<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(e)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934)
------------------------
ITT CORPORATION
(NAME OF ISSUER)
ITT CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, NO PAR VALUE
(INCLUDING THE ASSOCIATED RIGHTS)
(TITLE OF CLASS OF SECURITIES)
450912 10 0
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
PATRICK L. DONNELLY, ESQ.
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND CORPORATE SECRETARY
ITT CORPORATION
1330 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-5490
(212) 258-1000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF THE PERSON(S) FILING STATEMENT)
COPY TO:
GEORGE W. BILICIC, JR., ESQ.
CRAVATH, SWAINE & MOORE
WORLDWIDE PLAZA
825 EIGHTH AVENUE
NEW YORK, NEW YORK 10019-7475
(212) 474-1000
------------------------
JULY 17, 1997
(DATE TENDER OFFER FIRST PUBLISHED,
SENT OR GIVEN TO SECURITY HOLDERS)
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
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TRANSACTION AMOUNT OF
VALUATION* FILING FEE
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<S> <C>
$2,100,000,000........................................................... $420,000
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</TABLE>
* For purposes of calculating the amount of the filing fee only. Based upon
$70.00 cash per share for 30,000,000 shares (and the associated rights).
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
<TABLE>
<S> <C>
Amount Previously Paid: N/A Filing Party: N/A
Form or Registration No: N/A Date Filed: N/A
</TABLE>
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<PAGE> 2
ITEM 1. SECURITY AND ISSUER.
(a) The issuer of the securities to which this statement relates is ITT
Corporation, a Nevada corporation (the "Company"), and the address of its
principal executive office is 1330 Avenue of the Americas, New York, New York
10019-5490.
(b) This Schedule 13E-4 relates to a tender offer by the Company to
purchase up to 30,000,000 shares of its Common Stock, no par value (the "Common
Stock"), together with the associated preferred share purchase rights (the
"Rights" and, together with the Common Stock, the "Shares"), issued pursuant to
the Rights Agreement dated as of November 1, 1995, between the Company and The
Bank of New York, as Rights Agent, at $70.00 per Share, net to the seller in
cash, upon the terms and subject to the conditions set forth in the Offer to
Purchase, dated July 17, 1997 (the "Offer to Purchase"), and in the related
Letter of Transmittal (which together constitute the "Offer"), copies of which
are filed as Exhibits (a)(1) and (a)(2), respectively. As of June 30, 1997,
there were 116,528,681 Shares issued and outstanding. In addition, as of such
date, 9,290,884 Shares were reserved for issuance pursuant to the exercise of
employee stock options pursuant to the Company's equity-based incentive plans.
The information set forth in the sections of the Offer to Purchase captioned
"Introduction," "Background and Purpose of the Offer," "The Tender Offer -- 1.
Terms of the Offer" and "The Tender Offer -- 9. Transactions and Arrangements
Concerning the Shares" is incorporated herein by reference.
(c) The information set forth in the sections of the Offer to Purchase
captioned "Introduction" and "The Tender Offer -- 6. Price Range of the Shares;
Dividends on the Shares" is incorporated herein by reference.
(d) This statement is being filed by the Company.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth in the section of the Offer to Purchase
captioned "The Tender Offer -- 8. Source and Amount of Funds" and "Background
and Purpose of the Offer -- Strategic Investment" is incorporated herein by
reference.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
The information set forth in the sections of the Offer to Purchase
captioned "Introduction," "Background and Purpose of the Offer," "The Tender
Offer -- 7. Certain Information Concerning the Company", "The Tender Offer -- 9.
Transactions and Arrangements Concerning the Shares," "The Tender Offer -- 10.
Certain Effects of the Offer," "The Tender Offer -- 8. Source and Amount of
Funds" and "The Tender Offer -- 6. Price Range of the Shares; Dividends on the
Shares" is incorporated herein by reference.
(a)-(j) The information set forth in the sections of the Offer to Purchase
captioned "Introduction," "Background and Purpose of the Offer," "The Tender
Offer -- 7. Certain Information Concerning the Company," "The Tender Offer -- 9.
Transactions and Arrangements Concerning the Shares," "The Tender Offer -- 10.
Certain Effects of the Offer," "The Tender Offer -- 8. Source and Amount of
Funds" and "The Tender Offer -- 6. Price Range of the Shares; Dividends on the
Shares" is incorporated herein by reference.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
The information set forth in the section of the Offer to Purchase captioned
"The Tender Offer -- 9. Transactions and Arrangements Concerning the Shares" is
incorporated herein by reference.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
The information set forth in the sections of the Offer to Purchase
captioned "Introduction," "Background and Purpose of the Offer," "The Tender
Offer -- 7. Certain Information Concerning the Company," "The Tender Offer -- 9.
Transactions and Arrangements Concerning the Shares" and "The Tender Offer -- 8.
Source and Amount of Funds" is incorporated herein by reference.
<PAGE> 3
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the sections of the Offer to Purchase
captioned "Introduction" and "The Tender Offer -- 13. Fees and Expenses" is
incorporated herein by reference.
ITEM 7. FINANCIAL INFORMATION.
(a)-(b) The information set forth in the section of the Offer to Purchase
captioned "The Tender Offer -- 7. Certain Information Concerning the Company"
and all the information set forth in Annex A and Annex B of the Offer to
Purchase are incorporated herein by reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) The information set forth in the sections of the Offer to Purchase
captioned "Introduction" and "Background and Purpose of the Offer" is
incorporated herein by reference.
(b) The information set forth in the section of the Offer to Purchase
captioned "The Tender Offer -- 12. Certain Legal Matters; Regulatory Approvals"
is incorporated herein by reference.
(c) The information set forth in the section of the Offer to Purchase
captioned "The Tender Offer -- 10. Certain Effects of the Offer" is incorporated
herein by reference.
(d) The information set forth in the sections of the Offer to Purchase
captioned "Introduction" and "Background and Purpose of the Offer" is
incorporated herein by reference.
(e) Reference is hereby made to the Offer to Purchase and the related
Letter of Transmittal which are attached hereto as Exhibits (a)(1) and (a)(2),
respectively, and incorporated in their entirety herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C> <C>
(a)(1) -- Offer to Purchase, dated July 17, 1997.
(a)(2) -- Letter of Transmittal.
(a)(3) -- Letter to the Company's Stockholders from Rand V. Araskog, Chairman and
Chief Executive of the Company, dated July 16, 1997.
(a)(4) -- Notice of Guaranteed Delivery.
(a)(5) -- Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees.
(a)(6) -- Letter to Clients for Use by Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(a)(7) -- Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(8) -- Form of Summary Advertisement dated July 17, 1997.
(a)(9) -- Press Release issued by the Company on July 16, 1997.
(a)(10) -- Form Letter to Participants in the ITT 401(k) Retirement Savings Plan
("401(k) Plan").
(a)(11) -- Amendment No. 20 to the Company's Solicitation/Recommendation Statement
on Schedule 140-9 filed with the Securities and Exchange Commission on
July 16, 1997 (incorporated by reference to such statement).
(b)(1) -- Letter from The Chase Manhattan Bank and Chase Securities Inc. to the
Company, dated July 15, 1997.
(c) -- Not applicable.
(d) -- Not applicable.
(e) -- Not applicable.
(f) -- Not applicable.
</TABLE>
2
<PAGE> 4
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: July 17, 1997
ITT CORPORATION
By: /s/ PATRICK L. DONNELLY
------------------------------------
Name: Patrick L. Donnelly
Title: Vice President and
Assistant General Counsel
3
<PAGE> 5
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- - ----------- --------------------------------------------------------------------------------
<S> <C> <C>
(a)(1) -- Offer to Purchase, dated July 17, 1997.
(a)(2) -- Letter of Transmittal.
(a)(3) -- Letter to the Company's Stockholders from Rand V. Araskog, Chairman and Chief
Executive of the Company, July 16, 1997.
(a)(4) -- Notice of Guaranteed Delivery.
(a)(5) -- Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees.
(a)(6) -- Letter to Clients for Use by Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees.
(a)(7) -- Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9.
(a)(8) -- Form of Summary Advertisement dated July 17, 1997.
(a)(9) -- Press Release issued by the Company on July 16, 1997.
(a)(10) -- Form Letter to Participants in the ITT 401(k) Retirement Savings Plan ("401(k)
Plan")
(a)(11) -- Amendment No. 20 to the Company's Solicitation/Recommendation Statement on
Schedule 140-9 filed with the Securities and Exchange Commission on July 16,
1997 (incorporated by reference to such statement).
(b)(1) -- Letter from The Chase Manhattan Bank and Chase Securities, Inc. to the Company,
dated July 15, 1997.
(c) -- Not applicable.
(d) -- Not applicable.
(e) -- Not applicable.
(f) -- Not applicable.
</TABLE>
<PAGE> 1
EXHIBIT (A)(1)
OFFER TO PURCHASE FOR CASH
BY
ITT CORPORATION
UP TO 30,000,000 SHARES OF ITS COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
AT
$70.00 NET PER SHARE
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON WEDNESDAY, AUGUST 13, 1997, UNLESS THE OFFER IS EXTENDED.
THE COMPANY EXPECTS (ALTHOUGH IT IS NOT OBLIGATED) TO EXTEND THE OFFER, SUBJECT
TO THE OTHER TERMS AND CONDITIONS THEREOF, UNTIL SUCH TIME AS ALL REQUIRED
APPROVALS FOR THE OFFER AND THE DESTINATIONS DISTRIBUTION (AS DEFINED HEREIN)
ARE OBTAINED.
ITT Corporation, a Nevada corporation (the "Company"), is offering to
purchase up to 30,000,000 shares of its Common Stock, no par value (the "Common
Stock"), together with the associated preferred share purchase rights (the
"Rights" and, together with the Common Stock, the "Shares") issued pursuant to
the Rights Agreement, dated as of November 1, 1995, between the Company and The
Bank of New York, at $70.00 per Share, net to the seller in cash, upon the terms
and subject to the conditions set forth in this Offer to Purchase and in the
related Letter of Transmittal (which together constitute the "Offer").
------------------------
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS INCLUDING
RECEIPT OF FINANCING ON ACCEPTABLE TERMS, SATISFACTION OF ALL CONDITIONS TO
CONSUMMATION OF THE DESTINATIONS DISTRIBUTION (OTHER THAN IN RESPECT OF THE
OFFER) AND THE COMPANY BEING SATISFIED, IN ITS REASONABLE DISCRETION, THAT THERE
EXISTS NO SIGNIFICANT IMPEDIMENT, OR MATERIAL LIKELIHOOD OF A SIGNIFICANT
IMPEDIMENT, TO THE TIMELY CONSUMMATION OF THE DESTINATIONS DISTRIBUTION ON
SUBSTANTIALLY THE TERMS DESCRIBED HEREIN. SEE SECTION 11 UNDER "THE TENDER
OFFER." THE COMPANY INTENDS TO TERMINATE THE OFFER IF HILTON HOTELS CORPORATION
("HILTON") OR ANY AFFILIATE OF HILTON ACQUIRES A MATERIAL NUMBER OF SHARES
PURSUANT TO THE HILTON OFFER (AS DEFINED HEREIN) OR OTHERWISE OR IF ANY OF THE
HILTON NOMINEES (AS DEFINED HEREIN) ARE ELECTED TO THE BOARD OF DIRECTORS OF THE
COMPANY.
------------------------
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION AS
TO WHETHER ANY STOCKHOLDER SHOULD TENDER ANY OR ALL OF SUCH STOCKHOLDER'S SHARES
PURSUANT TO THE OFFER. EACH STOCKHOLDER MUST MAKE ITS OWN DECISION WHETHER TO
TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER.
THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS DIRECTORS OR EXECUTIVE
OFFICERS INTENDS TO TENDER ANY SHARES PURSUANT TO THE OFFER. SEE "INTRODUCTION."
The Offer is an element of the Comprehensive Plan (as defined herein)
approved by the Board of Directors of the Company. The Comprehensive Plan is
intended to enhance the value of the ongoing investment of stockholders as well
as to further the interests of the Company's employees, creditors, customers and
the economies and communities in which the Company operates. Another major
element of the Comprehensive Plan involves the separation of the Company into
three distinct publicly owned companies by means of (i) the pro rata
distribution to the Company's stockholders of all the shares of ITT
Destinations, Inc. ("Destinations"), a newly formed subsidiary of the Company
that will hold the Company's hotels and gaming business, and (ii) the pro rata
distribution to the Company's stockholders of all the shares owned by the
Company of ITT Educational Services, Inc. ("ITT Educational"), the subsidiary of
the Company that operates its post-secondary technical education business. After
these distributions, the Company's only business will be its telephone
directories publishing business and it is expected that the Company will be
renamed "ITT Information Services, Inc." ("ITT ISI"). A third element of the
Comprehensive Plan is the allocation of the Company's indebtedness between
Destinations and ITT ISI in a manner that is appropriate for the credit capacity
and capitalization requirements of each entity. The Company's preferred means of
making this allocation is to replace the Company's existing indebtedness with
indebtedness issued by the entity that will ultimately be liable for such
indebtedness. Accordingly, the Company intends to commence a tender offer for
all the publicly held debt securities of ITT Corporation (the "Debt Tender
Offer") and to repay certain other indebtedness. In order to finance the Debt
Tender Offer and the repayment of a portion of such other indebtedness, the
Company will use cash received from Destinations in part as a dividend and in
part as consideration for certain assets contributed to Destinations by the
Company (the "First Payment"). In order to finance the Offer and a portion of
such other indebtedness, the Company will use a combination of available cash,
the proceeds of borrowings under a bank credit facility and the issuance of debt
securities by ITT ISI and the subsidiaries it will have after the Distributions
and the proceeds of a cash dividend from Destinations (the "Second Payment").
The First and Second Payments will be financed with borrowings under a bank
credit facility by Destinations. The Offer is not conditioned upon the
repurchase of any minimum amount of debt securities in the Debt Tender Offer.
------------------------
The Dealer Managers for the Offer are:
<TABLE>
<S> <C>
GOLDMAN, SACHS & CO. LAZARD FRERES & CO. LLC
85 Broad Street 30 Rockefeller Plaza
New York, New York 10004 New York, New York 10020
(800) 323-5678 (212) 632-6717
</TABLE>
July 17, 1997
<PAGE> 2
The Company currently operates three distinct businesses with different
characteristics, competitive environments and growth prospects. Separating the
Company's businesses and allowing them to operate independently is expected to
result in, among other things, increased strategic focus, a flattening of
organizational structures, the implementation of narrowly-tailored incentive
compensation plans and enhanced public market understanding and valuations of
these businesses. In approving the Comprehensive Plan, the Board also took
account of the tax-free nature of spin-offs and the Company's prior positive
experience with such transactions. The Company as an independent entity can
consummate such a tax-free spin-off; an acquiror (whether by purchase or merger)
in a transaction that is taxable in whole or in part (including the acquisition
of the Company proposed by Hilton) would be unable to undertake a tax-free
distribution of Company assets for a period of five years. Compared to a taxable
sale of the Company's telephone directories publishing business and
post-secondary technical education business, the Distributions will save the
Company in excess of $500 million in U.S. Federal income taxes. Further, the
tax-free nature of transactions such as the Distributions is under increasing
scrutiny in the Congress. Accordingly, it is possible that in the future
legislation will be passed that might eliminate or restrict the ability of the
Company to undertake the Distributions on a tax-free basis. The purpose of the
Offer is to return to the Company's stockholders the after-tax proceeds from
recent asset sales by the Company and the proceeds of the Company's borrowing
capacity. The Offer provides to stockholders who wish to sell a portion of their
Shares an opportunity to do so at a premium to recent market prices and provides
stockholders who wish to increase their proportionate investment in ITT ISI,
Destinations and ITT Educational, and thus in the future earnings and assets of
ITT ISI, Destinations and ITT Educational, an opportunity to do so. The Offer
will also afford to stockholders the opportunity to dispose of Shares without
the usual transaction costs associated with a market sale. See "Background and
Purpose of the Offer." STOCKHOLDERS WHOSE SHARES ARE ACCEPTED FOR PAYMENT AND
PAID FOR IN THE OFFER WILL NOT PARTICIPATE IN THE DISTRIBUTIONS WITH RESPECT TO
SUCH SHARES.
The Board believes that the business justifications for the Comprehensive
Plan, including a significant repurchase of Shares by the Company, are
compelling without regard to the Hilton Offer and intends to pursue the plan
even if Hilton withdraws its interest in acquiring the Company. However, in
reviewing the Comprehensive Plan, the Board took account of the possibility that
the transactions contemplated by the Comprehensive Plan, including the Offer,
could adversely affect the Hilton Offer. See "Background and Purpose of the
Offer -- Purpose of the Offer."
The Shares are listed and principally traded on the New York Stock Exchange,
Inc. (the "NYSE"). On January 24, 1997, the last trading day before the
announcement by Hilton that it intended to commence its tender offer for Shares,
the closing sales price of the Shares as reported on the NYSE Composite Tape was
$43.750 per Share. On July 15, 1997, the last trading day before the Company
announced its intention to commence the Offer, the closing sales price of the
Shares as reported on the NYSE Composite Tape was $62.625 per Share. On July 16,
1997, the last trading day before the Company commenced the Offer, the closing
sales price of the Shares as reported on the NYSE Composite Tape was $66.9375
per Share. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE
SHARES.
------------------------
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
Shares should either (1) complete and sign the Letter of Transmittal or a
facsimile copy thereof in accordance with the instructions in the Letter of
Transmittal, have such stockholder's signature thereon guaranteed if required by
Instruction 1 to the Letter of Transmittal, mail or deliver the Letter of
Transmittal or such facsimile and any other required documents to the Depositary
and either deliver the certificate(s) for such Shares to the Depositary along
with the Letter of Transmittal or facsimile or deliver such Shares pursuant to
the procedure for book-entry transfer set forth in Section 2 under "The Tender
Offer" or (2) request such stockholder's broker, dealer, bank, trust company or
other nominee to effect the transaction for such stockholder. A stockholder
having Shares registered in the name of a broker, dealer, bank, trust company or
other nominee must contact such broker, dealer, bank, trust company or other
nominee if such stockholder desires to tender such Shares.
A stockholder who desires to tender Shares and whose certificates for such
Shares are not immediately available or who cannot comply in a timely manner
with the procedure for book-entry transfer, or who cannot deliver all required
documents to the Depositary prior to the expiration of the Offer, may tender
such Shares by following the procedure for guaranteed delivery set forth in
Section 2 under "The Tender Offer."
Questions and requests for assistance or for additional copies of this Offer
to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may
be directed to the Information Agent or to the Dealer Managers at their
respective addresses and telephone numbers set forth on the back cover of this
Offer to Purchase.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE
COMPANY AS TO WHETHER STOCKHOLDERS SHOULD TENDER OR REFRAIN FROM TENDERING
SHARES PURSUANT TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER
THAN THOSE CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL.
IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Introduction.......................................................................... 1
Background and Purpose of the Offer................................................... 3
Comprehensive Plan.................................................................. 3
Continued Refinement of Strategic Plan.............................................. 5
Strategic Investment................................................................ 6
The Hilton Transaction.............................................................. 6
Position of the Company on the Hilton Transaction................................... 8
Purpose of the Offer................................................................ 8
Certain Litigation Relating to the Hilton Transaction............................... 9
The Rights.......................................................................... 11
The Tender Offer...................................................................... 12
1. Terms of the Offer................................................................ 12
2. Procedure for Tendering Shares and Rights......................................... 13
3. Withdrawal Rights................................................................. 16
4. Acceptance for Payment and Payment................................................ 17
5. Certain Federal Income Tax Consequences........................................... 18
6. Price Range of the Shares; Dividends on the Shares................................ 20
7. Certain Information Concerning the Company........................................ 20
8. Source and Amount of Funds........................................................ 29
9. Transactions and Arrangements Concerning the Shares............................... 30
10. Certain Effects of the Offer...................................................... 30
11. Certain Conditions of the Offer................................................... 31
12. Certain Legal Matters; Regulatory Approvals....................................... 34
13. Fees and Expenses................................................................. 42
14. Miscellaneous..................................................................... 43
Index to ITT Destinations, Inc. Consolidated Financial Statements and Schedule........ A-1
Index to ITT Corporation Consolidated Financial Statements and Schedule............... B-1
</TABLE>
<PAGE> 4
TO THE HOLDERS OF COMMON STOCK (INCLUDING THE
ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
OF ITT CORPORATION:
INTRODUCTION
ITT Corporation, a Nevada corporation (the "Company"), hereby offers to
purchase up to 30,000,000 shares of its Common Stock, no par value (the "Common
Stock"), together with the associated preferred share purchase rights (the
"Rights" and, together with the Common Stock, the "Shares") issued pursuant to
the Rights Agreement dated as of November 1, 1995 (the "Rights Agreement"),
between the Company and The Bank of New York, as Rights Agent, at a price of
$70.00 per Share, net to the seller in cash, without interest thereon (the
"Offer Price"), upon the terms and subject to the conditions set forth in this
Offer to Purchase and in the related Letter of Transmittal (which, together with
any amendments or supplements hereto or thereto, collectively constitute the
"Offer").
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION AS
TO WHETHER ANY STOCKHOLDER SHOULD TENDER ANY OR ALL OF SUCH STOCKHOLDER'S SHARES
PURSUANT TO THE OFFER. EACH STOCKHOLDER MUST MAKE ITS OWN DECISION WHETHER TO
TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS INCLUDING
RECEIPT OF FINANCING ON ACCEPTABLE TERMS, SATISFACTION OF ALL CONDITIONS TO
CONSUMMATION OF THE DESTINATIONS DISTRIBUTION (AS DEFINED HEREIN) (OTHER THAN IN
RESPECT OF THE OFFER) AND THE COMPANY BEING SATISFIED, IN ITS REASONABLE
DISCRETION, THAT THERE EXISTS NO SIGNIFICANT IMPEDIMENT, OR MATERIAL LIKELIHOOD
OF A SIGNIFICANT IMPEDIMENT, TO THE TIMELY CONSUMMATION OF THE DESTINATIONS
DISTRIBUTION ON SUBSTANTIALLY THE TERMS DESCRIBED HEREIN. SEE SECTION 11 UNDER
"THE TENDER OFFER." THE COMPANY INTENDS TO TERMINATE THE OFFER IF HILTON HOTELS
CORPORATION ("HILTON") OR ANY AFFILIATE OF HILTON ACQUIRES A MATERIAL NUMBER OF
SHARES PURSUANT TO THE HILTON OFFER (AS DEFINED HEREIN) OR OTHERWISE OR IF ANY
OF THE HILTON NOMINEES (AS DEFINED HEREIN) ARE ELECTED TO THE BOARD OF DIRECTORS
OF THE COMPANY.
THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS DIRECTORS OR EXECUTIVE
OFFICERS INTENDS TO TENDER ANY SHARES PURSUANT TO THE OFFER.
As of June 30, 1997, the Company had issued and outstanding 116,528,681
Shares. In addition, as of such date, 9,290,884 Shares were reserved for
issuance pursuant to the exercise of employee stock options (the "Options")
pursuant to the Company's equity-based incentive plans. The 30,000,000 Shares
that the Company is offering to purchase represent approximately 25.7% of the
Shares outstanding as of June 30, 1997. The Company is not offering to purchase
any of the Options. Holders of Options who wish to participate in the Offer must
first exercise such Options in accordance with the terms and provisions thereof.
If, before the Expiration Date (as defined in Section 1 under "The Tender
Offer"), more than 30,000,000 Shares are properly tendered and not withdrawn,
the Company will buy Shares on a pro rata basis from all stockholders who
properly tender Shares. See Section 1 under "The Tender Offer." The Company will
return all Shares not purchased pursuant to the Offer, including Shares not
purchased because of proration.
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. The
Company will pay all fees and expenses of Goldman, Sachs & Co. ("Goldman") and
Lazard Freres & Co. LLC ("Lazard"), which are acting as Dealer Managers (the
"Dealer Managers"), Citibank, N.A., which is acting as the Depositary (the
"Depositary"), and Georgeson & Company Inc., which is acting as
<PAGE> 5
Information Agent (the "Information Agent"), incurred in connection with the
Offer. See Section 13 under "The Tender Offer."
On January 31, 1997, HLT Corporation ("HLT"), a wholly owned subsidiary of
Hilton, commenced a tender offer (the "Hilton Offer") to purchase 61,145,475
Shares, approximately 50.1% of the outstanding Shares, at a purchase price of
$55 per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth in HLT's Offer to Purchase dated January 31, 1997 (the
"Hilton Offer to Purchase"). According to the Hilton Offer to Purchase, if the
Hilton Offer succeeds, Hilton intends to consummate a merger (the "Proposed
Squeeze Out Merger" and, together with the Hilton Offer, the "Hilton
Transaction") pursuant to which all Shares not tendered and purchased pursuant
to the Hilton Offer (other than Shares owned by Hilton and its subsidiaries or
held in the Company's treasury) would be converted into the right to receive a
number of shares of Hilton common stock, par value $2.50 per share ("Hilton
Common Stock"), having a nominal value of $55 per Share, subject to unspecified
collar provisions. If Hilton were to acquire control of the Company, pursuant to
the Hilton Offer or otherwise, it is possible that Hilton might thereafter seek
to cause the Company to terminate the Offer and abandon the Comprehensive Plan
(as defined herein). The Hilton Offer is subject to a number of conditions,
including (i) that the number of Shares tendered and not withdrawn before the
expiration date of the Hilton Offer, together with Shares owned by HLT and its
affiliates as of such time, represent a majority of the Shares outstanding on a
fully diluted basis, (ii) that the Rights have been redeemed by the Company's
Board of Directors, or HLT is satisfied that the Rights have been invalidated or
are otherwise inapplicable to the Hilton Offer and the Proposed Squeeze Out
Merger, (iii) that HLT is satisfied that Sections 78.378 to 78.3793 (the "Nevada
Control Share Acquisition Statute") of Chapter 78, Private Corporations, of the
Nevada Revised Statutes (the "NGCL") shall be inapplicable to the Hilton Offer
and the Proposed Squeeze Out Merger, (iv) that HLT is satisfied that Sections
78.411 to 78.444 of the NGCL (the "Nevada Business Combination Statute") shall
be inapplicable to the Hilton Offer and Proposed Squeeze Out Merger and (v) that
HLT is satisfied that all material consents, approvals, orders or authorizations
of, or registrations, declarations or filings with, any governmental authority
with jurisdiction in respect of the Company's active gaming operations required
or necessary in connection with the Hilton Offer, the Proposed Squeeze Out
Merger and the transactions contemplated thereunder have been obtained and are
in full force and effect. Any Shares tendered by stockholders of the Company
pursuant to the Hilton Offer may be withdrawn by the tendering stockholders at
any time prior to the expiration of the Hilton Offer, which is presently
scheduled for Friday, August 1, 1997. See "Background and Purpose of the
Offer -- The Hilton Transaction" below.
At a meeting held on July 15, 1997, the Board of Directors of the Company
(the "Board") reassessed the Hilton Transaction in light of developments since
February 11, including the Comprehensive Plan described below, and unanimously
reaffirmed its conclusion, originally reached on February 11, 1997, that the
Hilton Transaction, including the Hilton Offer, is inadequate and not in the
best interests of the Company. Accordingly, the Board continues to recommend
unanimously that the stockholders of the Company reject the Hilton Transaction
and not tender their Shares pursuant to the Hilton Offer or take any other
action to facilitate the Hilton Offer. The Board also reaffirmed its
determination, also reached at its February 11 meeting, that, in light of the
prospects of each of the Company's businesses, the attractiveness of the
Distributions (as defined herein) and the other elements of the Comprehensive
Plan and certain other factors, the Company's and its stockholders' interests
would be best served if the Company (and particularly the core businesses of the
Company) were to remain independent and pursue the Comprehensive Plan. The
Company has filed with the Securities and Exchange Commission (the "Commission")
a Solicitation/Recommendation Statement on Schedule 14D-9 and amendments thereto
setting forth the Board's recommendation with respect to the Hilton Transaction
(the "Company Schedule 14D-9").
As further described below, at the July 15, 1997 meeting, the Board also
approved the Comprehensive Plan, which is designed to enhance the value of the
ongoing investment of stockholders as well as further the interests of the
Company's employees, creditors, customers and the economies and communities in
which the Company operates. The Board believes that the business justifications
for the Comprehensive Plan, including a significant repurchase of Shares by the
Company, are compelling without regard to the Hilton Offer and intends to pursue
the plan even if Hilton withdraws its interest in acquiring the Company.
