destinations, Inc. estimated at
$1,400,000.
------------------------------
The Securities are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
The closings of the offerings of the 6 1/4% Notes, the 6 3/4% Notes, the 7 3/8%
Debentures and the 7 3/4% Debentures are conditioned upon one another. It is
expected that delivery of the Securities will be made only in book-entry form
through the facilities of The Depository Trust Company on or about November 27,
1995.
------------------------------
BEAR, STEARNS & CO. INC. GOLDMAN, SACHS & CO.
LAZARD FRERES & CO. LLC
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
SMITH BARNEY INC.
BT SECURITIES CORPORATION CHEMICAL SECURITIES INC. CITICORP SECURITIES,
INC. J.P. MORGAN SECURITIES INC.
------------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS NOVEMBER 17, 1995.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF EACH SERIES OF THE
SECURITIES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------------
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ITT DESTINATIONS
After the Distribution (as defined below), ITT Destinations, Inc. ("ITT
Destinations") will be engaged, directly and through subsidiaries, in the
hospitality and entertainment business and the information services business.
ITT Destinations will combine the world's largest hotel and gaming company with
a premier sports and entertainment company and information services businesses
to create a dynamic and rapidly growing enterprise. ITT Destinations, which will
change its name to ITT Corporation in connection with the Distribution, will
conduct its hospitality and entertainment business through ITT Sheraton
Corporation ("ITT Sheraton"), Ciga S.p.A. ("Ciga"), Caesars World, Inc.
("Caesars") and Madison Square Garden, L.P. ("MSG") and conduct its information
services business through ITT World Directories, Inc. ("ITT World Directories")
and ITT Educational Services, Inc. ("ITT Educational").
Through the ITT Sheraton brand name, ITT Destinations will be represented
in most major markets of the world. In 1994, over 45 million customers stayed at
ITT Sheraton properties in 60 countries. ITT Sheraton, which has been a wholly
owned subsidiary of ITT Corporation ("ITT") since 1968, is a worldwide
hospitality network of approximately 420 owned, leased, managed and franchised
properties, including hotels, casinos and inns. Gaming operations are marketed
under the Caesars World and ITT Sheraton brand names and are represented in Las
Vegas, Atlantic City, Halifax (Nova Scotia), Sydney (Nova Scotia), Lake Tahoe,
Tunica County (Mississippi), Lima (Peru), Cairo (Egypt), Windsor (Ontario) and
Townsville (Australia). In addition, the acquisition in 1994 of 70.3% of Ciga
and other key hotel properties enhanced ITT's geographic balance along with its
image and profile.
In January 1995, ITT completed the acquisition of Caesars, one of the
world's most recognized gaming companies. The acquisition of Caesars greatly
enhanced ITT Destinations' profile in the rapidly growing gaming business.
Caesars' flagship property is the renowned Caesars Palace in Las Vegas, and
Caesars also owns and operates Caesars Atlantic City in Atlantic City, New
Jersey, and Caesars Tahoe in Stateline, Nevada. Caesars also owns one-third of a
management company that operates Casino Windsor, which was opened in May 1994 in
Windsor, Ontario, and operates four non-gaming resorts in Pennsylvania's Pocono
Mountains.
In March 1995, ITT acquired, through its investment in MSG, the New York
Knickerbockers basketball and New York Rangers hockey franchises and the Madison
Square Garden arena. The MSG investment also included the Paramount special
event theater and the MSG cable television entertainment network.
In August 1995, ITT, in partnership with Dow Jones & Co. ("Dow Jones"),
agreed to purchase television station WNYC-TV from New York City. The purchase,
subject to approval by the Federal Communications Commission and other customary
conditions, is expected to close in early 1996. The purchase price of $207
million will be split evenly by the two companies, and the partnership will be
managed on a 50/50 basis.
ITT World Directories, an 80%-owned subsidiary, engages in the publication
of telephone directories, including classified directory services for telephone
subscribers in numerous countries outside the United States, as well as in
Puerto Rico and the United States Virgin Islands. ITT Educational, which is
owned 83% by ITT Destinations and 17% by the public, operates technical colleges
offering post-secondary career education.
ITT Destinations will own approximately 9.4 million shares of Alcatel
Alsthom, a French company which owns, among other things, Alcatel N.V., one of
the largest telecommunications equipment manufacturers in the world. The value
of such shares is recorded at $834 million at September 30, 1995.
Management of ITT projects that ITT Destinations will generate pro forma
(i.e., assuming all acquisitions during 1994 and 1995 had been consummated on
January 1, 1994) revenues of approximately $6.5 billion in 1995 and pro forma
EBITDA of approximately $875 million in 1995. The projected pro forma EBITDA for
1995 would represent a 45% increase over EBITDA in 1994, also determined on a
pro forma basis (i.e., assuming all acquisitions during 1994 and 1995 had been
consummated on January 1, 1994). For a discussion of certain important
limitations and related assumptions concerning this projected and other pro
forma financial data and ITT management's beliefs as to future results, see
"Forecasted Capitalization -- Limitations on Projections and Forecasts."
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ITT CORPORATION
ITT is a diversified global enterprise engaged, directly and through its
subsidiaries, in three major business areas: Insurance, Industries and
Hospitality, Entertainment and Information Services. For financial statement
purposes, ITT's Insurance, Hospitality, Entertainment and Information Services
businesses are treated by ITT as discontinued operations.
ITT will unconditionally guarantee (prior to the Distribution) the due and
punctual payment of the principal, premium, if any, and interest on the
Securities when and as the same shall become due and payable, whether at
maturity, upon redemption, or otherwise. The Guarantees will rank equally with
all other unsecured and unsubordinated obligations of ITT. The Guarantees will
irrevocably terminate and be of no further force or effect upon the completion
of the Distribution, subject to certain conditions.
THE DISTRIBUTION
At a special meeting of shareholders of ITT held on September 21, 1995, in
New York, New York, the shareholders approved a group of separate but related
proposals to divide ITT into its three separate areas: (i) Insurance, (ii)
Industries and (iii) Hospitality, Entertainment and Information Services.
These proposals provide for the proposed distribution (the "Distribution")
to ITT's shareholders of all the shares of common stock of ITT Destinations,
which is a wholly owned subsidiary of ITT, and all the shares of common stock of
ITT Hartford Group, Inc. ("ITT Hartford"), which is also a wholly owned
subsidiary of ITT. In the Distribution, holders of ITT common stock will receive
one share of ITT Destinations common stock and one share of ITT Hartford common
stock for every one share of ITT common stock held. The Distribution will
separate ITT into three publicly owned companies. In addition, as part of the
Distribution, ITT will change its name to ITT Industries, Inc. ("ITT
Industries") and ITT Destinations will change its name to ITT Corporation. In
connection with the Distribution, ITT (which is now a Delaware corporation) will
reincorporate in Indiana. After the Distribution, ITT Industries will continue
to conduct the automotive, defense and electronics, and fluid technology
businesses of ITT. ITT Destinations, renamed ITT Corporation, will continue to
conduct the Hospitality, Entertainment and Information Services businesses of
ITT. ITT Hartford will continue to conduct the insurance businesses of ITT.
The Distribution is subject to various conditions, including (i) receipt of
a favorable ruling from the Internal Revenue Service as to certain federal
income tax consequences of the Distribution and (ii) all necessary consents of
any governmental or regulatory bodies having been obtained. A complete
description of the conditions precedent to the Distribution is contained in the
Proxy Statement for the Special Meeting of ITT Corporation Stockholders on
September 21, 1995 (the "Proxy"), which is incorporated herein by reference. If
the Distribution were not to occur, ITT would remain liable for its obligations
with respect to the Securities pursuant to the Guarantees. ITT currently expects
the Distribution to occur prior to December 31, 1995; however, there can be no
assurance that the Distribution will occur prior to that date or at all.
USE OF PROCEEDS
The net proceeds from sale of the Securities will be applied to the
repayment of short-term debt of ITT, currently having a weighted-average
interest rate of approximately 5.85% and a weighted-average maturity of
approximately eight days. Such short-term debt was incurred by ITT primarily to
repurchase in July 1995 $3.4 billion aggregate principal amount of its public
debt securities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Treatment of Certain Debt Instruments and
Tender Offer."
FORECASTED CAPITALIZATION
The following table sets forth the consolidated capitalization of ITT
Destinations as of September 30, 1995 on a historical basis, forecasted as to
December 31, 1995 (the approximate date of the Distribution), and as adjusted to
give effect to the Distribution and the transactions contemplated thereby,
including the allocation of $2.8 billion of indebtedness discussed under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Treatment of Certain Debt Instruments and Tender Offer". The
significant assumptions used to calculate the forecasted capitalization are
described below. The following
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data is qualified in its entirety by the financial statements of ITT
Destinations, other information contained elsewhere in this Prospectus
Supplement and the documents incorporated by reference herein.
(1)
FORECASTED PRO FORMA
SEPTEMBER 30, 1995 AT DECEMBER 31, AFTER
ACTUAL 1995 DISTRIBUTION
------------------ ---------------- -------------
($ IN MILLIONS)
Cash and Cash Equivalents....................... $ 470 $ 195 $ 195
====== ====== =======
Debt from Non-Affiliated Entities(2)............ $ 832 $3,651 $ 3,651
Investments and Advances from ITT
Industries(2)................................. 6,231 3,117 --
Common Shares and Capital Surplus............... -- -- 3,117
Minority Interest............................... 264 264 264
------ ------ -------
Total Capitalization....................... $7,327 $7,032 $ 7,032
====== ====== =======
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(1) Column gives effect to the distribution of ITT Destinations' common stock
and the transfer of certain debt to ITT Destinations.
(2) Prior to the 1995 fourth quarter, ITT Destinations financed its operations
with interest-bearing debt from both external and internal sources. Debt
from non-affiliated entities represents external borrowings, while
Investments and Advances from ITT Industries represents internal sources of
capital.
SUMMARY OF SIGNIFICANT CAPITALIZATION FORECAST ASSUMPTIONS
The foregoing financial forecast of the capitalization of ITT Destinations
is based on ITT management's forecasts and assumptions concerning events and
circumstances which are expected to occur subsequent to the latest historical
balance sheet date but prior to and including December 31, 1995 (the approximate
date of the Distribution), including future results of operations and other
events. For purposes of this forecasted capitalization, net income in the last
three months of 1995 is assumed to approximate the same level as the comparable
1994 period. Assumptions with respect to events that will occur between
September 30, 1995 and December 31, 1995, include the following:
- The use of $275 million in cash balances at various subsidiaries of ITT
Destinations to repay existing short-term borrowings.
- Net capital expenditures totaling $106 million in the last three months
of 1995 ($57 million was incurred in the comparable 1994 period).
- Receipt of a $100 million contribution from ITT Industries.
In ITT management's judgment, the listed assumptions and forecasts reflect
those material events or transactions expected to occur prior to the
Distribution. There have been no changes in accounting principles anticipated in
this capitalization forecast nor are any such changes currently contemplated.
LIMITATIONS ON PROJECTIONS AND FORECASTS
THE ASSUMPTIONS AND ESTIMATES UNDERLYING THE PROJECTED AND FORECASTED DATA
AND INFORMATION CONTAINED HEREIN ARE INHERENTLY UNCERTAIN AND, ALTHOUGH
CONSIDERED REASONABLE BY MANAGEMENT OF ITT, ARE SUBJECT TO SIGNIFICANT BUSINESS,
ECONOMIC AND COMPETITIVE UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE CONTROL OF
ITT AND ITS SUBSIDIARIES. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE
PROJECTED AND FORECASTED FINANCIAL RESULTS WILL BE REALIZED. IN FACT, ACTUAL
RESULTS IN THE FUTURE USUALLY WILL DIFFER FROM THE FORECASTED FINANCIAL RESULTS
AND THE DIFFERENCES MAY BE MATERIAL. NEITHER ITT DESTINATIONS NOR ANY OF ITS
SUBSIDIARIES INTENDS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT TO UPDATE ANY
FORECASTED OR PROJECTED FINANCIAL DATA OR INFORMATION CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE ABSENCE OF SUCH AN UPDATE SHOULD NOT BE CONSTRUED
AS ANY INDICATION REGARDING THE VIEWS OF MANAGEMENT OF ITT DESTINATIONS
CONCERNING THE FORECASTED OR PROJECTED DATA OR INFORMATION CONTAINED IN THIS
PROSPECTUS SUPPLEMENT.
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SELECTED FINANCIAL AND OPERATING DATA
The following table summarizes certain selected combined financial data of
ITT Destinations which has been derived from the Combined Financial Statements
of ITT Destinations for the five years ended December 31, 1994, and the nine
months ended September 30, 1995 and 1994. The financial data is presented as if
ITT Destinations were a separate entity for all periods presented. The pro forma
financial information for the nine months ended September 30, 1995 and 1994 was
prepared as detailed in Note (1) below. A black line separates the historical
financial information presented below from the pro forma financial information.
The information set forth below should be read in conjunction with the financial
statements appearing elsewhere in this Prospectus Supplement and the information
included in the Proxy and the Quarterly Report on Form 10-Q of ITT for the nine
months ended September 30, 1995, which are incorporated herein by reference, and
is qualified in its entirety by the detailed information and financial
statements set forth therein. For a discussion of certain important limitations
and related assumptions concerning the pro forma financial data presented below,
see "Forecasted Capitalization -- Limitations on Projections and Forecasts".
PRO FORMA PRO FORMA
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED
SEPTEMBER SEPTEMBER SEPTEMBER 30, YEAR ENDED DECEMBER 31,
30, 30, --------------- ------------------------------------------
1995(1) 1994(1) 1995 1994 1994 1993 1992 1991 1990
------------ ------------ ------ ------ ------ ------ ------ ------ ------
($ IN MILLIONS) ($ IN MILLIONS)
INCOME STATEMENT DATA:
Revenues.............. $4,711 $4,166 $4,629 $3,224 $4,760 $4,169 $4,253 $3,855 $3,966
Income before
Accounting
Changes............. $ 103 $ 59 $ 74 $ 39 $ 2 $ 43 $ 20
BALANCE SHEET DATA:
Total Assets.......... $8,838 $4,568 $5,012 $3,791 $3,375 $2,462 $2,222
Long-Term Debt,
including Capital
Leases.............. $ 663 $ 109 $ 600 $ 169 $ 186 $ 160 $ 120
OPERATING DATA:
Operating Income...... $ 405 $ 283 $ 402 $ 190 $ 292 $ 142 $ 34 $ 126 $ 121
EBITDA(2)............. $ 625 $ 417 $ 608 $ 255 $ 396 $ 222 $ 81 $ 163 $ 147
Cash from Operating
Activities(3)....... $ 389 $ 345 $ 391 $ 319 $ 230 $ 186 $ 143 $ 133 $ 4
Number of Employees
(in thousands)...... 35 19 25 18 18 20 19
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(1) The pro forma financial information assumes that the acquisitions of
Caesars, the 70.3% interest in Ciga, certain other hotel properties and MSG,
in partnership with another entity, were completed on January 1, 1994. Such
information may not be indicative of the results that would have occurred if
the acquisitions had been completed on January 1, 1994. This information
should be read in conjunction with "Unaudited Pro Forma Combined Income
Statement", "Forecasted Capitalization -- Limitations on Projections and
Forecasts" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
(2) EBITDA is presented here as an alternative measure of the ability of ITT
Destinations to generate cash flow and should not be construed as an
alternative to operating income (as determined in accordance with generally
accepted accounting principles) or to cash flows from operating activities
(as determined on the Combined Cash Flow Statements in ITT Destinations'
Combined Financial Statements contained herein). EBITDA was computed above
as earnings before interest, taxes, depreciation and amortization and, in
the 1995 nine months, excludes provisions totaling $74 million to
restructure operations and provide for the disposal of non-core assets.
(3) Amounts are as determined on the Combined Cash Flow Statements in the ITT
Destinations' Combined Financial Statements contained herein (except pro
forma amounts).
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UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
The following Unaudited Pro Forma Combined Income Statement of ITT
Destinations for the nine months ended September 30, 1995, gives effect under
the purchase method of accounting to the acquisitions of Caesars and MSG, in
partnership with another entity. The Unaudited Pro Forma Combined Income
Statement is based on the historical financial statements of these entities and
the assumptions and adjustments set forth below and in the accompanying Notes to
the Unaudited Pro Forma Combined Income Statement.
The Unaudited Pro Forma Combined Income Statement assumes the acquisitions
were consummated on January 1, 1994. The pro forma adjustments are based on the
terms of the acquisitions which, among other things, provide as follows:
- Caesars -- In January 1995, Caesars shareholders received $67.50 in cash
for each share of Caesars common stock. ITT Destinations made cash
payments totaling $1,754 million to Caesars shareholders and incurred $10
million in expenses for the transaction.
- MSG -- In March 1995, ITT Destinations' interest in MSG required an
initial investment of $610 million which is expected to be reduced by
$250 million in March 1996, as contemplated by the terms of the agreement
related to the acquisition of MSG.
The pro forma adjustments reflect acquisition financing costs to the extent
interest expense in respect of such financing is not included in the historical
statements. For purposes of developing the adjustment to depreciation and
amortization, assets and liabilities have been recorded at their fair market
values and the excess purchase price has been assigned to goodwill.
The MSG acquisition was made through a partnership with Rainbow Programming
Holdings, Inc., a subsidiary of Cablevision Systems Corporation, for
approximately $1 billion and accounted for under the equity method. MSG recorded
its assets and liabilities at their fair market values and the excess purchase
price was assigned to goodwill. The Unaudited Pro Forma Combined Income
Statement includes ITT Destinations' share of MSG's results, including the
amortization of the excess purchase price.
The Unaudited Pro Forma Combined Income Statement does not take into
account any benefits that have or may result from these acquisitions as a result
of cost savings and synergies that have been or may continue to be derived from
the elimination of duplicative efforts or other factors.
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1995
($ in millions)
EQUITY PRO FORMA PRO FORMA
HISTORICAL CAESARS IN MSG ADJUSTMENTS COMBINED
---------- ------ ------ ----------- ----------
Revenues....................................... $4,629 $82 $ -- $ -- $4,711
Costs and expenses before depreciation and
amortization................................. 4,046 73 -- -- 4,119
Depreciation & Amortization.................... 181 4 -- 2 187
------ --- ---- ----- ------
Operating Income............................... 402 5 -- (2) 405
Interest expense, net.......................... (218) (1) -- (21) (240)
Other.......................................... 4 -- (1) -- 3
Income tax (expense) benefit................... (69) (3) 1 7 (64)
Minority (income) loss......................... (16) -- -- -- (16)
------ --- ---- ----- ------
Net Income (Loss).............................. $ 103 $ 1 $ -- $ (16) $ 88
====== === ==== ===== ======
See accompanying Notes to Unaudited Pro Forma Combined Income Statement
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NOTES TO UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
In addition to the historical results of ITT Destinations, Caesars and MSG
for the respective period presented, the Unaudited Pro Forma Combined Income
Statement reflects the following:
CAESARS
- The Caesars column on the 1995 pro forma income statement reflects the
1995 results of Caesars prior to the date of acquisition and before
purchase accounting adjustments.
MSG
- The acquisition of MSG was completed on March 10, 1995, in partnership
with Rainbow Programming Holdings, Inc., a subsidiary of Cablevision
Systems Corporation, for approximately $1 billion. MSG has recorded
goodwill representing the excess of the fair value over the assets
acquired which is being amortized over 40 years on a straight-line basis.
The amortization of such goodwill and of other intangibles is included in
the Equity in MSG column. ITT Destinations has a 50% voting interest in
MSG, and, accordingly, the acquisition is accounted for on the equity
method.
PRO FORMA ADJUSTMENTS
- The recorded values of Caesars' assets and liabilities approximated fair
market value as of the acquisition date except for: (1) land whose
estimated fair value was $250 million in excess of its recorded value and
(2) goodwill representing the excess of the fair value over the assets
acquired. Amortization of goodwill is on a straight-line basis over 40
years. A Federal income tax benefit was not provided on goodwill
amortization as no basis step-up is allowable for tax purposes.
- Interest cost on the acquisition financing was calculated based on the
acquisitions being funded with approximately 50% debt and 50% advances
from ITT Industries. Interest on the debt is 8%, the rate ITT Industries
charges ITT Destinations on interest bearing advances. A Federal income
tax benefit computed at the statutory rate is also reflected.
LIMITATIONS ON PRO FORMA FINANCIAL INFORMATION
The pro forma financial information contained in this Prospectus Supplement
does not purport to be indicative of the results of operations that would
actually have been reported had the transactions underlying the pro forma
adjustments actually been consummated on such dates or of the results of
operations that may be reported by ITT Destinations in the future. Pro forma
information in respect of ITT Destinations assumes that the Distribution and the
other referenced events were completed at the beginning of the relevant
reporting period.
The Unaudited Pro Forma Consolidated Financial Statement should be read in
conjunction with, and is qualified by, information set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus Supplement and these limitations.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1994
Revenues of $4,629 million in the 1995 nine months increased 44% compared
to the 1994 nine months levels, reflecting the contribution of Caesars along
with the Ciga and other significant hotel acquisitions completed during and
subsequent to the 1994 nine months along with higher room rates particularly in
owned properties in North America. Caesars revenues totaled $719 million in the
period while Ciga and other acquisitions contributed $395 million. Excluding
these acquisitions, revenues increased 10%. Average daily rates of owned, leased
and managed hotels improved 14% to $124 in the 1995 nine months.
Salaries, benefits and other operating costs increased 34% in the 1995 nine
month period, representing the costs of the acquired properties and smaller
increases in the cost of services. Overall, salaries, benefits and other
operating costs represented 75% of revenues to date in 1995, down from 80% in
the comparable 1994 period, as higher average rates and occupancy outpaced the
increase in direct costs. In addition, improved performance in the Information
Services segment, representing lower telephone company fees in Belgium,
continuing benefits of cost control programs and favorable foreign exchange
experience, contributed to the favorable results.
Selling, general and administrative expenses include $88 million in the
1995 nine months and $90 million in the 1994 nine months, representing overhead
expenses related to world headquarters management and supervision of the
entities comprising ITT before the Distribution. These expenses are reflected
and charged out of ITT Destinations since this entity includes many of the
corporate personnel and functions that are expected to remain with ITT
Destinations after the Distribution. Of these amounts, $75 million and $66
million were charged in the respective periods to affiliated companies (ITT
Hartford and ITT Industries) and represent fees for advice and assistance
provided by ITT Destinations in connection with cash management, legal,
accounting, tax and insurance services. The fees for these services are based
upon a general relations agreement with each affiliate. See "Basis of
Presentation" note to the ITT Destinations Combined Financial Statements.
The increase in selling, general and administrative expenses in the 1995
nine month period relates primarily to the acquired costs associated with
Caesars, Ciga and other hotel acquisitions. ITT Destinations has embarked on an
aggressive cost rationalization program aimed at reducing these administrative
costs. In June 1995, ITT announced the closedown of the Caesars headquarters in
Los Angeles and, in September 1995, provided for severance and other costs
associated with the headquarters of the hotels and information services business
segments.
Operating income rose 112% in the period reflecting the impact of the
acquisitions discussed above, along with a 10% improvement (excluding
acquisitions) in the average room rates of owned, leased and managed hotels. The
1995 period also includes one-time charges totaling $80 million related to the
planned disposals of certain non-core assets as well as severance and other
costs related to the restructuring of ITT Destinations' business. Excluding the
acquisitions and the restructuring charges referred to above, operating income
increased 61% in the 1995 nine months on higher average room rates, particularly
in owned properties in North America, and the aforementioned improvement in
Information Services. Depreciation and amortization rose 108% in the period due
primarily to the fixed asset additions made through acquisitions and the
goodwill amortization associated with Caesars, Ciga and The Phoenician.