However, in
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reviewing the Comprehensive Plan, the Board took account of the possibility that
the transactions contemplated by the Comprehensive Plan could adversely affect
the Hilton Offer.
The purpose of the Offer is to return to the Company's stockholders the
after-tax proceeds from recent asset sales by the Company and the proceeds of a
portion of the Company's borrowing capacity. The Offer provides to stockholders
who wish to sell a portion of their Shares an opportunity to do so at a premium
to recent market prices and provides stockholders who wish to increase their
proportionate investment in the three companies to be formed by the
Distributions, and thus in the future earnings and assets of such companies, an
opportunity to do so. The Offer will also afford to stockholders the opportunity
to dispose of Shares without the usual transaction costs associated with a
market sale.
The Shares are listed and principally traded on the New York Stock
Exchange, Inc. (the "NYSE"). On January 24, 1997, the last trading day before
the announcement of the Hilton Offer, the closing sales price of the Shares as
reported on the NYSE Composite Tape was $43.750 per Share. On July 15, 1997, the
last trading day before the Company announced the Comprehensive Plan, the
closing sales price of the Shares as reported on the NYSE Composite Tape was
$62.625 per Share. On July 16, 1997, the last trading day before the Company
commenced the Offer, the closing sales price of the Shares as reported on the
NYSE Composite Tape was $66.9375 per Share. See Section 6 under "The Tender
Offer." STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE
SHARES.
Certain Federal income tax consequences of the sale of Shares pursuant to
the Offer are described in Section 5 under "The Tender Offer."
Certain conditions to the Offer are described in Section 11 under "The
Tender Offer." The Company reserves the right (but shall not be obligated) to
waive any or all such conditions, other than those that are legally mandated.
The Company expects (although it is not obligated) to extend the Offer, subject
to the other terms and conditions hereof, until such time as all required
approvals for the Offer and the Destinations Distribution are obtained. See
Sections 1, 11 and 12 under "The Tender Offer."
BACKGROUND AND PURPOSE OF THE OFFER
COMPREHENSIVE PLAN
At its July 15, 1997 meeting, the Board of Directors of the Company
continued its implementation of the Company's long-term strategic plan by
approving a comprehensive plan (the "Comprehensive Plan"). The major elements of
the Comprehensive Plan are:
(i) the Offer;
(ii) the pro rata distribution to stockholders of the Company of all
the shares of ITT Destinations, Inc. ("Destinations"), a new subsidiary
that was formed to hold the Company's hotels and gaming business (the
"Destinations Distribution");
(iii) the pro rata distribution to stockholders of the Company of all
the shares owned by the Company of ITT Educational Services, Inc. ("ITT
Educational"), the subsidiary that operates the Company's post-secondary
technical education business (the "ITT Educational Distribution" and,
together with the Destinations Distribution, the "Distributions"); and
(iv) the allocation of the Company's indebtedness between its hotels
and gaming business and telephone directories publishing business in a
manner that is appropriate for the credit capacity and capitalization
requirements of each entity.
Stockholders will not be required to surrender their Shares in connection
with the Distributions. Following the Distributions, the Company's only direct
subsidiary will be ITT World Directories, Inc. ("ITT World Directories"), the
subsidiary that operates the Company's telephone directories publishing business
and it is expected that the Company will change its name to "ITT Information
Services, Inc." ("ITT ISI"). The Company will mail to stockholders of record as
of the respective record dates relating to each of the
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Distributions an information statement containing more detailed information
about the Destinations Distribution and a separate information statement
containing more detailed information about the ITT Educational Distribution.
The Company's preferred means of making the allocation of its indebtedness
is to replace the Company's existing indebtedness with indebtedness issued by
the entity that ultimately will be liable for such indebtedness. Accordingly, as
part of the Comprehensive Plan, the Company plans to commence a tender offer for
all the publicly held debt securities of ITT Corporation (the "Debt Tender
Offer") and to repay certain other indebtedness. The Offer is not conditioned
upon the repurchase of any minimum amount of indebtedness in the Debt Tender
Offer. In order to finance the Debt Tender Offer and the repayment of a portion
of such other indebtedness, the Company will use cash received from Destinations
in part as a dividend and in part as consideration for certain assets
contributed to Destinations prior to the Distributions (the "First Payment"). In
order to finance the Offer and a portion of such other indebtedness, the Company
will use a combination of available cash, the proceeds of borrowings under a
bank credit facility and the issuance of debt securities by ITT ISI and the
subsidiaries it will have after the Distributions and the proceeds of a cash
dividend from Destinations (the "Second Payment"). Destinations will finance the
First and the Second Payment with borrowings under its own bank credit facility.
The Company has received a letter from The Chase Manhattan Bank and Chase
Securities Inc. stating that they are highly confident that they will be able to
arrange these borrowings for Destinations and ITT ISI in amounts sufficient to
consummate the Offer and the other elements of the Comprehensive Plan. See
Section 8 under the "Tender Offer."
The Comprehensive Plan is intended to enhance the value of the ongoing
investment of stockholders as well as further the interests of the Company's
employees, creditors, customers, and the economies and communities in which the
Company operates. The Company currently operates three distinct businesses with
different characteristics, competitive environments and growth prospects.
Separating the Company's businesses and allowing them to operate independently
is expected to result in, among other things, increased strategic focus, a
flattening of organizational structures, the implementation of narrowly-tailored
incentive compensation plans and enhanced public market understanding and
valuations of these businesses. The Board also took account of the tax-free
nature of spin-offs and the Company's prior positive experience with such
transactions. The Company as an independent entity can consummate such a
tax-free spin-off; an acquiror (whether by purchase or merger) in a transaction
that is taxable in whole or in part (including the Hilton Transaction) would be
unable to undertake a tax-free distribution of Company assets for a period of
five years. Compared to a taxable sale of the Company's telephone directories
publishing business and post-secondary technical education business, the
Distributions will save the Company in excess of $500 million in U.S. Federal
income taxes. Further, the tax-free nature of transactions such as the
Distributions is under increasing scrutiny in the Congress. Accordingly, it is
possible that in the future legislation will be passed that might eliminate or
restrict the ability of the Company to undertake the Distributions on a tax-free
basis. Additionally, the Comprehensive Plan is expected to provide significant
benefits to other constituents of the Company, relative both to the Hilton
Transaction and the Company's existing structure.
The Board's reasons for adopting the Comprehensive Plan are set forth in
more detail in amendment No. 20 to the Company Schedule 14D-9 which has been
filed with the Commission and mailed to the Company's stockholders.
The Board expects to adopt governance provisions for Destinations that are
designed to achieve the objectives of fostering management continuity needed to
implement Destinations' strategic plan, deterring abusive takeover tactics and,
if necessary, maximizing Destinations' leverage in the face of a hostile offer
and thereby protecting the interests of Destinations' stockholders and other
constituencies. These mechanisms fall into three categories: (i) provisions of
Nevada corporate law, (ii) a stockholders rights plan and (iii) provisions of
Destinations' Articles of Incorporation and By-laws. Destinations, like the
Company, will be a Nevada corporation and accordingly will be subject to the
NGCL, certain provisions of which are designed to mitigate potentially abusive
takeover tactics. Stockholders of Destinations will also benefit from a
stockholders rights plan. Other than with respect to the economic terms of the
rights, the terms of Destinations' rights plan will be substantially identical
to the terms of the Company's existing Rights Agreement.
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In addition, certain provisions that will be contained in Destinations'
Articles of Incorporation and By-laws may provide the Destinations board with
more negotiating leverage by delaying or making more difficult unsolicited
acquisitions or changes of control of Destinations. These provisions include (i)
the availability of capital stock for issuance from time to time at the
discretion of the Destinations board, (ii) the classification of the
Destinations board into three classes, each of which will serve for three years,
(iii) prohibitions against stockholders calling a special meeting of
stockholders or acting by written consent in lieu of a meeting, (iv)
requirements for advance notice for raising business or making nominations at
stockholders' meetings and (v) the requirement of a super-majority vote to
remove directors with or without cause.
These provisions, and the Board's consideration of them, are described in
more detail in the Company Schedule 14D-9.
CONTINUED REFINEMENT OF STRATEGIC PLAN
The Comprehensive Plan is another step in the Company's refinement of its
strategic plan to focus on hotels and gaming and explore and exploit
opportunities to enhance the value of the Company within that focus. This
initiative already has resulted in the sale of certain of the Company's assets,
a continued focus on cost containment, continued efforts to grow the hotels and
gaming business and the pursuit of transactions that are expected to enhance the
profitability, return on assets or cash flows of that business.
SALE OF ASSETS. As part of its focus on its core business, the Company
sold its interest in Alcatel Alsthom, sold a 39.8% interest in Madison Square
Garden and contracted through "put" and "call" options to sell its remaining
10.2% interest at guaranteed amounts and, with its partner, Dow Jones & Company,
Inc., entered into an agreement to sell television station WBIS+. The closing of
the sale of the Company's interest in WBIS+ is subject to regulatory approval,
and is expected to occur in the fourth quarter of 1997.
COST CONTAINMENT. The Company plans to continue to focus on cost
containment opportunities in its hotels and gaming business. As part of this
program, the Company implemented a significant restructuring of its World
Headquarters operations (for which it recognized a one-time, pre-tax charge of
$58 million), reducing headcount by 65% and annual expenses by at least $20
million. These cost savings were achieved even while providing for affected
employees' enhanced severance payments, enhanced pension payments and placement
services. As a more narrowly focused entity, the Company plans to continue to
reduce costs and complete its evolutionary process by eliminating the vestiges
of its former conglomerate parent. Specifically, the Company plans to focus on
reducing overhead costs at both its hotels and gaming headquarters as well as
operations. Management of the Company believes that these efforts, which are
currently underway, will result in approximately $10 to $15 million in
additional overhead savings during 1998.
GROWTH OF THE HOTELS AND GAMING BUSINESS. Within the parameters of the
strategic plan, the Company is actively pursuing opportunities to grow its
hotels and gaming business. Since January 1, 1997, the Company has acquired
three hotels and signed or acquired 55 franchise agreements and management
contracts in 15 different countries, totaling more than 15,000 rooms. The
Company will continue to purchase hotels and interests in hotels, add new
franchises and seek out additional management opportunities throughout the
world. Such efforts will depend upon individual market conditions and factors
affecting the hotel industry generally.
ENHANCED PROFITABILITY, RETURN ON ASSETS AND CASH FLOWS. The Company
believes transactions involving hotel or gaming properties that enhance the
profitability, return on assets or cash flows of its hotels and gaming
operations further the goal of strengthening the Company's core business. These
transactions may include, among other things, joint ventures to develop,
purchase or operate properties and conversions of owned properties to managed
properties. For example, the Company recently entered into a long-term strategic
alliance with FelCor Suite Hotels, Inc. ("FelCor"), pursuant to which FelCor
acquired five of the Company's hotel properties and the Company retained
long-term contracts to manage such hotels. As part of this strategic alliance,
the Company expects to provide its expertise in the hotel business by making
available the "Sheraton" hotel brand through long-term management agreements.
Similarly, FelCor expects that it will provide its hotel expertise and hotel
asset management skills by making available substantially all the capital
necessary to acquire certain existing Sheraton brand hotels and hotels that may
be converted to Sheraton
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brand hotels. The Company is holding The Desert Inn Resort & Casino in Las
Vegas, Nevada, and The Sheraton Casino in Tunica, Mississippi, for sale and also
is conducting detailed reviews of its options with regard to its ownership
interest in Ciga S.p.A. ("Ciga") and certain luxury and other hotels, taking
into account the best interests of its stockholders and the Company.
STRATEGIC INVESTMENT
At the July 15, 1997 meeting, the Board approved a definitive agreement for
a substantial minority investment in ITT ISI, which will hold the telephone
directories publishing business following the Distributions, by an entity
affiliated with Clayton, Dubilier & Rice, Inc. ("CD&R"). Following the
Distributions, a CD&R affiliate will purchase approximately 32.9% of the
outstanding common stock of ITT ISI and warrants to purchase shares representing
an additional 13.7% of the outstanding common stock of ITT ISI for aggregate
consideration of $225 million (the "Strategic Investment"). Such warrants will
have a ten year term and permit CD&R to buy common stock of ITT ISI at a 50%
premium to CD&R's initial purchase price. Consummation of the Strategic
Investment is subject to certain conditions including, among other things,
approval of the stockholders of ITT ISI following the Distributions. Completion
of the Strategic Investment (the proceeds from which are expected to be used
primarily to reduce indebtedness of ITT ISI) is not a condition to the
Distributions and is expected to occur in the fourth quarter of 1997. Following
completion of the Strategic Investment, ITT ISI will have approximately $1.05
billion in debt, giving ITT ISI an initial enterprise value, based on the
Strategic Investment, of approximately $1.7 billion.
In addition, at the July 15, 1997 meeting, the Board approved the purchase
by the Company for $254 million of BellSouth Corporation's minority interest in
ITT World Directories, which will be the only direct subsidiary of ITT ISI after
the Distributions. The purchase of this interest, which has been consummated,
allows ITT ISI to have 100% of the benefit of the results of operations of ITT
World Directories, allows for a better understanding of ITT ISI by the
investment community, simplifies the corporate and organizational structure of
ITT World Directories and allows for a more effective implementation of the
allocation of the Company's indebtedness. In connection with this transaction,
BellSouth Corporation received a pro rata portion of a dividend paid by ITT
World Directories, resulting in additional proceeds to BellSouth Corporation of
$11 million.
THE HILTON TRANSACTION
On January 31, 1997, HLT and Hilton commenced an unsolicited tender offer
to purchase 61,145,475 Shares, approximately 50.1% of the outstanding Shares, at
a purchase price of $55 per Share, net to the seller in cash, upon the terms and
subject to the conditions set forth in the Hilton Offer to Purchase. Hilton has
filed with the Commission a Tender Offer Statement on Schedule 14D-1 and
amendments thereto (collectively, the "Hilton Schedule 14D-1"), of which the
Hilton Offer to Purchase constitutes a part. The Hilton Offer to Purchase has
been mailed to stockholders of the Company. Any Shares tendered pursuant to the
Hilton Offer, unless previously accepted for payment, may be withdrawn by the
tendering stockholders at any time prior to the expiration of the Hilton Offer,
which is presently scheduled for Friday, August 1, 1997.
The Hilton Offer is by its terms subject to a number of conditions
described in the Hilton Offer to Purchase, including (i) that the number of
Shares tendered and not withdrawn before the expiration date of the Hilton
Offer, together with Shares owned by HLT and its affiliates as of such time,
represent a majority of the Shares outstanding on a fully diluted basis, (ii)
that the Rights have been redeemed by the Company's Board of Directors, or HLT
is satisfied that the Rights have been invalidated or are otherwise inapplicable
to the Hilton Offer and the Proposed Squeeze Out Merger, (iii) that HLT is
satisfied that the Nevada Control Share Acquisition Statute shall be
inapplicable to the Hilton Offer and the Proposed Squeeze Out Merger, (iv) that
HLT is satisfied that the Nevada Business Combination Statute shall be
inapplicable to the Hilton Offer and Proposed Squeeze Out Merger and (v) that
HLT is satisfied that all material consents, approvals, orders or authorizations
of, or registrations, declarations or filings with, any governmental authority
with jurisdiction in respect of the Company's active gaming operations required
or necessary in connection with the Hilton Offer, the Proposed Squeeze Out
Merger and the transactions contemplated thereunder have been obtained and are
in full force and effect.
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<PAGE> 10
According to the Hilton Offer to Purchase, if the Hilton Offer succeeds,
Hilton intends to consummate the Proposed Squeeze Out Merger, pursuant to which
all Shares not tendered and purchased pursuant to the Hilton Offer (other than
Shares owned by Hilton and its subsidiaries or held in the Company's treasury)
would be converted into the right to receive a number of shares of Hilton Common
Stock, having a nominal value of $55 per Share, subject to unspecified collar
provisions.
In the Hilton Offer to Purchase, Hilton and HLT stated their intention to
nominate, and solicit proxies for the election of, a slate of nominees who
support the Hilton Offer and the Proposed Squeeze Out Merger (the "Hilton
Nominees"), to replace all the members of the Board of Directors of the Company
at the 1997 Annual Meeting of Stockholders of the Company (the "1997 Annual
Meeting"). Hilton has indicated that it expects that, if elected, and subject to
their fiduciary duties under applicable law, the Hilton Nominees would cause the
Board of Directors of the Company to (i) approve the Proposed Squeeze Out
Merger, (ii) amend the Rights Agreement or redeem the Rights, or otherwise act
to ensure that the Rights are not applicable to the Hilton Offer, (iii)
eliminate the restrictions on voting of the Shares pursuant to the Nevada
Control Share Acquisition Statute, (iv) eliminate the restrictions on business
combinations pursuant to the Nevada Business Combination Statute and (v) take
any other actions necessary to permit the Hilton Offer and the Proposed Squeeze
Out Merger to be consummated. On February 11, 1997, Hilton announced its slate
of 25 Hilton Nominees. On March 21, 1997, Hilton filed with the Commission
definitive proxy materials pursuant to the requirements of Section 14(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder (the "Hilton Proxy Statement"). The
Hilton Proxy Statement has been mailed to stockholders of the Company. Pursuant
to the Hilton Proxy Statement, Hilton is soliciting proxies in support of
proposals for (i) the election of the 25 Hilton Nominees, eleven of whom would
be nominated to succeed the Company's eleven current directors and the remainder
to be nominated in the event the Company increases the size of the Board or any
of the first eleven Hilton Nominees is unable for any reason to serve as a
director, (ii) the stockholders of the Company to urge the Board to arrange for
the sale of the Company to Hilton or to any bidder offering a higher price; and
if there be no higher bidder, to take all necessary action to permit the Hilton
Offer and the Proposed Squeeze Out Merger to proceed and (iii) each provision of
the Amended and Restated By-laws of the Company adopted on or after July 23,
1996 and prior to the adoption of such proposal to be repealed.
Contemporaneously with the commencement of its proxy solicitation, Hilton filed
a motion in the U.S. District Court for the District of Nevada seeking to
require the Company to hold the 1997 Annual Meeting in May 1997. The court
subsequently denied that motion and Hilton's appeal of the denial of its motion
was unsuccessful. See "-- Certain Litigation Relating to the Hilton Transaction"
below. The date of the 1997 Annual Meeting has not been set formally, but is
expected to be in November 1997, after the currently anticipated consummation of
the Distributions. Prior to the 1997 Annual Meeting, the Company will distribute
its own proxy materials, which will contain important information about the
Company. The Company cannot predict if, following the Distributions, Hilton will
commence a tender offer for shares of Destinations common stock or a proxy
solicitation with respect to the first annual meeting of Destinations
stockholders (which is expected to be in November 1997, if the Destinations
Distribution is completed on the currently contemplated schedule) with respect
to a takeover proposal for Destinations.
The foregoing summary of certain information contained in the Hilton Offer
to Purchase and the Hilton Proxy Statement is not intended to be complete and is
qualified in its entirety by reference to the Hilton Offer to Purchase and the
Hilton Proxy Statement. The Hilton Offer to Purchase and the Hilton Schedule
14D-1, including the exhibits and amendments thereto, and the Hilton Proxy
Statement may be examined and copies may be obtained at the offices of the
Commission in Washington, D.C. in the same manner as information relating to the
Company, as described under "Additional Information" in Section 7 under "The
Tender Offer." The Company takes no responsibility for the accuracy or
completeness of any information contained in the Hilton Offer to Purchase, the
Hilton Schedule 14D-1 or the Hilton Proxy Statement.
For a description of certain litigation relating to the Hilton Transaction,
see "-- Certain Litigation Relating to the Hilton Transaction" below.
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<PAGE> 11
POSITION OF THE COMPANY ON THE HILTON TRANSACTION
At a meeting held on July 15, 1997, the Board reassessed the Hilton
Transaction in light of developments since February 11, including the
Comprehensive Plan, and unanimously reaffirmed its conclusion, originally
reached on February 11, 1997, that the Hilton Transaction, including the Hilton
Offer, is inadequate and not in the best interests of the Company. Accordingly,
the Board continues to recommend unanimously that the stockholders of the
Company reject the Hilton Transaction and not tender their Shares pursuant to
the Hilton Offer or take any other action to facilitate the Hilton Offer. The
Board also reaffirmed its determination, also reached at its February 11
meeting, that, in light of the prospects of the Company's businesses, the
attractiveness of the Distributions and the other elements of the Comprehensive
Plan and certain other factors, the Company's and its stockholders' interests
would be best served if the Company (and particularly the core businesses of the
Company) were to remain independent and pursue the Comprehensive Plan.
The foregoing discussion of the Company's position with respect to the
Hilton Transaction is qualified in its entirety by reference to the Company
Schedule 14D-9. The Company Schedule 14D-9, including the exhibits and
amendments thereto, may be examined and copies may be obtained as set forth
under "Additional Information" in Section 7 under "The Tender Offer."
PURPOSE OF THE OFFER
The Offer is an element of the Comprehensive Plan approved by the Board of
Directors of the Company. The Comprehensive Plan is intended to enhance the
value of the ongoing investment of stockholders as well as further the interests
of the Company's employees, creditors, customers and the economies and
communities in which the Company operates. The Company currently operates three
distinct businesses with different characteristics, competitive environments and
growth prospects. Separating the Company's businesses and allowing them to
operate independently is expected to result in, among other things, increased
strategic focus, a flattening of organizational structures, the implementation
of narrowly-tailored incentive compensation plans and enhanced public market
understanding and valuations of these businesses. Among other factors, the Board
took account of the tax-free nature of spin-offs and the Company's prior
positive experience with such transactions. The Company as an independent entity
can consummate such a tax-free spin-off; an acquiror (whether by purchase or
merger) in a transaction that is taxable in whole or in part (including the
Hilton Transaction) would be unable to undertake a tax-free distribution of
Company assets for a period of five years. Compared to a taxable sale of the
Company's telephone directories publishing business and post-secondary technical
education business, the Distributions will save the Company in excess of $500
million in U.S. Federal income taxes. Further, the tax-free nature of
transactions such as the Distributions is under increasing scrutiny in the
Congress. Accordingly, it is possible that in the future legislation will be
passed that might eliminate or restrict the ability of the Company to undertake
the Distributions on a tax-free basis. The purpose of the Offer is to return to
the Company's stockholders the after-tax proceeds from recent asset sales by the
Company and the proceeds of the Company's borrowing capacity. The Offer provides
to stockholders who wish to sell a portion of their Shares an opportunity to do
so at a premium to recent market prices and provides stockholders who wish to
increase their proportionate investment in ITT ISI, Destinations and ITT
Educational, and thus in the future earnings and assets of ITT ISI, Destinations
and ITT Educational, an opportunity to do so. The Offer will also afford to
stockholders the opportunity to dispose of Shares without the usual transaction
costs associated with a market sale. STOCKHOLDERS WHOSE SHARES ARE VALIDLY
TENDERED AND ACCEPTED FOR PAYMENT IN THE OFFER WILL NOT PARTICIPATE IN THE
DISTRIBUTIONS WITH RESPECT TO SUCH SHARES.
The Board believes that the business justifications for the Comprehensive
Plan, including a significant repurchase of Shares by the Company, are
compelling without regard to the Hilton Offer and intends to pursue the plan
even if Hilton withdraws its interest in acquiring the Company. Because the
Company's telephone directories publishing and post-secondary technical
education businesses are distinct from the Company's core hotels and gaming
business, during 1996 subsequent to becoming an independent public company, the
Company began to recognize that these businesses would eventually be separated
from the Company's core business, just as ITT's forest products, insurance and
industrial products businesses have previously become independent publicly
traded companies. However, in reviewing the Comprehensive Plan, the Board took
account of the possibility that the transactions contemplated by the
Comprehensive Plan could
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adversely affect the Hilton Offer. As a result of the Comprehensive Plan,
including the Destinations Distribution, and in light of statements by Hilton
that it is interested in the Company's hotels and gaming business, it is likely
that Hilton will withdraw the Hilton Offer after completion of the Destinations
Distribution. The Company is unable to predict whether Hilton would commence
efforts to acquire Destinations after the Destinations Distribution. Although
there is no Internal Revenue Service ruling or case law that is dispositive of
the issue, counsel to the Company has advised the Company that, in its opinion,
under existing U.S. Federal tax laws and the current provisions of recently
introduced U.S. Federal tax legislation, the Distributions should not create a
tax-related impediment to an unsolicited offer by Hilton to acquire Destinations
after the Distributions. The Company recognizes that this opinion is based on an
interpretation of current tax laws and the current provisions of pending
legislation rather than on binding precedent, and accordingly is not free from
doubt and is subject to revision if pending tax legislation changes. Certain
provisions of the Articles of Incorporation and By-laws that Destinations will
have at the time of the Destinations Distribution, a stockholders rights plan
that Destinations will have at the time of the Destinations Distribution and
certain provisions of the NGCL may have the effect of delaying or making more
difficult an acquisition of control of Destinations in a transaction that is not
approved by the board of directors of Destinations. In addition, it is possible
that certain terms of the bank financing for the Offer may make more expensive,
and may impede, consummation of the Hilton Offer and might deter certain other
persons from attempting, through tender or exchange offers or by other means, to
gain control of the Company, particularly persons who would finance a takeover
of the Company with the Company's own assets and cash flow or who cannot
consummate a tender offer without acquiring a very high percentage of the
Company's voting securities. See Section 8 under "The Tender Offer."
Assuming the Company purchases 30,000,000 Shares pursuant to the Offer, the
ongoing ownership interest in the Company of a stockholder who does not sell any
Shares will increase by approximately 35%. The Company cannot predict the prices
at which the Shares, Destinations common stock or ITT Educational common stock
will trade after consummation of the Offer and the Distributions. The aggregate
market values of the Shares, Destinations common stock and ITT Educational
common stock may be less than, equal to or greater than the market value of the
Shares prior to the Offer and the Distributions.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION AS
TO WHETHER ANY STOCKHOLDER SHOULD TENDER ANY OR ALL OF SUCH STOCKHOLDER'S SHARES
PURSUANT TO THE OFFER. EACH STOCKHOLDER MUST MAKE ITS OWN DECISION WHETHER TO
TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER.
CERTAIN LITIGATION RELATING TO THE HILTON TRANSACTION
On July 16, 1997, the Company filed a complaint in the U.S. District Court
for the District of Nevada seeking, among other relief, a declaratory judgment
that Hilton cannot show that, in approving the Comprehensive Plan, the Board
acted outside its powers or failed to exercise its powers in good faith and with
a view to the interests of the Company. The Company also filed a motion with the
court seeking a speedy hearing on its claims.
In connection with the Hilton Transaction, on January 27, 1997, Hilton
filed a complaint (the "Hilton Complaint") captioned Hilton Hotels Corporation
and HLT Corporation v. ITT Corporation in the U.S. District Court for the
District of Nevada. The Hilton Complaint asks the Court, among other things: (i)
to enjoin the Company from amending its by-laws "in any way that would impede
the effective exercise of the stockholder franchise in connection with the 1997
annual meeting" of the stockholders of the Company, from materially delaying the
annual meeting, and from increasing the size of the Board "in order to preserve
the position of incumbent directors," (ii) to require the Board to redeem the
Rights and to make inapplicable to the Hilton Offer and the Proposed Squeeze Out
Merger the Nevada Control Share Acquisition Statute and the Nevada Business
Combination Statute and (iii) to declare that the Company does not have standing
to institute an action under the Federal anti-trust laws to block or impede the
Hilton Offer or the Proposed Squeeze Out Merger and that, in any event, the
consummation of the Hilton Offer and the Proposed Squeeze Out Merger would not
violate such laws.
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On January 27, 1997, Hilton and HLT filed a motion for a preliminary
injunction (the "Hilton Preliminary Injunction Motion") seeking to enjoin the
Company (i) from increasing the size of the Board or, alternatively, requiring
the Company to give Hilton the opportunity to supplement the individuals it
nominates for the Board and (ii) from amending the Company's by-laws "to impede
in any way the effective exercise of the stockholder franchise in connection
with electing directors" at the 1997 annual meeting. Following a hearing on the
preliminary injunction on March 5, 1997, the court issued an order denying the
Hilton Preliminary Injunction Motion.
On January 29, 1997, Hilton and HLT filed a motion for a temporary
restraining order and preliminary injunction enjoining the Company from
prosecuting any action against Hilton or HLT arising out of the Hilton Offer in
any jurisdiction other than the U.S. District Court for the District of Nevada.
On January 29, 1997, the U.S. District Court for the District of Nevada issued
an order denying Hilton and HLT's motion.
On February 12, 1997, the Company filed an answer and counterclaims to the
Hilton Complaint denying all material allegations of the Hilton Complaint. The
counterclaims seek injunctive relief prohibiting Hilton from proceeding with the
Hilton Offer which is tainted by Hilton's misappropriation and misuse of the
Company's confidential information and other relief to prevent Hilton from
benefitting from access to the Company's confidential information. These
counterclaims also seek injunctive relief, in the event the Hilton Offer is not
enjoined, requiring Hilton to correct material inadequacies in the Hilton
Schedule 14D-1 by disclosing and filing the information required under the
Federal securities laws.
On February 13, 1997, the Company filed a motion for an injunction (the
"Counsel Motion") requiring Hilton to discharge Latham & Watkins as its counsel.
The Counsel Motion sought (i) an order requiring Hilton to dismiss Latham &
Watkins as its counsel in connection with the Hilton Offer or, in the
alternative, (ii) a preliminary injunction enjoining Hilton from seeking Latham
& Watkins' counsel until the court can review the merits of the Counsel Motion.
On March 12, 1997, the court issued an order denying the Counsel Motion.
On February 26, 1997, Hilton filed a motion (the "Hilton Annual Meeting
Motion") for a preliminary injunction seeking to require the Company to hold its
annual meeting of stockholders in May 1997. On March 13, 1997, the Company filed
a memorandum in opposition to Hilton's motion. On March 25, 1997, Hilton filed a
reply memorandum in response to the Company's memorandum in opposition. On April
21, 1997, the court issued on order denying the Hilton Annual Meeting Motion.
Hilton appealed the court's denial of the Hilton Annual Meeting Motion to the
U.S. Court of Appeals for the Ninth Circuit. On June 19, 1997, the Court of
Appeals issued an order affirming the district court's denial of the Hilton
Annual Meeting Motion.
On June 12, 1997, Hilton filed a first amended and supplemental complaint
(the "First Amended and Supplemental Hilton Complaint") in the U.S. District
Court for the District of Nevada. In addition to the relief sought in the Hilton
Complaint, the First Amended and Supplemental Hilton Complaint asks the court,
among other things, (i) to enjoin the Company from further delaying its annual
meeting, (ii) to require the Company to conduct an auction of the Company, (iii)
to enjoin the Company from selling any of its assets without conducting an
auction in which Hilton may participate and without stockholder approval, (iv)
to require the Company to rescind its transaction with FelCor, (v) to invalidate
the change of control provisions in the Company's management agreement with
FelCor and to enjoin the Company from entering into any other agreement
containing change of control provisions and (vi) to enjoin the Board from taking
actions aimed at entrenching themselves in office.
On July 2, the Company filed a motion in the U.S. District Court for the
District of Nevada to dismiss certain counts included in the First Amended and
Supplemental Hilton Complaint or, in the alternative, for partial summary
judgment.
Copies of the Company's July 16 complaint and motion, the Hilton Complaint,
the Company's answer and counterclaims, the First Amended and Supplemental
Hilton Complaint and the motions and orders described above are filed as
exhibits to the Company Schedule 14D-9 and may be examined and copies thereof
may be obtained as set forth under "Additional Information" in Section 7 under
"The Tender Offer."
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Following the Hilton Offer, a total of eight purported class action suits
were filed on behalf of individual plaintiffs against the Company and the Board
in various state courts in Nevada. These complaints were captioned Cohen v. ITT
Corp. N.V., et al.; Kostick v. Araskog, et al.; Bernstein, et al. v. ITT Corp.
N.V., et al.; Feuerstein, et al. v. ITT Corp. N.V., et al.; Marks, et al. v.
Araskog, et al.; Huntley v. ITT Corporation, et al.; Steiner v. Araskog, et al.;
and Cohen v. Araskog, et al. Five purported class action suits were also filed
on behalf of individual plaintiffs against the Company and the Board in the
Nevada Federal court. The complaints were captioned Collins v. Anderson, et al.;
Taub, et al. v. Araskog, et al.; Kanarek v. Araskog, et al.; Halebian v.
Araskog, et al.; and Cohen, et al. v. Araskog, et al. In addition, four
purported class action suits were filed on behalf of individual plaintiffs
against the Company and the Board in the Supreme Court of the State of New York.
The complaints were captioned Siegel v. Araskog, et al.; Waltzman v. Anderson.,
et al.; Hack v. ITT Corp., et al.; and Rand, et al. v. ITT Corporation, et al.
The complaints allege, among other things, that the defendants have breached
their fiduciary duties to the Company's stockholders by failing to maximize
stockholder value. The complaints seek, among other things, to compel the
defendants to carry out their fiduciary duties and to cooperate with any person
having a bona fide interest in proposing a transaction with the Company which
would maximize stockholder value. On June 4, 1997, the Nevada Federal court
consolidated the eight purported class action suits filed in that court and
ordered a stay of the action. There have been no other material developments in
any of the foregoing actions.
Copies of the complaints filed in the class action suits described above
and the order of the U.S. District Court for the District of Nevada
consolidating the actions filed in that court are filed as exhibits to the
Company Schedule 14D-9 and may be examined and copies thereof may be obtained as
set forth under "Additional Information" in Section 7 under "The Tender Offer."
THE RIGHTS
Pursuant to the Rights Agreement, the Company declared a dividend of one
Right for each outstanding Share. Each Right, when it becomes exercisable,
entitles the registered holder to purchase from the Company one one-thousandth
(1/1000th) of a share of Preferred Stock of the Company (the "Preferred Shares")
at a price of $200 per Right (the "Purchase Price"), subject to adjustment in
certain circumstances.
The Hilton Offer is conditioned upon, among other things, the Rights having
been redeemed by the Company's Board of Directors or HLT being satisfied that
the Rights have been invalidated or are otherwise inapplicable to the Hilton
Offer and the Proposed Squeeze Out Merger. See "-- The Hilton Transaction."
Under the Rights Agreement, until the earlier of (i) such time as the
Company learns that a person or group (including any affiliate or associate of
such person or group) has acquired, or has obtained the right to acquire,
beneficial ownership of more than 15% of the outstanding Shares (such person or
group being an "Acquiring Person"), unless provisions preventing accidental
triggering of the distribution of the Rights apply, and (ii) the close of
business on such date, if any, as may be designated by the Board of Directors
following the commencement of, or first public disclosure of an intent to
commence, a tender or exchange offer for more than 15% of the outstanding Shares
(the earlier of such dates, the "Rights Distribution Date"), the Rights will be
evidenced by the certificates for Shares, can be transferred with and only with
the Shares and cannot be exercised.
At such time as there is an Acquiring Person, the Rights will entitle each
holder (other than such Acquiring Person) of a Right to purchase, for the
Purchase Price, the number of one one-thousandths (1/1000ths) of a Preferred
Share equivalent to the number of Shares which at the time of such event would
have a market value of twice the Purchase Price.
Any Rights that are at any time beneficially owned by an Acquiring Person
(or any affiliate or associate of an Acquiring Person) will be null and void and
nontransferable and any holder of any such Right (including any purported
transferee or subsequent holder) will be unable to exercise or transfer any such
Right.
For the same reasons the Company has rejected the Hilton Offer, the Company
does not intend to redeem the Rights or otherwise make the Rights inapplicable
to the Hilton Offer. However, the Board does
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not intend to declare the Rights Distribution Date as a result of the Hilton
Offer, although a Distribution Date would occur if Hilton were to become an
Acquiring Person.
The foregoing description of the Rights and the Rights Agreement is not
complete and is qualified in its entirety by reference to the Rights Agreement
and the other documents included as exhibits to the Company's Registration
Statement on Form 10 dated November 13, 1995 (the "Company Form 10"). The
Company Form 10 should be available for inspection and copies thereof should be
obtainable in the manner set forth under "Additional Information" in Section 7
under "The Tender Offer."
THE TENDER OFFER
1. TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer, the Company will
accept for payment and pay for up to 30,000,000 Shares or such lesser number of
Shares as are validly tendered prior to the Expiration Date and not theretofore
withdrawn in accordance with Section 3. The term "Expiration Date" means 12:00
midnight, New York City time, on Wednesday, August 13, 1997, unless and until
the Company, in its sole discretion, shall have extended the period of time
during which the Offer is open, in which event the term "Expiration Date" shall
mean the latest time and date at which the Offer, as so extended by the Company,
will expire. If the Offer is oversubscribed, Shares tendered before the
Expiration Date will be subject to proration. The proration period also expires
on the Expiration Date.
The Offer is conditioned upon the satisfaction of certain conditions set
forth in Section 11.
Subject to the applicable rules and regulations of the Commission, the
Company expressly reserves the right, in its sole discretion, at any time and
from time to time, and regardless of whether or not any of the events or facts
set forth in Section 11 hereof shall have occurred, to extend the period of time
during which the Offer is open, and thereby delay acceptance for payment of and
the payment for any Shares, by giving oral or written notice of such extension
to the Depositary UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE
PRICE FOR TENDERED SHARES, WHETHER OR NOT THE COMPANY EXERCISES ITS RIGHT TO
EXTEND THE OFFER.
Subject to the applicable regulations of the Commission, the Company also
expressly reserves the right, in its sole discretion at, any time and from time
to time, to (i) delay acceptance for payment of, or, regardless of whether such
Shares were theretofore accepted for payment, payment for, any Shares pending
receipt of any regulatory or third-party approval specified in Section 12 or in
order to comply in whole or in part with any other applicable law, (ii)
terminate the Offer and not accept for payment any Shares if any of the
conditions referred to in Section 11 have not been satisfied or upon the
occurrence of any of the events specified in Section 11 and (iii) waive any
condition or otherwise amend the Offer in any respect, in each case, by giving
oral or written notice of such delay, termination, waiver or amendment to the
Depositary.
There can be no assurance that the Company will exercise its right to
extend the Offer. The Company expects (although it is not obligated) to extend
the Offer, subject to the other terms and conditions thereof, until such time as
all required approvals for the Offer and the Destinations Distribution are
obtained. Any extension, amendment or termination will be followed as promptly
as practicable by public announcement. In the case of an extension, Rule
14e-1(d) under the Exchange Act requires that the announcement be issued no
later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date in accordance with the public announcement
requirements of Rule 14d-4(c) under the Exchange Act. Subject to applicable law
(including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require
that any material change in the information published, sent or given to
stockholders in connection with the Offer be promptly disseminated to
stockholders in a manner reasonably designed to inform stockholders of such
change), and without limiting the manner in which the Company may choose to make
any public announcement, the Company will not have any obligation to publish,
advertise or otherwise communicate any such public announcement other than by
making a release to the Dow Jones News Service. As used in this Offer to
Purchase, "business day" has the meaning set forth in Rule 14d-1 under the
Exchange Act.
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If the Company extends the Offer or if the Company is delayed in its
acceptance for payment of or payment (whether before or after its acceptance for
payment of Shares) for Shares or it is unable to pay for Shares pursuant to the
Offer for any reason, then, without prejudice to the Company's rights under the
Offer, the Depositary may retain tendered Shares on behalf of the Company, and
such Shares may not be withdrawn except to the extent tendering stockholders are
entitled to withdrawal rights as described in Section 3. However, the ability of
the Company to delay the payment for Shares that the Company has accepted for
payment is limited by Rule 14e-1(c) under the Exchange Act, which requires that
a bidder pay the consideration offered or return the securities deposited by or
on behalf of holders of securities promptly after the termination or withdrawal
of such bidder's offer.
If the Company makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
the Company will disseminate additional tender offer materials and extend the
Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the
Exchange Act. The minimum period during which an offer must remain open
following material changes in the terms of the offer or information concerning
the offer, other than a change in price or a change in the percentage of
securities sought, will depend upon the facts and circumstances then existing,
including the relative materiality of the changed terms or information. With
respect to a change in price or a change in the percentage of securities sought,
a minimum period of ten business days is generally required to allow for
adequate dissemination to stockholders and investor response.
All Shares purchased pursuant to the Offer will be purchased at the
Purchase Price, net to the seller in cash. The Company expressly reserves the
right, in its sole discretion, to amend the Offer and purchase more than
30,000,000 Shares pursuant to the Offer, but currently does not expect to do so.
All Shares not purchased pursuant to the Offer, including Shares not
purchased because of proration and Shares tendered and withdrawn, will be
returned to the tendering stockholders at the Company's expense as promptly as
practicable (which, in the event of proration, is expected to be up to
approximately seven NYSE trading days) following the Expiration Date or as
promptly as practicable following withdrawal, as the case may be.
If the number of Shares properly tendered and not withdrawn prior to the
Expiration Date is less than or equal to 30,000,000 Shares (or such greater
number of Shares as the Company may elect to purchase pursuant to the Offer),
the Company, upon the terms and subject to the conditions of the Offer, will
purchase at the Purchase Price all Shares so tendered and not withdrawn.
If the number of Shares properly tendered and not withdrawn prior to the
Expiration Date is greater than 30,000,000 Shares (or such greater number of
Shares as the Company may elect to purchase pursuant to the Offer), the Company,
upon the terms and subject to the conditions of the Offer, will accept for
purchase all Shares properly tendered and not withdrawn prior to the Expiration
Date on a pro rata basis (with adjustments to avoid purchases of fractional
Shares).
In the event that proration of tendered Shares is required, the Company
will determine the final proration factor as promptly as practicable after the
Expiration Date. The Company will announce preliminary results of proration by
press release as promptly as practicable after the Expiration Date. Stockholders
may obtain such preliminary information from the Information Agent and Dealer
Managers and may be able to obtain such information from their brokers or
financial advisors.
2. PROCEDURE FOR TENDERING SHARES AND RIGHTS
VALID TENDER. For a stockholder validly to tender Shares pursuant to the
Offer, either (a) a Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, together with any required signature guarantees,
or, in the case of a book-entry transfer, an Agent's Message (as defined below),
and any other required documents, must be received by the Depositary at one of
its addresses set forth on the back cover of this Offer to Purchase prior to the
Expiration Date and either certificates for tendered Shares must be received by
the Depositary at one of such addresses or such Shares must be delivered
pursuant to the procedures for book-entry transfer set forth below (and a
Book-Entry Confirmation (as defined below) received by the Depositary), in each
case prior to the Expiration Date, or (b) the tendering stockholder must comply
with the guaranteed delivery procedures set forth below.
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The Depositary will establish accounts with respect to the Shares at The
Depository Trust Company and the Philadelphia Depository Trust Company (the
"Book-Entry Transfer Facilities") for purposes of the Offer within two business
days after the date of this Offer to Purchase. Any financial institution that is
a participant in any of the Book-Entry Transfer Facilities' systems may make
book-entry delivery of Shares by causing a Book-Entry Transfer Facility to
transfer such Shares into the Depositary's account in accordance with such
Book-Entry Transfer Facility's procedures for such transfer. However, although
delivery of Shares may be effected through book-entry transfer into the
Depositary's account at a Book-Entry Transfer Facility, the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, or an Agent's Message (as defined below), and
any other required documents, must, in any case, be transmitted to, and received
by, the Depositary at one of its addresses set forth on the back cover of this
Offer to Purchase prior to the Expiration Date, or the tendering stockholder
must comply with the guaranteed delivery procedures described below. The
confirmation of a book-entry transfer of Shares into the Depositary's account at
a Book-Entry Transfer Facility as described above is referred to herein as a
"Book-Entry Confirmation." DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER
FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
The term "Agent's Message" means a message transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares, that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that the
Company may enforce such agreement against the participant.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY,
IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL BE DEEMED
DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE
OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
SIGNATURE GUARANTEES. No signature guarantee is required on the Letter of
Transmittal (a) if the Letter of Transmittal is signed by the registered
holder(s) (which term, for purposes of this Section, includes any participant in
any of the Book-Entry Transfer Facilities' systems whose name appears on a
security position listing as the owner of the Shares) of Shares tendered
therewith and such registered holder has not completed either the box entitled
"Special Delivery Instructions" or the box entitled "Special Payment
Instructions" on the Letter of Transmittal or (b) if such Shares are tendered
for the account of a financial institution (including most commercial banks,
savings and loan associations and brokerage houses) that is a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program
(each an "Eligible Institution"). In all other cases, all signatures on the
Letter of Transmittal must be guaranteed by an Eligible Institution. See
Instructions 1 and 5 to the Letter of Transmittal. If the certificates for
Shares are registered in the name of a person other than the signer of the
Letter of Transmittal, or if payment is to be made or certificates for Shares
not tendered or not accepted for payment are to be returned to a person other
than the registered holder of the certificates surrendered, the tendered
certificates must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name or names of the registered holders or
owners appear on the certificates, with the signatures on the certificates or
stock powers guaranteed as aforesaid. See Instructions 1 and 5 to the Letter of
Transmittal.
GUARANTEED DELIVERY. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's certificates for Shares are not immediately
available or the procedure for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the
Depositary prior to the Expiration Date, such stockholder's tender may be
effected if all the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Company, is received by
the Depositary, as provided below, prior to the Expiration Date; and
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(iii) the certificates for all tendered Shares, in proper form for
transfer (or a Book-Entry Confirmation with respect to all such Shares),
together with a Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees, or, in
the case of a book-entry transfer, an Agent's Message, and any other
required documents are received by the Depositary within three trading days
after the date of execution of such Notice of Guaranteed Delivery. A
"trading day" is any day on which the NYSE is open for business.
The Notice of Guaranteed Delivery may be delivered by hand to the
Depositary or transmitted by telegram, facsimile transmission or mail to the
Depositary and must include a guarantee by an Eligible Institution in the form
set forth in such Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (a) certificates for (or a timely Book-Entry
Confirmation with respect to) such Shares, (b) a Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or, in the case of a book-entry transfer, an Agent's
Message, and (c) any other documents required by the Letter of Transmittal.
Accordingly, tendering stockholders may be paid at different times depending
upon when certificates for Shares or Book-Entry Confirmations with respect to
Shares are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL
INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE COMPANY,
REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
The valid tender of Shares pursuant to one of the procedures described
above will constitute a binding agreement between the tendering stockholder and
the Company upon the terms and subject to the conditions of the Offer.
OPTIONS. As of June 30, 1997, 9,290,884 Shares were reserved for issuance
pursuant to exercise of Options. The Company is not offering to purchase any of
the Options. Holders of Options who wish to participate in the Offer must first
exercise such Options, in accordance with the terms and provisions thereof.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY
HOLDER OF OPTIONS AS TO WHETHER TO EXERCISE ANY OR ALL SUCH OPTIONS OR AS TO
WHETHER TO TENDER ANY OR ALL SHARES ISSUABLE UPON SUCH EXERCISE.
ITT 401(k) RETIREMENT SAVINGS PLAN. Participants in the ITT 401(k)
Retirement Savings Plan (the "401(k) Plan") who wish to tender Shares allocated
to their accounts under the 401(k) Plan must so indicate by following the
procedures set forth in the notice to be furnished to such participants by the
trustee of the 401(k) Plan. Such participants may not use the Letter of
Transmittal to tender the Shares held for their account under the 401(k) Plan
but must follow the separate procedures referred to above. Shares held by the
401(k) Plan and allocated to participants' accounts for which no instructions
are received will not be tendered into the Offer.
TENDERING STOCKHOLDER'S REPRESENTATION AND WARRANTY; COMPANY'S ACCEPTANCE
CONSTITUTES AN AGREEMENT. It is a violation of Rule 14e-4 promulgated under the
Exchange Act for a person acting alone or in concert with others, directly or
indirectly, to tender Shares for such person's own account unless at the time of
tender and at the Expiration Date such person has a "net long position" equal to
or greater than the amount tendered in (i) the Shares and will deliver or cause
to be delivered such Shares for the purpose of tender to the Company within the
period specified in the Offer or (ii) other securities immediately convertible
into, exercisable for or exchangeable into Shares ("Equivalent Securities") and,
upon the acceptance of such tender, will acquire such Shares by conversion,
exchange or exercise of such Equivalent Securities to the extent required by the
terms of the Offer and will deliver or cause to be delivered such Shares so
acquired for the purpose of tender to the Company within the period specified in
the Offer. Rule 14e-4 also provides a similar restriction applicable to the
tender or guarantee of a tender on behalf of another person. A tender of Shares
made pursuant to any method of delivery set forth herein will constitute the
tendering stockholder's representation and warranty to the Company that (i) such
stockholder has a "net long position" in Shares or Equivalent Securities being
tendered within the meaning of the Rule 14e-4 and (ii) such tender of Shares
complies with Rule 14e-4. The Company's acceptance for payment of Shares
tendered pursuant to the Offer
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will constitute a binding agreement between the tendering stockholder and the
Company upon the terms and subject to the conditions of the Offer.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tender of Shares
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
or all tenders determined by it not to be in proper form or the acceptance for
payment of or payment for which may, in the opinion of the Company's counsel, be
unlawful. The Company also reserves the absolute right to waive any defect or
irregularity in the tender of any Shares of any particular stockholder whether
or not similar defects or irregularities are waived in the case of other
stockholders. No tender of Shares will be deemed to have been validly made until
all defects or irregularities relating thereto have been cured or waived. None
of the Company, the Depositary, the Information Agent, the Dealer Manager or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification. The Company's interpretation of the terms and conditions of the
Offer (including the Letter of Transmittal and the instructions thereto) will be
final and binding.
BACKUP WITHHOLDING. In order to avoid "backup withholding" of Federal
income tax on payments of cash pursuant to the Offer, a stockholder tendering
Shares in the Offer must, unless an exemption applies, provide the Depositary
with such stockholder's correct taxpayer identification number ("TIN") on a
Substitute Form W-9 and certify under penalties of perjury that such TIN is
correct and that such stockholder is not subject to backup withholding. If a
stockholder does not provide such stockholder's correct TIN or fails to provide
the certifications described above, the Internal Revenue Service (the "IRS") may
impose a penalty on such stockholder and payment of cash to such stockholder
pursuant to the Offer may be subject to backup withholding of 31%. All
stockholders surrendering Shares pursuant to the Offer should complete and sign
the main signature form and the Substitute Form W-9 included as part of the
Letter of Transmittal to provide the information and certification necessary to
avoid backup withholding (unless an applicable exemption exists and is proved in
a manner satisfactory to the Company and the Depositary). Certain stockholders
(including, among others, all corporations and certain foreign individuals and
entities) are not subject to backup withholding. Noncorporate foreign
stockholders should complete and sign the main signature form and a Form W-8,
Certificate of Foreign Status, a copy of which may be obtained from the
Depositary, in order to avoid backup withholding. See Instruction 9 to the
Letter of Transmittal.
3. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 3, a tender of Shares is
irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to
the procedures set forth below at any time prior to the Expiration Date and,
unless theretofore accepted for payment and paid for by the Company pursuant to
the Offer, may also be withdrawn at any time after September 12, 1997.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase and
must specify the name of the person having tendered the Shares to be withdrawn,
the number of Shares to be withdrawn and the name of the registered holder of
the Shares to be withdrawn, if different from the name of the person who
tendered the Shares. If certificates for Shares have been delivered or otherwise
identified to the Depositary, then, prior to the physical release of such
certificates, the serial numbers shown on such certificates must be submitted to
the Depositary and, unless such Shares have been tendered by an Eligible
Institution, the signatures on the notice of withdrawal must be guaranteed by an
Eligible Institution. If Shares have been delivered pursuant to the procedure
for book-entry transfer as set forth in Section 2, any notice of withdrawal must
also specify the name and number of the account at the appropriate Book-Entry
Transfer Facility to be credited with the withdrawn Shares and otherwise comply
with such Book-Entry Transfer Facility's procedures. Withdrawals of tenders of
Shares may not be rescinded, and any Shares properly withdrawn will thereafter
be deemed not validly tendered for purposes of the Offer. However, withdrawn
Shares may be retendered again following one of the procedures described in
Section 2 at any time prior to the Expiration Date.
16
<PAGE> 20
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Company in its sole discretion,
which determination will be final and binding. None of the Company, the
Depositary, the Information Agent, the Dealer Managers or any other person will
be under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
4. ACCEPTANCE FOR PAYMENT AND PAYMENT
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Company will accept for payment and will pay for up to
30,000,000 Shares or such lesser number of Shares as are validly tendered prior
to the Expiration Date and not properly withdrawn in accordance with Section 3
promptly after the Expiration Date. All questions as to the satisfaction of such
terms and conditions will be determined by the Company in its sole discretion,
which determination will be final and binding. See Sections 1 and 11. The
Company expressly reserves the right, in its sole discretion, to delay
acceptance for payment of or payment for Shares in order to comply in whole or
in part with any applicable law. Any such delays will be effected in compliance
with Rule 14e-1(c) under the Exchange Act (relating to a bidder's obligation to
pay for or return tendered securities promptly after the termination or
withdrawal of such bidder's offer). For purposes of the Offer, the Company will
be deemed to have accepted for payment (and thereby purchased), subject to
proration, Shares which are tendered and not withdrawn when, as and if it gives
oral or written notice to the Depositary of its acceptance of such Shares for
payment pursuant to the Offer.
In the event of proration, the Company will determine the proration factor
and pay for those tendered Shares accepted for payment as soon as practicable
after the Expiration Date; however, the Company does not expect to be able to
announce the final results of any such proration until at least approximately
seven NYSE trading days after the Expiration Date. Certificates for all Shares
not purchased will be returned (or, in the case of Shares delivered by
book-entry transfer, such Shares will be credited to the account maintained with
one of the Book-Entry Transfer Facilities by the participant therein who so
delivered such Shares) as soon as practicable after the Expiration Date without
expense to the tendering stockholder.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (a) certificates for
(or a timely Book-Entry Confirmation with respect to) such Shares, (b) a Letter
of Transmittal (or facsimile thereof), properly completed and duly executed,
with any required signature guarantees, or, in the case of a book-entry
transfer, an Agent's Message, and (c) any other documents required by the Letter
of Transmittal. The per Share consideration paid to any stockholder pursuant to
the Offer will be the highest per Share consideration paid to any other
stockholder pursuant to the Offer.
Payment for Shares accepted for payment pursuant to the Offer will be made
by deposit of the purchase price therefor with the Depositary, which will act as
agent for tendering stockholders for the purpose of receiving payment from the
Company and transmitting payment to tendering stockholders. UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE
PAID BY THE COMPANY, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN
MAKING SUCH PAYMENT.
If the Company is delayed in its acceptance for payment of or payment for
Shares or is unable to accept for payment or pay for Shares pursuant to the
Offer for any reason, then, without prejudice to the Company's rights under the
Offer (but subject to compliance with Rule 14e-1(c) under the Exchange Act), the
Depositary may, nevertheless, on behalf of the Company, retain tendered Shares,
and such Shares may not be withdrawn except to the extent tendering stockholders
are entitled to exercise, and duly exercise, withdrawal rights as described in
Section 3.
If any tendered Shares are not purchased pursuant to the Offer for any
reason, certificates for any such Shares will be returned, without expense to
the tendering stockholder (or, in the case of Shares delivered by book-entry
transfer of such Shares into the Depositary's account at a Book-Entry Transfer
Facility pursuant to the procedure set forth in Section 2, such Shares will be
credited to an account maintained at the appropriate Book-Entry Transfer
Facility), as promptly as practicable after the expiration or termination of the
Offer.
17
<PAGE> 21
The Company reserves the right to transfer or assign, in whole or from time
to time in part, to one or more direct or indirect wholly owned subsidiaries,
the right to purchase Shares tendered pursuant to the Offer, but any such
transfer or assignment will not relieve the Company of its obligations under the
Offer and will in no way prejudice the rights of tendering stockholders to
receive payment for Shares validly tendered and accepted for payment pursuant to
the Offer.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Sales of Shares by stockholders pursuant to the Offer will be taxable
transactions for Federal income tax purposes and may also be taxable
transactions under applicable state, local, foreign and other tax laws. The
Federal income tax consequences to a stockholder may vary depending upon the
stockholder's particular facts and circumstances.
Under Section 302 of the Internal Revenue Code of 1986, as amended (the
"Code"), a sale of Shares pursuant to the Offer will, as a general rule, be
treated as a sale or exchange if the receipt of cash upon such sale (a) is
"substantially disproportionate" with respect to the stockholder, (b) results in
a "complete redemption" of the stockholder's interest in the Company or (c) is
"not essentially equivalent to a dividend" with respect to the stockholder. If
any of those three tests is satisfied, a tendering stockholder will recognize
gain or loss equal to the difference between the amount of cash received by the
stockholder pursuant to the Offer and the stockholder's tax basis in the Shares
sold pursuant to the Offer. Recognized gain or loss will be capital gain or
loss, assuming the Shares are held as capital assets, which will be long-term
capital gain or loss if the Shares are held for more than one year.