Interest expense (before interest income of $47 million in 1995 and $18
million in 1994) increased to $265 million from $85 million in the 1994 nine
months. This resulted from an allocation of a higher level of debt from ITT
Industries due to the 1994 and 1995 acquisitions discussed above and the
acquisition of MSG on March 10, 1995 (which required an initial investment of
$610 million which is expected to be reduced by $250 million no later than March
1996 as contemplated by the terms of the agreement related to the acquisition of
MSG). Average interest-bearing debt of $3.2 billion in the 1995 period,
including debt allocated from ITT Industries, rose significantly from the $.9
billion average in the 1994 nine months. Interest-bearing debt represents
external borrowings (averaging $.7 billion in 1995 and $.2 billion in 1994) and
interest-bearing
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advances from ITT Industries (averaging $2.5 billion in 1995 and $.7 billion in
1994). The aggregate acquisition costs, including assumed debt, of Caesars ($1.8
billion), MSG ($610 million), Ciga and other significant hotel acquisitions
($1.3 billion) is the principal cause of the increase. Upon completion of the
Distribution, ITT Destinations is expected to carry an approximate debt
portfolio of $3.65 billion. See "Forecasted Capitalization."
Miscellaneous income (expense) is comprised of numerous small non-operating
gains and losses and the results of claims and settlements. Operating income,
less interest expense and miscellaneous income (expense), resulted in pretax
earnings of $188 million in the 1995 nine months, a 65% improvement over the
$114 million recorded in the 1994 period for the reasons discussed above.
Income tax expense rose in the period in proportion to the higher pretax
earnings and resulted in an effective tax rate of 37% for the 1995 nine months
compared with 39% in the 1994 nine months.
Net income, after minority equity, was $103 million in 1995, compared with
$59 million in the 1994 period.
Excluding the restructuring, EBITDA more than doubled in the 1995 period to
$608 million from $255 million in the comparable 1994 period (comparable pro
forma EBITDA was $625 in the 1995 nine months compared with $417 in the 1994
nine months), reflecting the $181 million contribution of Caesars since its
January 31, 1995 acquisition date, along with improved results in the Hotels
segment. EBITDA represented 13.1% of revenues in the 1995 period compared with
7.9% in the 1994 period.
Cash from operating activities, as defined by SFAS No. 95, increased to
$391 million in the 1995 nine months from $319 million in the comparable 1994
period reflecting the improved operating results and the benefit of cash
provided by acquisitions. The SFAS definition of cash from operating activities
differs from EBITDA largely due to the inclusion of interest, income taxes and
changes in working capital.
Business Segments -- Revenues, EBITDA and operating income (excluding the
effect of corporate overhead, onetime restructuring charges ($51 million in
Hotels and $29 million in Information Services) and minority interest) for each
of ITT Destinations' three major business segments were as follows ($ in
millions):
NINE MONTHS 1995 NINE MONTHS 1994
- ------------------------------- -------------------------------
OPERATING OPERATING
REVENUES EBITDA INCOME REVENUES EBITDA INCOME
- -------- ------ --------- -------- ------ ---------
............ Hotels ............
$3,013 $245 $ 154 $2,511 $153 $92
Hotels revenues, EBITDA and operating income benefited significantly from
the Ciga and other acquisitions. Excluding these acquisitions, revenues
increased 6%, EBITDA 16% and operating income 18%, primarily the result of
significantly higher average daily rates. Average daily rates at ITT Sheraton's
owned, leased and managed properties totaled $124 in the 1995 period, compared
with $109 in the 1994 period.
NINE MONTHS 1995 NINE MONTHS 1994
- ------------------------------- -------------------------------
OPERATING OPERATING
REVENUES EBITDA INCOME REVENUES EBITDA LOSS
- -------- ------ --------- -------- ------ ---------
............ Gaming ............
$1,018 $225 $ 159 $145 $5 $(1)
The Gaming segment includes eight months of Caesars results in 1995 along
with the Sheraton Desert Inn and Sheraton Casino in Tunica County, Mississippi.
In the future, the Gaming segment is expected to contribute an increasing
portion of ITT Destination's revenues and operating income.
NINE MONTHS 1995 NINE MONTHS 1994
- ----------------------------- -----------------------------
OPERATING OPERATING
REVENUES EBITDA INCOME REVENUES EBITDA INCOME
- -------- ------ --------- -------- ------ ---------
$598 $178 $ 160 ........ Information Services ........ $568 $138 $ 116
The Information Services segment includes ITT World Directories, the
80%-owned yellow page directory operation based in Europe, and ITT Destinations'
83% interest in ITT Educational, a provider of post-secondary degree technical
programs. Results in the 1995 period at ITT World Directories benefited from
lower telephone company fees in Belgium, continuing effects of cost control
programs and favorable foreign exchange experience. Higher student enrollment
and tuition price increases offset the operating costs of newly-opened schools
at ITT Educational.
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LIQUIDITY AND CAPITAL RESOURCES
The preceding discussion of the results of operations of ITT Destinations
describes ITT Destinations over a period of significant transformation and
growth. ITT has historically incurred debt at the parent level to a greater
extent than at the operating company level, particularly when funding major
capital programs or acquisitions. In connection with the Distribution, a portion
of parent company debt will be substituted with newly issued borrowings of ITT
Destinations so that the aggregate amount of debt of ITT Destinations after the
Distribution will be less than the aggregate amount of debt from non-affiliated
entities and investments and advances from ITT Industries prior to the
Distribution. See "Forecasted Capitalization". The future liquidity of ITT
Destinations will, to a large degree, depend on the integration and performance
of its recent acquisitions as well as the previously existing businesses of ITT
Destinations. ITT Destinations will not be able to rely on the earnings, assets
or cash flows of ITT Industries or ITT Hartford after the Distribution nor,
however, will its earnings, assets or cash flows be used to contribute to the
capital requirements of those entities. In addition, income taxes have been
assessed to ITT Destinations in accordance with a tax allocation agreement with
ITT Industries that generally requires the computation of income taxes as if ITT
Destinations had been a stand-alone entity. In all years presented, credits for
income taxes paid in foreign jurisdictions were fully utilizable in the United
States in the ITT consolidated tax return. This full utilization of credits may
not be achieved in the future, and, to the extent foreign tax credits cannot be
used to reduce the U.S. tax obligation, a higher effective income tax rate will
be incurred.
ITT Destinations generated EBITDA of $396 million in 1994, which was prior
to the acquisitions of Caesars and MSG and without the benefit of a full year of
Ciga and other luxury hotel acquisitions. On a pro forma basis giving effect to
such acquisitions, EBITDA was $604 million in 1994. Management of ITT expects
that pro forma EBITDA for 1995 will approximate $875 million based on results to
date and expectations for the balance of the period. However, for a discussion
of certain important limitations and related assumptions concerning this
projected and other pro forma financial data and ITT management's beliefs as to
future results, see "Forecasted Capitalization". These cash flows are expected
to be sufficient to service indebtedness, satisfy tax obligations and cover
maintenance capital expenditures and other liquidity needs. Additional liquidity
needs would be funded through traditional debt or equity financings, asset sales
or any combination thereof.
Funds used in capital expenditures and acquisitions totaled $2.5 billion in
the nine months ended September 30, 1995, and $1.5 billion in the year ended
December 31, 1994, for the combined expenditures of $4.0 billion since January
1, 1994. Of this amount, the acquisition of Caesars ($1.7 billion), MSG ($0.6
billion), Ciga ($0.5 billion) and other major hotel acquisitions ($0.5 billion)
comprised 83%. The balance was used for smaller acquisitions and to maintain ITT
Destinations' facilities. ITT Destinations did not generate sufficient cash
flows from its operations to fund these acquisitions and capital expenditures.
Such funding has been provided to ITT Destinations by its parent from the
operating cash flow at other ITT companies and by debt incurred at the parent
company level. At September 30, 1995, commitments have been made for additional
capital expenditures totaling approximately $100 million in 1995. In addition,
certain equipment is utilized through operating leases with minimum rentals of
$53 million in 1995 and $47 million in 1996. ITT Destinations also expects to
pay $103.5 million in connection with its proposed acquisition of WNYC-TV in
1996. The commitments discussed above are expected to be funded through the
operating cash flow of ITT Destinations.
ENVIRONMENTAL MATTERS
ITT Destinations is subject to stringent environmental laws and regulations
in all jurisdictions in which it operates. Management of ITT believes that ITT
Destinations is in substantial compliance with all applicable environmental
requirements. Environmental compliance costs are accounted for primarily as
normal operating expenses. Management does not believe that such environmental
compliance costs will have a material adverse effect on ITT Destinations'
financial position, results of operations or cash flow.
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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
Destinations during the three most recent fiscal years.
TREATMENT OF CERTAIN DEBT INSTRUMENTS AND TENDER OFFER
In connection with the Distribution, ITT expects that it will allocate an
aggregate of $2.8 billion of its indebtedness to ITT Destinations. The planned
allocation is reflected under "Forecasted Capitalization".
In July 1995, ITT successfully completed a tender offer for an aggregate of
$4.1 billion of its debt securities, with $3.4 billion, or 82% of the aggregate
principal amount having been tendered. The tender offer was financed with the
proceeds of commercial paper borrowings of approximately $3.7 billion.
Management of ITT expects to refinance these commercial paper obligations, and
then allocate the resulting indebtedness, prior to the Distribution, through
proceeds of a series of new borrowings by ITT Destinations (including this
offering of Securities) and ITT (which, in the case of ITT, will become
indebtedness of ITT Industries after the Distribution), as applicable. These
obligations could be in the form of commercial paper borrowings, bank borrowings
or public or private financings or any combination of the foregoing. The tender
offer resulted in ITT paying a tender premium of $307 million after tax ($472
million pre-tax) in the third quarter of 1995, which has been recorded as an
extraordinary loss on the early extinguishment of debt on the financial
statements of ITT Industries.
BUSINESS OF ITT DESTINATIONS
ITT Destinations' operations include hotels, gaming, entertainment and
information services. For revenues, operating income and other financial
information by business segment, see "ITT Destinations Financial
Statements -- Business Segment Information."
HOTEL OPERATIONS
ITT Destinations' revenues from hotel operations are derived worldwide from
ITT Sheraton's owned, leased and managed hotels and franchise fees. Revenues in
the hotel business are essentially a function of number of rooms, average daily
rate charged for rooms and number of rooms occupied. Six of the hotels in the
ITT Sheraton network have casino operations. The gaming operations in the ITT
Sheraton network and the gaming operations of Caesars are discussed below under
" -- Gaming Operations".
The following table illustrates in percentage terms the sources of revenues
of ITT Destinations' hotel operations. The percentages for the 1994 periods
assume that the acquisition of the 70.3% interest in Ciga and certain other
hotel properties had been completed on January 1, 1994. ITT Sheraton's owned
hotel/casinos and Caesars are not included in the table.
PRO FORMA
NINE MONTHS ENDED NINE MONTHS ENDED PRO FORMA
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED
1995 1994 DECEMBER 31, 1994
----------------- ----------------- -----------------
Owned or Leased Hotels.................. 31% 26% 30%
Managed and Joint Venture Hotels(1)..... 66 70 67
Franchised Hotels(2).................... 1 1 1
Other(3)................................ 2 3 2
--- --- ---
100% 100% 100%
=== === ===
- ---------------
(1) Includes 100% of the revenues of managed and joint venture hotels.
(2) Includes franchise fees to ITT Sheraton, not revenues of franchise hotels.
(3) Other revenues primarily include reservations fees and Sheraton Club
International fees.
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Owned and Leased Hotels
The following table illustrates for ITT Sheraton's owned and leased
properties the number of properties, available room nights, average daily
occupancy rate and average daily rate, in each case for the periods indicated.
For the 1994 periods, the table gives effect to the relevant transactions
discussed above. ITT Sheraton's owned hotel/casinos and Caesars are not included
in the table.
PRO FORMA
NINE MONTHS ENDED NINE MONTHS ENDED PRO FORMA
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED
1995 1994 DECEMBER 31, 1994
----------------- ----------------- -----------------
Number of properties at period end...... 68 68 66
Available room nights(1)................ 5,864,957 5,612,430 7,467,848
Average daily occupancy rate(2).........
All Regions (excl. Ciga).............. 73.3% 72.5% 73.0%
Ciga(4)............................... 63.2% 61.1% 60.7%
Average daily rate(3)...................
All Regions (excl. Ciga).............. $119.05 $106.89 $111.21
Ciga(4)............................... $194.22 $170.25 $173.40
- ---------------
(1) Based on properties held at period end.
(2) Occupied rooms in the period divided by rooms available for sale in the same
period.
(3) Room revenues for the period divided by rooms occupied for the same period.
(4) Ciga was acquired in stages at various times throughout the second half of
1994. Rate and occupancy data is most meaningfully presented separately for
these periods.
The owned and leased properties in the ITT Sheraton network are, in many
cases, subject to mortgage and lease indebtedness. As of September 30, 1995, the
aggregate mortgage and lease indebtedness in respect of such hotels was $524
million. In connection with the leased properties in the ITT Sheraton network,
an ITT Sheraton subsidiary generally leases the land upon which the hotel has
been built and the hotel building. Upon expiration of the lease, the buildings
and other leasehold improvements owned by such subsidiary revert to the
landlord. Usually, such ITT Sheraton subsidiary owns the furniture and
equipment, is responsible for repairs, maintenance, operating expenses and lease
rentals and retains managerial discretion over operations. Generally, ITT
Sheraton pays a percentage rental based on total revenues (as defined) or gross
operating profit (as defined) in respect of the relevant facility but with a
minimum fixed annual rent. During the nine months ended September 30, 1995, and
the year ended December 31, 1994, ITT Sheraton paid aggregate rentals, including
rentals attributable to the leased properties referenced above, of $17 million
in both periods.
Managed and Joint Venture Hotels
ITT Sheraton, through subsidiary companies, manages, under long-term
agreements, a number of hotels throughout the world. The following table
illustrates for the managed and joint venture hotels in the ITT Sheraton network
the number of managed and joint venture properties, available room nights,
average daily occupancy rate and average daily rate, in each case for the
periods indicated. For the 1994 periods, the table gives effect to the relevant
transactions discussed previously.
PRO FORMA
NINE MONTHS ENDED NINE MONTHS ENDED PRO FORMA
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED
1995 1994 DECEMBER 31, 1994
----------------- ----------------- -----------------
Number of properties at period end..... 130(1) 143 143
Available room nights(2)............... 13,496,371 14,084,378 18,919,583
Average daily occupancy rate(3)........ 70.8% 70.6% 70.4%
Average daily rate(4).................. $120.16 $109.88 $111.12
- ---------------
(1) The decrease resulted primarily from a reclassification of certain hotels
from the managed category to the franchised category.
(2) Based on properties held at period end.
(3) Occupied rooms in the period divided by rooms available for sale in the same
period.
(4) Room revenues for the period divided by rooms occupied for the same period.
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Under its standard management agreement, ITT Sheraton operates lodging
facilities under long-term arrangements with property owners. ITT Sheraton's
responsibilities include hiring, training and supervising the managers and
employees required to operate the facilities. ITT Sheraton provides reservation
services, national advertising, marketing and promotional services. ITT Sheraton
prepares and implements annual budgets for lodging facilities under its
management and is responsible for allocating property-owner funds for periodic
maintenance and repair of buildings and furnishings. ITT Sheraton's management
fee is generally based on a percentage of the hotel's total revenues (as
defined), plus, in certain instances, an incentive fee based on the operating
performance.
Expansion Program
In 1990 and 1991, ITT Sheraton began a deliberate and accelerated expansion
and refurbishment program designed to exploit the downturn in the hospitality
sector occurring at that time and to position ITT Sheraton for the ensuing
upturn which began in 1994. Significant renovations to key properties such as
The St. Regis Hotel, Sheraton New York/Manhattan and Sheraton Bal Harbour Beach
Resort in Miami were undertaken. Negotiations began to purchase the interests of
ITT Sheraton's partners in several hotels in a period when the values of those
interests were believed to be depressed due to market conditions. The search for
acquisition opportunities that both enhanced ITT Sheraton's image and its
geographic reach was a primary focus and, most recently, resulted in the 1994
acquisitions of The Phoenician and Crescent Hotels in Arizona, The Park Grande
Hotel in Australia and the Ciga hotel group in Europe. Management of ITT
believes that this expansion and refurbishment program has uniquely positioned
ITT Sheraton as the premier hotelier in terms of global reach and customer
service.
Selected Key Properties
The following table sets forth some of the prominent properties in the ITT
Sheraton network by geographic region and market segment.
BUSINESS/CONVENTION
LOCATION HOTELS RESORT HOTELS LUXURY HOTELS
- ------------------- ----------------------- ----------------------- -----------------------
North America New York Harbor Island, San St. Regis, New York
Boston Diego Carlton, Washington,
Seattle The Phoenician, Arizona D.C.
New Orleans Disney Dolphin, Florida Palace, San Francisco
Chicago Moana Surfrider, Hawaii Princeville, Hawaii
Bal Harbor, Miami The Royal Hawaiian,
Hawaii
Europe Brussels Algarve, Portugal Prince de Galles, Paris
Copenhagen Costa Smeralda, Italy: Park Tower, London
Frankfurt -- Cala di Volpe Hotel Imperial, Austria
Rome -- Pitrizza Danieli, Venice
Skyline, London -- Romazzino Principe di Savoia,
Lisbon, Portugal Milan
Palace Madrid, Spain
Africa/Middle East Cairo Luxor, Egypt Kuwait
Lagos Jeddah, Saudi Arabia
Abu Dhabi
Asia/Pacific Hong Kong Fiji Royal Orchid, Bangkok
Brisbane Bali, Indonesia Sheraton on the Park,
Auckland, New Zealand Gold Coast, Australia Sydney
Port Douglas, Australia Grande Tokyo Bay
Southgate, Melbourne
Latin America Buenos Aires Cancun, Mexico Mofarrej, Brazil
Lima Macuto, Venezuela San Cristobal, Chile
Maria Isabel, Mexico
City
Rio de Janiero
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International Operations
The hotel operations of ITT Sheraton are conducted worldwide. As a general
matter, ITT Sheraton's presence outside of North America consists of contracts
to manage hotels and, to a far more limited extent, equity positions in hotels.
With the acquisition of 70.3% of Ciga, a deluxe hotel group in Europe with 33
hotels, and The Park Grande Hotel in Sydney, Australia, ITT Sheraton has
recently expanded its role as an owner of hotels outside of North America. As of
September 30, 1995, ITT Sheraton had an equity interest of 50% or more in 26
properties in Europe (including Ciga), one property in the Asia/Pacific region,
five properties in Latin America and one property in the Africa/Middle East
region.
The source of revenues in geographic terms of ITT Destinations' operations
(excluding revenues from gaming operations and reservations-based revenues) is
set forth in the following table for the periods indicated. The data for 1994
gives effect to the relevant transactions discussed previously. The pro forma
financial information includes ITT management's estimates of results which,
among other things, assume revenue and expense levels based on historical trends
and ITT management's views of current economic conditions. Such information may
not be indicative of the results that would have occurred if the acquisitions
had been completed on January 1, 1994. ITT Sheraton's hotel/casinos and Caesars
are not included in the table.
PRO FORMA
NINE MONTHS ENDED NINE MONTHS ENDED PRO FORMA
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED
1995 1994 DECEMBER 31, 1994
----------------- ----------------- -----------------
REVENUES
North America(1)...................... 44% 46% 45%
Europe................................ 21 18 18
Africa/Middle East.................... 9 10 10
Latin America......................... 5 6 6
Asia/Pacific.......................... 19 18 19
Headquarters and Other................ 2 2 2
---- ---- ----
Total......................... 100% 100% 100%
==== ==== ====
EBITDA
North America(1)...................... 55% 55% 60%
Europe................................ 22 7 6
Africa/Middle East.................... 2 2 3
Latin America......................... 16 19 21
Asia/Pacific.......................... 13 22 15
Headquarters and Other................ (8) (5) (5)
---- ---- ----
Total......................... 100% 100% 100%
==== ==== ====
- ---------------
(1) Includes franchise fees.
Franchise Business
The franchise business of ITT Sheraton largely relates to properties based
in North America. Only 20 of the franchise hotels and inns (631 rooms) are
located outside of North America. The following table
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illustrates for ITT Sheraton's franchise business the number of properties,
available room nights, average daily occupancy rate and average daily rate, in
each case for the periods indicated.
PRO FORMA
NINE MONTHS ENDED NINE MONTHS ENDED PRO FORMA
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED
1995 1994 DECEMBER 31, 1994
----------------- ----------------- -----------------
Number of properties at period end...... 213 218 214
Available room nights(1)................ 14,348,416 15,480,404 20,530,000
Average daily occupancy rate(2)......... 68.8% 68.6% 67.4%
Average daily rate(3)................... $76.63 $72.47 $72.89
- ---------------
(1) Based on properties held at period end.
(2) Occupied rooms in the period divided by rooms available for sale in the same
period.
(3) Room revenues for the period divided by rooms occupied for the same period.
Sheraton franchise hotels are licensed to operate under the "Sheraton"
tradename and the stylized "S" and Wreath service mark. The franchise hotels
operated under the "Sheraton" name are generally smaller than the hotels owned,
leased or managed by ITT Sheraton. In each instance, ITT Sheraton approves the
plans for, and the location of, franchise hotels and reviews their design.
ITT Sheraton recently began a process of converting Sheraton franchise
hotels to the new "Four Points Hotels" tradename. ITT Sheraton plans to convert
nearly all of its franchise hotels to the "Four Points Hotels" name. It is
expected that the "Four Points Hotels" will be operated and marketed with a view
toward providing hospitality services to the business-oriented traveler. Nearly
all new franchise hotels are also expected to be operated under the "Four Points
Hotels" name.
At September 30, 1995, there were 213 franchise hotels operated by other
business entities under the "Sheraton" name. In general, each franchisee pays
ITT Sheraton an initial minimum fee, plus an additional fee for every room over
100. There is a continuing monthly license fee based on a percentage of the
facility's room revenues. Although ITT Sheraton does not directly participate in
the management or operation of franchise hotels, it periodically inspects those
facilities to ensure that ITT Sheraton's standards are maintained.
Reservations
In 1992, ITT Sheraton implemented a state-of-the-art computerized
reservations system. In the opinion of ITT Sheraton's management, this system,
called Reservatron IV, has significantly improved the worldwide reservations
network at ITT Sheraton.
Reservatron IV allows the delivery of up-to-the-minute status information
on each of ITT Sheraton's approximately 420 properties and each of Ciga's
approximately 33 properties. It delivers instant confirmation of specific rates,
room types and local destination information which formerly was available only
by calling the property directly. Reservatron IV also allows for the
specification of a large number of regular and special rates on the system,
confirmation of guests' special requests and storing of special preferences of
members of Sheraton Club International (the frequent guest program). ITT
Sheraton continues to add new features to Reservatron IV from time to time.
The system is owned and operated by a wholly owned subsidiary of ITT
Sheraton with offices located worldwide.
GAMING OPERATIONS
ITT Destinations' gaming operations consist primarily of Caesars Palace in
Las Vegas, Caesars Atlantic City in Atlantic City and Caesars Tahoe in
Stateline, Nevada (each acquired by ITT in January 1995), ITT Sheraton's Desert
Inn Resort & Casino in Las Vegas, the Sheraton Casino in Tunica County,
Mississippi and various hotel/casino operations of ITT Sheraton and Caesars
outside of the United States.
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Caesars World
In January 1995, a subsidiary of ITT acquired through a cash tender offer
approximately 92.9% of the outstanding shares of Caesars. Upon the merger of the
ITT subsidiary into Caesars, effective March 2, 1995, Caesars became a direct,
wholly owned subsidiary of ITT. The cost of the transaction to ITT was
approximately $1.7 billion.
Caesars' wholly owned subsidiaries operate three destination gaming
resorts: Caesars Palace in Las Vegas, Nevada; Caesars Tahoe in Stateline,
Nevada; and Caesars Atlantic City in Atlantic City, New Jersey. A Caesars
subsidiary carries on operations of small casinos on two cruise ships in
conjunction with the operator of the ships. Caesars also owns one-third of a
management company which operates Casino Windsor, a casino opened on May 17,
1994, in Windsor, Canada, which is owned by the Government of the Province of
Ontario. Caesars' subsidiaries also own and operate four non-gaming resorts in
the Pocono Mountains of Pennsylvania.
Nevada Properties. Caesars Palace, which opened in 1966 and was purchased
by Caesars in 1969, is a casino/hotel complex located on approximately 80 acres
on the "Strip" in Las Vegas, Nevada. At September 30, 1995, Caesars Palace had
1,486 hotel rooms and suites, 10 restaurants, a 1,126-seat showroom, a
convention complex with approximately 100,000 square feet of meeting and banquet
space, numerous bars and lounges, a shopping arcade, two swimming pools, tennis
facilities, a 4,500-seat sports pavilion, a 15,000-seat outdoor stadium, health
spas, and an "Omnimax" theater. Its casino is approximately 118,000 square feet,
and it offers wagering limits among the highest in Nevada.
For the nine months ended September 30, 1995, the average occupancy rate at
Caesars Palace of 89.4% included occupancy of approximately 36.9% of the
available rooms and suites by guests receiving complimentary rooms. The average
occupancy rate at Caesars Palace was 90.8%, 92.0% and 88.6% for the years ended
December 31, 1994, 1993, and 1992, respectively, including occupancy of 42.7%,
37.1% and 33.8%, respectively, of the available rooms and suites by guests
receiving complimentary rooms.
Recent major capital projects at Caesars Palace include room and public
area refurbishments, replacement of slot machines, enhancements to security
systems in the casino and completion of luxury suites. Scheduled capital
projects include Caesars Magical Empire, a new state-of-the-art magical and
dining entertainment facility scheduled to open in January 1996, a second
parking garage, guest room and public area refurbishments and replacement of
slot machines.
Caesars Tahoe casino/hotel opened in 1979 and is located in Stateline,
Nevada, adjacent to Lake Tahoe. In 1979, Caesars entered into a long-term lease
of the 24-acre property on which the casino/hotel stands. At September 30, 1995,
Caesars Tahoe had 440 hotel rooms and suites, six restaurants, a 1,500-seat
showroom, 25,000 square feet of convention rooms, 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 nine months ended September 30, 1995, the average occupancy rate at
Caesars Tahoe of 88.9% included occupancy of approximately 23.8% of the
available rooms and suites by guests receiving complimentary rooms. The average
occupancy rate at Caesars Tahoe was 88.8%, 90.4% and 89.7% for the years ended
December 31, 1994, 1993, and 1992, respectively, including occupancy of 32.0%,
33.6% and 39.2%, respectively, of the available rooms and suites by guests
receiving complimentary rooms.
Recent major capital projects at Caesars Tahoe include costs for a themed
restaurant, room renovations and remodeling/refurbishing of the casino floor.
Scheduled capital projects include room renovations and replacement of slot
equipment.
Caesars Atlantic City. Caesars Atlantic City is a 638-room casino/hotel on
the Boardwalk in Atlantic City, New Jersey. At September 30, 1995, it had a
74,000-square-foot casino, including table games, slots, keno, poker and race
simulcasting, 13 restaurants and bars, 10,000 square feet of meeting and banquet
space, an 1,100-seat showroom, a shopping arcade, a Roman-themed transportation
center which accommodates 2,500 cars and 11 buses, a health club and tennis
courts. The property on which Caesars Atlantic City stands
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consists of approximately 8.1 acres, including contiguous parcels totaling
approximately 5.4 acres bounded on three sides by Missouri, Arkansas and Pacific
Avenues, with an entire block of Boardwalk frontage.
For the nine months ended September 30, 1995, the average occupancy rate at
Caesars Atlantic City of 94.4% included occupancy of approximately 80.1% of the
available rooms and suites by guests receiving complimentary rooms. The average
occupancy rate at Caesars Atlantic City was 92.7%, 90.8% and 86.4% for the years
ended December 31, 1994, 1993, and 1992, respectively, including occupancy of
77.0%, 62.6% and 67.1%, respectively, of the available rooms and suites by
guests receiving complimentary rooms.
Recent major capital expenditures at Caesars Atlantic City include
completion of a casino expansion (including additional slot machines, table
games, poker games, and a keno and simulcasting area), remodeling and
refurbishing of guest rooms and the baccarat casino area and purchase of slot
equipment. Scheduled capital projects include casino renovation to add slot
machines, computer equipment, themed restaurants, replacement of slot machines
and renovation of guest rooms and suites.
Sheraton Desert Inn Resort & Casino
The Sheraton Desert Inn Resort & Casino, which was purchased, through a
wholly owned subsidiary, by ITT Sheraton in November 1993, is a casino/hotel
complex located on approximately 200 acres on the "Strip" in Las Vegas, Nevada.
At September 30, 1995, the Sheraton Desert Inn had 821 hotel rooms and suites,
five restaurants, a 636-seat showroom, a convention complex with approximately
24,500 square feet of meeting and banquet space, numerous bars and lounges, a
shopping arcade, three swimming pools, tennis facilities, an 18 hole golf course
and other facilities. Its casino is approximately 20,000 square feet.
For the nine months ended September 30, 1995, the average occupancy rate at
Sheraton Desert Inn of 76.2% included occupancy of approximately 18.7% of the
available rooms and suites by guests receiving complimentary rooms. In 1994, the
average occupancy rate at Sheraton Desert Inn of 78.4% included occupancy of
approximately 18.3% of the available rooms and suites by guests receiving
complimentary rooms. The average hotel occupancy rate at Sheraton Desert Inn was
82.6% and 80.4% in 1993 and 1992, respectively, including occupancy of 18.9% and
16.8%, respectively, of the available rooms and suites by guests receiving
complimentary rooms.
MADISON SQUARE GARDEN
In March 1995, ITT, in partnership with an indirect subsidiary of
Cablevision Systems Corporation, acquired MSG for approximately $1 billion.
MSG's activities include owning and operating the Madison Square Garden Arena,
which seats approximately 20,000 people, The Paramount, a special events theater
which seats approximately 5,600 people, the New York Knicks of the National
Basketball Association (the "NBA") and the New York Rangers of the National
Hockey League (the "NHL"). It also supplies and distributes television
programming for cable systems principally in New York, New Jersey and
Connecticut through the MSG Network. Its programming includes its own sporting
events and rights to the New York Yankees baseball games through the year 2000.
In addition, MSG produces, promotes and/or presents live entertainment, which
includes television event production of the Miss Universe, Miss USA and Miss
Teen USA pageants and auto thrill shows through SRO Motorsports, an operating
unit of MSG.
Ownership Structure
On March 10, 1995, MSG Holdings, L.P. ("Holdings"), a partnership among
subsidiaries of Rainbow Programming Holdings, Inc. ("Rainbow Programming"), a
wholly owned subsidiary of Cablevision Systems Corporation, and wholly owned
subsidiaries of ITT acquired the business and assets of Madison Square Garden
Corporation.
Holdings funded the purchase price of the acquisition through (i)
borrowings of $289.1 million under a bank credit agreement, (ii) an equity
contribution from Rainbow Programming of $110 million and (iii) an equity
contribution from ITT of $610 million. Pursuant to agreements among ITT, Rainbow
Programming and Cablevision Systems Corporation, within 12 months (or 18 months
under certain circumstances)
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following the MSG closing, Rainbow Programming may elect to acquire interests in
Holdings from ITT sufficient to equalize the equity ownership of ITT and Rainbow
Programming in Holdings (the "Equalization Interest"). Rainbow Programming has
the option during such period to (i) acquire all or a portion of the
Equalization Interest for cash (including interest on such Equalization Interest
at the rate of 11 1/2% per year calculated from March 10, 1995), (ii) maintain
its investment at the initial level or (iii) require ITT to purchase all or any
portion of Rainbow Programming's initial interest in Holdings at the price paid
by Rainbow Programming plus an adjustment for Rainbow Programming's share of
Holdings' operating income after interest expense following the MSG acquisition
closing. Management of ITT expects to receive payment in respect of the
Equalization Interest as contemplated by the terms of the applicable agreements.
Initially, Holdings will be managed on a 50/50 basis by Rainbow Programming
and ITT. If Rainbow Programming does not equalize its ownership interest in
Holdings as discussed above, its management role will effectively be eliminated.
The name of Holdings has been changed to Madison Square Garden, L.P.
MSG Network
The MSG Network is an advertiser-supported cable television entertainment
program service that was launched in October 1969. The MSG Network's programming
is distributed primarily via satellite for distribution by cable television
operators and other video distributors principally in New York, New Jersey and
Connecticut. The MSG Network currently has over 5,000,000 homes that are
subscribers in the New York, New Jersey and Connecticut metropolitan area.
The MSG Network derives revenue from two principal sources: sale of
advertising time on the network and receipt of per-subscriber license fees paid
by cable operators and other distributors pursuant to negotiated carriage
arrangements.
The sale of advertising time is affected by viewer demographics, viewer
ratings and market conditions. In order to evaluate the level of its viewing
audience, the MSG Network makes use of the metered method of audience
measurement. This method, which provides a sample through the use of meters
attached to television sets, produces a continuous measurement of viewing
activity within those households. The MSG Network utilizes the services of A.C.
Nielsen, the metered estimates of which are widely accepted by advertisers as a
basis for determining advertising placement strategy and rates.
The MSG Network programming generally consists of sporting events and is
filled through program rights to various sporting events, particularly rights
with respect to the New York Yankees baseball games, and its own sporting events
and related productions, particularly New York Knicks and New York Rangers games
and events held at the Madison Square Garden Arena.
The MSG Network has acquired programming rights from the New York Yankees
to broadcast its baseball games through the year 2000, for an aggregate of
$493.5 million. In addition to rights fees paid to the New York Yankees, the MSG
Network pays a fee to (i) the NBA for distribution of New York Knicks games to,
as a general matter, households located outside of a 75 mile radius of New York
City and (ii) the NHL for distribution of New York Rangers games to, as a
general matter, households located outside of a 50 mile radius of New York City.
New York Knicks
MSG owns the New York Knicks, a member of the NBA. The New York Knicks play
their home games in the Madison Square Garden Arena, which is owned and operated
by MSG.
The NBA, through its constitution, has established rules governing club
operations, including drafting of players and trading player contracts. The New
York Knicks are subject to payment of ongoing assessments and dues to the NBA
and to compliance with the constitution and by-laws of the NBA, as the same may
be modified from time to time by the membership, as well as with rules
promulgated by the Commissioner of the NBA. These rules include standards of
conduct for players and front office personnel; methods of operation; procedures
for drafting new players and for purchasing, selling and trading player
contracts; rules for
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implementing disciplinary action relative to players, coaches and front office
personnel; and certain financial requirements.
In addition to ticket revenues from home games (basketball clubs in the NBA
do not share in gate receipts from games away from home), a portion of the New
York Knicks' revenues is derived from a pro-rata share of the network broadcast
rights fees received by the NBA, pursuant to a broadcast rights fee agreement
through the 1997-1998 seasons awarded to NBC Sports, a division of the National
Broadcasting Company, and from a pro-rata share of the broadcast rights fees
received by the NBA, pursuant to the broadcast rights fee agreement through the
1997-1998 season awarded to TBS Superstation and Turner Network Television,
Inc., affiliates of Turner Broadcasting System, Inc. The New York Knicks also
receive revenue from local cable rights fees for games broadcast by the MSG
Network and from local radio rights fees for games broadcast by WFAN-AM.
Other sources of revenues for the New York Knicks' operations include
promotional and novelty revenues, including royalties from NBA Properties, Inc.,
and a pro rata share of expansion fees paid by new NBA franchises.
New York Rangers
MSG owns the New York Rangers, a member of the NHL. In addition to owning
the New York Rangers, MSG licenses the Rangers name in connection with the
operation of a minor league hockey team in Binghamton, New York. The New York
Rangers play their home games in the Madison Square Garden Arena.
The NHL, through its constitution, has established rules governing club
operations, including drafting of players and trading player contracts. The New
York Rangers are subject to payment of ongoing assessments and dues to the NHL
and to compliance with the constitution and by-laws of the NHL, as the same may
be modified from time to time by the membership, as well as with rules
promulgated by the Commissioner of the NHL. These rules include standards of
conduct for players and front office personnel; methods of operation; procedures
for drafting new players and for purchasing, selling and trading player
contracts; rules for implementing disciplinary action relative to players,
coaches and front office personnel; and certain financial requirements.
In addition to ticket revenues from home games, a portion of the New York
Rangers' revenues is derived from a pro-rata share of the revenues generated
through contracts negotiated with television networks. The principal broadcast
agreements are with the Entertainment and Sports Programming Network ("ESPN")
and the Fox Television Network, covering the 1994-1995 through 1998-1999
seasons. In early 1994, the NHL negotiated a four-year extension of the
exclusive Canadian television broadcast agreement with Molson Companies Ltd. The
New York Rangers also receive revenue from local cable rights fees for games
broadcast by the MSG Network and from local radio rights fees for games
broadcast by WFAN-AM.
Other sources of revenues for the New York Rangers' operations include
promotional and novelty revenues including royalties from NHL Enterprises, Inc.,
and a pro rata share of expansion fees paid by new NHL franchises.
Madison Square Garden Arena
The principal tenants of the Madison Square Garden Arena are the New York
Knicks and the New York Rangers. In addition to the New York Knicks basketball
games and New York Rangers hockey games, MSG derives revenues from various other
activities and events held at the Madison Square Garden Arena and The Paramount.
These events include various other sporting events, concerts, family shows, the
circus, trade shows, conventions and other special events. MSG generates revenue
through luxury suite licensing, concessions (fast food, restaurants and
catering), ticket sales and merchandise sales.
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Other
MSG produces, promotes and/or presents live entertainment. Some of the more
prominent events or activities include television event production of the Miss
Universe, Miss USA and Miss Teen USA pageants and auto thrill shows through SRO
Motorsports, an operating unit of MSG.
WNYC-TV
In August 1995, ITT, in a 50/50 partnership with Dow Jones, agreed to
purchase television station WNYC-TV from New York City. The purchase, subject to
approval by the Federal Communications Commission and other customary
conditions, is expected to close in early 1996. The purchase price of $207
million will be split evenly by the two companies and the partnership will be
managed on a 50/50 basis. ITT and Dow Jones plan to rename the station WBIS+,
and to replace the station's mix of public-service and ethnic programming with a
broad range of business news during the day and professional sports and other
events at night.
INFORMATION SERVICES
ITT World Directories
After the Distribution, ITT Destinations, through an 80%-owned subsidiary,
ITT World Directories, will engage 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 United
States Virgin Islands. ITT World Directories is among the world's largest
publishers of yellow pages directories (in terms of advertising revenues).
BellSouth Corporation owns the remaining 20% of ITT World Directories through a
subsidiary.
ITT World Directories publishes traditional telephone
directories -- alphabetical and classified -- and also publishes specialized
directories, including directories of facsimile numbers and business-to-business
directories. ITT World Directories' principal source of revenues in connection
with its operations is advertising revenue generated by advertisements published
in its directories. Its principal publications are in Belgium, The Netherlands,
Portugal, The Republic of Ireland, Puerto Rico and the United States Virgin
Islands. ITT publishes directories in these jurisdictions either pursuant to a
contract with the existing national telecommunications provider or as a
proprietary directory in such jurisdiction after expiration of such a contract.
ITT World Directories is currently the largest publisher of telephone
directories in each of the various countries that it serves. 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 the participation with the entity providing management services to
the publisher of telephone directories in that country.
Historically, the business of ITT World Directories had consisted of
contracts for the publication of telephone directories with monopoly providers
of telecommunications services. In many jurisdictions, the monopoly provider of
telecommunications services was obligated to publish white pages telephone
directories and the obligation or right (depending on the jurisdiction) to
publish yellow pages directories (and thus claim significant advertising
revenues) went along with the requirement to publish white pages. As a means of
satisfying its publication obligations, various monopoly providers contracted
with ITT World Directories to publish telephone directories. Some of the current
business of ITT World Directories remains consistent with this historical source
of business. However, one of the most important factors currently affecting the
business of ITT World Directories is the changing competitive environment in the
member states of the European Union in which it publishes telephone directories.
Specifically, in Belgium and The Netherlands, the historical contractual
relationship between ITT World Directories and the national telecommunications
entity, namely Belgacom and PTT Telecom, respectively, were not renewed or
extended when the last contract term expired. As contracts are scheduled for
renewal in other jurisdictions within the European Union, the contracts there
may also not be renewed or extended, thereby possibly adversely affecting ITT
World Directories.
A second important factor affecting the business of ITT World Directories
is the challenge presented by new interactive and other technologies (including
as the traditional yellow pages market moves to a paperless
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product). The operating performance of ITT World Directories is not expected to
be materially adversely affected by the emergence of new technologies in the
immediate future. However, if ITT World Directories is not successful in
implementing a strategy to apply new technologies to its business, its
longer-term operating results may be adversely affected. These new technologies
are likely to include information delivery methods such as CD ROMs and computer
diskettes and operator-assisted yellow pages. ITT World Directories has
activities in this arena. Specifically, in Portugal, ITT World Directories has
had an operator-assisted yellow pages in operation 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; and it is working with
the directory operation in South Africa on enhancing the operator-assisted
yellow pages that have been in operation there for approximately nine years.
ITT Educational
Prior to its initial public offering, which was consummated on December 27,
1994, ITT Educational was a wholly owned subsidiary of ITT. ITT Destinations
beneficially owns 83.3% of the outstanding shares of common stock of ITT
Educational. The shares of common stock of ITT Educational are traded on the
NYSE under the symbol "ESI". The term "ITT Technical Institutes" (in singular or
plural form) refers to educational institutions owned and operated by ITT
Educational.
ITT Educational is a leading proprietary provider of technical
post-secondary degree programs in the United States based on student enrollment.
ITT Educational offers degree programs and non-degree diploma programs to over
21,000 students through a system of 58 ITT Technical Institutes located in 26
states. These programs are designed, after consultation with employers, to
provide students with the knowledge and skills necessary for entry-level
employment in technical positions in a variety of industries.
ITT entered the education services business in 1966 through the acquisition
of a predecessor of ITT Educational which owned three technical institutes. In
1981, ITT Educational began a strategy of significant expansion, acquiring three
and establishing 45 new technical institutes since that date. Of the 58
institutes currently operating, 25 were established since 1989. As a result of
adding new institutes and increasing enrollment at existing institutes, the
number of students attending Technical Institutes rose from 15,582 students at
December 31, 1989, to 21,863 students at September 30, 1995, while the number of
new high school graduates in the general population declined. ITT Educational
has recently accelerated its expansion program, opening five new technical
institutes in 1993, six institutes in 1994 and four institutes in 1995. Classes
at two of the institutes opened in 1995 will not begin until March, 1996.
ALCATEL ALSTHOM
In July 1992, ITT sold its 30% equity interest in Alcatel N.V., a
Netherlands company which is one of the largest telecommunications equipment
manufacturers in the world, to Alcatel Alsthom, a major French company which
owned the other 70% of Alcatel N.V. At the closing of the sale, ITT received $1
billion in cash and 9.1 million capital shares of Alcatel Alsthom, recorded at
$806 million, which, at December 31, 1994, represented approximately 6% of the
outstanding capital shares of Alcatel Alsthom. In addition, ITT received a cash
payment of approximately $767 million in July 1993 and a cash payment of
approximately $817 million in July 1994. ITT Destinations expects to retain its
equity interest in Alcatel Alsthom until at least July 1997, unless Alcatel
Alsthom and ITT Destinations agree otherwise. Mr. Rand V. Araskog, Chairman,
President and Chief Executive of ITT, is a member of the board of directors of
Alcatel Alsthom. Alcatel N.V. was formed in 1986, when ITT and Alcatel Alsthom,
then known as Compagnie Generale d'Electricite, transferred their respective
telecommunications operations to the joint venture company.
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DESCRIPTION OF THE SECURITIES
The following description of the particular terms of the Securities offered
hereby supplements the description of the general terms and provisions of Debt
Securities set forth in the Prospectus to which description reference is hereby
made.
GENERAL
The 6 1/4% Notes, the 6 3/4% Notes, the 7 3/8% Debentures and the 7 3/4%
Debentures will be general unsecured obligations of ITT Destinations and will be
issued, as separate series, under an Indenture dated as of November 15, 1995
among ITT Destinations, ITT and The First National Bank of Chicago, as trustee
(the "Trustee").
GUARANTEES
ITT will unconditionally guarantee (prior to the Distribution) the due and
punctual payment of the principal, premium, if any, and interest on the
Securities when and as the same shall become due and payable, whether at
maturity, upon redemption, or otherwise. The Guarantees will rank equally with
all other unsecured and unsubordinated obligations of ITT. The Guarantees will
irrevocably terminate and be of no further force or effect upon the completion
of the Distribution, subject to certain conditions.
TERMS OF THE 6 1/4% NOTES
General. The 6 1/4% Notes will be limited to $700,000,000 aggregate
principal amount and will mature on November 15, 2000. The 6 1/4% Notes will
bear interest at the rate per annum shown on the cover page of this Prospectus
Supplement from November 15, 1995 or from the most recent Interest Payment Date
to which interest has been paid or provided for, payable semiannually on May 15
and November 15 of each year, commencing on May 15, 1996, to the persons in
whose names the 6 1/4% Notes are registered at the close of business on the last
day of April and October, as the case may be, next preceding such Interest
Payment Date.
Redemption. The 6 1/4% Notes may not be redeemed prior to maturity, except
for the redemption of a particular holder's Securities pursuant to the
application of certain gaming laws. See "Description of Debt
Securities -- Redemption Pursuant to Gaming Laws" in the accompanying
Prospectus.
TERMS OF THE 6 3/4% NOTES
General. The 6 3/4% Notes will be limited to $450,000,000 aggregate
principal amount and will mature on November 15, 2005. The 6 3/4% Notes will
bear interest at the rate per annum shown on the cover page of this Prospectus
Supplement from November 15, 1995 or from the most recent Interest Payment Date
to which interest has been paid or provided for, payable semiannually on May 15
and November 15 of each year, commencing on May 15, 1996, to the persons in
whose names the 6 3/4% Notes are registered at the close of business on the last
day of April and October, as the case may be, next preceding such Interest
Payment Date.
Redemption. The 6 3/4% Notes may not be redeemed prior to maturity, except
for the redemption of a particular holder's Securities pursuant to the
application of certain gaming laws. See "Description of Debt
Securities -- Redemption Pursuant to Gaming Laws" in the accompanying
Prospectus.
TERMS OF THE 7 3/8% DEBENTURES
General. The 7 3/8% Debentures will be limited to $450,000,000 aggregate
principal amount and will mature on November 15, 2015. The 7 3/8% Debentures
will bear interest at the rate per annum shown on the cover page of this
Prospectus Supplement from November 15, 1995 or the most recent Interest Payment
Date to which interest has been paid or provided for, payable semiannually on
May 15 and November 15 of each year, commencing May 15, 1996, to the persons in
whose names the 7 3/8% Debentures are registered at the close of business on the
last day of April and October, as the case may be, next preceding such Interest
Payment Date.
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Redemption. The 7 3/8% Debentures may not be redeemed prior to maturity,
except for the redemption of a particular holder's Securities pursuant to the
application of certain gaming laws. See "Description of Debt
Securities -- Redemption Pursuant to Gaming Laws" in the accompanying
Prospectus.