In determining whether any of the tests under Section 302 of the Code is
satisfied, stockholders must take into account not only the Shares they actually
own, but also Shares they are deemed to own pursuant to the constructive
ownership rules of Section 318 of the Code. Pursuant to those constructive
ownership rules, a stockholder is deemed to own the Shares actually owned, and
in some cases constructively owned, by certain related individuals or entities,
and any Shares that the stockholder has the right to acquire by exercise of an
option or by conversion or exchange of a security.
The receipt of cash will be "substantially disproportionate" with respect
to a stockholder if the percentage of the outstanding Shares actually and
constructively owned by the stockholder immediately following the sale of Shares
pursuant to the Offer (treating as no longer outstanding all Shares purchased
pursuant to the Offer) is less than 80% of the percentage of the outstanding
Shares actually and constructively owned by such stockholder immediately before
the sale of Shares pursuant to the Offer (treating as outstanding all Shares
purchased pursuant to the Offer). Stockholders should consult their tax advisors
with respect to the application of the "substantially disproportionate" test to
their particular facts and circumstances.
The receipt of cash by a stockholder will result in a "complete redemption"
of the stockholder's interest in the Company if either (a) all the Shares
actually and constructively owned by the stockholder are sold pursuant to the
Offer or (b) all the Shares actually owned by the stockholder are sold pursuant
to the Offer and the stockholder is eligible to waive and does effectively waive
attribution of all Shares constructively owned by the stockholder in accordance
with Section 302(c) of the Code.
Even if the receipt of cash by a stockholder fails to satisfy the
"substantially disproportionate" test or the "complete redemption" test, such
stockholder may nevertheless satisfy the "not essentially equivalent to a
dividend" test, if the stockholder's sales of Shares pursuant to the Offer
results in a "meaningful reduction" in the stockholder's proportionate interest
in the Company. Whether the receipt of cash by a stockholder will be "not
essentially equivalent to a dividend" will depend upon the individual
stockholder's facts and circumstances. In certain circumstances, even a small
reduction in a stockholder's proportionate interest may satisfy this test. For
example, the IRS has indicated in a published ruling that a 3.3% reduction in
the proportionate interest of a small minority (substantially less than 1%)
stockholder in a publicly held corporation who exercises no control over
corporate affairs constitutes such a "meaningful reduction." Stockholders
expecting to rely upon the "not essentially equivalent to a dividend" test
should, therefore, consult their tax advisors as to its application in their
particular situations.
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<PAGE> 22
It may be possible for a tendering stockholder to satisfy one of the above
three tests by contemporaneously selling or otherwise disposing of all or some
of the Shares that are actually or constructively owned by such stockholder but
are not purchased pursuant to the Offer. Correspondingly, a tendering
stockholder may not be able to satisfy one of the above three tests because of
contemporaneous acquisitions of Shares by such stockholder or a related party
whose shares would be attributed to such stockholder. Stockholders should
consult their tax advisors regarding the tax consequences of such sales or
acquisitions in their particular circumstances.
If none of the three tests under Section 302 is satisfied then, to the
extent the Company has sufficient earnings and profits, the tendering
stockholder will be treated as having received a dividend includible in gross
income in an amount equal to the entire amount of cash received by the
stockholder pursuant to the Offer (without regard to gain or loss, if any).
In the case of a corporate stockholder, if the cash paid is treated as a
dividend, the dividend income may be eligible for the 70% dividends-received
deduction. The dividends-received deduction is subject to certain limitations,
and may not be available if the corporate stockholder does not satisfy certain
holding period requirements with respect to the Shares or if the Shares are
treated as "debt financed portfolio stock." Generally, if a dividends-received
deduction is available, it is expected that the dividend will be treated as an
"extraordinary dividend" under Section 1059(a) of the Code, in which case such
corporate stockholder's tax basis in Shares retained by such stockholder would
be reduced, but not below zero, by the amount of the nontaxed portion of the
dividend. Any amount of the nontaxed portion of the dividend in excess of the
stockholder's basis will generally be subject to tax upon sale or disposition of
those Shares.
If enacted into law as proposed, certain pending legislation would apply to
corporate stockholders whose receipt of cash for Shares pursuant to the Offer is
treated as a dividend. Under such legislation, (i) any excess of the portion of
an extraordinary dividend not otherwise taxed because of the dividends-received
deduction over the stockholder's adjusted tax basis in its remaining Shares
generally would be taxable currently as gain on the sale of Shares, (ii) if a
redemption of Shares from a corporate stockholder pursuant to the Offer is
treated as a dividend as a result of the stockholder's constructive ownership of
other Shares that it has an option or other right to acquire, the portion of the
extraordinary dividend not otherwise taxed because of the dividends-received
deduction would reduce the stockholder's adjusted tax basis only in its Shares
sold pursuant to the Offer, and any excess of such non-taxed portion over such
basis would be currently taxable as gain on the sale of such Shares and (iii)
the holding-period requirements for the dividends-received deduction would be
more difficult to satisfy. Corporate stockholders should consult their tax
advisors as to the availability of the dividends-received deduction, the
application of Section 1059 of the Code, and the potential impact of the
proposed legislation.
A foreign stockholder may be subject to dividend withholding tax at the 30%
rate or a lower applicable treaty rate on the gross proceeds of the sale of
Shares pursuant to the Offer. Foreign stockholders should consult their tax
advisors regarding application of these withholding rules.
The foregoing discussion may not apply to Shares acquired pursuant to
certain compensation arrangements with the Company.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY. THE TAX CONSEQUENCES OF A SALE PURSUANT TO THE OFFER MAY VARY DEPENDING
UPON, AMONG OTHER THINGS, THE PARTICULAR CIRCUMSTANCES OF THE TENDERING
STOCKHOLDER. NO INFORMATION IS PROVIDED HEREIN AS TO THE STATE, LOCAL OR FOREIGN
TAX CONSEQUENCES OF THE TRANSACTION CONTEMPLATED BY THE OFFER. STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF SALES MADE BY THEM PURSUANT TO THE
OFFER AND THE EFFECT OF THE CONSTRUCTIVE STOCK OWNERSHIP RULES MENTIONED ABOVE.
19
<PAGE> 23
6. PRICE RANGE OF THE SHARES; DIVIDENDS ON THE SHARES
The Shares are listed and principally traded on the NYSE under the symbol
"ITT." The following table sets forth, for each of the periods indicated, the
reported high and low sales prices per Share as reported on the NYSE Composite
Tape.
ITT CORPORATION
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------------------------------------------------------------------- ------- -------
<S> <C> <C>
1995:
Fourth quarter (from December 20, 1995).......................... $53.125 $47.500
1996:
First quarter.................................................... $62.625 $47.375
Second quarter................................................... $68.250 $56.875
Third quarter.................................................... $66.625 $43.000
Fourth quarter................................................... $46.500 $40.875
1997:
First quarter.................................................... $60.500 $41.125
Second quarter................................................... $61.750 $57.325
Third quarter (through July 16).................................. $68.625 $60.875
</TABLE>
On January 24, 1997, the last full trading day prior to the announcement of
the Hilton Offer, the last sales price of the Shares as reported on the NYSE
Composite Tape was $43.750. On July 15, 1997, the last full trading day before
the first public announcement by the Company of its intention to commence the
Offer, the last sales price of the Shares as reported on the NYSE Composite Tape
was $62.625. On July 16, 1997, the last full trading day before the commencement
of the Offer, the last sales price of the Shares as reported on the NYSE
Composite Tape was $66.9375. STOCKHOLDERS ARE URGED TO OBTAIN AND COMPARE
CURRENT MARKET PRICES FOR THE SHARES BEFORE MAKING A DECISION WITH RESPECT TO
THE OFFER.
The Company has not declared or paid any cash dividends on the Shares to
date and presently has no plans to declare or pay any cash dividends. As of June
30, 1997, there were approximately 56,000 holders of record of Shares.
7. CERTAIN INFORMATION CONCERNING THE COMPANY
GENERAL. The Company is engaged in the hotels and gaming business, the
telephone directories publishing business and the post-secondary technical
education business. The Company conducts its hotels and gaming business through
its subsidiaries ITT Sheraton Corporation ("ITT Sheraton"), Ciga and Caesars
World, Inc. ("Caesars"). Through the Sheraton, The Luxury Collection, Ciga, Four
Points Hotels and Caesars brand names, the Company is represented in most major
markets of the world. In 1996, the Company hosted over 50 million customer
nights at its hotel properties in 62 countries. Gaming operations are marketed
under either the Caesars or Sheraton brand names and service marks and are
currently represented in Las Vegas (Nevada), Atlantic City (New Jersey), Halifax
(Nova Scotia), Sydney (Nova Scotia), Lake Tahoe (Nevada), Tunica County
(Mississippi), Lima (Peru), Cairo (Egypt), Windsor (Ontario) and Townsville
(Australia).
The Company's telephone directories publishing business is conducted
through its wholly owned subsidiary, ITT World Directories, and its
post-secondary technical education business is conducted through its
approximately 83.3% ownership interest in ITT Educational. Following
consummation of the Distributions, the Company will operate the telephone
directories publishing business through its ownership of ITT World Directories,
Destinations will operate the hotels and gaming business through its ownership
of the hotels and gaming assets and ITT Educational will continue to operate the
post-secondary technical education business. See "Background and Purpose of the
Offer -- Comprehensive Plan."
Sheraton is a worldwide hospitality network of over 420 owned, leased,
managed and franchised properties, including hotels, resorts, casinos and inns.
Sheraton's origins date back to 1937 with the acquisition
20
<PAGE> 24
of its first hotel in Springfield, Massachusetts. Following rapid expansion, in
the 1940s Sheraton became the first hotel company to be listed on the NYSE.
Sheraton was acquired by Old ITT (as defined below) in 1968 and developed into
the leading hotel company it is today.
Caesars is one of the world's leading companies in gaming. Caesars'
flagship property is Caesars Palace in Las Vegas, Nevada. Caesars also owns and
operates Caesars Atlantic City in Atlantic City, New Jersey, and Caesars Tahoe
in Stateline, Nevada. In addition, Caesars owns one-half of a management company
that operates Casino Windsor, which was opened in May 1994 in Windsor, Ontario.
Caesars Palace, Las Vegas' first themed resort and casino, opened to much
fanfare on August 6, 1966. Since that time, Caesars has worked almost constantly
to upgrade its facilities and develop new properties. Caesars is committed to
establishing its facilities as the best in the industry. Caesars was acquired by
Old ITT in January 1995. In June 1996, the Company announced a capital
expenditure program designed to increase and enhance Caesars' future growth. As
part of that program, Caesars Palace and Caesars Atlantic City are being
expanded and enhanced. The Company also expects to construct the largest
riverboat in the United States. This riverboat will be located in Harrison
County, Indiana, on the Ohio River, across from Louisville, Kentucky.
ITT World Directories publishes telephone directories -- alphabetical and
classified -- and also publishes specialized directories, in several countries
outside the United States, as well as in Puerto Rico and the United States
Virgin Islands. ITT World Directories' principal source of operating revenue is
advertising revenue generated by advertisements published in its directories.
Its principal publications are in Belgium, The Netherlands, Portugal, South
Africa, The Republic of Ireland, Puerto Rico and the United States Virgin
Islands. ITT World Directories publishes directories in these jurisdictions
either pursuant to a contract with the existing national telecommunications
provider or as a proprietary directory in such jurisdiction after expiration of
such a contract. ITT World Directories is continuing a program of product
diversification and, where possible, geographic expansion, as exemplified by its
recent return to South Africa and its acquisition of a 60% controlling interest
in the directory sales agent for Telkom in South Africa, Maister Directories
1981 (Pty) Limited, in late 1995.
ITT Educational is a leading proprietary provider of technical
post-secondary degree programs in the United States. ITT Educational offers
associate, bachelor and master degree programs where authorized and, to a lesser
extent, non-degree diploma programs to over 22,500 students through a system of
59 ITT Technical Institutes located in 26 states. The undergraduate programs are
designed, after consultation with employers, to provide students with the
knowledge and skills necessary for entry-level employment in technical positions
in a variety of industries. As of December 31, 1996, approximately 95% of ITT
Educational students were enrolled in a degree program. Approximately 72% of ITT
Technical Institute students were enrolled in electronics engineering technology
and related programs and 24% were enrolled in computer-aided drafting technology
and related programs. Employers of ITT Technical Institute graduates include
both well-recognized corporations and small, technology-oriented companies.
The Company is a Nevada corporation, with World Headquarters at 1330 Avenue
of the Americas, New York, NY 10019-5490. The Company was incorporated in 1995.
On December 19, 1995, ITT Corporation, a Delaware corporation (which has been
renamed "ITT Industries, Inc." and reincorporated in the State of Indiana, "Old
ITT"), distributed to its stockholders of record at the close of business on
such date all of the outstanding shares of common stock of the Company, then a
wholly owned subsidiary of Old ITT (the "1995 Spin-off"). In the 1995 Spin-off,
holders of common stock of Old ITT received one Share for every one share of Old
ITT common stock held. In connection with the 1995 Spin-off, the Company, which
was then named "ITT Destinations, Inc.," changed its name to "ITT Corporation."
References herein to the Company prior to December 20, 1995 are references to
Old ITT, the former parent corporation of the Company.
BUSINESS DEVELOPMENTS. In accordance with its long-term strategic plan,
the Company has recently disposed of certain assets.
On February 11, 1997, the Company sold three million shares of the capital
stock of Alcatel Alsthom for approximately $300 million. On March 27, 1997, the
Company sold its remaining interest in the capital stock of Alcatel Alsthom for
proceeds of approximately $530 million.
21
<PAGE> 25
In March 1995, Madison Square Garden, L.P. ("MSG"), a limited partnership
between subsidiaries of the Company and Cablevision Systems Corporation
("Cablevision"), acquired the business of Madison Square Garden Corporation for
approximately $1 billion. On June 17, 1997, the Company closed the first
transfer under its agreement, dated as of April 15, 1997, with Cablevision and
certain of its affiliates (the "MSG Agreement"), to sell its 50% interest in MSG
to Cablevision for $650 million plus the assumption of approximately $115
million of indebtedness. At such closing, MSG redeemed a portion of the
Company's interest in MSG, such that after such redemption the Company owned an
11.5% limited partnership interest in MSG, for $493.5 million, and the general
partner of MSG redeemed all of the shares of its capital stock owned by the
Company for $6.5 million. In addition, at such closing, Cablevision caused
SportsChannel Associates, a New York general partnership, to be contributed as a
capital contribution to MSG, which diluted the Company's limited partnership
interest in MSG to 10.2%. The Company has a "put" option to require Cablevision
to purchase (or cause MSG to redeem) half of the Company's continuing interest
in MSG for $75 million on June 17, 1998 and the Company's other half of this
continuing interest for an additional $75 million (or if the first "put" option
is not exercised on June 17, 1998, the Company's entire continuing interest for
$150 million) on June 17, 1999. On June 17, 2000, Cablevision has the right to
purchase (or cause MSG to redeem) the Company's remaining interest in MSG at a
price determined by an investment banking firm to be fair market value, subject
to a floor price equal to the proportionate "put" price. In addition,
Cablevision has the right to purchase (or cause MSG to redeem) the Company's
remaining interest in MSG upon a "change of control" of the Company (as defined
in the MSG Agreement) at a price equal to the proportionate "put" price,
payable, at Cablevision's election, in cash or debt securities of Cablevision.
The Company has the right to cause to be contributed as a capital contribution
to MSG a certain aircraft owned by the Company at a value of $38 million. If the
Company causes such contribution to occur, each of the "put" prices will be
increased by $19 million (or if the first "put" option is not exercised, $38
million) and the floor price in respect of Cablevision's third-year call right
and the price payable upon the exercise of Cablevision's change of control call
right will be correspondingly increased. In the event Cablevision does not
exercise its third-year call right, the Company's percentage interest in MSG
will be increased to reflect a capital contribution to MSG of $38 million due to
the contribution of the aircraft. This continuing limited partnership interest
and the Company's rights under the MSG Agreement will be retained by
Destinations following the Distributions.
In July 1996, in partnership with Dow Jones & Company, Inc. ("Dow Jones"),
the Company purchased television station WNYC-TV from New York City. The
purchase price of $207 million was split evenly by the two companies and the
partnership is managed on a 50/50 basis. On May 12, 1997, the Company and Dow
Jones reached a definitive agreement to sell WBIS+ to Paxson Communications
Corporation ("Paxson") for a purchase price of $257.5 million. The closing of
the sale of the Company's interest in WBIST is subject to regulatory approval
and is expected to occur in the fourth quarter of 1997. Paxson currently
provides the station's programming under a time brokerage agreement until the
transaction closes. The Company's rights under the agreements with Paxson will
be retained by Destinations following the Distributions.
On June 30, 1997, the Company sold to FelCor five Sheraton hotels for $200
million in cash and retained a 20-year contract to manage these hotels, subject
to a limited change of control provision. The management contracts for these
hotels will be retained by Destinations following the Distributions.
During 1997, the Company has refined its strategic plan to focus on hotels
and gaming and explored and exploited opportunities to enhance the value of the
Company within that focus. This initiative already has resulted in the sale of
certain of the Company's assets, a continued focus on cost containment,
continued efforts to grow the hotels and gaming business and the pursuit of
transactions that are expected to enhance the profitability, return on assets or
cash flows of that business. Following the Distributions, it is expected that
Destinations will continue to pursue this strategic plan.
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<PAGE> 26
ITT DESTINATIONS, INC. SELECTED CONSOLIDATED HISTORICAL FINANCIAL
INFORMATION. Set forth below is certain selected consolidated financial
information of Destinations which has been derived from Destinations' audited
consolidated financial statements as of and for the three years ended December
31, 1996, and Destinations' unaudited consolidated financial statements as of
and for the two years ended December 31, 1993 and for the three months ended
March 31, 1997 and 1996 and as of March 31, 1997. The financial and operating
data set forth below reflect the discontinuance of the Company's information
services segment, which includes the Company's telephone directories publishing
business (ITT World Directories) and post-secondary technical education business
(ITT Educational). The following financial and operating data should be read in
conjunction with Destinations' Consolidated Financial Statements and related
Notes thereto set forth as Annex A hereto.
ITT DESTINATIONS, INC.
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
----------------- ------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues......................................... $1,333 $1,290 $5,718 $5,396 $3,876 $3,184 $3,109
Income (loss) from continuing operations before
accounting changes(1).......................... $ 85 $ 24 $ 183 $ 117 $ 44 $ (38) $ (68)
Earnings (loss) per share from continuing
operations before accounting changes(1)........ $ .72 $ .20 $ 1.55 $ .98 $ .37 $ (.32) $ (.58)
OPERATING DATA:
Operating income (loss).......................... $ 17 $ 87 $ 499 $ 394 $ 139 $ (35) $ (84)
EBITDA (2)....................................... $ 85 $ 143 $ 746 $ 617 $ 245 $ 58 $ (19)
Cash from continuing operating activities........ $ 28 $ 43 $ 377 $ 400 $ 164 $ 67 $ 10
Number of Employees (in thousands)............... 33 33 33 34 21 14 14
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, ------------------------------------------
1997 1996 1995 1994 1993 1992
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........................................ $8,711 $8,922 $8,225 $4,873 $3,629 $3,131
Long-term debt including allocated debt and capital
leases............................................ $2,556 $2,893 $2,634 $ 599 $ 169 $ 186
</TABLE>
- - ---------------
(1) Excluding several one-time items and the results of certain assets held for
sale, 1997 income from continuing operations and earnings per share from
continuing operations were $32 and $0.27, respectively, compared with $17
and $.15 in 1996, respectively. These comparable year-over-year results
represent increases of 88% and 80% in income from continuing operations and
earnings per share from continuing operations, respectively. The one-time
items reflected in the 1997 results include (i) a $183 pre-tax gain on the
sale of 7.5 million shares of Alcatel Alsthom, (ii) a $58 pre-tax charge in
connection with the restructuring of the Company's World Headquarters
operations and (iii) a $20 pre-tax charge for costs associated with the
Hilton Offer.
(2) EBITDA is presented here as an alternative measure of Destinations' ability
to generate cash flow and should not be construed as an alternative to
operating income (as determined in accordance with generally accepted
accounting principles) or to cash flows from operating activities (as
determined on the Cash Flow Statement in our Financial Statements set forth
as Annex A hereto). EBITDA was computed above as earnings before interest,
taxes, depreciation and amortization.
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<PAGE> 27
ITT CORPORATION SELECTED CONSOLIDATED HISTORICAL FINANCIAL
INFORMATION. Set forth below is certain selected consolidated financial
information of the Company which has been derived from the Company's audited
consolidated financial statements as of and for the three years ended December
31, 1996 and the Company's unaudited consolidated financial statements as of and
for the two years ended December 31, 1993 and for the three months ended March
31, 1997 and 1996 and as of March 31, 1997. The financial and operating data set
forth below reflect the remaining telephone directories publishing business of
the Company (ITT World Directories) after the Distributions. The following
financial and operating data should be read in conjunction with the Company's
Consolidated Financial Statements and related Notes thereto set forth in Annex B
hereto.
ITT CORPORATION
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------- --------------------------------
1997 1996 1996 1995 1994 1993 1992
----- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.......................................... $ 42 $ 41 $647 $654 $646 $817 $993
Income (loss) before accounting changes........... $ (9) $ (8) $ 54 $ 21 $ 23 $ 68 $ 62
Earnings (loss) per share before accounting
changes......................................... $(.08) $(.07) $.46 $.18 $.20 $.58 $.53
OPERATING DATA:
Operating income.................................. $ 2 $ 5 $208 $160 $141 $161 $104
EBITDA(1)......................................... $ 6 $ 9 $224 $177 $153 $171 $113
Cash from operating activities.................... $ 18 $ 23 $ 58 $ 85 $ 10 $ 80 $116
Number of employees (in thousands)................ 2 2 2 2 2 2 2
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, ------------------------------------------
1997 1996 1995 1994 1993 1992
------------ ------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........................... $ 489 $ 510 $519 $391 $385 $480
Allocated debt......................... $1,000 $1,000 $941 $ -- $ -- $ --
</TABLE>
- - ---------------
(1) EBITDA is presented here as an alternative measure of the Company's ability
to generate cash flow and should not be construed as an alternative to
operating income (as determined in accordance with generally accepted
accounting principles) or to cash flows from operating activities (as
determined on the Cash Flow Statement in the Company's Financial Statements
set forth as Annex B hereto). EBITDA was computed above as earnings before
interest, taxes, depreciation and amortization.
24
<PAGE> 28
ITT DESTINATIONS, INC. SIX MONTHS RESULTS. On July 16, 1997, the Company
released its unaudited operating results for the six months ended June 30, 1997.
The following table summarizes such unaudited results, adjusted to reflect the
discontinuance of the Company's information services segment, which includes the
Company's telephone directories publishing business (ITT World Directories) and
post-secondary technical education business (ITT Educational).
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1997 1996
------ ------
(IN MILLIONS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Revenues................................................................... $2,815 $2,741
Income from continuing operations(1)....................................... $ 263 $ 91
Earnings per share from continuing operations(1)........................... $ 2.23 $ 0.76
</TABLE>
- - ---------------
(1) Excluding several one-time items and the results of certain assets held for
sale, income from continuing operations and earnings per share from
continuing operations for the first six months of 1997 were $102 and $0.86,
respectively, compared with $85 and $0.72, respectively, for the first six
months of 1996. These comparable year-over-year results represent increases
of 20% and 19% in income from continuing operations and earnings per share
from continuing operations, respectively. The one-time items reflected in
these results include (i) a $183 pre-tax gain on the sale of 7.5 million
shares of Alcatel Alsthom, (ii) a $200 pre-tax gain on the sale of the
Company's 39.8% ownership interest in MSG, (iii) a $58 pre-tax charge in
connection with the restructuring of the Company's World Headquarters
operations and (iv) a $29 pre-tax charge for costs associated with the
Hilton Offer.
ITT CORPORATION SIX MONTHS RESULTS. On July 16, 1997, the Company
released its unaudited operating results for the six months ended June 30, 1997.
The following table summarizes such unaudited results, adjusted to reflect the
Company's remaining telephone directories publishing business (ITT World
Directories) after the Distributions.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1997 1996
------ ------
(IN MILLIONS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Revenues................................................................... $ 277 $ 290
Income..................................................................... $ 13 $ 22
Earnings per share......................................................... $ 0.11 $ 0.19
</TABLE>
25
<PAGE> 29
ITT EDUCATIONAL SERVICES, INC. SELECTED CONSOLIDATED HISTORICAL FINANCIAL
INFORMATION. Set forth below is certain selected consolidated financial
information of ITT Educational for the five years ended December 31, 1996, and
the three months ended March 31, 1997 and 1996. The financial information has
been derived from the audited consolidated financial statements included in ITT
Educational's Annual Report on Form 10-K for the year ended December 31, 1996
(the "ITT Educational 10-K") and ITT Educational's Quarterly Report on Form 10-Q
for the three months ended March 31, 1997 (the "ITT Educational 10-Q" and,
together with the ITT Educational 10-K, the "ITT Educational Reports") and other
information and data contained in ITT Educational Reports. Such data should be
read in conjunction with the consolidated financial statements, related notes
and other financial information contained in the ITT Educational Reports. More
comprehensive financial information is included in such reports and the
financial information which follows is qualified in its entirety by reference to
such reports and all of the financial statements and related notes contained
therein, copies of which are available for inspection and may be obtained in the
manner set forth below under "Available Information."
ITT EDUCATIONAL SERVICES, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------ ------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues..................................... $ 64 $ 57 $232 $202 $187 $169 $155
Income before accounting changes............. $ 6 $ 5 $ 15 $ 11 $ 7 $ 8 $ 7
Earnings per share before accounting
changes.................................... $.23 $.18 $.55 $.42 $.32 $.37 $.32
OPERATING DATA:
Operating income............................. $ 9 $ 7 $ 21 $ 14 $ 12 $ 14 $ 12
EBITDA(1).................................... $ 11 $ 9 $ 28 $ 22 $ 19 $ 20 $ 18
Cash (used for) from operating activities.... $ (5) $ - $ 26 $ 19 $ 23 $ 22 $ 17
Number of employees (in thousands)........... 2 2 2 2 2 2 2
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, ------------------------------------
1997 1996 1995 1994 1993 1992
------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................... $131 $136 $114 $103 $87 $69
</TABLE>
- - ---------------
(1) EBITDA is presented here as an alternative measure of ITT Educational's
ability to generate cash flow and should not be construed as an alternative
to operating income (as determined in accordance with generally accepted
accounting principles) or to cash flows from operating activities (as
determined on the Cash Flow Statement in the Company's Financial Statements
set forth in the ITT Educational Reports). EBITDA was computed above as
earnings before interest, taxes, depreciation and amortization.
26
<PAGE> 30
ITT DESTINATIONS, INC. SELECTED CONSOLIDATED PRO FORMA FINANCIAL
INFORMATION. The following selected unaudited consolidated pro forma financial
information of Destinations gives effect to the purchase of the Shares pursuant
to the Offer, the Debt Tender Offer and related borrowings by the Company and
Destinations, as if such transactions had occurred on March 31, 1997, and
December 31, 1996, for Balance Sheet data and as of January 1, 1997 and January
1, 1996, for Income Statement data. The selected unaudited consolidated pro
forma information should be read in conjunction with the selected consolidated
financial information for Destinations set forth as Annex A hereto and does not
purport to be indicative of the results that would actually have been obtained
had the purchase of the Shares pursuant to the Offer, the Debt Tender Offer and
the related borrowings been completed at the dates indicated or that may be
obtained in the future.
ITT DESTINATIONS, INC.
SELECTED UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
ACTUAL AS ADJUSTED(A) ACTUAL AS ADJUSTED(A)
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues..................................... $1,333 $1,333 $5,718 $5,718
Income from continuing operations............ $ 85 $ 60 $ 183 $ 83
Earnings per share from continuing
operations................................. $ 0.72 $ 0.68 $ 1.55 $ 0.94
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1997 AT DECEMBER 31, 1996
------------------------- -------------------------
ACTUAL AS ADJUSTED(A) ACTUAL AS ADJUSTED(A)
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Long-term debt, including allocated debt and
capital leases............................. $2,556 $4,656 $2,893 $4,993
</TABLE>
- - ---------------
(a) Gives effect to (i) the repurchase of 30 million shares of common stock for
$2.1 billion financed with new indebtedness and (ii) an increase in interest
expense due to the greater leverage of Destinations.