TERMS OF THE 7 3/4% DEBENTURES
General. The 7 3/4% Debentures will be limited to $150,000,000 aggregate
principal amount and will mature on November 15, 2025. The 7 3/4% Debentures
will bear interest at the rate per annum shown on the cover page of this
Prospectus Supplement from November 15, 1995 or from the most recent Interest
Payment Date to which interest has been paid or provided for, payable
semiannually on May 15 and November 15 of each year, commencing on May 15, 1996,
to the persons in whose names the 7 3/4% Debentures are registered at the close
of business on the last day of April and October, as the case may be, next
preceding such Interest Payment Date.
Redemption. The 7 3/4% Debentures may not be redeemed prior to November
15, 2005. On and after that date and prior to maturity, ITT Destinations may, at
its option, redeem the 7 3/4% Debentures at any time, either as a whole or from
time to time in part, upon not less than 30 nor more than 60 days' prior written
notice, at a Redemption Price equal to the percentage of the principal amount
set forth below if redeemed during the 12-month period beginning November 15 of
the years indicated:
PERCENTAGE OF
YEAR PRINCIPAL AMOUNT
---- ---------------------
2005 103.186
2006 102.867
2007 102.548
2008 102.230
2009 101.911
2010 101.593
2011 101.274
2012 100.956
2013 100.637
2014 100.319
and thereafter at a Redemption Price of 100% of their principal amount, together
in the case of any such redemption with interest accrued to the Redemption Date
(but interest installments whose Stated Maturity is on or prior to the
Redemption Date will be payable to the Holders of record of such 7 3/4%
Debentures at the close of business on the relevant record date for such
interest installment). If less than all the 7 3/4% Debentures are redeemed, the
Trustee shall select, in such manner as it shall deem fair and appropriate, the
particular 7 3/4% Debentures to be redeemed.
Notwithstanding the foregoing redemption provisions, the 7 3/4% Debentures
held by any particular investor may be subject to redemption pursuant to the
application of certain gaming laws. See "Description of Debt
Securities -- Redemption Pursuant to Gaming Laws" in the accompanying
Prospectus.
BOOK-ENTRY SYSTEM
The Depository Trust Company, New York, New York, will act as depositary
(the "Depositary") for the Securities. Each series of the Securities will be
represented by one or more Global Securities registered in the name of Cede &
Co., the nominee of the Depositary. The provisions described under "Description
of Debt Securities -- Global Securities" in the Prospectus will be applicable to
the Securities. Accordingly, beneficial interests in the Securities will be
shown on, and transfers thereof will be effected only through, records
maintained by the Depositary and its participants.
The Depositary has advised ITT Destinations and the Underwriters as
follows: the Depositary is a limited-purpose trust company organized under the
New York Banking Law, a "banking organization" within the meaning of the New
York Banking Law, a member of the United States Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code and a "clearing agency" registered pursuant to the provisions of Section
17A of the United States Securities Exchange Act of 1934, as amended. The
Depositary holds securities that its participants ("Direct Participants")
deposit with the Depositary. The Depositary also facilitates the settlement
among Direct Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in such Direct Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants include
securities brokers and dealers (including the Underwriters),
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banks, trust companies, clearing corporations, and certain other organizations.
The Depositary is owned by a number of its Direct Participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the Depositary's book-entry
system is also available to others such as securities brokers and dealers, banks
and trust companies that clear through or maintain a custodial relationship with
a Direct Participant, either directly or indirectly ("Indirect Participants").
The rules applicable to the Depositary and its Direct and Indirect Participants
are on the file with the United States Securities and Exchange Commission.
Principal and interest payments on the Securities registered in the name of
the Depositary's nominee will be made in immediately available funds to the
Depositary's nominees as the registered owner of the Global Securities. Under
the terms of the Securities, ITT Destinations and the Trustee will treat the
persons in whose names the Securities are registered as the owners of such
Securities for the purpose of receiving payment of principal and interest on
such Securities and for all other purposes whatsoever. Therefore, neither ITT
Destinations, the Trustee nor any paying agent has any direct responsibility or
liability for the payment of principal or interest on the Securities to owners
of beneficial interests in the Global Securities. The Depositary has advised ITT
Destinations and the Trustee that its current practice is, upon receipt of any
payment of principal or interest, to credit Direct Participants' accounts on the
payment date in accordance with their respective holdings of beneficial
interests in the Global Securities as shown on the Depositary's records, unless
the Depositary has reason to believe that it will not receive payment on the
payment date. Payments by Direct and Indirect Participants to owners of
beneficial interests in the Global Securities will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name", and
will be the responsibility of such Direct and Indirect Participants and not of
the Depositary, the Trustee, or ITT Destinations, subject to any statutory
requirements that may be in effect from time to time. Payment of principal and
interest to the Depositary is the responsibility of ITT Destinations or the
Trustee, disbursement of such payments to the owners of beneficial interests in
the Global Securities shall be the responsibility of the Depositary and Direct
and Indirect Participants.
Securities represented by a Global Security will be exchangeable for
Securities in definitive form of like tenor as such Global Security in
denominations of $1,000 and in any greater amount that is an integral multiple
if the Depositary notifies ITT Destinations that it is unwilling or unable to
continue as Depositary for such Global Security or if at any time the Depositary
ceases to be a clearing agency registered under applicable law and a successor
depositary is not appointed by ITT Destinations within 90 days or ITT
Destinations in its discretion at any time determines not to require all of the
Securities of such series to be represented by a Global Security and notifies
the Trustee thereof. Any Security that is exchangeable pursuant to the preceding
sentence is exchangeable for Securities issuable in authorized denominations and
registered in such names as the Depositary shall direct. Subject to the
foregoing, a Global Security is not exchangeable, except for a Global Security
or Global Securities of the same aggregate denominations to be registered in the
name of the Depositary or its nominee.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Securities will be made by the Underwriters in
immediately available funds. So long as the Depositary continues to make its
Same-Day Funds Settlement System available to ITT Destinations, all payments of
principal and interest on the Securities will be made by ITT Destinations in
immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. In contrast, the
Securities will trade in the Depositary's Same-Day Funds Settlement System until
maturity, and secondary market trading activity in the Securities will therefore
be required by the Depositary to settle in immediately available funds. No
assurance can be given as to the effect, if any, of settlement in immediately
available funds on trading activity in the Securities.
CONCERNING THE TRUSTEE
ITT Destinations and certain of its subsidiaries may maintain bank
accounts, borrow money and have other customary banking relationships with the
Trustee in the ordinary course of business.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreements, ITT Destinations has agreed to sell to each of the Underwriters
named below, and each of the Underwriters (for whom Bear, Stearns & Co. Inc. and
Goldman, Sachs & Co. are acting as joint lead managers in the case of the 6 1/4%
Notes and the 7 3/4% Debentures; and Goldman, Sachs & Co. and Bear, Stearns &
Co. Inc. are acting as joint lead managers in the case of the 6 3/4% Notes and
the 7 3/8% Debentures) has severally agreed to purchase, the principal amount of
the Securities set forth opposite its name below:
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
PRINCIPAL AMOUNT PRINCIPAL AMOUNT OF OF
OF OF 7 3/8% 7 3/4%
UNDERWRITER 6 1/4% NOTES 6 3/4% NOTES DEBENTURES DEBENTURES
- --------------------------------------- ---------------- ---------------- ---------------- ----------------
Bear, Stearns & Co. Inc................ $175,000,000 $112,500,000 $112,500,000 $ 37,500,000
Goldman, Sachs & Co.................... 175,000,000 112,500,000 112,500,000 37,500,000
Lazard Freres & Co. LLC................ 66,500,000 42,750,000 42,750,000 14,250,000
Merrill Lynch, Pierce, Fenner & Smith 66,500,000 42,750,000 42,750,000 14,250,000
Incorporated.........................
Salomon Brothers Inc................... 66,500,000 42,750,000 42,750,000 14,250,000
Smith Barney Inc....................... 66,500,000 42,750,000 42,750,000 14,250,000
BT Securities Corporation.............. 21,000,000 13,500,000 13,500,000 4,500,000
Chemical Securities Inc................ 21,000,000 13,500,000 13,500,000 4,500,000
Citicorp Securities, Inc............... 21,000,000 13,500,000 13,500,000 4,500,000
J.P. Morgan Securities Inc............. 21,000,000 13,500,000 13,500,000 4,500,000
------------ ------------ ------------ ------------
Total........................ $700,000,000 $450,000,000 $450,000,000 $150,000,000
============ ============ ============ ============
The Underwriting Agreements provide that the obligations of the several
Underwriters are subject to certain conditions precedent. The Underwriters will
be obligated to purchase all of the Securities if any of the Securities are
purchased. Accordingly, the closings of the offerings of the 6 1/4% Notes, the
6 3/4% Notes, the 7 3/8% Debentures and the 7 3/4% Debentures are conditioned
upon one another.
ITT Destinations has been advised by the Underwriters that they propose
initially to offer the Securities directly to the public at the public offering
prices set forth on the cover page hereof and to certain dealers at a price
which represents a concession not in excess of .35% of the principal amount in
the case of the 6 1/4% Notes, .40% of the principal amount in the case of the
6 3/4% Notes and .50% of the principal amount in the case of each of the 7 3/8%
Debentures and the 7 3/4% Debentures. The Underwriters may allow, and such
dealers may reallow, a concession, not in excess of .25% of the principal amount
of the 6 1/4% Notes, the 6 3/4% Notes, the 7 3/8% Debentures and the 7 3/4%
Debentures to certain other dealers. After the initial public offering, the
public offering prices and such concessions may be changed.
The Securities have been approved for listing on The New York Stock
Exchange, subject to official notice of issuance. ITT Destinations has been
advised by the Underwriters that they currently intend to make a market in the
Securities, but are not obligated to do so and may discontinue such market
making at any time without notice. ITT Destinations cannot predict the liquidity
of any trading market for the Securities.
The Underwriting Agreements provide that ITT Destinations will indemnify
the several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended, or contribute to payments the
Underwriters may be required to make in respect thereof.
ITT Destinations and certain of its subsidiaries may maintain bank
accounts, borrow money and have other customary banking relationships with
affiliates of BT Securities Corporation, Chemical Securities Inc., Citicorp
Securities, Inc. and J.P. Morgan Securities Inc. in the ordinary course of
business.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment or commercial banking
services to ITT and its affiliates, for which such Underwriters or their
affiliates have received and will receive customary fees and commissions.
S-26
27
LEGAL OPINIONS
The legality of the Securities offered hereby will be passed upon for ITT
Destinations and ITT by Richard S. Ward, Esq., Executive Vice President and
General Counsel of ITT, or such other attorney as ITT Destinations and ITT may
designate, and for the Underwriters by Cravath, Swaine & Moore, Worldwide Plaza,
825 Eighth Avenue, New York, NY 10019-7475. Mr. Ward has an interest in certain
securities of ITT. Cravath, Swaine & Moore acts from time to time as legal
counsel to ITT on various matters, including the Distribution.
S-27
28
INDEX TO
FINANCIAL STATEMENTS AND SCHEDULE
PAGE
-----
ITT DESTINATIONS, INC.
Report of Independent Public Accountants............................................. F-2
Combined Income for the Nine Months Ended September 30, 1995 and 1994 and the Three
Years Ended December 31, 1994...................................................... F-3
Combined Balance Sheet as of September 30, 1995 and December 31, 1994 and 1993....... F-4
Combined Cash Flow for the Nine Months Ended September 30, 1995 and 1994 and the
Three Years Ended December 31, 1994................................................ F-5
Investments and Advances from ITT Industries, Inc. for the Nine Months Ended
September 30, 1995 and the Three Years Ended December 31, 1994..................... F-6
Notes to Financial Statements........................................................ F-7
Business Segment Information......................................................... F-17
Geographical Information and Quarterly Results for 1994 and 1993..................... F-18
FINANCIAL STATEMENT SCHEDULE
Valuation and Qualifying Accounts -- ITT Destinations, Inc........................... SF-1
F-1
29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ITT Corporation:
We have audited the accompanying combined balance sheets of ITT
Destinations, Inc. (a Nevada corporation and a wholly-owned subsidiary of ITT
Corporation), as defined in the notes, as of December 31, 1994 and 1993, and the
related statements of combined income, combined cash flow and investments and
advances from ITT Industries, Inc. for each of the three years in the period
ended December 31, 1994. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of ITT Destinations,
Inc. as of December 31, 1994 and 1993, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting principles.
As discussed in the accompanying notes to financial statements, the Company
adopted new accounting standards promulgated by the Financial Accounting
Standards Board, changing its methods of accounting, effective January 1, 1992,
for postretirement benefits other than pensions and postemployment benefits.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule of valuation
and qualifying accounts is presented for the purpose 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
June 13, 1995
F-2
30
ITT DESTINATIONS, INC.
COMBINED INCOME
IN MILLIONS
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------- ----------------------------
1995 1994 1994 1993 1992
------ ------ ------ ------ ------
(UNAUDITED)
Revenues...................................... $4,629 $3,224 $4,760 $4,169 $4,253
Costs and Expenses:
Salaries, benefits and other operating...... 3,464 2,589 3,837 3,451 3,663
Selling, general and administrative, net of
service fee income of $75, $66, $88, $73
and $74.................................. 582 358 499 467 476
Depreciation and amortization............... 181 87 132 109 80
------ ------ ------ ------ ------
4,227 3,034 4,468 4,027 4,219
------ ------ ------ ------ ------
402 190 292 142 34
Interest Expense (net of interest income of
$47, $18, $16, $14 and $21)................. (218) (67) (131) (33) (20)
Miscellaneous Income (Expense), net........... 4 (9) (17) 10 7
------ ------ ------ ------ ------
188 114 144 119 21
Income Tax Expense............................ (69) (44) (58) (63) (4)
Minority Equity............................... (16) (11) (12) (17) (15)
------ ------ ------ ------ ------
Income before Cumulative Effect of Accounting
Changes..................................... 103 59 74 39 2
Cumulative Effect of Accounting Changes, net
of tax benefit of $23....................... -- -- -- -- (47)
------ ------ ------ ------ ------
Net Income (Loss)............................. $ 103 $ 59 $ 74 $ 39 $ (45)
====== ====== ====== ====== ======
The accompanying notes to financial statements are an integral part of the above
statement.
F-3
31
ITT DESTINATIONS, INC.
COMBINED BALANCE SHEET
IN MILLIONS
DECEMBER 31,
SEPTEMBER 30, -----------------
1995 1994 1993
-------------- ------ ------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents.................................. $ 470 $ 191 $ 834
Receivables, net........................................... 661 498 459
Inventories................................................ 92 59 53
Prepaid expenses and other................................. 109 217 94
------ ------ ------
Total current assets.................................... 1,332 965 1,440
Plant, Property and Equipment, net........................... 4,026 2,882 1,358
Investments in Uncombined Affiliates......................... 1,733 655 648
Goodwill, net................................................ 1,343 232 7
Long-Term Receivables, net................................... 123 133 161
Other Assets................................................. 281 145 177
------ ------ ------
$8,838 $5,012 $3,791
====== ====== ======
LIABILITIES AND INVESTMENTS AND ADVANCES FROM ITT INDUSTRIES, INC.
Current Liabilities:
Accounts payable........................................... $ 255 $ 72 $ 78
Accrued expenses........................................... 618 426 419
Notes payable and current maturities of long-term debt..... 169 31 18
Other current liabilities.................................. 233 95 97
------ ------ ------
Total current liabilities............................... 1,275 624 612
Long-Term Debt............................................... 663 600 169
Deferred Income Taxes........................................ 84 39 50
Other Liabilities............................................ 321 192 174
Minority Interest............................................ 264 204 21
Investments and Advances from ITT Industries, Inc............ 6,231 3,353 2,765
------ ------ ------
$8,838 $5,012 $3,791
====== ====== ======
The accompanying notes to financial statements are an integral part of the above
statement.
F-4
32
ITT DESTINATIONS, INC.
COMBINED CASH FLOW
IN MILLIONS
NINE MONTHS
ENDED SEPTEMBER YEARS ENDED DECEMBER
30, 31,
--------------- -----------------------
1995 1994 1994 1993 1992
------- ----- ------- ----- -----
(UNAUDITED)
OPERATING ACTIVITIES
Net Income (Loss)................................... $ 103 $ 59 $ 74 $ 39 $ (45)
Cumulative Effect of Accounting Changes............. -- -- -- -- 47
------- ----- ------- ----- -----
Income Before Accounting Changes.................. 103 59 74 39 2
Adjustments to income before accounting changes:
Depreciation and amortization..................... 181 87 132 109 80
Provision for doubtful receivables................ 47 24 37 26 65
Equity income, net of dividends received.......... -- -- 16 15 10
(Gain) loss on divestments -- pretax.............. -- -- -- (19) 41
Change in receivables, inventories, payables and
accruals....................................... (32) 65 (42) 121 (66)
Accrued and deferred taxes........................ 55 36 11 (52) (1)
Other, net........................................ 37 48 2 (53) 12
------- ----- ------- ----- -----
Cash from operating activities................. 391 319 230 186 143
------- ----- ------- ----- -----
INVESTING ACTIVITIES
Additions to plant, property and equipment.......... (360) (184) (453) (91) (83)
Proceeds from divestments........................... 1 1 18 41 2
Acquisitions, net of acquired cash of $145 in
1995.............................................. (2,169) (552) (1,038) (180) (26)
Other, net.......................................... 80 (21) 6 (99) (39)
------- ----- ------- ----- -----
Cash used for investing activities............. (2,448) (756) (1,467) (329) (146)
------- ----- ------- ----- -----
FINANCING ACTIVITIES
Short-term debt, net................................ (19) 3 13 (19) 23
Long-term debt issued............................... 64 1 260 -- 38
Long-term debt repaid............................... (143) (123) (124) (18) (28)
Change in investments and advances from ITT
Industries........................................ 2,424 513 457 428 496
Other, net.......................................... 10 5 (11) (45) (7)
------- ----- ------- ----- -----
Cash from financing activities................. 2,336 399 595 346 522
------- ----- ------- ----- -----
EXCHANGE RATE EFFECT ON CASH AND CASH EQUIVALENTS... -- 9 (1) (5) (6)
------- ----- ------- ----- -----
Increase (decrease) in cash and cash equivalents.... 279 (29) (643) 198 513
Cash and Cash Equivalents -- Beginning of Period.... 191 834 834 636 123
------- ----- ------- ----- -----
Cash and Cash Equivalents -- End of Period.......... $ 470 805 $ 191 $ 834 $ 636
======= ===== ======= ===== =====
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest....................................... $ 263 $ 76 $ 119 $ 27 $ 26
======= ===== ======= ===== =====
Income Taxes................................... $ 45 $ 45 $ 117 $ 19 $ 38
======= ===== ======= ===== =====
The accompanying notes to financial statements are an integral part of the above
statement.
F-5
33
ITT DESTINATIONS, INC.
INVESTMENTS AND ADVANCES FROM ITT INDUSTRIES, INC.
IN MILLIONS
NINE MONTHS
ENDED
SEPTEMBER YEARS ENDED DECEMBER 31,
30, ----------------------------
1995 1994 1993 1992
----------- ------ ------ ------
(UNAUDITED)
Balance -- Beginning of Period...................... $ 3,353 $2,765 $2,313 $1,333
Net income (loss)................................. 103 74 39 (45)
Transfers from ITT Industries..................... 2,795 549 431 1,010
Translation of financial statements............... (20) (35) (18) 15
------ ------ ------ ------
Balance -- End of Period............................ $ 6,231 $3,353 $2,765 $2,313
====== ====== ====== ======
The accompanying notes to financial statements are an integral part of the above
statement.
F-6
34
ITT DESTINATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED)
BASIS OF PRESENTATION
On September 21, 1995, the shareholders of ITT Corporation (the
"Corporation") approved all seven proposals outlined in the August 30, 1995
Proxy Statement. The proposals, which are subject to final terms and conditions,
authorize, among other things, the change in ITT Corporation's name to ITT
Industries, Inc. and the distribution (the "Distribution") to holders of ITT
Corporation's common stock of all outstanding shares of common stock of ITT
Destinations, Inc. (to be renamed ITT Corporation and hereinafter referred to as
"ITT Destinations") on a pro rata basis. Under the proposed plan, ITT
Destinations will become a publicly traded company that will include the
hospitality, entertainment and information services businesses of the former ITT
Corporation. For purposes of these financial statements, all references to ITT
Destinations shall include companies, assets and liabilities related to the
hospitality, entertainment and information services businesses that will be
transferred to ITT Destinations prior to the Distribution.
These financial statements present the financial position, results of
operations and cash flows of ITT Destinations as if it were a separate entity
for all periods presented. ITT Corporation's historical basis in the assets and
liabilities of ITT Destinations has been carried over. All material intercompany
transactions and balances between ITT Destinations and its affiliates have been
eliminated. Changes in Investments and Advances from ITT Industries represent
the net income of ITT Destinations plus the net change in cash transferred
between ITT Destinations and ITT Industries.
ITT Destinations includes many of the corporate functions of ITT
Corporation and has provided to ITT Corporation centralized systems for cash
management, legal, accounting, tax and insurance services. ITT Destinations
charges fees for these services to ITT Corporation and its affiliates (see
"Transactions with Affiliates"). The net cost to ITT Destinations of providing
these services, after allocation to ITT Corporation and its affiliates, is $39,
$56 and $65 for 1994, 1993 and 1992, respectively. In the opinion of management,
ITT Corporation's methods for allocating costs are believed to be reasonable.
However, the net cost of these services to ITT Destinations are not necessarily
indicative of the costs that would have been incurred if ITT Destinations had
been operated as an unaffiliated entity. It is not practicable to estimate those
costs on a stand-alone basis.
For purposes of governing certain of the ongoing relationships between ITT
Destinations and ITT Corporation after the Distribution and to provide for
orderly transition, ITT Destinations and ITT Corporation will enter into various
agreements including a Distribution Agreement, Employee Benefits Services and
Liability Agreement, Tax Allocation Agreement and Intellectual Property Transfer
and License Agreements. Summaries of these agreements are set forth in the Proxy
Statement for the Special Meeting of ITT Corporation Stockholders on September
21, 1995.
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 Destinations' business segments:
Hotel Operations: At December 31, 1994 ITT Destinations operated 143 hotels
under long-term management agreements. These agreements effectively convey to
ITT Destinations 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 Destinations includes the operating results of hotel properties
under long-term management agreements in its combined financial statements.
Revenues related to these hotel properties were $2.6 billion, $2.4 billion and
$2.3 billion for 1994, 1993 and 1992, respectively, and amounts provided for
payments to the property owners for the use of the hotel properties were $.5
billion, $.4 billion and $.4 billion for 1994, 1993 and 1992, respectively.
F-7
35
ITT DESTINATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED)
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
$104 for the period ended September 30, 1995 (unaudited) and $17 for the year
ended December 31, 1994. The estimated cost of such promotional allowances was
$73 (unaudited) for the period ended September 30, 1995 and $11 for the year
ended December 31, 1994, and has been included in costs and expenses.
Revenues and costs and expenses of the Gaming operations are comprised of
the following for the nine months ended September 30, 1995 and the year ended
December 31, 1994:
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1995 DECEMBER 31, 1994
-------------------- --------------------
COSTS AND COSTS AND
REVENUES EXPENSES REVENUES EXPENSES
-------- --------- -------- ---------
(UNAUDITED)
Gaming.................................................... $ 795 $ 391 $165 $ 75
Rooms..................................................... 76 23 28 12
Food and beverage......................................... 79 68 22 23
Other operations.......................................... 68 60 12 16
Selling, general and administrative....................... -- 158 -- 37
Depreciation and amortization............................. -- 66 -- 7
Provision for doubtful accounts........................... -- 93 -- 48
------ ----- ---- ----
Total........................................... $1,018 $ 859 $227 $ 218
====== ===== ==== ====
Information Services Operations: Revenues for the Directories unit of
Information Services are comprised of the total value of advertising contracts
sold by ITT Destinations. Costs and expenses include remuneration and franchise
fees paid to telephone authorities in places where ITT Destinations operates as
a publisher of directories or operates as an agent. Such amounts were $.22
billion, $.36 billion and $.47 billion for 1994, 1993 and 1992, respectively.
Tuition revenue at ITT Educational Services is recorded on a straight-line
basis over the length of the applicable course. If a student discontinues
training, the revenue related to the remainder of that quarter is recorded with
the amount of refund resulting from the application of federal, state, or
accreditation requirements recorded as an expense.
Cash and Cash Equivalents: ITT Destinations considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Inventories: Inventories, comprised principally of hotel and gaming
supplies, are generally valued at the lower of cost (first-in, first-out) or
market and potential losses from obsolete and slow-moving inventories are
provided for in the current period.
Plant, Property and Equipment: Plant, property and equipment, including
capitalized interest applicable to major project expenditures, are recorded at
cost. ITT Destinations 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 -- 5 to 40 years,
Machinery and equipment -- 2 to 10 years, and Other -- 5 to 40 years. Gains or
losses on sale or retirement of assets are included in income.
Derivative Financial Instruments: ITT Destinations uses derivative
financial instruments, including foreign currency forward contracts and/or
swaps, as a means of hedging exposure to foreign currency risks.
F-8
36
ITT DESTINATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED)
ITT Destinations and its affiliates are end-users and do not utilize these
instruments for speculative purposes. ITT Destinations has strict policies
regarding financial stability and credit standing of its major counterparties.
Forward exchange contracts and foreign currency swaps are accounted for in
accordance with SFAS No. 52. Changes in the spot rate of instruments designated
as hedges of the net investment in a foreign subsidiary are reflected in
Investments and Advances from ITT Industries, Inc.
Foreign Currency: Balance sheet accounts are translated at the exchange
rates in effect at each year end and income accounts are translated at the
average rates of exchange prevailing during the year. The national currencies of
foreign operations are generally the functional currencies. Gains and (losses)
from foreign currency transactions are reported currently in costs and expenses
and were $(1), $1 and $(7) for the years ended December 31, 1994, 1993 and 1992,
respectively.
Income Tax: ITT Destinations and its affiliates are included in the
consolidated U.S. Federal tax return of ITT Industries, Inc. and remit to
(receive from) ITT Industries, Inc. an income tax provision (benefit) computed
in accordance with a tax sharing arrangement. This arrangement, which may be
periodically modified, generally requires that ITT Destinations determine its
tax provision (benefit) as if it were filing a separate U.S. Federal income tax
return. However, the agreement allows ITT Destinations to record benefits of
certain tax attributes utilizable on the ITT Industries consolidated tax return,
which may not have been available on a separate company basis.
Affiliate Stock Issuance: ITT Destinations recognizes gains (losses) on
sales of affiliate stock. For the year ended December 31, 1994, Miscellaneous
Income (Expense), net includes a gain of $10, pretax, from the sale of 17% of
the common stock of ITT Educational Services, Inc.
Goodwill: The excess of cost over the fair value of net assets acquired is
amortized on a straight-line basis over 40 years. Accumulated amortization was
$31, $6 and $3 at September 30, 1995 (unaudited), December 31, 1994 and 1993,
respectively. ITT Destinations 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
occurred.
Interim Period Financial Statements: The unaudited combined financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position of ITT
Destinations and its affiliates at September 30, 1995 and their results of
operations and cash flows for the nine months ended September 30, 1995 and 1994.
Interim results are not necessarily indicative of full year performance.
CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1992, ITT Destinations adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions" and SFAS
No. 112, "Employers' Accounting for Postemployment Benefits", using the
immediate recognition method. Accordingly, cumulative adjustments (through
December 31, 1991) of $39 after tax and $8 after tax, respectively, have been
recognized at January 1, 1992.
ITT Destinations' cash flows were not impacted by these changes in
accounting principles.
TRANSACTIONS WITH AFFILIATES
ITT Destinations includes many of the corporate functions of ITT
Corporation and has provided ITT Corporation and other affiliates certain
centralized systems (see "Basis of Presentation"). ITT Destinations receives
fees for such services which range between 0.5% and 1% of net sales of the
affiliate. Service fee income is recorded in costs and expenses as earned.
F-9
37
ITT DESTINATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED)
Interest expense was charged to ITT Destinations on the portion of its
Investments and Advances from ITT Industries, Inc. which is deemed debt.
Interest expense is charged at 8% and totaled $91, $43, $69, $6 and $8 for the
nine months ended September 30, 1995 and 1994 (unaudited), and the years 1994,
1993 and 1992, respectively.
ITT Destinations is one of the several affiliates participating in the ITT
Salaried Retirement Plan as well as health care and life insurance programs for
salaried employees and retirees sponsored by ITT Industries (see "Employee
Benefit Plans").
Employees of ITT Destinations participate in ITT stock option incentive
plans which provide for the award of options on common shares to employees,
exercisable over ten-year periods. Certain options become exercisable upon the
attainment of specified market price appreciation of ITT common stock or at nine
years after the date of grant, while certain remaining options become
exercisable over a three-year period commencing with the date of grant. The
exercise price per share is the fair market value on the date each option is
granted. ITT Destinations expects to establish similar plans for its employees
after the Distribution, whereby options in the ITT plan will be converted into
options in the ITT Destinations plan based upon a formula.
ACQUISITIONS
On January 30, 1995, ITT Destinations 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 Combined Income from the date of acquisition.
On March 10, 1995, ITT Destinations in a joint venture with Rainbow
Programming Holdings, Inc., a subsidiary of Cablevision Systems Corporation,
completed the acquisition of the businesses comprising Madison Square Garden
(MSG) for approximately $1 billion. The acquisition was funded by equity
contributions from the venture partners of approximately $720 and the remainder
was financed through bank debt. ITT Destinations' initial investment ($610) is
reported using the equity method as ITT Destinations' venture partner is
expected to increase its equity investment to 50%. ITT Destinations' share of
the results of MSG are included in Combined Income from the date of acquisition.
During 1994, ITT Destinations completed several acquisitions in the 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 Combined
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:
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------- -----------------
1995 1994 1994 1993
------ ------ ------ ------
Net revenues............................................ $4,711 $4,166 $5,961 $5,603
Net income (loss)....................................... 88 13 8 (19)
====== ====== ====== ======
F-10
38
ITT DESTINATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED)
The pro forma information is not necessarily indicative of the results that
would have occurred had the acquisitions taken place at the beginning of the
respective periods.
RECEIVABLES
Current receivables of $498 and $459 at December 31, 1994 and 1993,
including current maturities of notes receivable, are reported net of allowances
for doubtful accounts of $55 and $38.
Long-term receivables of $133 and $161 at December 31, 1994 and 1993, are
net of allowances for doubtful accounts of $78 and $76, exclude current
maturities of $126 and $120 and approximate fair value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following major components:
DECEMBER 31,
SEPTEMBER 30, -----------------
1995 1994 1993
------------- ------ ------
(UNAUDITED)
Land and improvements................................ $ 1,230 $ 598 $ 315
Buildings and improvements........................... 2,294 2,095 906
Machinery, furniture, fixtures and equipment......... 680 505 353
Construction work in process......................... 252 1 26
Other................................................ 155 164 111
------- ------ ------
4,611 3,363 1,711
Less accumulated depreciation and amortization....... (585) (481) (353)
------- ------ ------
$ 4,026 $2,882 $1,358
======= ====== ======
INVESTMENTS IN UNCOMBINED AFFILIATES
Investments in uncombined affiliates consisted of the following:
DECEMBER 31,
SEPTEMBER 30, ------------
1995 1994 1993
------------- ---- ----
(UNAUDITED)
Equity in Madison Square Garden......................... $ 605 $ -- $ --
Equity in and advances to other 20-50% owned
companies............................................. 246 164 192
Alcatel Alsthom at cost................................. 834 426 426
Other investments at cost............................... 48 65 30
------ ---- ----
$1,733 $655 $648
====== ==== ====
Equity in earnings (loss) of uncombined affiliates accounted for on the
equity basis was $(6), and $1 for the nine months ended September 30, 1995 and
1994 (unaudited) and $ --, $(5) and $(12) in 1994, 1993 and 1992 respectively.
At September 30, 1995, December 31, 1994 and 1993, the market value of the
restricted Alcatel Alsthom stock was approximately $791 (unaudited), $410 and
$690, respectively, based on the quoted market prices.
F-11
39
ITT DESTINATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED)
INCOME TAX
Income tax data is as follows:
1994 1993 1992
---- ----- -----
Pretax income (loss)
U.S....................................................... $(23) $ (34) $(164)
Foreign................................................... 167 153 185
---- ----- -----
$144 $ 119 $ 21
==== ===== =====
Provision for income tax *
Current
U.S. Federal........................................... $ 36 $ (80) $ (30)
State and local........................................ 6 6 4
Foreign................................................ 73 85 77
---- ----- -----
115 11 51
---- ----- -----
Deferred
U.S. Federal.............................................. (54) 73 (41)
Foreign and other......................................... (3) (21) (6)
---- ----- -----
(57) 52 (47)
---- ----- -----
$ 58 $ 63 $ 4
==== ===== =====
* The provision for income taxes has been computed in accordance with a tax
sharing agreement between ITT Destinations and ITT Industries, Inc. that
generally requires that such provision be computed as if the enterprise were a
stand alone entity. The primary exception to the stand alone computation
relates to the utilization of foreign tax credits. The agreement allows for
the realization of such credits since they have been utilized by ITT
Industries in the consolidated tax return.
No provision was made for U.S. taxes payable on undistributed foreign
earnings amounting to approximately $158 since these amounts are permanently
reinvested.
Deferred income taxes represent the tax effect related to recording
revenues and expenses in different periods for financial reporting and tax
purposes. The December 31, 1994 and 1993 Balance Sheets include net U.S. Federal
deferred tax liabilities of $10 and $24, respectively, and net foreign and other
deferred tax liabilities of $29 and $26.
Deferred tax assets (liabilities) include the following:
1994 1993
------------------- -------------------
U.S. FOREIGN U.S. FOREIGN
FEDERAL & OTHER FEDERAL & OTHER
------- ------- ------- -------
Employee benefits................................. $ 49 $ -- $ 46 $ (3)
Reserve for bad debts............................. 11 -- 7 --
Accelerated depreciation.......................... (66) (11) (61) (13)
Other............................................. (4) (18) (16) (10)
----- ----- ----- -----
$ (10) $ (29) $ (24) $ (26)
===== ===== ===== =====
F-12
40
ITT DESTINATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED)
A reconciliation of the tax provision at the U.S. statutory rate to the
provision for income tax as reported is as follows:
1994 1993 1992
--- --- ----
Tax provision at U.S. statutory rate............................ $50 $42 $ 7
Tax on repatriation of foreign earnings......................... 3 22 26
Tax basis differential on companies sold........................ -- -- (22)
Foreign tax rate differential................................... (1) (1) (5)
U.S. state and local income taxes............................... 4 4 3
Other........................................................... 2 (4) (5)
--- --- ---
Provision for income tax........................................ $58 $63 $ 4
=== === ===
DEBT
As of December 31, debt consisted of:
1994 1993
----- -----
Bank loans and other short-term....................................... $ 28 $ 14
Long-term............................................................. 603 173
---- ----
$ 631 $ 187
==== ====
The fair value of ITT Destinations' bank loans and other short-term loans
approximates carrying value. The weighted average interest rate for bank loans
and other short-term borrowings was 8.26% and 9.40% at December 31, 1994 and
1993, respectively. The estimated fair value of long-term debt at December 31,
1994 and 1993 is $605 and $172, based on discounted cash flows using ITT
Destinations' incremental borrowing rates for similar arrangements.
Bank loans and other short-term debt are drawn down under lines of credit,
some of which extend for a fixed term of several years. As of December 31, 1994,
ITT Destinations had unused credit lines of $56.
Long-term debt consisted of the following at December 31:
DESCRIPTION 1994 1993
---------------------------------------------------------------------- ---- ----
6.54%-10.14% Domestic Mortgage Loans Due 1998-2001.................... $149 $165
6.6%-8% Foreign Loans Due 1995-2004................................... 448 --
Other................................................................. 6 8
---- ----
Total................................................................. 603 173
Less current maturities............................................... 3 4
---- ----
$600 $169
==== ====
The aggregate maturities of long-term debt are $3 in 1995, $236 in 1996,
$61 in 1997, $29 in 1998, $60 in 1999, and $214 thereafter. Assets pledged to
secure indebtedness (including mortgage loans) amounted to approximately $290 as
of December 31, 1994.
EMPLOYEE BENEFIT PLANS
Pension Plans -- ITT Destinations and its affiliates 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 securities, fixed income investments
and real estate. ITT Destinations and certain of its affiliates also participate
in the ITT Salaried Retirement Plan.
F-13
41
ITT DESTINATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED)
Total pension expenses were:
1994 1993 1992
---- ---- ---
Defined Benefit Plans
Service cost......................................................... $ 14 $ 11 $12
Interest cost........................................................ 16 15 13
Return on assets..................................................... (1) (27) (8)
Net amortization and deferral........................................ (14) 13 (3)
---- ---- ---
Net periodic pension cost............................................ 15 12 14
Other Pension Cost
Allocated cost of ITT Salaried Retirement Plan....................... 9 6 7
Defined contribution (savings) plans................................. 5 5 5
Other................................................................ 3 3 2
---- ---- ---
Total Pension Expense............................................. $ 32 $ 26 $28
==== ==== ===
U.S. pension expenses included in the net periodic pension costs in the
table above were $19, $14 and $17 for 1994, 1993 and 1992.
The following table sets forth the funded status of ITT Destinations'
pension plans, amounts recognized in ITT Destinations' Balance Sheet at December
31, 1994 and 1993, and the principal weighted average assumptions inherent in
their determination:
DECEMBER 31, 1994 DECEMBER 31, 1993
-------------------- --------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
-------- ------- -------- -------
Actuarial present value of benefit obligations --
Vested benefit obligation........................... $101 $ 43 $101 $ 38
Accumulated benefit obligation...................... $112 $ 48 $114 $ 41
==== ==== ==== ====
Projected benefit obligation.......................... $141 $ 65 $154 $ 57
Plan assets at fair value............................. 133 64 130 56
---- ---- ---- ----
Projected benefit obligation (in excess of) plan
assets.............................................. (8) (1) (24) (1)
Unrecognized net (gain)/loss.......................... 8 (1) 26 (5)
Unrecognized net obligation/(asset)................... (3) 4 (2) 4
---- ---- ---- ----
Pension asset (liability) recognized in the balance
sheet............................................... $ (3) $ 2 $ -- $ (2)
==== ==== ==== ====
Discount rate......................................... 8.50% 7.38% 7.50% 7.27%
Rate of return on invested assets..................... 9.75% 7.69% 9.75% 7.68%
Salary increase assumption............................ 6.10% 5.38% 7.20% 5.62%
==== ==== ==== ====
For substantially all domestic and foreign plans, assets exceed accumulated
benefits.
Investment and Savings Plan -- Employees of ITT Destinations have
participated in ITT Corporation's Investment and Savings Plans. ITT Destinations
contributions to the plan are determined annually and are based on contributions
of participating employees. The cost of this plan charged to ITT Destinations
was $5 in 1994, 1993 and 1992. As part of the Distribution, ITT Destinations
will establish a similar plan. Employees of ITT Destinations with balances in
ITT Corporation's plan will be allowed to transfer their balances to the ITT
Destinations plan.
Postretirement Health and Life -- ITT Destinations and its subsidiaries
provide health care and life insurance benefits for certain eligible retired
employees. Effective January 1, 1992, ITT Destinations adopted SFAS No. 106,
using the immediate recognition method for all benefits accumulated to date.
F-14
42
ITT DESTINATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED)
ITT Destinations has prefunded a portion of the health care and life
insurance obligations through trust funds where such prefunding can be
accomplished on a tax effective basis. Postretirement health care and life
insurance benefits expense (excluding the cumulative catch-up adjustment in
1992) was comprised of the following:
1994 1993 1992
---- ---- ----
Service cost.................................................... $ 1 $ 1 $ 1
Interest cost................................................... 2 3 3
Return on assets................................................ -- -- --
Net amortization and deferral................................... (1) (1) --
Allocated from ITT Retirement Benefit Plan...................... 1 1 1
--
--- ---
Net periodic expense.................................. $ 3 $ 4 $ 5
=== === ==
The following table sets forth the funded status of the postretirement
benefit plans other than pensions, amounts recognized in ITT Destinations'
Balance Sheet at December 31, 1994 and 1993 and the principal weighted average
assumptions inherent in their determination:
1994 1993
---- ----
Accumulated postretirement benefit obligation......................... $ 30 $ 43
Plan assets at fair value............................................. 7 4
---- ----
Accumulated postretirement benefit obligation (in excess of) plan
assets.............................................................. $(23) $(39)
Unrecognized net (gain)............................................... (14) (1)
Unrecognized past service liability................................... (5) (5)
---- ----
Liability recognized in the balance sheet............................. $(42) $(45)
==== ====
Discount rate......................................................... 8.50% 7.50%
Rate of return on invested assets..................................... 9.75% 9.75%
Ultimate health care trend rate....................................... 6.00% 6.00%
==== ====
The assumed rate of future increases in the per capita cost of health care
(the health care trend rate) was 11.0% for 1994, decreasing ratably to 6.0% in
the year 2001. Increasing the table of health care trend rates by 1% per year
would have the effect of increasing the accumulated postretirement benefit
obligation by $7 and the annual expense by $1. 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, 1994, minimum rental commitments under operating leases
were $53, $47, $40, $37 and $34 for 1995, 1996, 1997, 1998 and 1999. For the
remaining years, such commitments amounted to $295, aggregating total minimum
lease payments of $506.
Rental expenses for operating leases were $76, $83 and $87 for 1994, 1993
and 1992, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS
ITT Destinations has entered into two foreign currency swaps with a major
financial institution to hedge exchange exposure on ITT Destinations' net
investment in a foreign country.
The contractual amounts of these foreign currency swaps at December 31,
1994 and 1993 totaled $250 and $200, respectively, and mature in 1997. The
entire amount hedges dollars against French francs. There is no significant
unrealized gain or loss on these contracts. The estimated fair value at December
31, 1994 and
F-15
43
ITT DESTINATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED)
1993 approximates the recorded amounts. The estimated fair value is the present
value of the change in cash flows that would result from the agreements being
replaced at the year-end market rate for the remaining term of the agreements.
COMMITMENTS AND CONTINGENCIES
ITT Destinations and its affiliates are involved in various legal matters
including those related to environmental matters. Some of these actions include
claims for substantial sums. Reserves have been established when the outcome is
probable and can be reasonably estimated. While the ultimate result of claims
and litigation cannot be determined, ITT Destinations does not expect that these
matters will have a material adverse effect on their combined results of
operations, financial position or cash flow.
F-16
44
ITT DESTINATIONS, INC.
BUSINESS SEGMENT INFORMATION
(IN MILLIONS)
REVENUES OPERATING INCOME (LOSS)
---------------------------- -----------------------
1994 1993 1992 1994 1993 1992
------ ------ ------ ---- ----- ----
Hotels.................................. $3,700 $3,160 $3,109 $152 $ 87 $(28)
Gaming.................................. 227 24 -- 9 (9) --
Information Services.................... 833 800 817 155 162 170
Dispositions and Other.................. -- 185 327 1 8 (50)
------ ------ ------ ---- ----- ----
Total Segments.......................... 4,760 4,169 4,253 317 248 92
Other................................... -- -- -- (25) (106) (58)
------ ------ ------ ---- ----- ----
$4,760 $4,169 $4,253 $292 $ 142 $ 34
====== ====== ====== ==== ===== ====
GROSS PLANT
IDENTIFIABLE ASSETS ADDITIONS DEPRECIATION
------------------------ ----------------- ----------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
------ ------ ------ ---- ---- ---- ---- ---- ----
Hotels................................ $3,484 $1,754 $1,664 $328 $62 $69 $70 $56 $50
Gaming................................ 345 217 16 108 9 -- 6 1 --
Information Services.................. 378 371 449 14 15 13 15 14 14
Dispositions and Other................ (17) 7 43 -- -- 2 -- -- 5
------ ------ ------ ---- --- --- --- --- ---
Total Segments........................ 4,190 2,349 2,172 450 86 84 91 71 69
Other................................. 822 1,442 1,203 4 4 7 8 8 8
------ ------ ------ ---- --- --- --- --- ---
$5,012 $3,791 $3,375 $454 $90 $91 $99 $79 $77
====== ====== ====== ==== === === === === ===
Hotels: Operates a worldwide network of hotels and resorts under the
Sheraton name, including the hotels and resorts in the ITT Sheraton Luxury
Collection.
Gaming: Includes the casino operations of ITT Sheraton Gaming Corporation
and effective January 31, 1995, includes the newly acquired operations of
Caesars World, Inc. Caesars world owns and operates three hotel/casinos in Las
Vegas and Stateline, Nevada, and in Atlantic City, New Jersey and a number of
non-gaming resorts in the Pocono Mountains of Pennsylvania. In conjunction with
two other partners, Caesars World manages a casino owned by the Ontario
government in Windsor, Canada.
Information Services: Engages in the publication of telephone directories,
including classified directory services for telephone subscribers in numerous
countries outside the United States, as well as in Puerto Rico and the U.S.
Virgin Islands and in providing post-secondary career education in the U.S.
"Dispositions and Other" includes the operating results of units including
World Directories, U.K. and Turkey operations.
"Operating Income (Loss)" consists of the gross profit on revenues less
operating expenses incurred. "Other" includes nonoperating income, corporate
expenses and minority equity. Intercompany sales, which are priced on an
arm's-length basis and eliminated in consolidation, are not material.
F-17
45
ITT DESTINATIONS, INC.
GEOGRAPHICAL INFORMATION -- TOTAL SEGMENTS
(IN MILLIONS)
OPERATING INCOME
REVENUES (LOSS) IDENTIFIABLE ASSETS
------------------------ ------------------ ------------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
------ ------ ------ ---- ---- ---- ------ ------ ------
U.S.......................... $2,139 $1,723 $1,626 $ 75 $ 21 $(68) $2,249 $1,694 $1,221
Western Europe............... 1,203 1,154 1,389 135 157 100 1,311 353 491
Canada and Other............. 1,418 1,292 1,238 107 70 60 630 302 460
------ ------ ------ ---- ---- ---- ------ ------ ------
Total Segments............... $4,760 $4,169 $4,253 $317 $248 $ 92 $4,190 $2,349 $2,172
====== ====== ====== ==== ==== ==== ====== ====== ======
QUARTERLY RESULTS FOR 1994 AND 1993
(UNAUDITED)
THREE MONTHS ENDED
--------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 YEAR
------- ------- -------- ------- ------
1994
Revenues.............................................. $ 876 $ 1,240 $1,108 $ 1,536 $4,760
Costs and Expenses.................................... $ 848 $ 1,140 $1,046 $ 1,434 $4,468
Net Income............................................ $ 8 $ 29 $ 22 $ 15 $ 74
1993
Revenues.............................................. $ 793 $ 1,156 $1,035 $ 1,185 $4,169
Costs and Expenses.................................... $ 780 $ 1,112 $ 999 $ 1,136 $4,027
Net Income............................................ $ -- $ 9 $ 8 $ 22 $ 39
F-18
46
ITT DESTINATIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
MILLIONS OF DOLLARS
ADDITIONS (DEDUCTIONS)
--------------------------------------
CHARGED TO WRITE-OFFS/
BALANCE COSTS AND TRANSLATION PAYMENTS/ BALANCE
JANUARY 1 EXPENSES ADJUSTMENT OTHER DECEMBER 31
--------- ---------- ----------- ----------- -----------
DESCRIPTION
YEAR ENDED DECEMBER 31, 1994
Trade Receivables -- Allowance for
doubtful accounts...................... $ 38 $ 31 $ 3 $ (17) $ 55
Notes Receivable -- Allowance for
doubtful accounts...................... 76 6 -- (4) 78
Accumulated depreciation of plant,
property and equipment................. 353 99 -- 29(2) 481
YEAR ENDED DECEMBER 31, 1993
Trade Receivables -- Allowance for
doubtful accounts...................... $ 52 $ 21 $ (3) $ (32) $ 38
Notes Receivable -- Allowance for
doubtful accounts...................... 72 5 -- (1) 76
Accumulated depreciation of plant,
property and equipment................. 323 79 (10) (39)(1) 353
YEAR ENDED DECEMBER 31, 1992
Trade Receivables -- Allowance for
doubtful accounts...................... $ 56 $ 29 $ (3) $ (30) $ 52
Notes Receivable -- Allowance for
doubtful accounts...................... 37 36 -- (1) 72
Accumulated depreciation of plant
property
and equipment.......................... 277 77 (6) (25)(1) 323
- ---------------
(1) Principally retirements as well as companies sold during the year.