27
<PAGE> 31
ITT CORPORATION SELECTED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION. The
following selected unaudited consolidated pro forma financial information of the
Company gives effect to the purchase of the Shares pursuant to the Offer, the
Debt Tender Offer and related borrowings by the Company and Destinations, as if
such transactions had occurred on March 31, 1997, and December 31, 1996, for
Balance Sheet data and as of January 1, 1997 and January 1, 1996 for Income
Statement data. The selected unaudited consolidated pro forma information should
be read in conjunction with the selected consolidated financial information for
the Company set forth as Annex B hereto and does not purport to be indicative of
the results that would actually have been obtained had the purchase of the
Shares pursuant to the Offer, the Debt Tender Offer and the related borrowings
been completed at the dates indicated or that may be obtained in the future.
ITT CORPORATION
SELECTED UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
ACTUAL AS ADJUSTED(A) ACTUAL AS ADJUSTED(A)
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues..................................... $ 42 $ 42 $ 647 $ 647
Income (loss)................................ $ (9) $ (4) $ 54 $ 23
Earnings (loss) per share.................... $(0.08) $(0.05) $ 0.46 $ 0.26
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1997 AT DECEMBER 31, 1996
------------------------- -------------------------
ACTUAL AS ADJUSTED(A) ACTUAL AS ADJUSTED(A)
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Allocated debt............................... $1,000 $1,000 $1,000 $1,000
</TABLE>
- - ---------------
(a) Gives effect to (i) the repurchase of 30 million shares of common stock for
$2.1 billion financed with new indebtedness, (ii) an increase in interest
expense due to the greater leverage of the Company and (iii) an increase in
the effective tax rate which assumes the benefits of interest allocation had
been limited to the Company's ability to deduct them on its separate U.S.
Federal tax return.
28
<PAGE> 32
AVAILABLE INFORMATION. The Company is subject to the informational
requirements of the Exchange Act and, in accordance therewith, is required to
file annual, quarterly and current reports, proxy statements and other
information with the Commission. In addition, Destinations has filed with the
Commission a Registration Statement on Form 10 under the Exchange Act with
respect to the shares of Destinations common stock to be issued in the
Destinations Distribution (the "Destinations Registration Statement"). Such
reports, proxy statements and other information and the Destinations
Registration Statement should be available for inspection at the public
reference facilities maintained by the Commission at its offices at Room 1024,
450 Fifth Street, N.W., Washington, DC 20549 and at the Regional Offices of the
Commission at Seven World Trade Center, Suite 1300, New York, New York 10048 and
the Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661. Copies of these reports, proxy statements and other information and the
Destinations Registration Statement may be obtained through the World Wide Web
(http://www.sec.gov). The Commission maintains a web site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Such
material should also be available for inspection at the offices of the NYSE, 20
Broad Street, New York, NY 10005.
8. SOURCE AND AMOUNT OF FUNDS
The Company estimates that the total amount of funds required to purchase
30,000,000 Shares pursuant to the Offer and to pay fees and expenses related to
the Offer will be approximately $2.1 billion. The Company plans to finance the
various elements of the Comprehensive Plan through a combination of available
cash, approximately $1.265 billion of proceeds from borrowings under a new bank
credit facility and the issuance of debt securities by ITT ISI and its
subsidiaries and $3.3 billion in cash received in connection with the First and
Second Payments. Destinations plans to finance the First and Second Payments
under a new credit facility to be put in place for it. The Company has received
a letter from The Chase Manhattan Bank and Chase Securities Inc. stating that
they are highly confident that they will be able to arrange these borrowings for
Destinations and ITT ISI in amounts sufficient to consummate the Offer and the
other elements of the Comprehensive Plan (the "Credit Facilities").
Upon the consummation of the Offer, the Debt Tender Offer, the repayment of
other indebtedness and the Distributions, ITT ISI (which will consist of the
Company and its single direct subsidiary, ITT World Directories) will be
significantly more leveraged than the Company was prior to the consummation of
such transactions and will have indebtedness that is substantial in relation to
its stockholders' equity. As of June 30, 1997, on a pro forma basis after giving
effect to the Offer, the Debt Tender Offer, the repayment of other indebtedness
and the Distributions, ITT ISI would have had an aggregate of $1.265 billion of
outstanding indebtedness. In addition, upon consummation of the Distributions,
Destinations will also be significantly leveraged. As of June 30, 1997, on a pro
forma basis after giving effect to the Offer, the Debt Tender Offer, the
repayment of other indebtedness and the Distributions, Destinations would have
had an aggregate of $4.2 billion of outstanding indebtedness.
The high degree of leverage for ITT ISI and Destinations following the
Distributions could have important consequences to each, including the
following: (i) each company's ability to obtain additional financing on
favorable terms may be impaired in the future; (ii) a substantial portion of
each company's cash flow from operations will be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing the funds available
to such company for other purposes; (iii) each company may be more leveraged
than some of its competitors, which may place such company at a competitive
disadvantage; and (iv) each company's substantial degree of leverage may hinder
such company's ability to adjust rapidly to changing market conditions and could
make such company more vulnerable in the event of a downturn in general economic
conditions or in its business.
The ability of ITT ISI and Destinations to make scheduled payments or to
refinance their respective obligations with respect to its indebtedness will
depend on each company's financial and operating performance, which, in turn, is
subject to prevailing economic conditions and to certain financial, business and
other factors beyond their control. If the cash flow and capital resources of
either of ITT ISI or Destinations following the Distributions are insufficient
to fund its debt service obligations, such company may be forced to
29
<PAGE> 33
reduce or delay planned expansion and capital expenditures, sell assets, obtain
additional equity capital or restructure its debt. Although management believes
that the cash flow of each of ITT ISI and Destinations after the Distributions
will be adequate to meet interest and principal payments, no assurances can be
made that either company's operating results, cash flow and capital resources
will be sufficient for payment of its indebtedness in the future.
The Company expects that ITT ISI and Destinations will put in place
permanent debt financing concurrently with or after the Distributions, which
will involve the issuance of debt securities and the use of the proceeds to
repay indebtedness under the Credit Facilities. The Company also expects that
ITT ISI will use the proceeds of the Strategic Investment, if consummated,
primarily to reduce its indebtedness. The Company expects that Destinations
would use the proceeds of any additional asset sales primarily to reduce its
indebtedness.
9. TRANSACTIONS AND ARRANGEMENTS CONCERNING THE SHARES.
Based upon the Company's records and upon information provided to the
Company by its directors, executive officers and affiliates, neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge, any of
the directors or executive officers of the Company or, any of its subsidiaries,
nor any associates of any of the foregoing, has effected any transactions in the
Shares during the 40 business days prior to the date hereof.
Except as set forth in this Offer to Purchase, neither the Company nor, to
the best of the Company's knowledge, any of its affiliates, directors or
executive officers, or any of the executive officers or directors of its
subsidiaries, is a party to any contract, arrangement, understanding or
relationship with any other person relating, directly or indirectly, to the
Offer with respect to any securities of the Company (including, but not limited
to, any contract, arrangement, understanding or relationship concerning the
transfer of the voting of any such securities, joint ventures, loan or option
arrangements, puts or calls, guarantees of loans, guarantees against loss or the
giving or withholding or proxies, consents or authorizations).
10. CERTAIN EFFECTS OF THE OFFER.
Shares the Company acquires pursuant to the Offer will initially be held in
the Company's treasury or retired (or a combination thereof) and will be
available for the Company to issue without further stockholder action (except as
required by applicable law or the rules of the securities exchanges on which the
Shares are listed) for such purposes as, among others, the acquisition of other
businesses, the raising of additional capital for use in the Company's business,
the satisfaction of conversion requirements under securities issued by the
Company, the distribution of stock dividends and the implementation of, or the
satisfaction of obligations under, employee benefit plans. Except for the
possible Strategic Investment, the Company has no present plans to use any
authorized but unissued or treasury Shares for any other purpose. See
"Background and Purpose of the Offer -- Strategic Investment." Furthermore,
after the Distributions the Company may consider the acquisition of assets or
businesses and, to the extent any such assets or businesses become available on
attractive terms, authorized but unissued or, to the extent available, treasury
Shares may be used to make such an acquisition. See "General" in Section 7.
Although the Company does not have any current plans to acquire additional
Shares, the Company may in the future purchase Shares (in addition to those
purchased pursuant to the Offer) on the open market, in privately negotiated
transactions, through tender offers or otherwise, in such amounts, at such
prices and at such times as the Company may determine. Rule 13e-4 under the
Exchange Act generally prohibits the Company and its affiliates from purchasing
any Shares, other than pursuant to the Offer, until at least ten business days
after the Expiration Date. The Company will not purchase any additional Shares
until at least ten business days after the Expiration Date. Any possible future
purchases by the Company will depend on many factors, including the market price
of the Shares, the Company's business and financial position, alternative
investment opportunities available to the Company and general economic and
market conditions. Any of these possible purchases may be on the same terms as,
or on terms more or less favorable than, those of the Offer.
30
<PAGE> 34
As of June 30, 1997, the Company had issued and outstanding 116,528,681
Shares. The 30,000,000 Shares that the Company is offering to purchase pursuant
to the Offer represent approximately 25.7% of the Shares outstanding as of such
date.
THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS DIRECTORS OR EXECUTIVE
OFFICERS INTENDS TO TENDER ANY SHARES PURSUANT TO THE OFFER.
The Company's purchase of Shares pursuant to the Offer will reduce the
number of Shares that might otherwise trade publicly. Nonetheless, there will
still be a sufficient number of Shares outstanding and publicly traded following
the consummation of the Offer to ensure a continued trading market in the
Shares. Based on the published guidelines of the NYSE, the purchase by the
Company of Shares pursuant to the Offer will not cause its remaining Shares to
be delisted from such exchange.
The Shares are currently "margin securities" under the rules of the Federal
Reserve Board. This has the effect, among other things, of allowing brokers to
extend credit on the collateral of the Shares. Following the repurchase of
Shares pursuant to the Offer, the Shares will continue to be "margin securities"
for purposes of the Federal Reserve Board's margin regulations.
The Shares are registered under the Exchange Act which requires, among
other things, that the Company furnish certain information to its stockholders
and to the Commission and comply with the Commission's proxy rules in connection
with meetings of the Company's stockholders. The purchase by the Company of
Shares pursuant to the Offer will not result in the Shares becoming eligible for
deregistration under the Exchange Act.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION AS
TO WHETHER ANY STOCKHOLDER SHOULD TENDER ANY OR ALL OF SUCH STOCKHOLDER'S SHARES
PURSUANT TO THE OFFER. EACH STOCKHOLDER MUST MAKE ITS OWN DECISION WHETHER TO
TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER.
11. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other term or provision of the Offer, the Company will
not be required to accept for payment or, subject to any applicable rules and
regulations of the Commission, including Rule 14e-1(c) under the Exchange Act
(relating to a bidder's obligation to pay for or return tendered securities
promptly after the termination or withdrawal of such bidder's offer), to pay for
any Shares not theretofore accepted for payment or paid for unless the Company
shall be satisfied, in its reasonable discretion, that (i) all conditions to the
consummation of the Destinations Distribution (other than in respect of the
Offer) are satisfied, (ii) there exists no significant impediment, or material
likelihood of a significant impediment, to the timely consummation of the
Destinations Distribution on substantially the terms described herein and (iii)
all material consents, approvals, orders or authorizations of, or registrations,
declarations or filings with, any governmental authority with jurisdiction in
respect of the Company's gaming operations required or necessary in connection
with the Offer or any other element of the Comprehensive Plan have been made or
obtained and are in full force and effect. See Section 12. Furthermore,
notwithstanding any other term or provision of the Offer, the Company will not
be required to accept for payment or, subject as aforesaid, to pay for any
Shares not theretofore accepted for payment or paid for, and may terminate or
amend the Offer if, at any time on or after July 16, 1997, and before the
acceptance for payment of such Shares or the payment therefor, any of the
following events or facts shall have occurred or exist:
(a) other than the existing claims in litigation concerning the Hilton
Transaction and the Company's declaratory judgment action, there shall be
threatened, instituted or pending any action, proceeding, application or
counterclaim by any government or governmental, regulatory or
administrative authority, instrumentality or agency, domestic, foreign or
supranational (each, a "Governmental Entity"), or by any other person,
domestic or foreign, before any court or Governmental Entity, that (i)(A)
challenges or seeks to, or is reasonably likely to, make illegal, delay or
otherwise directly or indirectly restrain or prohibit, or seeks to, or is
reasonably likely to, impose voting, procedural, price or
31
<PAGE> 35
other requirements, in addition to those required by Federal securities
laws and the NGCL (each as in effect on the date of this Offer to
Purchase), in connection with, the making of the Offer, the acceptance for
payment of, or payment for, some of or all the Shares by the Company or any
affiliate of the Company or the consummation of the Distributions or any
other material element of the Comprehensive Plan on the terms contemplated
hereby, (B) seeks to obtain material damages or (C) otherwise directly or
indirectly relates to the transactions contemplated by the Offer, the
Distributions or any other material element of the Comprehensive Plan, (ii)
in the sole judgment of the Company, might otherwise materially adversely
affect the Company or any of its subsidiaries or affiliates or the value of
the Shares or (iii) in the sole judgment of the Company, could materially
adversely affect the business, properties, assets, liabilities,
capitalization, stockholders' equity, condition (financial or otherwise),
operations, licenses or franchises, results of operations or prospects of
the Company or any of its subsidiaries or affiliates or could materially
impair the contemplated benefits to the Company of the Offer or the other
elements of the Comprehensive Plan;
(b) there shall be any action taken, or any statute, rule, regulation,
legislation, interpretation, judgment, order or injunction proposed,
enacted, enforced, promulgated, amended, issued or deemed applicable to (i)
the Company or any of its subsidiaries or affiliates or (ii) the Offer, the
Distributions or any other material element of the Comprehensive Plan, by
any government, legislative body or court, domestic, foreign or
supranational, or Governmental Entity, that, in the sole judgment of the
Company, might, directly or indirectly, (A) make the acceptance for payment
of, or payment for, Shares illegal or otherwise restrict or prohibit
consummation of the Offer or any other material element of the
Comprehensive Plan, (B) delay or restrict the ability of the Company, or
render the Company unable, to accept for payment, or pay for, Shares, (C)
materially impair the contemplated benefits to the Company of the Offer or
the other elements of the Comprehensive Plan, (D) change in any material
respect the terms of the Distributions, the Offer or the Debt Tender Offer
or any other element of the Comprehensive Plan, (E) delay or restrict the
ability of the Company, or render the Company unable, to effect the
Distributions or any other element of the Comprehensive Plan on the terms
contemplated hereby, (F) materially impair in any way the contemplated
future conduct of the business of the Company, ITT ISI, ITT Educational or
Destinations or any of their respective subsidiaries or (G) result in any
of the consequences referred to in clauses (i) through (iii) of paragraph
(a) above;
(c) any change shall have occurred or been threatened (or any
condition, event or development shall have occurred or been threatened
involving a prospective change) in the business, properties, assets,
liabilities, capitalization, stockholders' equity, condition (financial or
otherwise), operations, licenses or franchises, results of operations or
prospects of the Company or any of its subsidiaries or affiliates that, in
the sole judgment of the Company, is or may be materially adverse to the
Company or any of its subsidiaries or affiliates;
(d) there shall have occurred or been threatened (i) any general
suspension of trading in, or limitation on prices for, securities on any
national securities exchange or in the over-the-counter market in the
United States (other than any coordinated trading halt triggered solely by
a specified decrease in a market index), (ii) any extraordinary or material
adverse change in the financial markets or major stock exchange indices in
the United States or abroad or in the market price of Shares, (iii) any
change in the general political, market, economic or financial conditions
in the United States or abroad that could, in the sole judgment of the
Company, have a material adverse effect upon the business, properties,
assets, liabilities, capitalization, stockholders' equity, condition
(financial or otherwise), operations, licenses or franchises, results of
operations or prospects of the Company or any of its subsidiaries or the
trading in, or value of, the Shares, (iv) any material change in United
States currency exchange rates or any other currency exchange rates or a
suspension of, or limitation on, the markets therefor, (v) a declaration of
a banking moratorium or any suspension of payments in respect of banks in
the United States, (vi) any limitation (whether or not mandatory) by any
government, domestic, foreign or supranational, or Governmental Entity on,
or other event that, in the sole judgment of the Company, might affect, the
extension of credit by banks or other lending institutions, (vii) a
commencement of a war or armed hostilities or other national or
international calamity directly or indirectly involving the United States
or
32
<PAGE> 36
(viii) in the case of any of the foregoing existing at the time of the
commencement of the Offer, a material acceleration or worsening thereof;
(e) (i) a tender or exchange offer for any Shares, or a solicitation
of proxies from the Company's stockholders with respect or related to any
proposal for a merger, acquisition or other business combination or
acquisition of a material amount of assets involving the Company, shall
have been made or publicly proposed to be made by any person (other than
Hilton), (ii) any of the Hilton Nominees shall have been elected to the
Board of Directors of the Company, (iii) Hilton shall have amended or
publicly disclosed an intention to amend the Hilton Offer in any material
respect (other than an amendment which terminates the Hilton Offer without
the purchase of any Shares thereunder) or (iv) it shall have been publicly
disclosed or the Company shall have otherwise learned that any person,
entity or "group" (within the meaning of Section 13(d)(3) of the Exchange
Act) shall have proposed to acquire (other than Hilton's proposal to
acquire Shares pursuant to the Hilton Offer as in effect on the date of
this Offer to Purchase), or any person, entity or "group" (including Hilton
or any of its affiliates) shall have acquired, beneficial ownership of more
than five percent of the outstanding Shares, through the acquisition of
stock, the formation of a group or otherwise (other than a person, entity
or group which had publicly disclosed such ownership in a Schedule 13D or
Schedule 13G (or an amendment thereto) on file with the Commission prior to
July 16, 1997), (C) any such person, entity or group that prior to July 16,
1997, had filed such a Schedule 13G or 13D with the Commission has acquired
or proposes to acquire, through the acquisition of stock, the formation of
a group or otherwise, beneficial ownership of one percent or more of the
Shares or (D) any person (other than Hilton) shall have filed a
Notification and Report Form under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (or amended a prior filing to increase the
applicable filing threshold set forth therein) or made a public
announcement reflecting an intent to acquire the Company or any assets or
subsidiaries of the Company;
(f) the Company shall be unable for any reason to effect borrowings
under the Credit Facilities, or obtain alternative sources of financing on
acceptable terms, sufficient to purchase 30,000,000 Shares pursuant to the
Offer and finance the Debt Tender Offer and the repayment of other
indebtedness as contemplated by the Comprehensive Plan;
(g) the Company shall have entered into a definitive agreement or an
agreement in principle with any person with respect to a merger, other
business combination or acquisition proposal, dispositions of assets other
than in the ordinary course or pursuant to the Comprehensive Plan, or the
Board shall have approved any other transaction that, in any such case, in
the sole discretion of the Company, makes the Offer or the Distributions
inadvisable; or
(i) all consents and approvals required to be obtained from any
Federal or state governmental agency, authority or instrumentality in
connection with each component of the Comprehensive Plan (other than in
connection with the ITT Educational Distribution and including those
described or referred to in Section 12) shall not have been obtained or the
Company shall have been advised, or otherwise shall have reason to believe,
that any such consent or approval will be denied or substantially delayed,
or will not be given other than upon terms or conditions which would, in
the opinion of the Company, make it inadvisable to proceed with the Offer
or any other element of the Comprehensive Plan;
such that, in the reasonable judgment of the Company in any such case, and
regardless of the circumstances (including any action or inaction by the Company
or any of its subsidiaries or affiliates) giving rise to any such condition,
makes it inadvisable to proceed with the Offer and/or with such acceptance for
payment or payment or with any material element of the Comprehensive Plan. THE
COMPANY INTENDS TO TERMINATE THE OFFER IF HILTON OR ANY AFFILIATE OF HILTON
ACQUIRES A MATERIAL NUMBER OF SHARES PURSUANT TO THE HILTON OFFER OR OTHERWISE
OR IF ANY OF THE HILTON NOMINEES ARE ELECTED TO THE BOARD OF DIRECTORS OF THE
COMPANY.
The Company's plan to consummate the Destinations Distribution is subject
to certain conditions, including (a) all necessary approvals of any governmental
or regulatory bodies having been obtained, including approval by the gaming
authorities of the states of Nevada, New Jersey and Mississippi, and by the
Federal Communications Commission (see Section 12), (b) all necessary consents
of third parties having been obtained, (c) final action by the Board of
Directors of the Company declaring the Destinations
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Distribution, (d) the satisfaction of all conditions to the Tender Offers (other
than the conditions to the Distributions set forth in this paragraph), including
the financing conditions, (e) the shares of Destinations common stock to be
distributed in the Destinations Distribution having been approved for listing on
the NYSE, subject to official notice of issuance, (f) Destinations' Registration
Statement on Form 10 under the Exchange Act relating to Destinations common
stock having become effective under the Exchange Act, (g) there not being in
effect any statute, rule, regulation or order of any court, governmental or
regulatory body which prohibits or makes illegal the transactions contemplated
by the Comprehensive Plan and (h) the receipt by the Company of an opinion of
counsel that the Destinations Distribution will be tax-free to the Company and
its stockholders. The Destinations Distribution is not conditioned upon the
completion of the Strategic Investment or the ITT Educational Distribution.
The Board has retained discretion to abandon, defer or modify the
Comprehensive Plan and each element of the Comprehensive Plan in light of
changed circumstances. The Board, however, intends to pursue the Comprehensive
Plan on the terms described herein if Hilton withdraws its interest in acquiring
the Company. The conditions to any element of the Comprehensive Plan may be
waived by the Board. However, the Board will not waive the requirement of
receipt of an opinion of counsel that the Destinations Distribution will be
tax-free to the Company and its stockholders. Accordingly, the terms of the
Comprehensive Plan remain subject to modification, and there can be no assurance
that the Comprehensive Plan will occur as described herein.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion; provided, however, that the Exchange
Act and the rules and regulations promulgated thereunder require that all
conditions to the Offer, other than those relating to the receipt of certain
necessary governmental approvals, must be satisfied or waived prior to the
Expiration Date. The failure by the Company at any time to exercise any of the
foregoing rights will not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and circumstances will not be
deemed a waiver with respect to any other facts and circumstances and each such
right will be deemed an ongoing right that may be asserted at any time and from
time to time. Any determination by the Company concerning the events described
in this section and any related judgment by the Company regarding the
inadvisability of proceeding with the acceptance for payment or payment for any
tendered Shares will be final and binding upon all parties.
12. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS
Except as described in this section, the Company is not aware of any
license or regulatory permit that appears to be material to its business that
might be adversely affected by its acquisition of Shares as contemplated in the
Offer or of any approval or other action by any government or governmental,
administrative or regulatory authority or agency, domestic or foreign, that
would be required for the Company's acquisition or ownership of Shares pursuant
to the Offer. Should any such approval or other action be required, the Company
currently contemplates that it will seek such approval or other action. The
Company cannot predict whether it may determine that it is required to delay the
acceptance for exchange of Shares tendered pursuant to the Offer pending the
outcome of any such matter. There can be no assurance that any such approval or
other action, if needed, would be obtained or would be obtained without
substantial conditions or that the failure to obtain any such approval or other
action might not result in adverse consequences to the Company's business. The
Company intends to make all required filings under the Exchange Act. The
Company's obligation under the Offer to accept Shares for payment is subject to
certain conditions as set forth in Section 11. The Company does not believe the
Offer, in and of itself, requires the prior approval of any regulatory bodies
having jurisdiction over the Company or its business. As described below,
however, the Offer may require the approval of the gaming authorities of the
states of Nevada, New Jersey and Mississippi if such authorities determine that
the Offer is part of a "plan of recapitalization." In addition, the Offer is
subject to the satisfaction of all conditions to consummation of the
Destinations Distribution and the Company being satisfied, in its sole
discretion, that there exists no significant impediment, or material likelihood
of a significant impediment, to the timely consummation of the Distributions.
The Distributions require the approvals of the regulatory bodies described
below. See Section 11.
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NEVADA GAMING REGULATORY APPROVALS
GENERAL. The ownership and operation of casino gaming facilities in Nevada
are subject to extensive state and local regulation; these include (i) the
Nevada Gaming Control Act (the "Nevada Act"), (ii) the regulations promulgated
under the Nevada Act (the "Nevada Regulations") and (iii) various local
ordinances and regulations (such ordinances and regulations, together with the
Nevada Act and the Nevada Regulations, the "Nevada Gaming Law"). The Company's
Nevada gaming operations are subject to the licensing and regulatory control of
the Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming
Control Board (the "Nevada Board"), the Clark County Liquor and Gaming Licensing
Board (the "CCLGLB"), and the Douglas County Commission (the "DCC" and, together
with the Nevada Commission, the Nevada Board and the CCLGLB, the "Nevada Gaming
Authorities"). The Company's Nevada gaming operations -- at The Desert Inn
Resort & Casino in Las Vegas, Caesars Palace in Las Vegas, and Caesars Tahoe in
Stateline (collectively the "Nevada Licensees") -- are subject to Nevada Gaming
Law and to the jurisdiction of the Nevada Gaming Authorities.
The Company is registered with the Nevada Commission as a publicly traded
corporation (a "Registered Corporation") and has been found suitable to own,
through intermediate subsidiaries, the stock of subsidiaries that are licensed
to conduct gaming operations in the State of Nevada. The Nevada Regulations
provide that control of a Registered Corporation cannot be changed through
statutory merger, consolidation, acquisition of assets, management or consulting
agreements, or any form of takeover without the prior approval of the Nevada
Commission. A person seeking the approval of the Nevada Commission to acquire
control of a Registered Corporation must satisfy a variety of stringent
standards prior to assuming control of such Registered Corporation and the
failure of a person to obtain such approval prior to assuming control over a
Registered Corporation may constitute grounds for finding such person
unsuitable. The Nevada Regulations also prohibit certain repurchases of
securities by a Registered Corporation without the prior approval of the Nevada
Commission. Transactions covered by the Nevada Regulations are generally aimed
at discouraging repurchases of securities at a premium over market price from
certain holders of more than 3% of the outstanding securities of such Registered
Corporation. The Nevada Regulations also require prior approval for a "plan of
recapitalization;" generally, a plan of recapitalization is a plan that (i) is
proposed by the management of a Registered Corporation to its security holders
that contains recommended action in response to a proposed corporate acquisition
opposed by management of the corporation, (ii) involves a cash dividend to
voting security holders or a cash payment in exchange for voting securities in
excess of 50% of the then current market value of the voting securities and
(iii) is financed in substantial part by borrowings from financial institutions
or the issuance of debt securities. In addition, under the Nevada Regulations a
Registered Corporation is required to seek prior approval for any public
offering of its securities.
THE OFFER. The Company believes that the Offer, in and of itself, does not
require the prior approval of the Nevada Gaming Authorities. However, if the
Offer involved the aggregate payment of cash to voting security holders in
excess of 50% of the aggregate current market value of the Shares, the Nevada
Gaming Authorities may determine that the Comprehensive Plan, of which the Offer
is a part, constitutes a "plan of recapitalization" under the Nevada
Regulations, in which case the Company and Destinations would be required to
obtain the prior approval of the Nevada Commission prior to consummating the
Offer and the Destinations Distribution.
With respect to the applicable criteria for such approval, the Nevada Board
and Nevada Commission will consider all relevant material facts in determining
whether to grant such approval, and may consider not only the effects of the
Comprehensive Plan but also any other facts deemed relevant. Such facts may
include, among other things, (i) the business history of the applicant,
including its record of financial credibility, integrity, and success of its
operations, (ii) the current business activities and interest of the applicant,
as well as those of its executive officers, promoters, lenders, and other
sources of financing, or any other individuals associated therewith, (iii) the
current financial structure of the applicant, as well as changes which could
reasonably be anticipated to occur to such financial structure as a consequence
of the proposed action of the applicant, (iv) the gaming-related goals and
objectives of the applicant, including a description of the plans and strategy
for achieving such goals and objectives, (v) the relationship between such goals
and objectives and the requested approval, (vi) the adequacy of the proposed
financing or other action to achieve the
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<PAGE> 39
announced goals and objectives, (vii) the present and proposed compensation
arrangements between the applicant and its directors, executive officers,
principal employees, security holders, lenders, or other sources of financing,
(viii) the equity investment, commitment or contribution of present or
prospective directors, officers, principal employees, investors, lenders, or
other sources of financing, (ix) the dealings and arrangements, prospective or
otherwise, between the applicant and any investment bankers, promoters, finders
or lenders, and other sources of financing, (x) the effect of the proposed
action on existing and prospective security holders of the applicant, both
before and after the intended action, (xi) whether the applicant has made full
and complete disclosure of all material facts relative to the proposed action to
the Nevada Board and the Nevada Commission and made provision for such
disclosure to all prospective security holders, (xii) whether the proposed
action tends not to work a fraud upon the public, (xiii) whether a proposed
public offering contains speculative securities and (xiv) whether a proposed
transaction will create a significant risk that the publicly traded corporation
and its affiliated companies will not either satisfy their financial obligations
as they become due or satisfy all financial and regulatory requirements imposed
by the Nevada Act.
DEBT TENDER OFFER. The Company believes that the Debt Tender Offer, in and
of itself, does not require the prior approval of the Nevada Gaming Authorities.
However, since it is contemplated that the Debt Tender Offer will be financed in
whole or in part by the Credit Facilities, the interaction of the Debt Tender
Offer and the Credit Facilities may require the prior approval of the Nevada
Gaming Authorities.
DESTINATIONS DISTRIBUTION. Because the Destinations Distribution involves
the pro rata distribution of all the shares of Destinations to stockholders of
the Company, Destinations will seek the following approvals from the Nevada
Commission: (i) registration of Destinations, on an interim basis, as an
intermediary/holding company for the Nevada Licensees; (ii) registration of
Destinations as a publicly traded corporation; (iii) approval of the listing of
Destinations common stock on the NYSE; (iv) approval for continuous or delayed
public offering by Destinations or any affiliated company wholly owned by it
which is or would thereby become a publicly traded corporation; and (v) such
other approvals as may become necessary or desirable in connection with the
Destinations Distribution and the other components of the Comprehensive Plan.
In addition, the Nevada Gaming Authorities may require controlling
stockholders, officers, directors and other persons associated with Destinations
having a material relationship or material involvement with the Nevada Licensees
to be investigated and licensed as part of the approval process for the
Destinations Distribution. The Nevada Gaming Authorities may deny an application
for licensing or a finding of suitability for any cause that they deem
reasonable. A finding of suitability is comparable to licensing and both require
the submission of detailed personal and financial information followed by a
thorough investigation. If the Nevada Gaming Authorities find an officer,
director or key employee unsuitable for licensing or unsuitable to continue
having a relationship with Destinations and the Nevada Licensees, the companies
involved would be required to sever all relationships with such person. Inasmuch
as all the relevant officers, directors and other persons associated with
Destinations have already been subject to review by the Nevada Gaming
Authorities, the Company believes that the investigation and licensing of such
individuals will not present a substantial regulatory obstacle.
Once the necessary approvals for the Destinations Distribution are obtained
from the Nevada Gaming Authorities, the Company will seek approval from the
Nevada Commission for its de-registration.
As noted above under "-- the Offer," the interaction of the various
transactions contemplated by the Comprehensive Plan may be sufficient to
characterize the Comprehensive Plan as a plan of recapitalization under the
Nevada Gaming Law, and, in turn, require the Company to seek additional
approvals from the Nevada Gaming Authorities. In addition, to the extent that
the financing utilized in the Comprehensive Plan, such as the Credit Facilities,
involves agreements to (i) grant possessory security interests in the equity
securities issued by the Nevada Licensees or any affiliated holding company,
(ii) restrict the transfer of equity securities issued by any Nevada Licensee or
any affiliated holding company or (iii) not encumber equity securities issued by
any Nevada Licensee or any affiliated holding company, the Company and
Destinations will be required to obtain the prior approval of the Nevada Gaming
Authorities.
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On July 16, 1997, the Company and Destinations filed the relevant
applications for approval with the Nevada Gaming Authorities in conjunction with
the Comprehensive Plan. The Company and Destinations will promptly file any
additional applications or notices, if necessary, with the Nevada Gaming
Authorities. Due to the various approvals requested by Destinations with respect
to the Destinations Distribution, there can be no assurances as to when the
Nevada Board and the Nevada Commission will take final action. Further, any such
approvals, if granted, do not constitute a finding, recommendation or approval
by the Nevada Board or Nevada Commission as to the accuracy or adequacy of the
Destinations Distribution or the merits of the Comprehensive Plan.
NEW JERSEY GAMING REGULATORY APPROVALS
IN GENERAL. Casino gaming in New Jersey is subject to compliance with the
New Jersey Casino Control Act (the "New Jersey Act") and the regulations
promulgated under the New Jersey Act (the "New Jersey Regulations" and, together
with the New Jersey Act, the "New Jersey Gaming Law"). The Company's New Jersey
operations are subject to compliance investigations by the Division of Gaming
Enforcement of the New Jersey Department of Law and Public Safety (the "New
Jersey DGE") and the supervision, licensing and regulatory control of the New
Jersey Casino Control Commission (the "New Jersey Commission" and, together with
the New Jersey DGE, the "New Jersey Gaming Authorities"). The Company's New
Jersey operations -- at Caesars Atlantic City -- are subject to New Jersey
Gaming Law and to the jurisdiction of the New Jersey Gaming Authorities.
New Jersey Gaming Law primarily concerns (i) the financial stability and
character of casino operators, their employees, their security holders and
others financially interested in casino operations and (ii) the operating
methods and financial and accounting procedures used in connection with casino
operations. The New Jersey Gaming Law includes detailed provisions concerning,
among other things, (a) the type, manner and number of applications and licenses
required to conduct casino gaming and ancillary activities, (b) the licensing,
regulation and curricula of gaming schools, (c) the establishment of minimum
standards of accounting and internal control, including the issuance and
enforceability of casino credit, (d) the manufacture, sale, distribution and
possession of gaming equipment, (e) the rules of the games, (f) the exclusion of
undesirable persons, (g) the use, regulation and reporting of junket activities,
(h) the possession, sale and distribution of alcoholic beverages, (i) the
regulation and licensing of suppliers to licensed casino operators, (j) the
conduct of entertainment within licensed casino facilities, (k) equal
opportunity employment for employees of licensed casino operators, contractors
for casino facilities and the like, (l) the payment of gross revenue taxes and
similar fees and expenses, (m) the conduct of casino simulcasting, and (n) the
imposition and discharge of casino reinvestment development obligations.
THE OFFER. The Company believes that the Offer, in and of itself, does not
require the prior approval of the New Jersey Gaming Authorities.
DEBT TENDER OFFER. The Company believes that the Debt Tender Offer, in and
of itself, does not require the prior approval of the New Jersey Gaming
Authorities. However, it is contemplated that the Debt Tender Offer will be
financed in whole or in part by the Credit Facilities, which will require the
prior approval of the New Jersey Gaming Authorities.
DESTINATIONS DISTRIBUTION. New Jersey Gaming Law requires prior approval
from the New Jersey Commission before securities of a casino licensee or one of
its holding companies that is not publicly traded can be transferred. In
addition, any person acquiring the securities of a casino licensee or privately
held holding company must become qualified by the New Jersey Commission or
dispose of such securities. However, the New Jersey Act provides that the New
Jersey Commission has the discretion to permit an entity to acquire and own
securities of such licensee on an interim basis ("interim authorization") until
that entity is plenarily qualified by the New Jersey Commission; during the
period of interim authorization, the securities of such licensee must be held in
a trust pursuant to the provisions of the New Jersey Act.
Because the Destinations Distribution involves the pro rata distribution of
all the shares of Destinations to stockholders of the Company, Destinations will
seek the following approvals, determinations and/or waivers from the New Jersey
Commission: (i) approval of the transfer of the common stock of Caesars,
including
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Caesars' interest in Caesars New Jersey, Inc. and Boardwalk Regency Corporation
("BRC"), to Destinations as part of a corporate restructuring of the Company's
gaming business, (ii) the determination that the interim authorization
requirements -- including the establishment of a trust -- are inapplicable to
such transfers, (iii) the determination that, after the Destinations
Distribution, BRC and its holding and intermediary companies will possess the
financial stability, integrity and responsibility required by the New Jersey
Act, (iv) the determination that the Articles of Incorporation of Destinations
satisfy the requirements of the New Jersey Act, (v) the waiver of qualification
of shareholders of Destinations, (vi) the determination that the relevant
officers and directors of Destinations and the Company's New Jersey operations
are qualified under the New Jersey Act, (vii) the qualification of Destinations
as a holding and intermediary company of the Company's New Jersey operations and
(viii) the waiver of qualification of officers of Destinations and the Company's
New Jersey operations who are not significantly involved in the affairs of BRC.
In addition, the New Jersey Gaming Authorities will require that the Credit
Facilities -- which will be used to finance in whole or in part the Offer and
the Debt Tender Offer -- be approved and that each financial source of the
Company's New Jersey operations or holding companies and each holder of debt
securities of the Company's New Jersey operations or holding companies be
qualified. Banking and other licensed lending institutions are exempt from the
qualification requirements of the New Jersey Act. Because the Credit Facilities
will be used to finance in whole or in part the Offer and the Debt Tender Offer,
Destinations will seek the following approvals from the New Jersey Commission:
(i) a determination that the lenders under the Credit Facilities are exempt from
the qualification requirements because all such lenders are banking or other
licensed lending institutions; (ii) approval of the material debt transaction if
it involves the pledge of the assets of the Company's New Jersey operations; and
(iii) a waiver of the qualification of the holders of any debt securities of
Destinations or its subsidiaries.
The qualification requirements of any debt or equity security holder of
Destinations may be waived based on an express finding by the New Jersey
Commission, with the consent of the Director of the New Jersey DGE, that the
security holder either (a)(i) is not significantly involved in the activities of
BRC, (ii) does not have the ability to control BRC or any of its holding or
intermediary companies and (iii) does not have the ability to elect one or more
members of the respective boards of directors of Destinations, BRC or its
holding or intermediary companies or (b) is an "institutional investor," as such
term is defined in New Jersey Gaming Law. For purposes of clause (a), 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 Destinations
has the ability to control Destinations, BRC and its holding or intermediary
companies, unless such presumption is rebutted by clear and convincing evidence.
The New Jersey Gaming Law defines an "institutional investor" as (i) any
retirement fund administered by a public agency for the exclusive benefit of
Federal, state or local public employees, (ii) an investment company registered
under the Investment Company Act of 1940, (iii) a collective investment trust
organized by banks under Part Nine of the Rules of the Comptroller of the
Currency, (iv) a closed end investment trust, (v) a chartered or licensed life
insurance company or property and casualty insurance company, (vi) banking or
other licensed or chartered lending institutions, (vii) an investment advisor
registered under the Investment Advisors Act of 1940 or (viii) such other
persons as the New Jersey Commission may determine for reasons consistent with
the policies of the New Jersey Act. In the absence of a prima facie showing by
the Director of the 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 Destinations or (b) Destinations debt securities
constituting less than 20% of the outstanding debt of Destinations and less than
50% of the issue involved shall be granted a waiver of qualification of such
holdings if (x) such securities are those of a publicly traded corporation, (y)
the institutional investor's holdings of such securities were purchased for
investment purposes only and (z) upon request by the New Jersey Commission, the
institutional investor files with the New Jersey Commission a certified
statement to the effect that the institutional investor has no intention of
influencing or affecting the affairs of Destinations, BRC or its holding or
intermediary companies; notwithstanding the foregoing, the institutional
investor is permitted to vote on matters put to the vote of the outstanding
security holders of Destinations.
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If an institutional investor who has been granted a waiver subsequently
determines to influence or affect the affairs of 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 Destinations. Notwithstanding the
foregoing, the institutional investor is permitted to vote on matters put to the
vote of the outstanding security holders of Destinations. If an institutional
investor changes its investment intent, or if the New Jersey Commission finds
reasonable cause to believe that an 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. Destinations, BRC and
its holding and intermediary companies are required to 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 Destinations, BRC or its holding or intermediary companies 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 Destinations in a 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 or
qualification being made, the trustee will be empowered with all rights of
ownership pertaining to such security holder's 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 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 (x) receive any dividends
or interest on such securities, (y) exercise, directly or through any trustee or
nominee, any right conferred by such securities or (z) receive any remuneration
in any form from Destinations, BRC or its holding or intermediary companies for
services rendered or otherwise.
The New Jersey Act requires that each of Destinations, BRC and its holding
and intermediary companies maintain financial stability and capability. For
purposes of these requirements, the New Jersey Commission has adopted
regulations defining "financial stability" as the same applies to licensed
casino operations and has set forth certain standards for determining compliance
with the financial stability regulations. Under the New Jersey Regulations,
"financial stability" has been defined as (i) the ability to assure the
financial integrity of casino operations by the maintenance of a casino bankroll
or equivalent provisions adequate to pay winning wagers to casino patrons when
due, (ii) the ability to meet ongoing operating expenses which are essential to
the maintenance of continuous and stable casino operations, (iii) the ability to
pay, as and when due, all local, state and Federal taxes and any and all fees
imposed by the New Jersey Act, (iv) the ability to make necessary capital and
maintenance expenditures in a timely manner which are adequate to insure
maintenance of a superior first-class facility of exceptional quality as
required by the New Jersey Act and (v) the ability to pay, exchange, refinance
or extend debts, including long-term and short-term principal and interest and
capital lease obligations, which will mature or otherwise come due and payable
during either the license term or within 12 months after the end of the license
term or to otherwise manage such debts and any default with respect to the
debts. The New Jersey Regulations provide that the financial stability standards
concerning casino bankroll, operating expenses and capital and maintenance
expenditures are met if the following is
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shown by clear and convincing evidence: (i) casino bankroll -- the maintenance,
on a daily basis, of a casino bankroll at least equal to the average daily
casino bankroll, calculated on a monthly basis, for the corresponding month of
the previous year; (ii) operating expenses -- the demonstration of the ability
to achieve positive gross operating profit measured on an annual basis; and
(iii) capital and maintenance expenditures -- the demonstration that its capital
and maintenance expenditures for the five-year period, which includes the
previous 36 calendar months and the upcoming license period, average at least
five percent of net revenue per annum. Destinations believes that, at current
operating levels, BRC will be in compliance with these requirements.
The New Jersey Commission has the authority to restrict or prohibit the
transfer of cash or the assumption of liabilities by BRC if such action will
adversely impact the financial stability of BRC and the prior approval of the
New Jersey Commission is required to incur indebtedness and guarantees of
affiliated indebtedness by BRC involving amounts greater than $25 million.
The interaction of the various transactions contemplated by the
Comprehensive Plan may trigger the need to seek additional approvals from the
New Jersey Gaming Authorities. In addition, to the extent that the financing
utilized in the Comprehensive Plan, such as the Credit Facilities, involves
agreements to (i) restrict the transfer of equity securities issued by BRC or
its holding or intermediary companies or (ii) not encumber equity securities
issued by BRC or its holding or intermediary companies, the Company and
Destinations will be required to obtain the prior approval of the New Jersey
Gaming Authorities.
On July 16, 1997, the Company and Destinations filed the relevant
applications for approval with the New Jersey Gaming Authorities in conjunction
with the Comprehensive Plan. The Company and Destinations will promptly file any
additional applications or notices, if necessary, with the New Jersey Gaming
Authorities. Due to the various approvals requested by Destinations with respect
to the Destinations Distribution, there are no assurances as to when the New
Jersey Commission will take final action. Further, any such approvals, if
granted, do not constitute a finding, recommendation or approval by the New
Jersey Commission as to the accuracy or adequacy of the Destinations
Distribution or the merits of the Comprehensive Plan.
MISSISSIPPI GAMING REGULATORY APPROVALS
IN GENERAL. The ownership and/or operation of casino gaming facilities in
Mississippi are similarly subject to extensive state and local regulation; these
include (i) the Mississippi Gaming Control Act (the "Mississippi Act"), (ii) the
regulations promulgated under the Mississippi Act (the "Mississippi
Regulations"), and (iii) various local ordinances and regulations (such
ordinances and regulations, together with the Mississippi Act and the
Mississippi Regulations, the "Mississippi Gaming Law"). The Company's
Mississippi gaming operations are subject to the licensing and regulatory
control of the Mississippi Gaming Commission (the "Mississippi Commission"). The
Company's Mississippi gaming operations -- at The Sheraton Casino in Tunica,
Mississippi ("Sheraton Tunica") -- are subject to Mississippi Gaming Law and the
jurisdiction of the Mississippi Commission.
In all material respects, casino gaming regulation in Mississippi is
similar to the regulation of casino gaming in Nevada.
THE OFFER. The Company believes that the Offer, in and of itself, does not
require the prior approval of the Mississippi Commission. However, if the Offer
involves the aggregate payment of cash to voting security holders in excess of
50% of the aggregate current market value of the Shares, the Mississippi
Commission may determine that the Comprehensive Plan, of which the Offer is a
part, constitutes a "plan of recapitalization" under the Mississippi
Regulations, in which case the Company and Destinations would be required to
obtain the prior approval of the Mississippi Commission prior to consummating
the Offer and the Destinations Distribution.
With respect to the applicable criteria for such approval, the Mississippi
Commission will consider all relevant material facts in determining whether to
grant such approval, and may consider not only the effects of the Comprehensive
Plan but also any other facts deemed relevant, including all the facts that the
Nevada
40
<PAGE> 44
Board and Nevada Commission would consider set forth above under "-- Nevada
Gaming Regulatory Approvals -- The Offer."
DEBT TENDER OFFER. The Company believes that the Debt Tender Offer, in and
of itself, does not require the prior approval of the Mississippi Commission.
However, since the Debt Tender Offer will be financed in whole or in part by the
Credit Facilities, the interaction of the Debt Tender Offer and the Credit
Facilities may require the prior approval of the Mississippi Commission.
DESTINATIONS DISTRIBUTION. Because the Destinations Distribution involves
the pro rata distribution of all the shares of Destinations to stockholders of
the Company, Destinations will seek the following approvals from the Mississippi
Commission: (i) registration of Destinations, on an interim basis, as an
intermediary/holding company for Sheraton Tunica; (ii) registration of
Destinations as a publicly traded corporation; (iii) approval of the listing of
Destinations common stock on the NYSE; and (iv) approval for continuous or
delayed public offering by Destinations or any affiliated company wholly owned
by it which is or would thereby become a publicly traded corporation.
In addition, the Mississippi Commission may require controlling
stockholders, officers, directors and other persons associated with Destinations
having a material relationship or material involvement with Sheraton Tunica to
be investigated and licensed as part of the approval process for the
Destinations Distribution. The Mississippi Commission may deny an application
for licensing or a finding of suitability for any cause that it deems
reasonable. A finding of suitability is comparable to licensing and both require
the submission of detailed personal and financial information followed by a
thorough investigation. If the Mississippi Commission finds an officer, director
or key employee unsuitable for licensing or unsuitable to continue having a
relationship with Destinations and Sheraton Tunica, the companies involved would
be required to sever all relationships with such person. Inasmuch as all the
relevant officers, directors and other persons associated with Destinations have
already been subject to review by the Mississippi Commission, the Company
believes that the investigation and licensing of such individuals will not
present a substantial regulatory obstacle.
The interaction of the various transactions contemplated by the
Comprehensive Plan may be sufficient to characterize the Comprehensive Plan as a
plan of recapitalization, and, in turn, require the Company to seek additional
approvals from the Mississippi Commission. In addition, to the extent that the
financing proposed by the Comprehensive Plan, such as the Credit Facilities,
involves agreements to (i) restrict the transfer of equity securities issued by
Sheraton Tunica or any affiliated holding company or (ii) not encumber equity
securities issued by Sheraton Tunica or any affiliated holding company, the
Company and Destinations will be required to obtain the prior approval of the
Mississippi Commission.
The Company and Destinations plan to file shortly the relevant applications
for approval with the Mississippi Commission in conjunction with the
Comprehensive Plan. The Company and Destinations will promptly file any
additional applications or notices, if necessary, with the Mississippi
Commission. Due to the various approvals requested by Destinations with respect
to the Destinations Distribution, there are no assurances as to when the
Mississippi Commission will take final action. Further, any such approvals, if
granted, do not constitute a finding, recommendation or approval by the
Mississippi Commission as to the accuracy or adequacy of the Destinations
Distribution or the merits of the Comprehensive Plan.
ONTARIO, CANADA GAMING REGULATORY APPROVALS
The Company's operations in Windsor, Ontario -- through its half-interest
in Casino Windsor -- are subject to the Ontario Gaming Control Act (the "Ontario
Act") and the registration and regulatory control of the Ontario Gaming Control
Commission (the "Ontario Commission"), the Ontario Casino Corporation (the
"Ontario Corporation"), the Registrar of Gaming Control (the "Ontario
Registrar") and the Director of Gaming Control (the "Ontario Director"), as well
as various local, county and provincial regulatory agencies (such regulatory
agencies, together with the Ontario Commission, the Ontario Corporation, the
Ontario Registrar and the Ontario Director, the "Ontario Gaming Authorities").
41
<PAGE> 45
None of the Offer, the Debt Tender Offer or the Destinations Distribution
requires the approval of the Ontario Gaming Authorities. However, in keeping
with the Company's policy of disclosure with its gaming regulatory agencies,
appropriate disclosures concerning the Offer, the Debt Tender Offer and the
Destinations Distribution will be made to the Ontario Gaming Authorities and
full, complete and accurate responses will be provided to the Ontario Gaming
Authorities to all inquiries concerning the Comprehensive Plan.
NOVA SCOTIA, CANADA GAMING REGULATORY APPROVALS
The Company's operations in Nova Scotia -- at Sheraton Halifax Hotel &
Casino and Sheraton Casino/Sydney -- are subject to the Nova Scotia Gaming
Control Act (the "Nova Scotia Act") and the registration and regulatory control
of the Nova Scotia Gaming Commission (the "Nova Scotia Commission"), and the
Nova Scotia Gaming Corporation (the "Nova Scotia Corporation" and, together with
the Nova Scotia Commission, the "Nova Scotia Gaming Authorities").
None of the Offer, the Debt Tender Offer or the Destinations Distribution
requires the approval of the Nova Scotia Gaming Authorities. However, in keeping
with the Company's policy of disclosure with its gaming regulatory agencies,
appropriate disclosures concerning the Offer, the Debt Tender Offer and the
Destinations Distribution will be made to the Nova Scotia Gaming Authorities and
full, complete and accurate responses will be provided to the Nova Scotia Gaming
Authorities to all inquiries concerning the Comprehensive Plan.
INDIANA GAMING REGULATORY APPROVALS
The Company's proposed operations in Indiana -- at Caesars Indiana in
Bridgeport, Harrison County, Indiana -- are subject to the Indiana Riverboat
Gambling Act (the "Indiana Act") and the registration and regulatory control of
the Indiana Gaming Commission (the "Indiana Commission"), the United States Army
Corps of Engineers (the "ACOE"), the United States Coast Guard (the "USCG"), as
well as various local, county, state and Federal regulatory agencies (such
regulatory agencies, together with the Indiana Commission, the ACOE and the
USCG, the "Indiana Gaming Authorities").
None of the Offer, the Debt Tender Offer or the Destinations Distribution
requires the approval of the Indiana Gaming Authorities. However, in keeping
with the Company's policy of disclosure with its gaming regulatory agencies,
appropriate disclosures concerning the Offer, the Debt Tender Offer and the
Destinations Distribution will be made to the Indiana Gaming Authorities and
full, complete and accurate responses will be provided to the Indiana Gaming
Authorities to all inquiries concerning the Comprehensive Plan.
COMMUNICATIONS ACT OF 1934
The Company holds a fifty percent interest in ITT-Dow Jones Television, the
general partnership that is the licensee of WBIS+(TV), New York, New York,
through the Company's wholly owned subsidiary ITT Broadcasting Corp. The
transfer of the stock of ITT Broadcasting Corp. to Destinations in preparation
for the Destinations Distribution and the distribution of the shares of
Destinations to the Company's stockholders in the Destinations Distribution will
require the prior approval of the Federal Communications Commission (the "FCC")
for a pro forma change in control of ITT Broadcasting Corp. The FCC is not
required to provide 30 day prior public notice and the opportunity for filing
petitions to deny for such an application, as it would be in the case of an
application requesting consent for a change in ultimate control. The FCC will
consider informal objections filed against such an application. The FCC
typically grants applications for consent to pro forma transfers of control
within a few weeks after filing, although the filing of informal objections may
delay the FCC's action on an application until the FCC considers the objections.
The Company plans to file shortly an application for the FCC's consent to the
pro forma change in control of ITT Broadcasting Corp.
13. FEES AND EXPENSES
Goldman and Lazard are acting as Dealer Managers in connection with the
Offer and are providing certain financial advisory services to the Company in
connection with the Hilton Offer. The Company has retained Goldman and Lazard to
act as financial advisors to the Company in connection with the Hilton Offer and
other matters arising in connection therewith, including assisting the Company
in exploring possible strategic alternatives in light of the Hilton Offer.
Goldman and Lazard are acting as Dealer Managers in
42
<PAGE> 46
connection with the Offer pursuant to such engagement. Pursuant to an engagement
letter with Goldman and Lazard, the Company has agreed to pay each of Goldman
and Lazard for their services 50% of (i) an initial fee equal to $1,000,000 and
(ii) an additional advisory fee equal to $19,000,000, payable upon the later of
September 30, 1997 and the date two business days before the scheduled date of
the next annual meeting of stockholders of the Company (the "Payment Date");
provided, however, that if the Payment Date is later than September 30, 1997,
the Company will pay one-half of the $19,000,000 advisory fee on September 30,
1997 and the balance of the fee on the Payment Date. Notwithstanding the
foregoing, and except as otherwise specified in the engagement letter, the
$19,000,000 advisory fee will be payable immediately upon a termination of the
engagement letter by the Company or if a Change of Control (as defined below)
has occurred or is imminent. The engagement letter provides that the Company
will determine in its sole reasonable judgment when a Change of Control is
imminent. Pursuant to the engagement letter, "Change of Control" means (i) any
Person or Group (each as defined in the engagement letter) becoming the
beneficial owner (as such term is used in Rule 13d-3 promulgated under the
Exchange Act) of more than 15% of the Shares in one or a series of transactions,
by means of a tender offer, exchange offer, merger, private or open market
purchases of stock or otherwise or if all or substantially all of the assets of
the Company are sold, liquidated or transferred (by dividend or otherwise) in
one or a series of transactions or (ii) a majority of the members of the Board
being individuals whose nomination for election or election to the Board was not
recommended or approved by a majority of the members of the Board (a) who were
members of the Board on February 10, 1997 or (b) whose nomination for election
or election to the Board was recommended or approved by a majority of the
members of the Board who were members of the Board on such date. Goldman and
Lazard will not receive any additional fees for acting as Dealer Managers in
connection with the Offer.
The Company has also agreed to reimburse Goldman and Lazard for their
reasonable out-of-pocket expenses, including fees of counsel and any sales, use
or similar taxes, and to indemnify Goldman and Lazard against certain
liabilities in connection with their engagement, including certain liabilities
arising under the Federal securities laws.
Goldman and Lazard have provided financial advisory and investment banking
services to the Company from time to time for which they have received customary
compensation. Kendrick R. Wilson, III, a member of the Board of Directors of the
Company, is a Managing Director of Lazard. In addition, Goldman has provided
financial advisory and investment banking services to Hilton in the past for
which it has received customary compensation. In the ordinary course of
business, Goldman and Lazard may from time to time effect transactions and hold
positions in securities of the Company and Hilton.
The Company has retained Georgeson & Company Inc. to act as the Information
Agent and Citibank, N.A. to serve as the Depositary in connection with the
Offer. The Information Agent and the Depositary each will receive reasonable and
customary compensation for their services, be reimbursed for certain reasonable
out-of-pocket expenses and be indemnified against certain liabilities and
expenses in connection therewith, including certain liabilities and expenses
under the Federal securities laws.
The Company will not pay any fees or commissions to any broker or dealer or
other person (other than the Dealer Managers and the Information Agent) in
connection with the solicitation of tenders of Shares pursuant to the Offer.
Brokers, dealers, banks and trust companies will be reimbursed by the Company
upon request for customary mailing and handling expenses incurred by them in
forwarding material to their customers.
14. MISCELLANEOUS
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the laws of such
jurisdiction. The Company is not aware of any jurisdiction in which the making
of the Offer or the acceptance thereof would not be in compliance with the laws
of such jurisdiction. To the extent the Company becomes aware of any state law
that would limit the class of offerees in the Offer, the Company will amend the
Offer and, depending on the timing of such amendment, if any, will extend the
Offer to provide adequate dissemination of such information to holders of Shares
prior to the expiration of the Offer. In any jurisdiction the securities, blue
sky or other laws of which require the Offer to be made by a licensed broker or
43
<PAGE> 47
dealer, the Offer is being made on behalf of the Company by the Dealer Managers
or one or more registered brokers or dealers licensed under the laws of such
jurisdiction.