(2) Primarily reflects the consolidation of properties previously accounted for
on the equity method.
SF-1
47
PROSPECTUS
ITT DESTINATIONS, INC.
Debt Securities and
Warrants to Purchase Debt Securities
Unconditionally Guaranteed (Which Guarantees Shall Terminate
Upon the Distribution) as to Payment of Principal,
Premium, if any, and Interest by
ITT CORPORATION
------------------------------
ITT Destinations, Inc. ("ITT Destinations") may offer or issue from time to
time to or through underwriters, or directly to other purchasers or through
agents, in one or more series, its unsecured debt securities ("Debt Securities")
and warrants ("Warrants") to purchase Debt Securities (the Debt Securities and
the Warrants being herein collectively called the "Securities") for proceeds up
to $2,000,000,000, or the equivalent thereof if any of the Securities are
denominated in foreign currency or a foreign currency unit.
All Debt Securities will be unconditionally guaranteed prior to the
Distribution (as defined below) as to payment of principal, premium, if any, and
interest (the "Guarantees") by ITT Corporation ("ITT"). Upon the consummation of
the Distribution, the Guarantees will irrevocably terminate and be of no further
force or effect. ITT currently expects the Distribution to occur prior to
December 31, 1995.
The Debt Securities of each series will be offered on terms determined at
the time of sale. The Debt Securities and Warrants may be sold for U. S.
dollars, foreign currencies or foreign currency units, and the principal of,
premium, if any, and any interest on the Debt Securities may be payable in U. S.
dollars, foreign currencies or foreign currency units. The specific designation,
aggregate principal amount, the currency or currency unit in which the
principal, premium, if any, and any interest is payable, the rate (or method of
calculation) and the time of payment of any interest, authorized denominations,
maturity, offering price, any redemption terms or other specific terms of the
Securities in respect of which this Prospectus is being delivered are set forth
in the accompanying Prospectus Supplement (the "Prospectus Supplement"). With
regard to the Warrants, if any, in respect of which this Prospectus is being
delivered, the Prospectus Supplement sets forth a description of the Debt
Securities for which each Warrant is exercisable and the offering price, if any,
exercise price, duration, detachability and other terms of such Warrant.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
NEITHER THE NEVADA STATE GAMING CONTROL BOARD, THE NEVADA GAMING COMMISSION,
THE MISSISSIPPI GAMING COMMISSION, NOR THE NEW JERSEY CASINO CONTROL
COMMISSION HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES OR
THE INVESTMENT MERITS OF THE SECURITIES OFFERED HEREBY.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------------
The Securities may be sold by ITT Destinations directly to purchasers,
through agents or dealers designated from time to time, through underwriting
syndicates led by one or more managing underwriters or through one or more
underwriters. If underwriters or agents are involved in the offering of the
Securities, the name of the managing underwriter or underwriters or agents will
be set forth in the Prospectus Supplement. If an underwriter, agent or dealer is
involved in the offering of any Securities, the underwriter's discount, agent's
commission or dealer's purchase price will be set forth in, or may be calculated
from, the Prospectus Supplement, and the net proceeds to ITT Destinations from
such offering will be the public offering price of the Securities less such
discount in the case of an underwriter, the purchase price of the Securities
less such commission in the case of an agent or the purchase price of the
Securities in the case of a dealer, and less, in each case, the other expenses
of ITT Destinations associated with the issuance and distribution of the
Securities.
------------------------------
The date of this Prospectus is November 16, 1995.
48
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND THE PROSPECTUS SUPPLEMENT, AND IF GIVEN OR MADE SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ITT
DESTINATIONS, ITT OR ANY AGENT, UNDERWRITER OR DEALER. THIS PROSPECTUS AND THE
PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN
THOSE TO WHICH IT RELATES, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THOSE SECURITIES TO WHICH IT RELATES IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. THE
DELIVERY OF THIS PROSPECTUS AND/OR THE PROSPECTUS SUPPLEMENT AT ANY TIME DOES
NOT IMPLY THAT THE INFORMATION THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by ITT with the Securities and Exchange
Commission (the "Commission") (File No. 1-5627) are hereby incorporated by
reference in this Prospectus:
(a) Annual Report on Form 10-K for the year ended December 31, 1994;
(b) Quarterly Reports on Form 10-Q for the quarters ended March 31,
June 30 and September 30, 1995;
(c) Proxy Statement for the Special Meeting of Stockholders on
September 21, 1995 (filed with the Commission on August 28, 1995)(the
"Proxy"); and
(d) Current Reports on Form 8-K dated February 6, April 3, June 8 and
November 7, 1995.
The following document filed by ITT Destinations with the Commission (File
No. 1-13960) is hereby incorporated by reference in this Prospectus: Form 10
dated September 18, 1995, with respect to the shares of ITT Destinations common
stock (and related ITT Destinations Rights (as defined therein)) to be received
by the shareholders of ITT in the Distribution.
All documents filed by ITT Destinations and ITT (prior to the Distribution)
with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), subsequent to the
date of this Prospectus and prior to the termination of the offering of the
Securities covered by this Prospectus shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
ITT DESTINATIONS AND ITT WILL PROVIDE, WITHOUT CHARGE, TO EACH PERSON,
INCLUDING ANY BENEFICIAL HOLDER, TO WHOM THIS PROSPECTUS IS DELIVERED, UPON THE
WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY OR ALL OF THE
DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER THAN CERTAIN EXHIBITS TO SUCH
DOCUMENTS). SUCH REQUESTS SHOULD BE DIRECTED TO ITT DESTINATIONS AND ITT AT
THEIR PRINCIPAL EXECUTIVE OFFICES, 1330 AVENUE OF THE AMERICAS, NEW YORK, NEW
YORK 10019-5490, ATTENTION: CORPORATE SECRETARY (TELEPHONE NUMBER:
212-258-1000).
AVAILABLE INFORMATION
ITT is subject to the informational requirements of the 1934 Act, and in
accordance therewith files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the Public Reference Section of the Commission located
at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, DC 20549 and
at the following regional offices: Midwest regional office, Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, IL 60661-2511; and New York regional
office, 7 World Trade Center, 13th Floor, New York, NY 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
prescribed rates. Certain securities of ITT are listed on the New York and
Pacific Stock Exchanges, and such reports, proxy statements and other
information can also be inspected at the offices of such exchanges. This
Prospectus does not contain
2
49
all the information set forth in the Registration Statement and Exhibits thereto
which ITT has filed with the Commission under the Securities Act of 1933 and to
which reference is hereby made.
ITT Destinations has filed with the Commission a Registration Statement on
Form 10 with respect to the shares of ITT Destinations common stock (and related
ITT Destinations Rights) to be received by the shareholders of ITT in the
Distribution. It is expected that ITT Destinations will request effectiveness of
such Registration Statement prior to the Distribution. On and after the
effectiveness of such Registration Statement, ITT Destinations will be subject
to the informational requirements of the 1934 Act, and in accordance therewith
will file reports, proxy statements and other information with the Commission.
Such reports, proxy statements and other information will be available for
inspection and copying at the public reference facilities of the Commission
listed above and may be obtained by mail from the Commission as described above.
Application has been made to list the shares of ITT Destinations common stock
(and related ITT Destinations Rights) on the New York Stock Exchange ("NYSE")
and, if and when such shares of ITT Destinations common stock (and related ITT
Destinations Rights) commence trading on the NYSE, such reports, proxy
statements and other information will be available for inspection at the offices
of the NYSE. Additionally, ITT Destinations intends to provide annual reports,
containing audited financial statements, to its shareholders.
ITT DESTINATIONS
ITT Destinations, Inc. is a Nevada corporation, with World Headquarters at
1330 Avenue of the Americas, New York, New York 10019-5490. ITT Destinations,
Inc. was incorporated in 1995. Unless the context otherwise requires, references
herein to ITT Destinations include its subsidiaries.
Following the Distribution, ITT Destinations will combine the world's
largest hotel and gaming company with a premier sports and entertainment company
and information services businesses. ITT Destinations will conduct its
hospitality and entertainment business through ITT Sheraton Corporation ("ITT
Sheraton"), Ciga S.p.A., Caesars World, Inc. ("Caesars") and Madison Square
Garden, L.P. and conduct its information services business through ITT World
Directories, Inc. and ITT Educational Services, Inc. In addition, ITT
Destinations will own approximately 6% of the outstanding capital shares of
Alcatel Alsthom, a French company which owns, among other things, Alcatel N.V.,
one of the largest telecommunications equipment manufacturers in the world.
ITT CORPORATION
ITT Corporation is a Delaware corporation, with World Headquarters at 1330
Avenue of the Americas, New York, New York 10019-5490. Until December 31, 1983,
the corporation was known as International Telephone and Telegraph Corporation.
It is the successor (since 1968) to a Maryland corporation incorporated in 1920.
Unless the context otherwise requires, references herein to ITT include its
subsidiaries.
ITT is a diversified global enterprise engaged, directly and through its
subsidiaries, in three major business areas: Insurance, Industries and
Hospitality, Entertainment and Information Services. For financial statement
purposes, ITT's Insurance, Hospitality, Entertainment and Information Services
businesses are treated by ITT as discontinued operations. See "The
Distribution."
THE DISTRIBUTION
At a special meeting of shareholders of ITT held on September 21, 1995, in
New York, New York, the shareholders approved a group of separate but related
proposals to divide ITT into its three separate areas: (i) Insurance, (ii)
Industries and (iii) Hospitality, Entertainment and Information Services.
These proposals provide for the proposed distribution (the "Distribution")
to ITT's shareholders of all the shares of common stock of ITT Destinations,
which is a wholly owned subsidiary of ITT, and all the shares of common stock of
ITT Hartford Group, Inc. ("ITT Hartford"), which is also a wholly owned
subsidiary of ITT. The Distribution will separate ITT into three publicly owned
companies. In addition, as part of the
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Distribution, ITT will change its name to ITT Industries, Inc. and ITT
Destinations will change its name to ITT Corporation. In connection with the
Distribution, ITT (which is now a Delaware corporation) will reincorporate in
Indiana. After the Distribution, ITT Industries will continue to conduct the
automotive, defense and electronics, and fluid technology businesses of ITT. ITT
Destinations, renamed ITT Corporation, will continue to conduct the Hospitality,
Entertainment and Information Services businesses of ITT. ITT Hartford will
continue to conduct the insurance businesses of ITT. In the Distribution,
holders of ITT common stock will receive one share of ITT Destinations common
stock and one share of ITT Hartford common stock for every one share of ITT
common stock held.
The Distribution is subject to various conditions, including (i) receipt of
a favorable ruling from the Internal Revenue Service as to certain federal
income tax consequences of the Distribution and (ii) all necessary consents of
any governmental or regulatory bodies having been obtained. A complete
description of the conditions precedent to the Distribution is contained in the
Proxy, which is incorporated herein by reference. ITT currently expects the
Distribution to occur prior to December 31, 1995; however, there can be no
assurance that the Distribution will occur prior to that date or at all.
If the Distribution were not to occur, ITT would remain liable for its
obligations with respect to the Debt Securities pursuant to the Guarantees.
USE OF PROCEEDS
Unless otherwise specified in the Prospectus Supplement, the net proceeds
from the sale of the Securities will be applied to the repayment of short-term
debt or will be added to the general funds of ITT Destinations to be used for
general corporate purposes.
ITT DESTINATIONS RATIO OF EARNINGS TO FIXED CHARGES
NINE MONTHS YEAR ENDED DECEMBER 31,
ENDED SEPTEMBER 30, -----------------------------------------
1995 1994 1993 1992 1991 1990
- ------------------- ----- ----- ----- ----- -----
1.71 1.98 3.23 1.49 1.41 *
- ---------------
* Earnings were inadequate to cover total fixed charges by approximately $8
million.
These computations include ITT Destinations and its subsidiaries, and 50%
or less equity companies. For the purpose of these pro forma ratios, "earnings"
is determined by adding "fixed charges" (excluding interest capitalized), income
taxes, minority common stockholders equity in net income and amortization of
interest capitalized to income from continuing operations after eliminating
equity in undistributed earnings of companies in which at least 20% but less
than 50% equity is owned. For this purpose, "fixed charges" consists of (1)
interest on all indebtedness and amortization of debt discount and expense, (2)
interest capitalized and (3) an interest factor attributable to rentals.
ITT RATIO OF EARNINGS TO FIXED CHARGES
NINE MONTHS YEAR ENDED DECEMBER 31,
ENDED SEPTEMBER 30, -----------------------------------------
1995 1994 1993 1992 1991 1990
- ------------------- ----- ----- ----- ----- -----
1.57* 3.40 2.05 5.27 1.99 5.31
- ---------------
* Includes after-tax provisions of $111 million for the expected losses on the
disposals of ITT Semiconductors and ITT Community Development Corporation.
Excluding these provisions, the ratio was 2.66.
The ratios of earnings to fixed charges for ITT set forth above reflect the
businesses of ITT Destinations and ITT Hartford as discontinued operations for
all periods presented. These computations include ITT and its subsidiaries, and
50% or less equity companies. For the purpose of these ratios, "earnings" is
determined by
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adding "fixed charges" (excluding interest capitalized), income taxes, minority
common stockholders equity in net income and amortization of interest
capitalized to income from continuing operations after eliminating equity in
undistributed earnings of companies in which at least 20% but less than 50%
equity is owned. For this purpose, "fixed charges" consists of (1) interest on
all indebtedness and amortization of debt discount and expense, (2) interest
capitalized and (3) an interest factor attributable to rentals.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will constitute non-convertible unsecured general
obligations of ITT Destinations and will be issued under one of the indentures
described below (each an "Indenture"), in each case among ITT Destinations, ITT
and a banking institution organized under the laws of the United States of
America or of any State thereof (each a "Trustee"). The following summary of
certain provisions of the Indentures does not purport to be complete and is
qualified in its entirety by reference to the applicable Indenture, a copy of
which is filed as an exhibit to the Registration Statement. All article and
section references appearing herein are to articles and sections of the
applicable Indenture, and all capitalized terms have the meanings specified in
the applicable Indenture.
GENERAL
None of the Indentures limits the amount of Debt Securities which may be
issued thereunder. Each Indenture provides that Debt Securities may be issued
thereunder up to the aggregate principal amount which may be authorized from
time to time by ITT Destinations and may be denominated in any currency or
currency unit designated by ITT Destinations. Except for the limitations on
liens, sale and leaseback transactions and consolidation, merger and sale of
assets of ITT Destinations and ITT referred to herein, the Indentures and the
terms of the Debt Securities do not contain any covenants or other provisions
designed to afford holders of any Debt Securities protection in the event of a
highly leveraged transaction involving either ITT Destinations or ITT. Reference
is made to the Prospectus Supplement which accompanies this Prospectus for the
following terms and other information with respect to the Debt Securities being
offered thereby: (1) the title of the Debt Securities; (2) the designation,
aggregate principal amount and authorized denominations of such Debt Securities;
(3) the percentage of their principal amount at which such Debt Securities will
be issued; (4) the currency, currencies or currency units for which the Debt
Securities may be purchased and the currency, currencies or currency units in
which the principal of, premium, if any, and any interest on such Debt
Securities may be payable; (5) the date on which such Debt Securities will
mature; (6) the rate per annum at which such Debt Securities will bear interest,
if any, or the method of determination of such rate; (7) the dates on which such
interest, if any, will be payable and the record dates for such payment dates;
(8) the Trustee under the Indenture pursuant to which the Debt Securities are to
be issued; (9) whether the Debt Securities are to be issued in the form of one
or more global securities representing all Debt Securities of that series (each
a "Global Security") and, if so, the identity of a depositary (the "Depositary")
for such Global Security or Securities; and (10) any redemption terms or other
specific terms.
If any of the Securities are sold for foreign currencies or foreign
currency units or if the principal of, premium, if any, or any interest on any
series of Debt Securities is payable in foreign currencies or foreign currency
units, the restrictions, elections, tax consequences, specific terms and other
information with respect to such issue of Securities and such currencies or
currency units will be set forth in the Prospectus Supplement relating thereto.
The Debt Securities may be issued in fully registered form without coupons
("Fully Registered Securities"), or in a form registered as to principal only
with coupons or in bearer form with coupons. Unless otherwise specified in the
Prospectus Supplement, the Debt Securities will be only Fully Registered
Securities. In addition, Debt Securities of a series may be issuable in the form
of one or more Global Securities, which will be denominated in an amount equal
to all or a portion of the aggregate principal amount of such Debt Securities.
See "Global Securities." (Sections 3.1., 3.2.)
One or more series of Debt Securities may be sold at a substantial discount
below their stated principal amount, bearing no interest or interest at a rate
which at the time of issuance is below market rates. Federal income tax
consequences and other special considerations applicable to any such series will
be described in the Prospectus Supplement relating thereto.
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GUARANTEES
ITT will unconditionally guarantee (prior to the Distribution) the due and
punctual payment of the principal, premium, if any, and interest on the Debt
Securities when and as the same shall become due and payable, whether at
maturity, upon redemption, or otherwise. The Guarantees will rank equally with
all other unsecured and unsubordinated obligations of ITT. The Guarantees will
irrevocably terminate and be of no further force or effect upon the completion
of the Distribution, subject to certain conditions.(Sections 14.1., 14.2.,
14.3.)
CERTAIN COVENANTS OF ITT DESTINATIONS
On and after the Distribution, each Indenture will require ITT Destinations
to comply with certain restrictive covenants. None of the Indentures will
require ITT Destinations to maintain any Restricted Subsidiaries. Accordingly,
if ITT Destinations elects not to maintain any Restricted Subsidiaries, none of
the Indentures will provide any limitations on the activity of any ITT
Destinations subsidiary. However, each Indenture will contain certain provisions
applicable to any companies maintained as Restricted Subsidiaries, and such
provisions are described below.
Definitions of Restricted Subsidiary and Unrestricted Subsidiary. The term
"Restricted Subsidiary" will be defined in each Indenture to mean any subsidiary
other than an Unrestricted Subsidiary; and the term "Unrestricted Subsidiary"
will be defined to mean (i) any subsidiary 50% or less of the voting stock of
which is owned directly by ITT Destinations and/or one or more Restricted
Subsidiaries or (ii) any subsidiary designated as an Unrestricted Subsidiary by
the ITT Destinations Board of Directors. A Restricted Subsidiary may at any time
be designated as an Unrestricted Subsidiary, and an Unrestricted Subsidiary's
designation as such may at any time be rescinded by the ITT Destinations Board
of Directors; and any subsidiary may be the subject of a series of such
designations and rescissions thereof, without limitation, except that: (i) a
subsidiary may not become an Unrestricted Subsidiary if, upon the effectiveness
thereof, it would own any capital stock of, or hold any indebtedness of, any
Restricted Subsidiary; and (ii) an Unrestricted Subsidiary may not become a
Restricted Subsidiary unless such subsidiary has outstanding no lien upon its
property which such subsidiary would be prohibited, under the restriction on
liens described below, from creating immediately after it becomes a Restricted
Subsidiary and, with certain exceptions, such subsidiary is not a party to any
lease which it would have been prohibited, under the restriction on sale and
lease-back transactions described below, from entering into had it been a
Restricted Subsidiary at the time it entered into such lease. (Section 1.1.)
Definition of Consolidated Net Tangible Assets. The term "Consolidated Net
Tangible Assets" will be defined in each Indenture to mean the total of all
assets appearing on a consolidated balance sheet of ITT Destinations and its
Restricted Subsidiaries prepared in accordance with generally accepted
accounting principles as of a date not more than 90 days prior to the date as of
which Consolidated Net Tangible Assets are to be determined, but excluding (i)
the book amount of all segregated intangible assets, (ii) all depreciation,
valuation and other reserves, (iii) current liabilities, (iv) any minority
interest in the stock and surplus of Restricted Subsidiaries, (v) investments in
subsidiaries which are not Restricted Subsidiaries, (vi) deferred income and
deferred liabilities, and (vii) other items deductible under generally accepted
accounting principles. (Section 1.1.)
The term "Capitalized Lease-Back Obligation" will be defined in each
Indenture to mean the total net rental obligations of ITT Destinations or a
Restricted Subsidiary under any lease entered into as part of a sale and
lease-back transaction involving a Principal Property discounted to present
value at the rate of 9% per annum. The term "Principal Property" will be defined
in each Indenture to mean any single property owned by ITT Destinations or any
Restricted Subsidiary having a gross book value in excess of 2% of Consolidated
Net Tangible Assets, except any such property or portion thereof which the ITT
Destinations Board of Directors by resolution declares is not of material
importance to the total business conducted by ITT Destinations and its
Restricted Subsidiaries as an entirety. (Section 1.1.)
Sale and Lease-Back. Each Indenture will provide that neither ITT
Destinations nor any Restricted Subsidiary may enter into any sale and
lease-back transaction (except for temporary leases of a term of not
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more than three years and except for leases between ITT Destinations and a
Restricted Subsidiary or between Restricted Subsidiaries) involving the leasing
by ITT Destinations or any Restricted Subsidiary of any Principal Property, more
than 120 days after the acquisition thereof or the completion of construction
and commencement of full operation thereof, unless either (i) ITT Destinations
applies an amount equal to the greater of the fair value (as determined by the
ITT Destinations Board of Directors) of such property or the net proceeds of
such sale, within 120 days, to the retirement of Debt Securities or other
indebtedness ranking on a parity with the Debt Securities, or to the
acquisition, construction, development or improvement of properties, facilities
or equipment used for operating purposes which are, or upon such acquisition,
construction, development or improvement will be, a Principal Property or a part
thereof, or (ii) at the time of entering into such transaction, such Principal
Property could have been subjected to a mortgage securing indebtedness in a
principal amount equal to the Capitalized Lease-Back Obligation (as defined)
with respect to such Principal Property under clause (m) of the provision for
limitations on liens referred to below without securing the Debt Securities as
contemplated by that provision. (Section 4.5.)
Liens. Each Indenture will prohibit ITT Destinations and its Restricted
Subsidiaries from creating any mortgages or other liens upon any Principal
Property (without securing the Debt Securities equally and ratably with all
other indebtedness secured thereby), with the following exceptions: (a)
mortgages or other liens on any such property acquired, constructed or improved
by ITT Destinations or a Restricted Subsidiary to secure or provide for the
payment of any part of the purchase price of such property or the cost of such
construction or improvement, or any mortgage or other lien on any such property
existing at the time of acquisition thereof; (b) any mortgage or other lien on
any property of another company existing at the time it is acquired by merger,
consolidation or acquisition of substantially all of its stock or its assets;
(c) pledges or deposits to secure payment of workers' compensation or insurance
premiums, or relating to tenders, bids, contracts (except contracts for the
payment of money) or leases; (d) pledges or liens in connection with tax
assessments or other governmental charges, or as security required by law or
governmental regulation as a condition to the transaction of any business or the
exercise of any privilege or right; (e) pledges or liens to secure a stay of
process in proceedings to enforce a contested liability, or required in
connection with the institution of legal proceedings or in connection with any
other order or decree in any such proceeding or in connection with any contest
of any tax or other governmental charge, or deposits with a governmental agency
entitling ITT Destinations or a Restricted Subsidiary to maintain self-insurance
or to participate in other specified insurance arrangements; (f) mechanics',
carriers', workmen's and other like liens; (g) encumbrances in favor of the U.
S. Government to secure progress or advance payments; (h) mortgages, pledges or
other liens securing any indebtedness incurred to finance the cost of property
leased to the U. S. Government at a rental sufficient to pay the principal of
and interest on such indebtedness; (i) mortgages or other liens securing
indebtedness of a Restricted Subsidiary to ITT Destinations or to a Restricted
Subsidiary; (j) mortgages, pledges or other liens affecting property securing
indebtedness of a governmental authority issued to finance the cost of a
pollution control program with respect to operations of ITT Destinations or a
Restricted Subsidiary; (k) renewals, extensions and replacements of any
permitted mortgage, lien, deposit or encumbrance, provided the amount secured is
not increased; (l) mortgages or other liens on any such property existing on the
date of such Indenture; and (m) the creation of any other mortgage, pledge or
other lien, if, after giving effect to the creation thereof, the total of (i)
the aggregate principal amount of indebtedness of ITT Destinations and its
Restricted Subsidiaries secured by all mortgages, pledges or other liens created
under the provisions referred to in this clause (m), plus (ii) the aggregate
amount of Capitalized Lease-Back Obligations of ITT Destinations and its
Restricted Subsidiaries under the entire unexpired terms of all leases entered
into in connection with sale and lease-back transactions which would have been
precluded by the provision for limitations on such transactions described above,
but for the satisfaction of the condition referred to in clause (ii) of the
description of such provision, will not exceed an amount equal to 15% of
Consolidated Net Tangible Assets (as defined).
The lease of any property and rental obligations thereunder (whether or not
involving a sale and lease-back and whether or not capitalized) shall not be
deemed to create a lien. The sale or other transfer of (a) timber or other
natural resources in place for a period of time until, or in an amount such
that, the purchaser will realize therefrom a specified amount of money (however
determined) or a specified amount of
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such resources, or (b) any other interest in property of the character commonly
referred to as a "production payment", shall not be deemed to create a lien.
(Section 4.6.)
Consolidation, Merger or Sale. Each Indenture will permit the
consolidation or merger of ITT Destinations with or into any other corporation,
or the merger into ITT Destinations of any other corporation, or the sale by ITT
Destinations of its property and assets as, or substantially as, an entirety, or
otherwise; provided, however, (a) that, in case of any such consolidation or
merger the corporation resulting from such consolidation or any corporation
other than ITT Destinations into which such merger shall be made shall succeed
to and be substituted for ITT Destinations with the same effect as if it has
been named therein as a party thereto and shall become liable and be bound for,
and shall expressly assume, by a supplemental indenture, executed and delivered
to the Trustee, the due and punctual payment of the principal of, premium, if
any, and interest, if any, on all the Debt Securities of each series and the
coupons, if any, appertaining thereto and the performance and observance of each
and every covenant and condition of the applicable Indenture on the part of ITT
Destinations to be performed or observed, and (b) that, as a condition of any
such sale of the property and assets of ITT Destinations as, or substantially
as, an entirety, the corporation to which such property and assets shall be sold
shall (i) expressly assume, as a part of the purchase price thereof, the due and
punctual payment of the principal of, premium, if any, and interest, if any, on
all the Debt Securities of each series and the coupons, if any, appertaining
thereto and the performance and observance of all the covenants and conditions
of the applicable Indenture on the part of ITT Destinations to be performed or
observed, and (ii) simultaneously with the delivery to it of the conveyances or
instruments of transfer of such property and assets, execute and deliver to the
Trustee a supplemental indenture, in form satisfactory to the Trustee, whereby
such purchasing corporation shall so assume the due and punctual payment of the
principal of, premium, if any, and interest, if any, on all the Debt Securities
of each series and the coupons, if any, appertaining thereto and the performance
and observance of each and every covenant and condition of the applicable
Indenture on the part of ITT Destinations to be performed or observed, to the
same extent that ITT Destinations is bound and liable.
ITT Destinations will not consolidate with any other corporation or accept
a merger of any other corporation into ITT Destinations or permit ITT
Destinations to be merged into any other corporation, or sell its properties and
assets as, or substantially as, an entirety, except upon the terms and
conditions set forth in the applicable Indenture. Upon any consolidation or
merger, or any sale of the properties and assets of ITT Destinations as, or
substantially as, an entirety in accordance with the provisions of the
applicable Indenture, the corporation formed by such consolidation or into which
ITT Destinations shall have been merged or to which such sale shall have been
made shall succeed to and be substituted for ITT Destinations with the same
effect as if it had been named therein as a party thereto and thereafter from
time to time such successor corporation may exercise each and every right and
power of ITT Destinations under each Indenture, in the name of ITT Destinations
or in its own name; and any act or proceeding by any provision of the applicable
Indenture required or permitted to be done by the Board of Directors or any
officer of ITT Destinations may be done with like force and effect by the like
board or officer of any corporation that shall at the time be the successor of
ITT Destinations thereunder. In the event of the sale by ITT Destinations of its
properties and assets as, or substantially as, an entirety upon the terms and
conditions of the applicable Indenture, ITT Destinations shall be released from
all its liabilities and obligations thereunder and under the Debt Securities.
(Section 12.1.)
Each Indenture will provide that ITT may, prior to the completion of the
Distribution, assume the obligations of ITT Destinations under such Indenture
and the Securities without the consent of the Holders, provided certain
conditions are met. Upon such assumption, ITT Destinations will be released from
all obligations and covenants under the applicable Indenture and the Securities.
(Section 12.4.)
The Trustee, subject to the provisions of the applicable Indenture, may
receive an Opinion of Counsel as conclusive evidence that any such
consolidation, merger or sale, and any such assumption, complies with the
provisions of the Indenture. (Section 12.3.)
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CERTAIN COVENANTS OF ITT
Prior to the Distribution, each Indenture will require ITT and its Domestic
Subsidiaries to comply with certain restrictive covenants. None of the
Indentures will require ITT to maintain any Domestic Subsidiaries. Accordingly,
if ITT elects not to maintain any Domestic Subsidiaries, none of the Indentures
will provide any limitations on the activity of any ITT subsidiary. However,
each Indenture will contain certain provisions applicable to any companies
maintained as Domestic Subsidiaries, and such provisions are described below.
Definition of Domestic Subsidiary. The term "Domestic Subsidiary" will be
defined in each Indenture to mean any subsidiary which is neither a Foreign
Subsidiary nor an Unrestricted Subsidiary. "Foreign Subsidiary" will be defined
to mean any subsidiary substantially all of the operating assets of which are
located, or substantially all of the business of which is carried on, outside
the United States of America and its territories and possessions, but such term
shall not include any subsidiary incorporated under the laws of any state of the
United States, substantially all of the assets of which consist of securities of
other subsidiaries. (Section 1.1.)
Definitions of Restricted Subsidiary and Unrestricted Subsidiary. In the
case of ITT, the term "Restricted Subsidiary" will be defined in each Indenture
to mean any subsidiary other than an Unrestricted Subsidiary; and the term
"Unrestricted Subsidiary" will be defined to mean (i) any subsidiary 50% or less
of the voting stock of which is owned directly by ITT and/or one or more
Restricted Subsidiaries, or (ii) any subsidiary designated as an Unrestricted
Subsidiary by the ITT Board of Directors. A Restricted Subsidiary may at any
time be designated as an Unrestricted Subsidiary, and an Unrestricted
Subsidiary's designation as such may at any time be rescinded by the ITT Board
of Directors; and any subsidiary may be the subject of a series of such
designations and rescissions thereof, without limitation, except that: (i) a
subsidiary may not become an Unrestricted Subsidiary if, upon the effectiveness
thereof, it would own any capital stock of, or hold any indebtedness of, any
Restricted Subsidiary; and (ii) an Unrestricted Subsidiary may not become a
Restricted Subsidiary unless such subsidiary has outstanding no lien upon its
property which such subsidiary would be prohibited, under the restriction on
liens described below, from creating immediately after it becomes a Restricted
Subsidiary and, with certain exceptions, such subsidiary is not a party to any
lease which it would have been prohibited, under the restriction on sale and
lease-back transactions described below, from entering into had it been a
Restricted Subsidiary at the time it entered into such lease. (Section 1.1.)
Definition of Consolidated Net Tangible Assets. In the case of ITT, the
term "Consolidated Net Tangible Assets" will be defined in each Indenture to
mean the total of all assets appearing on a consolidated balance sheet of ITT
and its Domestic Subsidiaries prepared in accordance with generally accepted
accounting principles as of a date not more than 90 days prior to the date as of
which Consolidated Net Tangible Assets are to be determined, but excluding (i)
the book amount of all segregated intangible assets, (ii) all depreciation,
valuation and other reserves, (iii) current liabilities, (iv) any minority
interest in the stock and surplus of Domestic Subsidiaries, (v) investments in
subsidiaries which are not Domestic Subsidiaries, (vi) deferred income and
deferred liabilities, and (vii) other items deductible under generally accepted
accounting principles. (Section 1.1.)
In the case of ITT, the term "Capitalized Lease-Back Obligation" will be
defined in each Indenture to mean the total net rental obligations of ITT or a
Domestic Subsidiary under any lease entered into as part of a sale and
lease-back transaction involving a Principal Property discounted to present
value at the rate of 9% per annum. In the case of ITT, the term "Principal
Property" will be defined in each Indenture to mean any single manufacturing or
processing facility owned by ITT or any Domestic Subsidiary having a gross book
value in excess of 2% of Consolidated Net Tangible Assets, except any such
facility or portion thereof which the ITT Board of Directors by resolution
declares is not of material importance to the total business conducted by ITT
and its Domestic Subsidiaries as an entirety. (Section 1.1.)
Sale and Lease-Back. Each Indenture will provide that neither ITT nor any
Domestic Subsidiary may enter into any sale and lease-back transaction (except
for temporary leases of a term of not more than three years and except for
leases between ITT and a Domestic Subsidiary or between Domestic Subsidiaries)
involving the leasing by ITT or any Domestic Subsidiary of any Principal
Property, more than 120 days after the acquisition thereof or the completion of
construction and commencement of full operation thereof, unless
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either (i) ITT applies an amount equal to the greater of the fair value (as
determined by the ITT Board of Directors) of such property or the net proceeds
of such sale, within 120 days, to the retirement of Debt Securities or other
indebtedness ranking on a parity with the Debt Securities, or to the
acquisition, construction, development or improvement of properties, facilities
or equipment used for operating purposes which are, or upon such acquisition,
construction, development or improvement will be, a Principal Property or a part
thereof, or (ii) at the time of entering into such transaction, such Principal
Property could have been subjected to a mortgage securing indebtedness in a
principal amount equal to the Capitalized Lease-Back Obligation (as defined)
with respect to such Principal Property under clause (1) of the provision for
limitations on liens referred to below without securing the Debt Securities as
contemplated by that provision. (Section 5.1.)
Liens. Each Indenture will prohibit ITT and its Domestic Subsidiaries from
creating any mortgages or other liens upon any Principal Property (without
securing the Debt Securities equally and ratably with all other indebtedness
secured thereby), with the following exceptions: (a) mortgages or other liens on
any such property acquired, constructed or improved by ITT or a Domestic
Subsidiary to secure or provide for the payment of any part of the purchase
price of such property or the cost of such construction or improvement, or any
mortgage or other lien on any such property existing at the time of acquisition
thereof; (b) any mortgage or other lien on any property of another company
existing at the time it is acquired by merger, consolidation or acquisition of
substantially all of its stock or its assets; (c) pledges or deposits to secure
payment of workers' compensation or insurance premiums, or relating to tenders,
bids, contracts (except contracts for the payment of money) or leases; (d)
pledges or liens in connection with tax assessments or other governmental
charges, or as security required by law or governmental regulation as a
condition to the transaction of any business or the exercise of any privilege or
right; (e) pledges or liens to secure a stay of process in proceedings to
enforce a contested liability, or required in connection with the institution of
legal proceedings or in connection with any other order or decree in any such
proceeding or in connection with any contest of any tax or other governmental
charge, or deposits with a governmental agency entitling ITT or a Domestic
Subsidiary to maintain self-insurance or to participate in other specified
insurance arrangements; (f) mechanics', carriers', workmen's and other like
liens; (g) encumbrances in favor of the U. S. Government to secure progress or
advance payments; (h) mortgages, pledges or other liens securing any
indebtedness incurred to finance the cost of property leased to the U. S.
Government at a rental sufficient to pay the principal of and interest on such
indebtedness; (i) mortgages or other liens securing indebtedness of a Domestic
Subsidiary to ITT or to a Domestic Subsidiary; (j) mortgages, pledges or other
liens affecting property securing indebtedness of a governmental authority
issued to finance the cost of a pollution control program with respect to
operations of ITT or a Domestic Subsidiary; (k) renewals and extensions of any
permitted mortgage, lien, deposit or encumbrance, provided the amount secured is
not increased; and (l) the creation of any other mortgage, pledge or other lien,
if, after giving effect to the creation thereof, the total of (i) the aggregate
principal amount of indebtedness of ITT and its Domestic Subsidiaries secured by
all mortgages, pledges or other liens created under the provisions referred to
in this clause (l), plus (ii) the aggregate amount of Capitalized Lease-Back
Obligations of ITT and its Domestic Subsidiaries under the entire unexpired
terms of all leases entered into in connection with sale and lease-back
transactions which would have been precluded by the provision for limitations on
such transactions described above but for the satisfaction of the condition
referred to in clause (ii) of the description of such provision, will not exceed
an amount equal to 5% of Consolidated Net Tangible Assets (as defined).
The lease of any property and rental obligations thereunder (whether or not
involving a sale and lease-back and whether or not capitalized) shall not be
deemed to create a lien. The sale or other transfer of (a) timber or other
natural resources in place for a period of time until, or in an amount such
that, the purchaser will realize therefrom a specified amount of money (however
determined) or a specified amount of such resources, or (b) any other interest
in property of the character commonly referred to as a "production payment",
shall not be deemed to create a lien. (Section 5.2.)
Consolidation, Merger or Sale. Each Indenture will permit the
consolidation or merger of ITT with or into any other corporation, or the merger
into ITT of any other corporation, or the sale by ITT of its property and assets
as, or substantially as, an entirety, or otherwise; provided, however, (a) that,
in case of any such
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consolidation or merger the corporation resulting from such consolidation or any
corporation other than ITT into which such merger shall be made shall succeed to
and be substituted for ITT with the same effect as if it has been named therein
as a party thereto and shall become liable and be bound for, and shall expressly
assume, by a supplemental indenture, executed and delivered to the Trustee, the
due and punctual payment of the principal of, premium, if any, and interest, if
any, on all the Debt Securities of each series and the coupons, if any,
appertaining thereto and the performance and observance of each and every
covenant and condition of the applicable Indenture on the part of ITT to be
performed or observed, and (b) that, as a condition of any such sale of the
property and assets of ITT as, or substantially as, an entirety, the corporation
to which such property and assets shall be sold shall (i) expressly assume, as a
part of the purchase price thereof, the due and punctual payment of the
principal of, premium, if any, and interest, if any, on all the Debt Securities
of each series and the coupons, if any, appertaining thereto and the performance
and observance of all the covenants and conditions of the applicable Indenture
on the part of ITT to be performed or observed, and (ii) simultaneously with the
delivery to it of the conveyances or instruments or transfer of such property
and assets, execute and deliver to the Trustee a supplemental indenture, in form
satisfactory to the Trustee, whereby such purchasing corporation shall so assume
the due and punctual payment of the principal of, premium, if any, and interest,
if any, on all the Debt Securities of each series and the coupons, if any,
appertaining thereto and the performance and observance of each and every
covenant and condition of the applicable Indenture on the part of ITT to be
performed or observed, to the same extent that ITT is bound and liable.
ITT will not consolidate with any other corporation or accept a merger of
any other corporation into ITT or permit ITT to be merged into any other
corporation, or sell its properties and assets as, or substantially as, an
entirety, except upon the terms and conditions set forth in the applicable
Indenture. Upon any consolidation or merger, or any sale of the properties and
assets of ITT as, or substantially as, an entirety in accordance with the
provisions of the applicable Indenture, the corporation formed by such
consolidation or into which ITT shall have been merged or to which such sale
shall have been made shall succeed to and be substituted for ITT with the same
effect as if it had been named therein as a party thereto and thereafter from
time to time such successor corporation may exercise each and every right and
power of ITT under each Indenture, in the name of ITT or in its own name; and
any act or proceeding by any provision of the applicable Indenture required or
permitted to be done by the Board of Directors or any officer of ITT may be done
with like force and effect by the like board or officer of any corporation that
shall at the time be the successor of ITT thereunder. In the event of the sale
by ITT of its properties and assets as, or substantially as, an entirety upon
the terms and conditions of the applicable Indenture, ITT shall be released from
all its liabilities and obligations thereunder and with respect to the Debt
Securities. (Section 12.2.)
The Trustee, subject to the provisions of the applicable Indenture, may
receive an Opinion of Counsel as conclusive evidence that any such
consolidation, merger or sale, and any such assumption, complies with the
provisions of the Indenture. (Section 12.3.)
Except for the limitations on liens, sale and leaseback transactions and
consolidation, merger and sale of assets of ITT Destinations and ITT referred to
above, the Indentures and the terms of the Debt Securities do not contain any
covenants or other provisions designed to afford holders of any Debt Securities
protection in the event of a highly leveraged transaction involving either ITT
Destinations or ITT.
REDEMPTION PURSUANT TO GAMING LAWS
If a holder or beneficial owner of a Debt Security is required by any
gaming authority to be licensed or found qualified or suitable to hold or own
the Debt Securities and such holder is not licensed or found qualified or
suitable within any time specified by such gaming authority or such gaming
authority denies a license to or finds unqualified or unsuitable such holder,
ITT Destinations will have the right at its option to require such holder to
dispose of such holder's Debt Securities within the time period prescribed by
ITT Destinations or such other time period as may be prescribed by any gaming
authority, which time period shall be specified in a written notice from ITT
Destinations. If the holder having been given the opportunity by ITT
Destinations to dispose of such Debt Securities fails to do so within the
prescribed time period, ITT Destinations will have the right to call for
redemption such holder's Debt Securities by notice of redemption to such person.
On any such redemption, the redemption price shall be the lesser of (a) the
lowest closing sale price of the Debt Securities
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on any trading day during the 120 day period commencing on the date upon which
ITT Destinations shall have received notice from a gaming authority of such
holder's disqualification or (b) the price at which such holder acquired the
Debt Securities, unless a different redemption price is required by such gaming
authority, in which event such required price shall be the redemption price.
(Section 16.5.)
MODIFICATION OF INDENTURE
Each applicable Indenture, the rights and obligations of ITT Destinations
and ITT thereunder and the rights of the Holders thereunder may be modified with
respect to one or more series of Debt Securities issued under such Indenture
with the consent of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Debt Securities of each such series
(including Debt Securities of each such series issuable upon exercise of
unexpired Warrants) affected by the modification or amendment. No modification
of the terms of payment of principal or interest or the Guarantees, and no
modification reducing the percentage required for modifications, is effective
against any Holder without its consent. For the purpose of these provisions
solely, a holder of an unexpired Warrant shall be deemed to be the Holder of the
principal amount of Debt Securities issuable upon exercise of such Warrant.
(Section 11.2.)
EVENTS OF DEFAULT
Except as may otherwise be set forth in each Prospectus Supplement, each
Indenture provides that the following are Events of Default thereunder with
respect to any series of Debt Securities issued thereunder: (i) default in the
payment of the principal of (or premium, if any, on) any Debt Security of such
series when and as the same shall be due and payable; (ii) default in the
deposit of a sinking fund payment, if any, when and as the same shall be due and
payable by the terms of the Debt Securities of such series; (iii) default for 30
days in the payment of any installment of interest on any Debt Security of such
series; (iv) default for 60 days after notice in the performance of any other
covenant in respect of the Debt Securities or Guarantees of such series
contained in such Indenture; (v) acceleration (after the Distribution) of
certain debt instruments of at least $10,000,000 aggregate principal amount of
ITT Destinations, which acceleration shall not have been rescinded or annulled
within 30 days after notice; (vi) certain events in bankruptcy, insolvency or
reorganization of ITT (prior to the Distribution) or ITT Destinations; (vii) the
Guarantee of the Debt Securities ceases to be in full force and effect (other
than as a result of the release of such Guarantee upon the Distribution or
otherwise in accordance with the terms of the Indenture); or (viii) any other
Event of Default provided in the applicable Board Resolution or supplemental
indenture under which such series of Debt Securities is issued. (Section 7.1.)
An Event of Default with respect to a particular series of Debt Securities
issued under an Indenture does not necessarily constitute an Event of Default
with respect to any other series of Debt Securities issued under such Indenture.
The applicable Trustee may withhold notice to the Holders of any series of Debt
Securities of any default with respect to such series (except in the payment of
principal or interest) if it considers such withholding in the interests of such
Holders. (Section 7.11.)
If an Event of Default with respect to any series of Debt Securities shall
have occurred and be continuing, the applicable Trustee or the Holders of not
less than 25% in aggregate principal amount of the Debt Securities of such
series may declare the principal, or in the case of discounted Debt Securities,
such portion thereof as may be described in the Prospectus Supplement
accompanying this Prospectus, of all the Debt Securities of such series to be
due and payable immediately, provided, however, that, subject to certain
conditions, any such declaration and its consequences may be rescinded and
annulled by the Holders of not less than a majority in aggregate principal
amount of the Debt Securities of such series. (Section 7.1.)
Each Indenture will require the annual filing by ITT Destinations and ITT
(prior to the Distribution) with the applicable Trustee of a certificate, signed
by a specified officer, stating whether or not such officer has obtained
knowledge of any default by ITT or ITT Destinations, as the case may be, in the
performance, observance or fulfillment of any condition or covenant of such
Indenture, and, if so, specifying each such default and the nature thereof.
(Sections 4.7., 5.3.)
Subject to provisions relating to its duties in case of default, a Trustee
shall be under no obligation to exercise any of its rights or powers under the
applicable Indenture at the request, order or direction of any Holders, unless
such Holders shall have offered to such Trustee reasonable indemnity. (Section
8.2.) Subject to such provisions for indemnification, the Holders of a majority
in principal amount of the Debt Securities of
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any series may direct the time, method and place of conducting any proceeding or
any remedy available to the appropriate Trustee, or exercising any trust or
power conferred upon such Trustee, with respect to the Debt Securities of such
series. (Section 7.9.)
PAYMENT AND TRANSFER
Principal of, premium, if any, and interest, if any, on Fully Registered
Securities are to be payable at the place or places designated by ITT
Destinations for such purposes, provided that payment of interest, if any, may
be made at the option of ITT Destinations by check mailed to the persons in
whose names such Securities are registered at the close of business on the day
or days specified in the Prospectus Supplement accompanying this Prospectus. The
principal of, premium, if any, and interest, if any, on Debt Securities in other
forms will be payable in such manner and at such place or places as may be
designated by ITT Destinations and specified in the applicable Prospectus
Supplement. (Sections 3.1., 4.1., 4.2.)