No person has been authorized to give any information or to make any
representation on behalf of the Company not contained herein or in the Letter of
Transmittal and, if given or made, such information or representation must not
be relied upon as having been authorized.
The Company has filed with the Commission an Issuer Tender Offer Statement
on Schedule 13E-4 pursuant to Rule 13e-4 under the Exchange Act, together with
exhibits, furnishing certain additional information with respect to the Offer,
and may file amendments thereto. Such Schedule 13E-4 and any amendments thereto,
including exhibits, should be available for inspection and copies should be
obtainable in the manner set forth under "Additional Information" in Section 7
(except that such material will not be available at the regional offices of the
Commission). This Offer to Purchase also constitutes the statement to
stockholders containing the information specified in Rule 13e-1 under the
Exchange Act.
ITT CORPORATION
July 17, 1997
44
<PAGE> 48
ANNEX A
ITT DESTINATIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULE
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants............................................ A-2
Consolidated Income for the three years ended December 31, 1996..................... A-3
Consolidated Balance Sheet as of December 31, 1996 and 1995......................... A-4
Consolidated Cash Flow for the three years ended December 31, 1996.................. A-5
Consolidated Stockholders Equity for the three years ended December 31, 1996........ A-6
Notes to Financial Statements....................................................... A-7
Quarterly Results for 1996 and 1995 (Unaudited)..................................... A-23
Business Segment Information........................................................ A-24
Geographical Information -- Total Segments.......................................... A-24
Consolidated Income for the three months ended March 31, 1997 and 1996
(Unaudited)....................................................................... A-25
Consolidated Balance Sheet as of March 31, 1997 (Unaudited) and December 31, 1996... A-26
Consolidated Cash Flow for the three months ended March 31, 1997 and 1996
(Unaudited)....................................................................... A-27
Notes To Financial Statements (Unaudited)........................................... A-28
Business Segment Information (Unaudited)............................................ A-32
Valuation and Qualifying Accounts................................................... SA-1
</TABLE>
A-1
<PAGE> 49
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO ITT CORPORATION:
We have audited the accompanying consolidated balance sheet of ITT
Destinations, Inc. (a Nevada corporation and a wholly-owned subsidiary of ITT
Corporation) and subsidiaries, as defined in the notes, as of December 31, 1996
and 1995, and the related consolidated statements of income, cash flow and
stockholders equity for each of the three years in the period ended December 31,
1996, as described in the accompanying Index to Financial Statements and
Schedule. These financial statements are the responsibility of the Corporation'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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ITT
Destinations, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Financial Statements and Schedule is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
New York, New York
July 15, 1997
A-2
<PAGE> 50
ITT DESTINATIONS, INC.
CONSOLIDATED INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Revenues....................................................... $5,718 $5,396 $3,876
Costs and expenses:
Salaries, benefits and other operating....................... 4,291 4,117 3,277
Selling, general and administrative (net of service fee
income of $--, $96 and $88)............................... 681 662 354
Depreciation and amortization................................ 247 223 106
------ ------ ------
5,219 5,002 3,737
------ ------ ------
499 394 139
Interest expense (net of interest income of $68, $49, and
$14)......................................................... (162) (219) (55)
Miscellaneous income (expense), net............................ 3 5 (17)
------ ------ ------
340 180 67
Provision for income taxes..................................... (150) (64) (27)
Minority equity................................................ (7) 1 4
------ ------ ------
Income from continuing operations.............................. 183 117 44
Discontinued operations........................................ 66 30 30
------ ------ ------
Net income..................................................... $ 249 $ 147 $ 74
====== ====== ======
Earnings per share (Pro forma for 1994 -- see Notes to
Financial Statements):
Income from continuing operations............................ $ 1.55 $ .98 $ .37
Income from discontinued operations.......................... .56 .26 .26
------ ------ ------
Net income................................................... $ 2.11 $ 1.24 $ .63
====== ====== ======
Weighted average common and common equivalent shares (Pro forma
for 1994 -- see Notes to Financial Statements)............... 118 118 117
------ ------ ------
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
A-3
<PAGE> 51
ITT DESTINATIONS, INC.
CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------ ------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................ $ 205 $ 141
Marketable securities.................................................... 599 --
Receivables, net......................................................... 435 484
Inventories.............................................................. 58 45
Prepaid expenses and other............................................... 102 82
------ ------
Total current assets............................................. 1,399 752
Plant, property and equipment, net......................................... 4,700 3,929
Investment in Madison Square Garden........................................ 533 607
Other investments.......................................................... 386 1,149
Long-term receivables, net................................................. 178 141
Other assets............................................................... 346 309
Goodwill, net.............................................................. 1,323 1,294
Net assets of discontinued operations...................................... 57 44
------ ------
$8,922 $8,225
====== ======
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable......................................................... $ 257 $ 244
Accrued expenses......................................................... 451 565
Notes payable and current maturities of long-term debt................... 486 282
Accrued taxes............................................................ 171 140
------ ------
Total current liabilities........................................ 1,365 1,231
Allocated debt of ITT...................................................... 2,095 2,131
Other long-term debt....................................................... 798 503
Deferred income taxes...................................................... 186 101
Other liabilities.......................................................... 378 302
Net liabilities of discontinued operations................................. 808 809
Minority interest.......................................................... 218 212
------ ------
5,848 5,289
------ ------
Stockholders equity:
Common stock: authorized 200,000,000 shares, no par or stated value,
outstanding 116,366,176 and 117,196,370 shares, respectively.......... 2,897 2,944
Cumulative translation adjustment........................................ (2) --
Unrealized loss on securities............................................ (62) --
Retained earnings........................................................ 241 (8)
------ ------
Total stockholders equity........................................ 3,074 2,936
------ ------
$8,922 $8,225
====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
A-4
<PAGE> 52
ITT DESTINATIONS, INC.
CONSOLIDATED CASH FLOW
(IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
----- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income...................................................... $ 249 $ 147 $ 74
Discontinued operations......................................... (66) (30) (30)
----- ------- -------
Income from continuing operations............................. 183 117 44
Adjustments to income from continuing operations:
Depreciation and amortization................................. 247 223 106
Provision for doubtful receivables............................ 39 50 39
Minority equity in net income................................. 7 (1) (4)
Equity income, net of dividends received...................... 8 21 16
(Gain) loss on divestments -- pretax.......................... (36) 2 --
Changes in working capital:
Receivables................................................... (102) (151) (51)
Inventories................................................... (11) -- (3)
Accounts payable.............................................. (33) 46 (6)
Accrued expenses.............................................. 6 50 26
Accrued and deferred taxes...................................... 41 53 35
Other, net...................................................... 28 (10) (38)
----- ------- -------
Cash from continuing operations................................. 377 400 164
Cash from discontinued operations............................... 31 150 26
----- ------- -------
Cash from operating activities................................ 408 550 190
----- ------- -------
INVESTING ACTIVITIES
Additions to plant, property and equipment...................... (563) (416) (229)
Proceeds from divestments....................................... 282 10 18
Acquisitions, net of acquired cash.............................. (364) (2,309) (1,249)
Other, net...................................................... 50 109 10
----- ------- -------
Cash used for investing activities............................ (595) (2,606) (1,450)
----- ------- -------
FINANCING ACTIVITIES
Short-term debt, net............................................ 77 (4) 11
Long-term debt issued........................................... 454 3,132 260
Long-term debt repaid........................................... (303) (121) (124)
Changes in investments and advances from ITT Industries......... -- (929) 457
Other, net...................................................... 22 (54) 6
----- ------- -------
Cash from financing activities................................ 250 2,024 610
----- ------- -------
EXCHANGE RATE EFFECT ON CASH AND CASH EQUIVALENTS............... 1 (2) (1)
----- ------- -------
Increase/(decrease) in cash and cash equivalents................ 64 (34) (651)
Cash and cash equivalents -- Beginning of Year.................. 141 175 826
----- ------- -------
CASH AND CASH EQUIVALENTS -- END OF YEAR........................ $ 205 $ 141 $ 175
===== ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest...................................................... $ 171 $ 238 $ 42
===== ======= =======
Income taxes.................................................. $ 85 $ 23 $ 67
===== ======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
A-5
<PAGE> 53
ITT DESTINATIONS, INC.
CONSOLIDATED STOCKHOLDERS EQUITY
(IN MILLIONS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
CURRENCY RETAINED
INVESTMENTS AND COMMON STOCK TRANSLATION EARNINGS
ADVANCES FROM -------------------- AND OTHER (ACCUMULATED
ITT INDUSTRIES, INC.(1) SHARES AMOUNT ADJUSTMENT DEFICIT)
----------------------- ----------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance -- January 1, 1994.............. $ 2,765 -- $ -- $ -- $ --
Net income.............................. 74 -- -- -- --
Transfers from ITT Industries, net...... 549 -- -- -- --
Translation of financial statements..... (35) -- -- -- --
------- ----------- ------ ---- ----
Balance -- December 31, 1994............ 3,353 -- -- -- --
Net income.............................. 155 -- -- -- --
Transfers to ITT Industries, net........ (539) -- -- -- --
Translation of financial statements..... (25) -- -- -- --
Issuance of common stock in connection
with the spin-off..................... (2,944) 117,196,370 2,944 -- --
------- ----------- ------ ---- ----
Balance -- December 19, 1995............ -- 117,196,370 2,944 -- --
Net loss................................ -- -- -- -- (8)
------- ----------- ------ ---- ----
Balance -- December 31, 1995............ -- 117,196,370 2,944 -- (8)
Net income.............................. -- -- -- -- 249
Stock option transactions............... -- 293,332 10 -- --
Common stock repurchases................ -- (1,123,526) (57) -- --
Translation of financial statements..... -- -- -- (2) --
Unrealized loss on securities........... -- -- -- (62) --
------- ----------- ------ ---- ----
Balance -- December 31, 1996............ $ -- 116,366,176 $2,897 $(64) $241
======= =========== ====== ==== ====
</TABLE>
- - ---------------
(1) Investments and Advances from ITT Industries Inc., represents the means by
which ITT was funded by ITT Industries Inc. prior to the 1995 Spin-off and
consisted of both equity and interest bearing advances. As of December 19,
1995, ITT was recapitalized through issuances of its own debt and equity
securities.
The accompanying notes to financial statements are an integral part of the above
statement.
A-6
<PAGE> 54
ITT DESTINATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED)
DISTRIBUTIONS AND BASIS OF PRESENTATION
On July 15, 1997, the Board of Directors of ITT Corporation ("ITT", which
is expected to be renamed ITT Information Services, Inc.) approved a plan to
distribute to the holders of ITT's common stock all the outstanding shares of
common stock of ITT Destinations, Inc. (which is expected to be renamed ITT
Corporation and is herein referred to as the "Company"), a newly formed company
that will hold the hotels and gaming business of ITT (the "Destinations
Distribution"), and all the shares representing its approximately 83% interest
in ITT Educational Services, Inc., its publicly traded post-secondary technical
education business (the "ITT Educational Distribution" and, together with the
Destinations Distribution, the "Distributions"). Upon completion of the
Distributions, holders of ITT's common stock will receive the common stock of
the Company and ITT Educational. For accounting purposes, because of the
relative significance of the hotel and gaming operations, the businesses
comprising the information services segment of ITT (ITT World Directories and
ITT Educational) have been presented as discontinued operations. The net
liabilities of discontinued operations includes an allocation of ITT's
indebtedness which will occur prior to the Distributions.
The Company is one of the world's largest hotel and gaming companies. Its
principal lines of business are hotels and gaming. The hotels segment is
comprised of a worldwide hospitality network of over 420 full-service hotels
serving three markets: luxury, upscale and mid-price. The Company's hotel
operations are represented on every continent and in nearly every major world
market. The Company's gaming operations are located in several key domestic
jurisdictions. The Company also operates various hotel/casino ventures outside
the United States.
These financial statements represent the financial position, results of
operations and cash flows of the Company as if it were a separate entity for all
periods presented. ITT's historical basis in the assets and liabilities of the
Company has been carried over and all majority-owned subsidiaries have been
consolidated. All material intercompany transactions and balances have been
eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ACCOUNTING POLICIES
Revenue Recognition: Generally, revenues are recognized when the services
have been rendered. The following is a description of the composition of
revenues of the Company's business segments:
Hotels Operations: At December 31, 1996, the Company operated 135 hotels
under long-term management agreements. These agreements effectively convey to
the Company the right to use the hotel properties in exchange for payments to
the property owners which are based primarily on the hotels' profitability.
Accordingly, the Company includes the operating results of hotel properties
under long-term management agreements in its consolidated financial statements.
Revenues related to these hotel properties were $2.8 billion, $2.8 billion and
$2.7 billion for 1996, 1995 and 1994, respectively, and amounts provided for
payments to the property owners for the use of the hotel properties were $.6
billion, $.5 billion and $.5 billion for 1996, 1995 and 1994, respectively.
Gaming Operations: Casino revenues represent the net win from gaming wins
and losses. Revenues exclude the retail value of rooms, food, beverage,
entertainment and other promotional allowances provided on a complimentary basis
to customers. The estimated retail value of these promotional allowances was
$161,
A-7
<PAGE> 55
$144 and $17 for the years ended December 31, 1996, 1995 and 1994, respectively.
The estimated cost of such promotional allowances was $111, $99 and $11 for the
years ended December 31, 1996, 1995 and 1994, respectively, and has been
included in Costs and Expenses in the accompanying statement of Consolidated
Income.
Revenues and Costs and Expenses of the Gaming operations are comprised of
the following for the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- --------------------
COSTS AND COSTS AND COSTS AND
REVENUES EXPENSES REVENUES EXPENSES REVENUES EXPENSES
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gaming.................................. $1,032 $ 592 $1,004 $ 516 $139 $ 62
Rooms................................... 70 25 70 25 20 9
Food and beverage....................... 79 71 70 80 12 17
Other operations........................ 104 57 88 99 5 10
Selling, general and administrative..... -- 215 -- 172 -- 37
Depreciation and amortization........... -- 80 -- 88 -- 10
Provision for doubtful accounts......... -- 34 -- 50 -- 22
------ ------ ------ ------ ---- ----
Total......................... $1,285 $ 1,074 $1,232 $ 1,030 $176 $ 167
====== ====== ====== ====== ==== ====
</TABLE>
Cash and Cash Equivalents: The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Inventories: Inventories, comprised principally of hotel and gaming
supplies, are generally valued at the lower of cost (first-in, first-out) or
market and potential losses from obsolete and slow-moving inventories are
provided for in the current period.
Plant, Property and Equipment: Plant, property and equipment, including
capitalized interest of $13 in 1996 applicable to major project expenditures,
are recorded at cost. The Company normally claims the maximum depreciation
deduction allowable for tax purposes. In general, for financial reporting
purposes, depreciation is provided on a straight-line basis over the useful
economic lives of the assets involved as follows: Buildings and
improvements -- primarily 15 to 40 years, Machinery and equipment -- 2 to 10
years, and Other -- 5 to 40 years. Gains or losses on the sale or retirement of
assets are included in income.
Derivative Financial Instruments: The Company uses derivative financial
instruments from time to time, including foreign currency forward contracts
and/or swaps, as a means of hedging exposure to foreign currency and/or interest
rate risks. Forward exchange contracts and foreign currency swaps are accounted
for in accordance with SFAS No. 52 "Foreign Currency Translation." The Company
is an end-user and does not utilize these instruments for speculative purposes.
The Company has strict policies regarding the financial stability and credit
standing of its major counterparties. Changes in the spot rate of derivative
instruments designated as hedges of foreign currency denominated assets have
been classified in the same manner as the classification of the changes in the
underlying assets.
Foreign Currency: Balance sheet accounts are translated at the exchange
rates in effect at each year end and income and expense accounts are translated
at the average rates of exchange prevailing during the year. The national
currencies of foreign operations are generally the functional currencies. Gains
and losses from foreign currency transactions are reported currently in costs
and expenses and were insignificant for all periods presented.
Income Tax: Prior to the 1995 Spin-off (see "Transactions with ITT
Industries"), ITT and its subsidiaries were included in the consolidated U.S.
Federal tax return of ITT Industries and remitted to (received from) ITT
Industries an income tax provision (benefit) computed in accordance with a tax
sharing arrangement. Prior to the Distributions, the Company, and ITT
Educational were included in the consolidated U.S. Federal tax return of ITT and
remitted to (received from) ITT an income tax provision (benefit) computed in
accordance with a tax sharing arrangement. These arrangements generally required
that ITT
A-8
<PAGE> 56
determine its tax provision (benefit) as if it were filing a separate U.S.
Federal income tax return. However, the arrangements allowed ITT to record
benefits of certain tax attributes, primarily foreign tax credits, utilizable on
the ITT Industries consolidated tax return, which may not have been available on
a separate company basis.
Subsidiary Stock Issuance: The Company recognizes gains (losses) on sales
of subsidiary stock. For the year ended December 31, 1994, Miscellaneous income
(expense), net includes a pretax gain of $10 from the sale of 16.7% of the
common stock of ITT Educational.
Goodwill: The excess of cost over the fair value of net assets acquired is
amortized on a straight-line basis over 40 years. Accumulated amortization was
$72, $33 and $2 at December 31, 1996, 1995 and 1994, respectively. The Company
continually reviews goodwill to assess recoverability from future operations
using undiscounted cash flows. Impairments would be recognized in operating
results if a permanent diminution in value is deemed to have occurred.
Earnings Per Share: Earnings per share through the 1995 Spin-off Date (as
described below) were computed based upon the number of ITT Industries common
shares which were outstanding on the 1995 Spin-off date. Earnings per share from
the 1995 Spin-off Date through December 31, 1996 were determined based upon the
weighted average of common and common equivalent shares outstanding during the
period.
Reclassifications: Certain amounts in the prior years' financial
statements have been reclassified to conform to the current year presentation.
TRANSACTIONS WITH ITT INDUSTRIES
On December 19, 1995 (the "1995 Spin-off Date"), the former ITT Corporation
(which has been renamed ITT Industries, Inc. -- "ITT Industries"), distributed
to its stockholders of record at the close of business on such date all of the
outstanding shares of common stock of ITT, then a wholly owned subsidiary of ITT
Industries (the "1995 Spin-off"). In such spin-off, holders of common stock of
ITT Industries received one share of ITT common stock for every one share of ITT
Industries common stock held. In connection with the 1995 Spin-off, ITT, which
was then named "ITT Destinations, Inc.", changed its name to ITT Corporation.
Prior to the 1995 Spin-off the Company included many of the corporate
functions of ITT Industries and provided ITT Industries and other affiliates
certain centralized systems for legal, accounting, tax, treasury and insurance
services. The Company received fees for such services which ranged between 0.5%
and 1% of net sales of the affiliate and totaled $96 and $88 in 1995 and 1994,
respectively. Service fee income has been recorded in Costs and expenses in the
accompanying statement of Consolidated Income.
Interest expense was charged to the Company on the portion of its
Investments and Advances from ITT Industries, Inc. which was deemed debt.
Interest expense was charged at 8% and totaled $161 and $19 in 1995 and 1994,
respectively.
The Company was one of several affiliates participating in the ITT Salaried
Retirement Plan as well as health care and life insurance programs for salaried
employees and retirees sponsored by ITT Industries through the time of the 1995
Spin-off (see "Employee Benefit Plans").
ACQUISITIONS
ITT completed various hotel acquisitions during 1996. These acquisitions
were accounted for using the purchase method of accounting. The aggregate
purchase price of $371, including assumed liabilities of $176, was approximately
equal to the fair value of the assets acquired. The results of operations of
these acquisitions have been included in Consolidated Income from their
respective dates of acquisition. ITT also made minority investments in certain
hotel properties during 1996 in the aggregate amount of $65. The pro forma
effects of these transactions on revenues, net income and earnings per share
were not material.
On July 1, 1996, ITT Dow Jones Television, a general partnership in which
each ITT and Dow Jones & Company, Inc. ("Dow Jones") owns a 50% interest,
launched a new television station, WBIS+, which
A-9
<PAGE> 57
operates the broadcasting license of the former WNYC-TV. The partnership
purchased the broadcasting license from New York City for $207. This purchase
was funded equally by the partners. ITT's investment in this partnership is
reported using the equity method of accounting. The Company's share of WBIS+'s
results of operations are included in Consolidated Income from the date of
acquisition.
On May 12, 1997, the partnership agreed to sell the Federal Communications
Commission license of WBIS+ to Paxson Communications Corporation for a purchase
price of approximately $258. This agreement is subject to the approval of the
Federal Communications Commission, which is expected to be received in 1997.
This transaction is expected to be completed by the end of 1997.
On January 30, 1995, ITT completed a cash tender offer for the outstanding
shares of Caesars World, Inc. ("Caesars") for approximately $1.76 billion
(including expenses directly attributable to the acquisition of approximately
$10). The acquisition was accounted for using the purchase method. Accordingly,
the purchase price was allocated to assets based on their estimated fair values.
The purchase price, including assumed liabilities of $450, exceeded the fair
value of assets acquired by approximately $1.1 billion. Caesars results of
operations are included in Consolidated Income from the date of acquisition.
On March 10, 1995, ITT, in a joint venture with Rainbow Programming
Holdings, Inc., a subsidiary of Cablevision Systems Corporation ("Cablevision"),
completed the acquisition of the businesses comprising Madison Square Garden
("MSG") for approximately $1 billion. The acquisition was funded by equity
contributions from the venture partners of approximately $720 and the remainder
was financed through bank debt. The Company's share of the results of MSG are
included in Consolidated Income from the date of acquisition.
On February 18, 1997, the Company received $169 as payment of the remaining
amount necessary to equalize the partnership interests of Cablevision and ITT in
MSG. On April 15, 1997, ITT entered into a Partnership Interest Transfer
Agreement among ITT, ITT Eden Corporation, ITT MSG Inc., Cablevision, Rainbow
Media Holdings Inc., Rainbow Garden Corp., Garden L.P. Holding Corp., MSG Eden
Corporation and MSG (the "Partnership Interest Transfer Agreement"). Pursuant to
the Partnership Interest Transfer Agreement, Cablevision paid ITT $500 in cash
on June 17, 1997. ITT also has a "put" option to require Cablevision or MSG to
purchase half of ITT's continuing interest in MSG for $75 on June 17, 1998 and
the other half of this continuing interest for an additional $75 on June 17,
1999 (or, if the first option is not exercised the entire continuing interest
for $150). In addition, pursuant to an Aircraft Contribution Agreement dated as
of April 15, 1997, among Garden L.P. Holding Corp., MSG Eden Corporation, ITT
MSG, Inc., ITT Flight Operations, Inc. and MSG, ITT has agreed to contribute to
MSG an ITT-owned aircraft which MSG has used for the Knicks and the Rangers. In
consideration of the aircraft contribution, Cablevision has agreed to add an
additional $19 to the exercise price of each of ITT's "put" options. The
Partnership Interest Transfer Agreement also includes a "call" option requiring
ITT to sell its remaining stake in MSG on the third anniversary of the closing
at fair market value, but not below a minimum price based on the "put" prices.
The following unaudited pro forma summary presents information as if the
Caesars and MSG acquisitions had occurred at the beginning of the respective
periods:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1995 1994
------ ------
<S> <C> <C>
Revenues................................................... $5,478 $5,050
Net income (loss) from continuing operations............... $ 102 $ (22)
====== ======
Earnings (loss) per share from continuing operations....... $ .86 $ (.19)
====== ======
</TABLE>
The pro forma information is not necessarily indicative of the results that
would have occurred had the acquisitions taken place at the beginning of the
respective periods.
A-10
<PAGE> 58
MARKETABLE SECURITIES
Marketable securities consist of the Company's investment in Alcatel
Alsthom. Accordingly, this investment has been classified as "available for
sale" in accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" and carried at fair value with the change from cost
basis reported in stockholders equity. The cost basis of this investment at
December 31, 1996 was $661. Dividend income from Alcatel Alsthom was $12 and $29
in 1996 and 1995, respectively. During February and March 1997, ITT sold its
remaining interest in the capital stock of Alcatel Alsthom. Total proceeds from
these sales were approximately $830, resulting in a pretax gain of $183.
RECEIVABLES
Current receivables of $435 and $484 at December 31, 1996 and 1995,
including current maturities of notes receivable, are reported net of allowances
for doubtful accounts of $121 and $81.
Long-term receivables of $178 and $141 at December 31, 1996 and 1995, are
net of allowances for doubtful accounts of $50 and $98, exclude current
maturities of $15 and $21, respectively, and approximate fair value.
PLANT, PROPERTY AND EQUIPMENT
Plant, property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------ ------
<S> <C> <C>
Land and improvements...................................... $1,337 $1,176
Buildings and improvements................................. 2,671 2,297
Machinery, furniture, fixtures and equipment............... 969 676
Construction work in process............................... 293 249
Other...................................................... 120 80
------ ------
5,390 4,478
Less: Accumulated depreciation and amortization............ (690) (549)
------ ------
$4,700 $3,929
====== ======
</TABLE>
OTHER INVESTMENTS
Other investments consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
---- ------
<S> <C> <C>
Equity in WBIS+............................................. $109 $ --
Equity in and advances to other 20-50% owned companies...... 261 261
Alcatel Alsthom at cost..................................... -- 834
Other investments at cost................................... 16 54
-----
-
------
$386 $1,149
====== ======
</TABLE>
Equity in earnings of unconsolidated subsidiaries accounted for on the
equity basis were $8, $1, and $-- in 1996, 1995 and 1994, respectively.
RESTRUCTURING
The Company recorded a $51 pretax charge in the Hotels business segment
during the 1995 third quarter to restructure and rationalize its world
headquarters operations and provide for the planned disposal of non-core assets.
Of the total pretax charge, approximately $17 represented severance and other
related
A-11
<PAGE> 59
employee termination costs. The balance of the restructuring charge ($34 pretax)
related primarily to asset write-offs, lease commitments, termination penalties
and reserve actions in connection with the disposal of non-core assets and
reduced facilities utilization. As of December 31, 1996, substantially all of
these restructuring costs had been paid.
INCOME TAX
Income tax data from continuing operations is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Pretax income
U.S......................................................... $244 $114 $ 4
Foreign..................................................... 96 66 63
---- ---- ----
$340 $180 $ 67
==== ==== ====
Provision (benefit) for income tax*
Current:
U.S. Federal................................................ $ 73 $ (2) $ 49
State and local............................................. 11 11 5
Foreign..................................................... 29 21 16
---- ---- ----
113 30 70
---- ---- ----
Deferred:
U.S. Federal................................................ 22 32 (55)
Foreign and other........................................... 15 2 12
---- ---- ----
37 34 (43)
---- ---- ----
$150 $ 64 $ 27
==== ==== ====
</TABLE>
- - ---------------
* The provision (benefit) for income tax was computed in accordance with tax
sharing arrangements among the Company, ITT Industries and ITT that generally
require that such provision (benefit) be computed as if the Company were a
stand-alone entity. The primary exception to the stand-alone computation
between ITT Industries and ITT relates to the utilization of foreign tax
credits. The arrangements allow for the realization of such credits since they
were utilized by ITT Industries in the respective consolidated tax returns. On
a pro forma basis, the Company's tax provision, on a stand alone basis, would
have been $146, $71 and $33 for the years ended December 31, 1996, 1995 and
1994, respectively.
No provision was made for U.S. taxes payable on undistributed foreign
earnings amounting to approximately $268 since these amounts are permanently
reinvested.