Fully Registered Securities may be transferred or exchanged at the
Corporate Trust Office of the Trustee under the applicable Indenture or at any
other office or agency maintained by ITT Destinations for such purposes, subject
to the limitations contained in the Indenture, without the payment of any
service charge except for any tax or governmental charge incidental thereto.
Provisions with respect to the transfer and exchange of Debt Securities in other
forms will be set forth in the applicable Prospectus Supplement. (Sections 3.1.,
3.6.)
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on behalf
of, the Depositary identified in the Prospectus Supplement relating to such
series. Unless and until it is exchanged in whole or in part for Debt Securities
in definitive form, a Global Security may not be transferred except as a whole
to a nominee of the Depositary for such Global Security, or by a nominee of such
Depositary to such Depositary, or to a successor of such Depositary or a nominee
of such successor. (Section 2.4.)
The specific terms of the depositary arrangement with respect to any series
of Debt Securities and the rights of and limitations on owners of beneficial
interests in a Global Security representing all or a portion of a series of Debt
Securities will be described in the Prospectus Supplement relating to such
series.
DEFEASANCE
Except as may otherwise be provided in the applicable Prospectus Supplement
with respect to the Securities of any series (Section 3.1.), each Indenture
provides that ITT Destinations and ITT shall be discharged from their
obligations with respect to the Securities of a series at any time prior to the
Stated Maturity or redemption thereof when (a) ITT Destinations has irrevocably
deposited with the Trustee, in trust, (i) sufficient funds in the currency or
currency unit in which the Securities are denominated to pay the principal of
(and premium, if any), and interest to Stated Maturity (or redemption) on, the
Securities of such series, or (ii) such amount of direct obligations of, or
obligations the principal of and interest on which are fully guaranteed by, the
government which issued the currency in which the Securities are denominated,
and which are not subject to prepayment, redemption or call, as will, together
with the predetermined and certain income to accrue thereon without
consideration of any reinvestment thereof, be sufficient to pay when due the
principal of (and premium, if any), and interest to Stated Maturity (or
redemption) on, the Securities of such series, and (b) ITT Destinations has paid
all other sums payable with respect to the Securities of such series. Upon such
discharge, the Holders of the Securities of such series shall no longer be
entitled to the benefits of the Indenture, except for the purposes of
registration of transfer and exchange of the Securities of such series, and
replacement of lost, stolen or mutilated Securities, and shall look only to such
deposited funds or obligations for payment. (Sections 13.1., 13.3.)
Under Federal income tax law as of the date of this Prospectus, such
deposit and discharge may be treated as an exchange of the related Securities.
As a consequence, each Holder of such Securities might be required to recognize
gain or loss equal to the difference between the Holder's cost or other tax
basis for the Securities and the value of the Holder's interest in the trust.
Such Holders thereafter might be required to
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include in income a different amount than would be includable in the absence of
the discharge. Prospective investors are urged to consult their own tax advisers
as to the specific consequences of such a deposit and discharge, including the
applicability and effect of tax laws other than the Federal income tax law.
CONCERNING THE TRUSTEES
Business and other relationships (including other trusteeships) between ITT
Destinations, ITT and their subsidiaries and each Trustee under any Indenture
pursuant to which any of the Debt Securities to which the Prospectus Supplement
accompanying this Prospectus relates are described in such Prospectus
Supplement.
DESCRIPTION OF WARRANTS
The following statements with respect to the Warrants are summaries of, and
subject to, the detailed provisions of one or more separate Warrant Agreements
(each a "Warrant Agreement"), in each case between ITT Destinations and a
banking institution organized under the laws of the United States of America or
any State thereof, as Warrant Agent (each a "Warrant Agent"), a form of which
will be filed as an exhibit to a Current Report on Form 8-K.
GENERAL
The Warrants, whether evidenced by Warrant Certificates (the "Warrant
Certificates") or not so evidenced, may be issued under a Warrant Agreement
independently or together with any Debt Securities offered by any Prospectus
Supplement and may be attached to or separate from such Debt Securities. If
Warrants are offered, the Prospectus Supplement will describe the terms of the
Warrants, including the following: (i) the offering price, if any; (ii) the
designation, aggregate principal amount, and terms of the Debt Securities
purchasable upon exercise of the Warrants; (iii) if applicable, the designation
and terms of the Debt Securities with which the Warrants are issued and the
number of Warrants issued with each such Debt Security; (iv) if applicable, the
date on and after which the Warrants and the related Debt Securities will be
separately transferable; (v) the principal amount of Debt Securities purchasable
upon exercise of one Warrant and the price at which such principal amount of
Debt Securities may be purchased upon such exercise; (vi) the date on which the
right to exercise the Warrants shall commence and the date on which such right
shall expire; (vii) federal income tax consequences; (viii) whether the Warrants
represented by the Warrant Certificates will be issued in registered or bearer
form; (ix) whether the Warrants will be issued in certificated or uncertificated
form; and (x) any other terms of the Warrants.
Warrant Certificates, if any, may be exchanged for new Warrant Certificates
of different denominations and may (if in registered form) be presented for
registration of transfer at the corporate trust office of the Warrant Agent or
any Co-Warrant Agent, which will be listed in the Prospectus Supplement, or at
such other office as may be set forth therein. Warrantholders do not have any of
the rights of holders of Debt Securities (except to the extent that the consent
of Warrantholders may be required for certain modifications of the terms of the
Indenture and the series of Debt Securities issuable upon exercise of the
Warrants) and are not entitled to payments of principal, premium, if any, or
interest, if any, on such Debt Securities.
EXERCISE OF WARRANTS
Warrants may be exercised by surrendering the Warrant Certificate, if any,
at the corporate trust office of the Warrant Agent or at the corporate trust
office of the Co-Warrant Agent, if any, with the form of election to purchase on
the reverse side of the Warrant Certificate, if any, properly completed and
executed, and by payment in full of the exercise price, as set forth in the
Prospectus Supplement. Upon exercise of Warrants, the Warrant Agent or
Co-Warrant Agent, if any, will, as soon as practicable, deliver the Debt
Securities in authorized denominations in accordance with the instructions of
the exercising Warrantholder and at the sole cost and risk of such holder. If
less than all of the Warrants evidenced by the Warrant Certificate, if any, are
exercised, a new Warrant Certificate will be issued, if sufficient time exists
prior to the expiration of the exercise period, for the remaining amount of
Warrants.
REDEMPTION PURSUANT TO GAMING LAWS
If a holder or beneficial owner of a Warrant is required by any gaming
authority to be licensed or found qualified or suitable to hold or own the
Warrants and such holder is not licensed or found qualified or suitable
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within any time specified by such gaming authority or such gaming authority
denies a license to or finds unqualified or unsuitable such holder, ITT
Destinations will have the right at its option to require such holder to dispose
of such holder's Warrants within the time period prescribed by ITT Destinations
or such other time period as may be prescribed by any gaming authority, which
time period shall be specified in a written notice from ITT Destinations. If the
holder having been given the opportunity by ITT Destinations to dispose of such
Warrants fails to do so within the prescribed time period, ITT Destinations will
have the right to call for redemption such holder's Warrants by notice of
redemption to such person. On any such redemption, the redemption price shall be
the lesser of (a) the lowest closing sale price of the Warrants on any trading
day during the 120 day period commencing on the date upon which ITT Destinations
shall have received notice from a gaming authority of such holder's
disqualification or (b) the price at which such holder acquired the Warrants,
unless a different redemption price is required by such gaming authority, in
which event such required price shall be the redemption price.
CASINO GAMING REGULATION
ITT Destination's gaming operations consist of Caesars Palace in Las Vegas,
Caesars Atlantic City in Atlantic City and Caesars Tahoe in Stateline, Nevada
(each of which was acquired by ITT in January 1995), ITT Sheraton's Desert Inn
Resort's Casino in Las Vegas, the Sheraton Casino in Tunica County, Mississippi,
and various hotel/casino operations of ITT Sheraton and Caesars outside the
United States. These gaming operations are subject to extensive regulation,
including the following:
NEVADA GAMING REGULATION
The ownership and/or operation of casino gaming facilities in Nevada are
subject to state and local regulation. Nevada's casino gaming laws, regulations
and supervisory procedures are extensive and reflect certain broad declarations
of public policy. In general, Nevada's gaming laws, regulations and supervisory
procedures seek to (i) prevent unsavory or unsuitable persons from having any
direct or indirect involvement with gaming at any time or in any capacity, (ii)
establish and maintain responsible accounting practices and procedures, (iii)
maintain effective control over the financial practices of licensees, including
establishing minimum procedures for internal fiscal affairs and the safeguarding
of assets and revenues, providing reliable recordkeeping, 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.
The Nevada Gaming Commission (the "Nevada Commission") may, in its
discretion, require the holder of any debt security of ITT Destinations or any
affiliated company of ITT Destinations to file an application, be investigated
and found suitable to own such debt security. If the Nevada Commission
determines that a person is unsuitable to own such debt security, then pursuant
to the Nevada Gaming Control Act (the "Nevada Act"), ITT Destinations and its
affiliated Nevada gaming companies, the Sheraton Desert Inn Companies and the
Caesars Nevada Companies, can be sanctioned, including the loss of their
approvals, if without the prior approval of the Nevada Commission, they: (i) pay
to the unsuitable person any dividend, interest or any distribution whatsoever;
(ii) recognize any voting right by such unsuitable person in connection with
such securities; (iii) pay the unsuitable person remuneration in any form; or
(iv) make any payment to the unsuitable person by way of principal, redemption,
conversion, exchange, liquidation or similar transaction. See "Description of
Debt Securities -- Redemption Pursuant to Gaming Laws".
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 State Gaming Control Board may be found
unsuitable. Any holder of any equity or debt security found unsuitable and who
holds, directly or indirectly, any beneficial ownership of ITT Destinations'
debt or equity voting securities beyond such period or periods of time as may be
prescribed by the Nevada Commission may be guilty of a gross misdemeanor. ITT
Destinations could be subject to disciplinary action if, without the prior
approval of the Nevada Commission and after ITT Destinations receives notice
that a person is unsuitable to be an equity or debt security holder or to have
any other relationship with ITT Destinations, ITT Sheraton, Sheraton Gaming
Corporation, Sheraton
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Desert Inn Corporation, Caesars, Caesars Palace Corporation or Desert Palace,
Inc. or any one of them either (i) pays to the unsuitable person any dividend,
interest or any distribution whatsoever, (ii) recognizes any voting right by
such unsuitable person in connection with such securities, (iii) pays the
unsuitable person remuneration in any form, (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation or similar transaction or (v) fails to pursue all lawful efforts to
require such unsuitable person to relinquish his securities including, if
necessary, the immediate purchase of such securities for cash at fair market
value.
NEW JERSEY GAMING REGULATION
Casino gaming in New Jersey is subject to strict compliance with the New
Jersey Casino Control Act (the "New Jersey Act"), the strict supervision of the
New Jersey Casino Control Commission (the "New Jersey Commission") and
compliance with the regulations adopted by the New Jersey Commission. The New
Jersey gaming laws and regulations primarily concern (a) the financial stability
and character of casino operators, their employees, their security holders and
others financially interested in casino operations, and (b) the operating
methods -- including the rules of the games and credit issuance
procedures -- and the financial and accounting procedures used in connection
with casino operations. The New Jersey gaming laws and regulations include
detailed provisions concerning, among other things, (i) the type, manner and
number of applications and licenses required to conduct casino gaming and
ancillary activities, (ii) the licensing, regulation and curricula of gaming
schools, (iii) the establishment of minimum standards of accounting and internal
control, including the issuance and enforceability of casino credit, (iv) the
manufacture, sale, distribution and possession of gaming equipment, (v) the
rules of the games, (vi) the exclusion of undesirable persons, (vii) the use,
regulation and reporting of junket activities, (viii) the possession, sale and
distribution of alcoholic beverages, (ix) the regulation and licensing of
suppliers to licensed casino operators, (x) the conduct of entertainment within
licensed casino facilities, (xi) equal employment opportunity for employees of
licensed casino operators, contractors for casino facilities and the like, (xii)
the payment of gross revenue taxes and similar fees and expenses, (xiii) the
conduct of casino simulcasting and (xiv) the imposition and discharge of casino
reinvestment development obligations. A number of these regulations require
practices which are different from those in many casinos elsewhere. As a
prerequisite to being licensed, a New Jersey casino/hotel facility must meet
certain facilities requirements concerning, among other things, the size and
number of guest rooms.
Caesars's casino gaming operations in Atlantic City, New Jersey are
conducted by Boardwalk Regency Corporation ("BRC"), which is a wholly owned
subsidiary of Caesars New Jersey, Inc. ("CNJ"), which, in turn, is a wholly
owned subsidiary of Caesars, which in turn, will be a wholly owned subsidiary of
ITT Sheraton (ITT Sheraton, Caesars, CNJ and BRC collectively referred to as the
"Caesars New Jersey Companies"). After the Distribution, ITT Sheraton will be a
wholly owned subsidiary of ITT Destinations. As a prerequisite to BRC holding a
license, ITT Destinations, ITT Sheraton, Caesars and CNJ have to be approved by
the New Jersey Commission due to their corporate relationship to BRC. Thus, any
debt or equity security holder of ITT Destinations, ITT Sheraton, Caesars or CNJ
will have to be found qualified. The qualification requirement of any debt or
equity security holder of ITT Destinations may be waived based on an express
finding by the New Jersey Commission, with the consent of the Director of the
New Jersey Division of Gaming Enforcement ("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 Destinations, ITT Sheraton, 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 Destinations, ITT Sheraton, Caesars, CNJ
or BRC, or (b) is an "institutional investor", as such term is defined in the
New Jersey Act and regulations; for purposes of the former, the New Jersey Act
presumes that any non-"institutional investor" security holder who owns or
beneficially holds 5% or more of the equity securities of ITT Destinations has
the ability to control ITT Destinations, ITT Sheraton, 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
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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 adviser
registered under the Investment Advisers 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 New Jersey DGE that there is any cause to believe that such
institutional investor may be found unqualified, upon application and for good
cause shown, an institutional investor holding either (a) less than 10% of the
equity securities of ITT Destinations or (b) ITT Destinations debt securities
constituting less than 20% of the outstanding debt of ITT Destinations and less
than 50% of the issue involved shall 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 had no intention of
influencing or affecting the affairs of ITT Destinations, ITT Sheraton, 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 Destinations.
If an institutional investor who has been granted a waiver subsequently
determines to influence or affect the affairs of ITT Destinations, the
institutional investor must provide to the New Jersey Commission not less than
30 days prior notice of such intent and the institutional investor must file
with the New Jersey Commission an application for qualification before taking
any action that may influence or affect the affairs of ITT Destinations.
Notwithstanding the foregoing, the institutional investor is permitted to vote
on matters put to the vote of the outstanding security holders of ITT
Destinations. If an institutional investor changes its investment intent, or if
the New Jersey Commission finds reasonable cause to believe that the
institutional investor may be found unqualified, no action other than
divestiture shall be taken by such institutional investor with respect to its
security holdings until there has been compliance with the interim casino
authorization provisions of the New Jersey Act, including the execution of a
trust agreement. ITT Destinations, ITT Sheraton, 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.
An equity or debt security holder -- including institutional
investors -- of ITT Destinations, ITT Sheraton, Caesars, CNJ or BRC who is
required to be found qualified by the New Jersey Commission must submit an
application for qualification within 30 days after being ordered to do so or
divest all security holdings within 120 days after the New Jersey Commission
determines such qualification is required. The application for qualification
must include a trust agreement by which the security holder places its interest
in ITT Destinations in trust with a trustee qualified by the New Jersey
Commission. If the security holder is ultimately found qualified, the trust
agreement is terminated. If the security holder is not found qualified or
withdraws its application for qualification prior to a determination on
qualification being made, the trustee will be empowered with all rights of
ownership pertaining to such security holder's ITT Destinations securities,
including all voting rights and the power to sell the securities; in any event,
the unqualified security holder will not be entitled to receive in exchange for
its ITT Destinations securities an amount in excess of the lower of (i) the
actual cost the security holder incurred in acquiring the securities or (ii) the
value of such securities calculated as if the investment had been made on the
date the trust became operative. By the same token, if the security holder is
not found qualified, it is unlawful for the security holder to (i) receive any
dividends or interest on such securities, (ii) exercise, directly or through any
trustee or nominee, any right conferred by such securities, or (iii) receive any
remuneration in any form from ITT Destinations, ITT Sheraton, Caesars, CNJ or
BRC for services rendered or otherwise.
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For a more detailed description of casino gaming regulations see "Business
of New ITT After the Distribution -- Governmental Regulation and Related
Matters -- Casino Gaming Regulation" in the Proxy.
RELATED PROVISIONS OF THE ITT DESTINATIONS AMENDED AND RESTATED ARTICLES OF
INCORPORATION
ITT Destinations' Amended and Restated Articles of Incorporation provide
that (i) all securities of ITT Destinations are subject to redemption by ITT
Destinations to the extent necessary to prevent the loss, or to secure the
reinstatement, of any casino gaming license held by ITT Destinations or any of
its subsidiaries in any jurisdiction within or without the United States of
America, (ii) all securities of ITT Destinations are held subject to the
condition that if a holder thereof is found by a gaming authority in any such
jurisdiction to be disqualified or unsuitable pursuant to any gaming law, such
holder will be required to dispose of all ITT Destinations securities held by
such holder, and (iii) it will be unlawful for any such disqualified person to
(A) receive payments of interest or dividends on any ITT Destinations
securities, (B) exercise, directly or indirectly, any rights conferred by any
ITT Destinations securities or (C) receive any remuneration in any form, for
services rendered or otherwise, from the subsidiary that holds the gaming
license in such jurisdiction.
PLAN OF DISTRIBUTION
ITT Destinations may sell the Securities (i) through underwriters or
dealers; (ii) directly to one or more purchasers; or (iii) through agents. The
Prospectus Supplement with respect to the Securities being offered thereby sets
forth the terms of the offering of such Securities, including the name or names
of any underwriters, the purchase price of such Securities and the proceeds to
ITT Destinations from such sale, any underwriting discounts and other items
constituting underwriters' compensation, any initial public offering price, any
discounts or concessions allowed or reallowed or paid to dealers, and any
securities exchange on which such Securities may be listed. Only underwriters so
named in the Prospectus Supplement are deemed to be underwriters in connection
with the Securities offered thereby.
If underwriters are used in the sale, the Securities will be acquired by
the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The
obligations of the underwriters to purchase such Securities will be subject to
certain conditions precedent, and the underwriters will be obligated to purchase
all the Securities of the series offered by the Prospectus Supplement if any of
such Securities are purchased. Any initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers may be changed
from time to time.
Securities may also be sold directly by ITT Destinations or through agents
designated by ITT Destinations from time to time. Any agent involved in the
offering and sale of the Securities in respect of which this Prospectus is
delivered is named, and any commissions payable by ITT Destinations to such
agent are set forth, in the Prospectus Supplement. Unless otherwise indicated in
the Prospectus Supplement, any such agent is acting on a best efforts basis for
the period of its appointment.
If so indicated in the Prospectus Supplement, ITT Destinations will
authorize agents, underwriters or dealers to solicit offers by certain
institutional investors to purchase Securities providing for payment and
delivery on a future date specified in the Prospectus Supplement. Institutional
investors to which such offers may be made, when authorized, include commercial
and savings banks, insurance companies, pension funds, investment companies,
education and charitable institutions and such other institutions as may be
approved by ITT Destinations. The obligations of any such purchasers pursuant to
such delayed delivery and payment arrangements will not be subject to any
conditions except that the purchase by an institution of the particular
Securities shall not at any time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject.
Underwriters will not have any responsibility in respect of the validity of such
arrangements or the performance of ITT Destinations or such institutional
investors thereunder.
Underwriters, dealers and agents that participate in the distribution of
the Securities may be deemed to be underwriters, and any discounts or
commissions received by them from ITT Destinations and any profit on the resale
of the Securities by them may be deemed to be underwriting discounts and
commissions, under the
18
65
Securities Act of 1933 (the "Act"). Under agreements which may be entered into
by ITT Destinations, underwriters, dealers and agents who participate in the
distribution of the Securities may be entitled to indemnification by ITT
Destinations and, under certain circumstances, by ITT, against certain civil
liabilities, including liabilities under the Act, or to contribution with
respect to payments which the underwriters, dealers or agents may be required to
make with respect thereof. Underwriters, dealers and agents may engage in
transactions with, or perform services for, ITT Destinations, ITT or their
respective subsidiaries in the ordinary course of their respective businesses.
LEGAL OPINIONS
The legality of the Securities and the Guarantees offered hereby will be
passed upon for ITT Destinations and ITT by Richard S. Ward, Esq., ITT's
Executive Vice President and General Counsel, or such other attorney of ITT
Destinations or ITT as ITT Destinations and ITT may designate, and for the
Underwriters by Cravath, Swaine & Moore, New York, NY, or such other counsel as
may be designated. Mr. Ward has an interest in certain securities of ITT.
Cravath, Swaine & Moore acts from time to time as legal counsel to ITT and ITT
Destinations on various matters, including the Distribution.
EXPERTS
The audited financial statements and schedules relating to ITT, ITT
Destinations and Caesars included or incorporated by reference in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated herein by reference in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
The financial statements relating to Ciga incorporated by reference in this
Prospectus and elsewhere in this Registration Statement have been audited by
Price Waterhouse (Milan, Italy), independent public accountants, as indicated in
their report with respect thereto, and are incorporated herein by reference in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
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NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED
IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY ITT DESTINATIONS, INC., ITT CORPORATION OR ANY UNDERWRITER. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF ITT DESTINATIONS, INC. OR ITT
CORPORATION SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
ARE NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
ITT Destinations..................... S-3
ITT Corporation...................... S-4
The Distribution..................... S-4
Use of Proceeds...................... S-4
Forecasted Capitalization............ S-4
Selected Financial and Operating
Data............................... S-6
Unaudited Pro Forma Combined Income
Statement.......................... S-7
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... S-9
Business of ITT Destinations......... S-12
Description of the Securities........ S-23
Underwriting......................... S-26
Legal Opinions....................... S-27
Index to Financial Statements and
Schedule........................... F-1
PROSPECTUS
Incorporation of Certain Documents by
Reference.......................... 2
Available Information................ 2
ITT Destinations..................... 3
ITT Corporation...................... 3
The Distribution..................... 3
Use of Proceeds...................... 4
ITT Destinations Ratio of Earnings to
Fixed Charges...................... 4
ITT Ratio of Earnings to Fixed
Charges............................ 4
Description of Debt Securities....... 5
Description of Warrants.............. 14
Casino Gaming Regulation............. 15
Plan of Distribution................. 18
Legal Opinions....................... 19
Experts.............................. 19
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$1,750,000,000
ITT DESTINATIONS, INC.
$700,000,000 6 1/4% NOTES DUE
NOVEMBER 15, 2000
$450,000,000 6 3/4% NOTES DUE
NOVEMBER 15, 2005
$450,000,000 7 3/8% DEBENTURES DUE
NOVEMBER 15, 2015
$150,000,000 7 3/4% DEBENTURES DUE
NOVEMBER 15, 2025
UNCONDITIONALLY GUARANTEED (WHICH GUARANTEES SHALL TERMINATE
UPON THE DISTRIBUTION) AS TO PAYMENT OF PRINCIPAL, PREMIUM,
IF ANY, AND INTEREST BY
ITT CORPORATION
-----------------------------------------------
PROSPECTUS SUPPLEMENT
-----------------------------------------------
BEAR, STEARNS & CO. INC.
GOLDMAN, SACHS & CO.
LAZARD FRERES & CO. LLC
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
SMITH BARNEY INC.
BT SECURITIES CORPORATION
CHEMICAL SECURITIES INC.
CITICORP SECURITIES, INC.
J.P. MORGAN SECURITIES INC.
DATED NOVEMBER 17, 1995
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