Deferred income taxes represent the tax effect of the differences between
the book and tax bases of assets and liabilities. Deferred tax assets
(liabilities) include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1996 1995
------------------- -------------------
U.S. FOREIGN U.S. FOREIGN
FEDERAL & OTHER FEDERAL & OTHER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Plant, property and equipment................... $(177) $ (74) $(184) $ (12)
Allowances for doubtful accounts................ 50 -- 45 --
Employee benefits............................... 32 -- 30 --
Other........................................... (5) (12) 26 (6)
----- ---- ----- ----
$(100) $ (86) $ (83) $ (18)
===== ==== ===== ====
</TABLE>
A-12
<PAGE> 60
A reconciliation of the tax provision at the U.S. statutory rate to the
provision for income tax as reported is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tax provision at U.S. statutory rate........................... $119 $63 $23
Tax on repatriation of foreign earnings........................ 1 (18) --
Non-deductible goodwill........................................ 10 9 --
Foreign tax rate differential.................................. 6 (2) (1)
U.S. state and local income taxes.............................. 8 8 3
Other.......................................................... 6 4 2
---- --- ---
Provision for income tax....................................... $150 $64 $27
==== === ===
</TABLE>
DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------ ------
<S> <C> <C>
Bank loans and other short-term............................ $ 467 $ 269
Long-term.................................................. 817 516
Allocated debt of ITT...................................... 2,095 2,131
------ ------
$3,379 $2,916
====== ======
</TABLE>
The weighted average interest rate for bank loans and other short-term
borrowings was 8.0% at December 31, 1996 and 9.6% at December 31, 1995 and their
fair values approximated carrying value. This average is composed of interest
rates on non-U.S. dollar denominated indebtedness. The estimated fair value of
long-term debt at December 31, 1996 and 1995 was $2,863 and $2,696,
respectively, and was determined based on quoted market prices and/or discounted
cash flows using the Company's incremental borrowing rates for similar
arrangements.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
DESCRIPTION 1996 1995
-------------------------------------------------------------- ---- ----
<S> <C> <C>
8.875% senior subordinated notes due 2002..................... $150 $150
5.9%-10.1% domestic mortgage loans due 1998-2001.............. 152 151
4.75%-14.26% foreign loans due 1997-2009...................... 514 204
Other......................................................... 1 11
---- ----
Total......................................................... 817 516
Less current maturities....................................... (19) (13)
---- ----
$798 $503
==== ====
</TABLE>
The aggregate maturities of long-term debt are $19 in 1997, $51 in 1998,
$-- in 1999, $17 in 2000, $255 in 2001, and $475 thereafter. Assets pledged to
secure indebtedness (including mortgage loans) amounted to $535 as of December
31, 1996.
ITT's historical practice has been to incur indebtedness for its
consolidated group at the parent company level or at a limited number of
subsidiaries, rather than at the operating company level, and to centrally
manage various cash functions. ITT maintains lines of credit under which bank
loans and other short-term debt are drawn. On November 4, 1996, ITT renewed its
two major revolving credit facilities ("Revolvers") with syndicate banks
totaling $3.0 billion (five-year facility of $2.0 billion; 364-day facility of
$1.0 billion). In addition, smaller credit lines are maintained by ITT's foreign
subsidiaries. ITT had approximately $1.8 billion of available borrowing capacity
under the Revolvers as of December 31, 1996. As of December 31, 1996 and
A-13
<PAGE> 61
1995, $1,102 and $1,329 of commercial paper has been classified as long-term
since it is anticipated that the Company will enter into similar credit
arrangements upon consummation of the Distributions.
Prior to the Distributions, ITT intends to realign its existing
indebtedness. As part of the debt realignment, ITT will commence a tender offer
for all publicly held debt securities issued by ITT and repay certain other
debt. This tender offer will be financed by a combination of new lines of credit
of the Company and ITT. Upon completion of the debt realignment, ITT will have
responsibility for approximately $1.0 billion of debt and the Company will have
responsibility for the remaining debt. Consequently, interest expense was
allocated at a rate equivalent to the weighted average interest rate
attributable to the allocated corporate debt, which was 7.5% for 1996, 1995 and
1994. Total pre-tax interest allocated to ITT was $75, $71 and $67 in 1996, 1995
and 1994, respectively.
ITT corporate debt, including allocated indebtedness, consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
DESCRIPTION 1996 1995
---------------------------------------------------------- ------- ------
<S> <C> <C>
Commercial paper
(5.75% and 5.94% weighted average rate in 1996 and 1995,
respectively)........................................ $ 1,102 $1,329
6.25% notes due 2000...................................... 698 698
6.75% notes due 2003...................................... 250 --
6.75% notes due 2005...................................... 449 449
7.375% debentures due 2015................................ 448 448
7.75% debentures due 2025................................. 148 148
------ ------
Total..................................................... 3,095 3,072
Less indebtedness classified in net liabilities of
discontinued operations................................. (1,000) (941)
------ ------
$ 2,095 $2,131
====== ======
</TABLE>
DISCONTINUED OPERATIONS
As more fully discussed in "Distributions and Basis of Presentation", the
assets and liabilities of ITT World Directories and ITT Educational are included
in Net Liabilities of Discontinued Operations and Net Assets of Discontinued
Operations, respectively. Summary financial information of the discontinued
opera-
tions is as follows:
ITT World Directories
Balance Sheet Data:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------- -----
<S> <C> <C>
Total assets.............................................. $ 510 $ 519
Total liabilities......................................... (318) (387)
Allocated debt of ITT..................................... (1,000) (941)
------- -----
Net liabilities of discontinued operations................ $ (808) $(809)
======= =====
</TABLE>
A-14
<PAGE> 62
Income Statement Data:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues.............................................. $647 $654 $646
==== ==== ====
Operating income...................................... $208 $160 $141
Interest expense, net................................. 72 77 76
Miscellaneous expense, net............................ 1 -- --
Income tax expense.................................... 50 42 26
Minority equity....................................... 31 20 16
---- ---- ----
Earnings from discontinued operations................. $ 54 $ 21 $ 23
==== ==== ====
</TABLE>
ITT Educational Services
Balance Sheet Data:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1995
---- ----
<S> <C> <C>
Total assets.................................................. $134 $113
Total liabilities............................................. (77) (69)
---- ----
Net assets of discontinued operations......................... $ 57 $ 44
==== ====
</TABLE>
Income Statement Data:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues.............................................. $232 $202 $187
=== === ===
Operating income...................................... $ 21 $ 14 $ 12
Interest income....................................... 4 5 --
Miscellaneous expense, net............................ 1 -- --
Income tax expense.................................... 10 8 5
Minority equity....................................... 2 2 --
--- --- ---
Earnings from discontinued operations................. $ 12 $ 9 $ 7
=== === ===
</TABLE>
EMPLOYEE BENEFIT PLANS
Pension Plans. The Company and its subsidiaries sponsor numerous pension
plans. The plans are funded with trustees, except in some countries outside the
U.S. where funding is not required. The plans' assets are comprised of a broad
range of domestic and foreign equity securities, fixed income investments and
real estate. Prior to the 1995 Spin-off, certain employees of the Company
participated in the ITT Salaried Retirement Plan sponsored by ITT Industries.
Subsequent to the 1995 Spin-off, those employees became participants of the
Company plans.
A-15
<PAGE> 63
Total pension expenses were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Defined Benefit Plans
Service cost................................................ $ 22 $ 15 $ 9
Interest cost............................................... 22 14 12
Return on assets............................................ (28) (29) (1)
Net amortization and deferral............................... 15 16 (9)
---- ---- ----
Net periodic pension cost................................... 31 16 11
Defined contribution savings plans............................ 10 5 5
Other......................................................... 10 4 3
---- ---- ----
Total pension expense......................................... $ 51 $ 25 $ 19
==== ==== ====
</TABLE>
U.S. pension expenses included in the net periodic pension costs in the
table above were $22, $9 and $9 for 1996, 1995 and 1994, respectively.
The following table sets forth the funded status of the Company's pension
plans, amounts recognized in the Company's Consolidated Balance Sheet at
December 31, 1996 and 1995, and the principal weighted average assumptions
inherent in their determination:
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------
DOMESTIC FOREIGN
--------------------------- ---------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation....... $ 138 $ 45 $ 39 $ 29
Accumulated benefit
obligation................... $ 154 $ 49 $ 39 $ 29
====== ====== ====== ======
Projected benefit obligation...... $ 188 $ 63 $ 42 $ 31
Plan assets at fair value......... 184 -- 45 --
------ ------ ------ ------
Projected benefit obligation
(in excess of) less than plan
assets.......................... (4) (63) 3 (31)
Unrecognized net (gain)/loss...... (6) 4 2 --
Unrecognized net obligation....... 17 8 -- 2
------ ------ ------ ------
Pension asset (liability)
recognized in the consolidated
balance sheet................... $ 7 $ (51) $ 5 $ (29)
====== ====== ====== ======
Discount rate..................... 7.50% 7.50% 7.44% 7.44%
Rate of return on invested
capital......................... 9.75% 9.75% 8.09% 8.09%
Salary increase assumption........ 4.50% 4.50% 5.43% 5.43%
</TABLE>
A-16
<PAGE> 64
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------
DOMESTIC FOREIGN
--------------------------- ---------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation....... $ 121 $ 45 $ -- $ 28
Accumulated benefit
obligation................... $ 137 $ 48 $ -- $ 28
===== ===== ===== =====
Projected benefit obligation...... $ 190 $ 57 $ 1 $ 30
Plan assets at fair value......... 167 1 1 --
----- ----- ----- -----
Projected benefit obligation in
excess of plan assets........... (23) (56) -- (30)
Unrecognized net loss............. 33 16 -- --
Unrecognized net obligation....... -- 8 -- 3
----- ----- ----- -----
Pension asset (liability)
recognized in the consolidated
balance sheet................... $ 10 $ (32) $ -- $ (27)
===== ===== ===== =====
Discount rate..................... 7.50% 7.50% 7.08% 7.08%
Rate of return on invested
capital......................... 9.75% 9.75% 7.51% 7.51%
Salary increase assumption........ 6.00% 6.00% 5.42% 5.42%
</TABLE>
Retirement Savings Plan. The Company maintains a qualified retirement
savings plan under Section 401(k) of the Internal Revenue Code. This plan allows
eligible employees to contribute from 2% to 16% of their pretax pay subject to
certain limits, as defined. The Company contributes an amount equal to 1% of an
eligible employee's pay to the plan regardless of each employee's individual
contribution decision. Employees are 100% vested in this contribution at all
times. In addition, the Company matches 50% of eligible employees contributions
to the plan up to a maximum of 5% of pretax pay. This matching contribution is
20% vested each year and fully vested after five years of employment with the
Company. Both the retirement and matching contributions made by the Company are
invested in the Company common stock. Contribution expense related to this plan
was $10 in 1996. Prior to the 1995 Spin-off, the Company participated in ITT
Industries' Investment and Savings Plans. The contribution expenses related to
these plans which were charged to the Company were $9 in 1995 and $4 in 1994.
Postretirement Health and Life. The Company and its subsidiaries provide
health care and life insurance benefits for certain eligible retired employees.
The Company has prefunded a portion of the health care and life insurance
obligations through trust funds where such prefunding can be accomplished on a
tax effective basis. Postretirement health care and life insurance benefits
expenses were comprised of the following:
<TABLE>
<CAPTION>
1996 1995 1994
--- --- ---
<S> <C> <C> <C>
Service cost..................................................... $ 1 $ 1 $ 1
Interest cost.................................................... 2 2 1
Return on assets................................................. (2) (2) --
Net amortization and deferral.................................... (1) -- (1)
--- --- ---
Net periodic expense............................................. $-- $ 1 $ 1
=== === ===
</TABLE>
A-17
<PAGE> 65
The following table sets forth the funded status of the postretirement
benefit plans other than pensions, amounts recognized in the Company's
Consolidated Balance Sheet at December 31, 1996 and 1995 and the principal
weighted average assumptions inherent in their determination:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation................. $ 23 $ 26
Plan assets at fair value..................................... 14 10
---- ----
Accumulated postretirement benefit obligation in excess of
plan assets................................................. (9) (16)
Unrecognized net gain......................................... (8) (2)
Unrecognized past service liability........................... (4) (4)
---- ----
Liability recognized in the consolidated balance sheet........ $(21) $(22)
==== ====
Discount rate................................................. 7.50% 7.50%
Rate of return on invested assets............................. 9.75% 9.75%
Ultimate health care trend rate............................... 5.00% 6.00%
==== ====
</TABLE>
The assumed rate of future increases in the per capita cost of health care
(the "health care trend rate") was 8.3% for 1996, decreasing ratably to 5.0% in
the year 2001 and remaining at that level thereafter. Increasing the table of
health care trend rates by 1% per year would have the effect of increasing the
accumulated postretirement benefit obligation by $1 and the annual expense by
$--. To the extent that the actual experience differs from the inherent
assumptions, the effect will be amortized over the average future service of the
covered active employees.
LEASES AND RENTALS
As of December 31, 1996, minimum rental commitments under operating leases
were $36, $33, $31, $28 and $27 for 1997, 1998, 1999, 2000, and 2001,
respectively. For the remaining years, such commitments amounted to $188,
aggregating total minimum lease payments of $343.
Rental expenses for operating leases were $47, $50 and $48 in 1996, 1995
and 1994, respectively.
CAPITAL STOCK
The Company is authorized to issue 50 million shares of preferred stock,
none of which was outstanding at December 31, 1996.
In connection with the 1995 Spin-off, the Company issued one Series A
Participating Cumulative Preferred Stock Purchase Right (a "Right") for each
share of the Company's common stock outstanding. Additionally, Rights will be
issued in respect of common stock subsequently issued until the Rights
Distribution Date, as defined, and, in certain circumstances, with respect to
common stock issued after the Rights Distribution Date. In the event a person or
group has acquired, or has obtained the right to acquire, beneficial ownership
of more than 15% of the outstanding shares of common stock or certain specified
tender offers occur for more than 15% of the common stock, or in the event the
Company is acquired in a merger or other business combination or certain other
specified events occur, the Right entitles each holder, subject to certain
exceptions, to purchase the number of 1/1,000ths of a share of Series A
Participating Cumulative Preferred Stock of the Company equivalent to the number
of shares of the Company common stock or common stock of the surviving
corporation or other specified entity, as applicable, which have a market value
of twice the specified Purchase Price at the relevant date. The Rights, which do
not have voting rights, expire on the tenth anniversary of the related rights
agreement and are redeemable by the Company at any time at a price of $.01 per
Right.
A-18
<PAGE> 66
STOCK INCENTIVE PLANS
Concurrent with the 1995 Spin-off, ITT adopted the 1995 ITT Corporation
Incentive Stock Plan (the "1995 Plan") for key employees. The 1995 Plan provides
for the granting of nonqualified or incentive stock options, stock appreciation
rights payable in stock or cash, performance shares, restricted stock or any
combination of the foregoing. Awards may be made under the 1995 Plan through the
year 2005.
In connection with the 1995 Spin-off, ITT granted substitute stock options
to acquire 6,276,596 of ITT's common shares, all of which were outstanding at
December 31, 1995. These substitute options replaced 2,627,591 options which
were outstanding prior to the 1995 Spin-off, and maintain the same economic
value, vesting, expiration dates and other restrictions, terms and conditions
which existed under the ITT Industries stock incentive plans.
The 1995 Plan limits awards to employees to no more than 1.5% of the issued
and outstanding shares (including treasury shares) on the last day of each year
plus any unused portions of such limit carried over from prior years.
Additionally, no more than 5,000,000 shares may be available for incentive stock
options and no more than 20% of the total may be available for awards of
restricted stock or performance shares under the 1995 Plan. No more than 10% of
the annual limit may be granted to any one person. The exercise price of each
stock option granted is equal to the closing price of ITT's common stock on the
date of grant. Generally, stock options have a maximum term of ten years and
vest ratably over a three year period from the date of grant. Options granted to
senior officers of ITT vest after nine years from the grant date or upon
attaining certain defined market price levels of ITT's common stock, whichever
occurs first.
The following table summarizes ITT's stock option activity as of and for
the year ended December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
EXERCISE PRICE
OPTIONS PER SHARE
--------- ----------------
<S> <C> <C>
Outstanding at the Spin-off Date and at December
31, 1995....................................... 6,276,596 $37.24
Granted.......................................... 1,741,546 $55.80
Exercised........................................ (288,107) $33.84
Forfeited........................................ (116,256) $49.66
---------
Outstanding at December 31, 1996................. 7,613,779 $41.43
=========
Exercisable at December 31, 1996................. 5,035,111 $36.31
=========
</TABLE>
The following table summarizes information about ITT's outstanding stock
options at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ --------------------------------
NUMBER WEIGHTED-AVERAGE WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/96* CONTRACTUAL LIFE PRICE/SHARE 12/31/96 PRICE/SHARE
- - --------------- ------------ ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$18.00 - $25.04 609,456 4.5 years.... $20.03 609,456 $20.03
$27.81 - $40.14 3,180,439 7.3 years.... $35.17 2,972,005 $35.14
$41.97 - $62.13 3,823,884 8.7 years.... $50.04 1,453,650 $45.54
--------- ---------
7,613,779 5,035,111
========= =========
</TABLE>
- - ---------------
* Included in the number of shares outstanding at December 31, 1996, are 696,000
non exercisable options, granted on February 6, 1996 at an exercise price of
$55.88, that will become exercisable in whole or in part upon achievement of
specified market prices for ITT's common stock or fully exercisable after the
passage of nine years from the date of grant, whichever occurs first.
ITT applies APB Opinion 25 "Accounting for Stock Issued to Employees" and
related interpretations in accounting for the 1995 Plan. Accordingly, no
compensation cost has been recognized for grants of stock options from the 1995
Plan. Had compensation cost for those grants been determined based on the fair
value
A-19
<PAGE> 67
at the grant dates consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation", ITT's net income and earnings per share would have been reduced
by $20 ($0.18 per share) and $6 ($0.05 per share) in 1996 and 1995,
respectively. During the initial phase-in period, the effects of applying SFAS
No. 123 for pro forma disclosures are not likely to be representative of the
effects on reported net income for future years because options vest over
several years and additional awards generally are made each year. In addition,
pro forma compensation expense may vary due to the impact of accelerated vesting
of certain employee stock options. The fair value of each option grant used in
the above pro forma amounts is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: dividend yield of
zero for all years; expected volatility of 33 percent for all years; risk free
interest rates of 5.3 percent and 6.4 percent; and an expected life of 4 years
for all options. The weighted-average fair value of each option granted during
1996 was $19.12.
In addition to the 1995 Plan, ITT maintains a restricted stock plan for
non-employee directors called the 1996 Restricted Stock Plan for Non-Employee
Directors (the "1996 Restricted Stock Plan"). ITT has reserved 120,000 common
shares for grants under the 1996 Restricted Stock Plan. Under this plan, grants
of restricted shares are made automatically on the date of each Annual Meeting
of Stockholders to each non-employee director elected at the meeting, or
continuing in office following the meeting. The amount of each award is equal to
(and in lieu of) the annual retainer in effect for the calendar year within
which the award date falls, divided by the fair market value of ITT's common
stock. Grants of approximately 7,000 restricted shares, resulting in $1 of
expense, were made under this plan in 1996, all of which were outstanding on
December 31, 1996. These shares are expected to vest on various dates from June
1999 through May 2001.
ITT converted 127,401 substitute restricted common shares from the ITT
Industries employee stock incentive plans on the date of the 1995 Spin-off, all
of which were outstanding at December 31, 1995. During 1996, 7,964 of these
restricted shares vested. The remaining 119,437 restricted shares, which were
outstanding at December 31, 1996, are expected to vest on various dates from
April 1997 through January 2001. Amortization expense recorded during 1996 was
$1 related to these employee restricted stock awards.
Upon the occurrence of an acceleration event, as defined, all outstanding
stock options will become immediately exercisable for 60 days beginning on the
date of the event. Additionally, limited stock appreciation rights ("Rights")
will be automatically granted for each outstanding option and become exercisable
for 60 days beginning with the day after the acceleration event. Such Rights
allow option holders to receive, when exercised, cash payments equal to the
spread between a formula market price and the applicable option price, less
withholding taxes.
As of the date of the Distributions, the number and exercise price of all
stock options and restricted common shares outstanding will be adjusted to
recognize the effect of the Distribution. This adjustment will increase the
number of stock options and restricted common shares and reduce the exercise
price of these shares to reflect the value of the common stock of the Company
and ITT Educational which will be distributed to ITT's stockholders.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company has entered into three forward exchange contracts with major
financial institutions to hedge exchange rate exposure on the Company's foreign
currency denominated assets. The contractual amounts of these hedges at December
31, 1996 and 1995, were $300 and $250, respectively. The contracts mature in
1997. Under these contracts, $250 represents hedges of dollars against French
francs while $50 represents a hedge of U.K. pounds against Belgian francs. The
total unrealized losses on these contracts at December 31, 1996 and 1995 were
$25 and $36, respectively, and approximate the fair value of these contracts.
The fair value of forward exchange contracts is the estimated amount the Company
would pay to terminate the contracts at the reporting date.
From time to time the Company uses derivatives to manage its exposure to
interest rate fluctuations on its variable rate debt in U.S. dollars and other
currencies. The Company currently has three interest rate swaps in place with an
aggregate notional amount of $95 in which the Company pays fixed rates and
receives variable rates. The estimated unrealized loss on these interest rate
swaps was $8 at December 31, 1996. The unrealized
A-20
<PAGE> 68
loss represents the amount the Company would pay to terminate the swap
agreements based on current interest rates.
NEW ACCOUNTING PRONOUNCEMENT
In March 1997, the Financial Accounting Standards Board issued SFAS No.128
"Earnings per Share," which is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods; earlier
application is not permitted. SFAS No. 128 requires replacement of primary and
fully diluted earnings per share with basic and diluted earnings per share. The
impact of SFAS No.128 to the Company's current presentation is immaterial for
all periods presented.
COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are involved in various legal matters,
some of which include claims for substantial sums. Reserves have been
established when the outcome is probable and can be reasonably estimated. While
the ultimate results of claims and litigation cannot be determined, the Company
does not expect that the resolution of all legal matters will have a material
adverse effect on its consolidated results of operations, financial position or
cash flow.
The Company has guaranteed certain loans and commitments of various
ventures to which it is a party. These commitments, which in the aggregate were
approximately $130 at December 31, 1996, are not expected to have a material
adverse effect on the Company's consolidated financial position or results of
operations.
For purposes of governing certain of the ongoing relationships between the
Company and ITT Industries after the 1995 Spin-off, the Company and ITT
Industries have entered into various agreements including a Distribution
Agreement, Employee Benefits Services and Liability Agreement, Tax Allocation
Agreement and Intellectual Property Transfer and License Agreements. The Company
may be liable to or due reimbursement from ITT Industries relating to the
resolution of certain matters under these agreements.
In order to assist in the orderly transition of ITT, the Company and ITT
Educational into separate, publicly held companies, the Company intends to
modify, amend or enter into certain contractual agreements with ITT and ITT
Educational, including a distribution agreement, a tax sharing agreement (see
"Income Tax"), an employee benefits agreement and other ancillary agreements.
These agreements will provide, among other things, that: (i) the Company will
become the sole sponsor of the ITT Retirement Plan for Salaried Employees, the
ITT Investment Savings Plan, and various ITT welfare benefit plans; (ii) an
allocation of responsibilities for tax payments owing in respect of the
Distributions will be made among ITT, the Company and ITT Educational; (iii) ITT
and ITT Educational will retain specific insurance policies relating to their
businesses and will continue to have rights and obligations under certain
parent-company level insurance policies of ITT; and (iv) the Company will
provide certain transition services to ITT World Directories and ITT Educational
for a limited period of time following the Distributions. The Company may be
liable to or due reimbursement from ITT and/or ITT Educational relating to the
resolution of certain matters under these agreements.
SUBSEQUENT EVENTS
On January 31, 1997, Hilton Hotels Corporation ("Hilton") commenced a
tender offer for approximately 50.1% of the outstanding shares of ITT's common
stock (the "Hilton Tender Offer") at $55 per share, net to the seller in cash
and without interest upon the terms and subject to the conditions set forth in
the Offer to Purchase dated January 31, 1997 and the related Letter of
Transmittal. The Hilton Tender Offer has been extended to August 1, 1997.
Hilton has announced that, if the Hilton Tender Offer succeeds, it will
obtain the entire equity interest in ITT by merging ITT with Hilton or a
subsidiary of Hilton (such merger, together with the Hilton Tender Offer, the
"Hilton Transaction") in a transaction pursuant to which all shares not tendered
and purchased pursuant to the Hilton Tender Offer (other than shares owned by
Hilton and its subsidiaries or held in ITT's treasury) would be converted into
the right to receive a number of shares of Hilton common stock, par value
A-21
<PAGE> 69
$2.50 per share, having a nominal value of $55 per share, subject to unspecified
collar provisions. The Hilton Transaction is more fully described in the Tender
Offer Statement on Schedule 14D-1 filed by Hilton with the Securities and
Exchange Commission.
During the 1997 first quarter, ITT recorded a $58 pretax charge to
restructure and rationalize its World Headquarters operations. Of the total
pretax charge, $28 represents severance and other related employee termination
costs associated with the elimination of nearly 115 positions. It is expected
that the majority of the severance costs will be paid by the end of 1997. The
balance of the restructuring charge ($30 pretax) relates to charges for reduced
facilities utilization.
A-22
<PAGE> 70
QUARTERLY RESULTS FOR 1996 AND 1995
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
-------- ------- ------------ ----------- ------
<S> <C> <C> <C> <C> <C>
1996
Revenues...................................... $1,290 $ 1,450 $1,430 $ 1,548 $5,718
Costs and Expenses............................ $1,203 $ 1,305 $1,309 $ 1,402 $5,219
Income from continuing operations............. $ 24 $ 62 $ 49 $ 48 $ 183
Income (loss) from discontinued operations.... $ (4) $ 34 $ 18 $ 18 $ 66
------ ------ ------ ------ ------
Net income.................................... $ 20 $ 96 $ 67 $ 66 $ 249
====== ====== ====== ====== ======
Earnings Per Share Income from continuing
operations.................................. $ .20 $ .52 $ .42 $ .41 $ 1.55
Income (loss) from discontinued
operations............................... $( .03) $ .29 $ .15 $ .16 $ .56
------ ------ ------ ------ ------
Net income.................................. $ .17 $ .81 $ .57 $ .57 $ 2.11
====== ====== ====== ====== ======
1995
Revenues...................................... $1,169 $ 1,371 $1,420 $ 1,436 $5,396
Costs and Expenses............................ $1,112 $ 1,261 $1,323 $ 1,306 $5,002
Income from continuing operations............. $ 14 $ 18 $ 50 $ 35 $ 117
Income (loss) from discontinued operations.... $ (7) $ 28 $ -- $ 9 $ 30
------ ------ ------ ------ ------
Net income.................................... $ 7 $ 46 $ 50 $ 44 $ 147
====== ====== ====== ====== ======
Earnings Per Share (Pro Forma through
September 30)
Income from continuing operations........... $ .12 $ .15 $ .42 $ .30 $ .98
Income (loss) from discontinued
operations............................... $ (.06) $ .24 $ -- $ .07 $ .26
------ ------ ------ ------ ------
Net income.................................. $ .06 $ .39 $ .42 $ .37 $ 1.24
====== ====== ====== ====== ======
</TABLE>
A-23
<PAGE> 71
BUSINESS SEGMENT INFORMATION
(IN MILLIONS)
<TABLE>
<CAPTION>
REVENUES INCOME
------------------------ ---------------------
1996 1995 1994 1996 1995 1994
------ ------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Hotels.......................................... $4,433 $4,164 $3,700 $ 371 $ 197 $ 152
Gaming.......................................... 1,066 944 -- 212 168 --
------ ------ ------ ----- ----- -----
Ongoing Segments.............................. 5,499 5,108 3,700 583 365 152
Dispositions.................................... 219 288 176 (1) 34 9
------ ------ ------ ----- ----- -----
Total Segments................................ 5,718 5,396 3,876 582 399 161
Other........................................... (83) (5) (22)
----- ----- -----
499 394 139
Interest expense, net........................... (162) (219) (55)
Miscellaneous income (expense), net............. 3 5 (17)
Provision for income taxes...................... (150) (64) (27)
Minority equity................................. (7) 1 4
----- ----- -----
Income from continuing operations............... 183 117 44
Discontinued operations......................... 66 30 30
------ ------ ------ ----- ----- -----
$5,718 $5,396 $3,876 $ 249 $ 147 $ 74
====== ====== ====== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
GROSS PLANT
IDENTIFIABLE ASSETS ADDITIONS DEPRECIATION
------------------------ ------------------ ------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
------ ------ ------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hotels........................... $4,543 $3,774 $3,484 $267 $278 $123 $125 $106 $ 70
Gaming........................... 2,481 2,269 -- 206 100 -- 31 44 --
Dispositions..................... 412 372 345 51 35 102 13 11 6
------ ------ ------ ---- ---- ---- ---- ---- ----
Total Segments................... 7,436 6,415 3,829 524 413 225 169 161 76
Other............................ 1,486 1,810 806 39 3 4 7 8 8
------ ------ ------ ---- ---- ---- ---- ---- ----
$8,922 $8,225 $4,635 $563 $416 $229 $176 $169 $ 84
====== ====== ====== ==== ==== ==== ==== ==== ====
</TABLE>
Hotels: Operates a worldwide network of hotels and resorts under the
Sheraton name, including the hotels and resorts in the ITT Sheraton Luxury
Collection.
Gaming: Includes the casino operations of ITT Sheraton Gaming Corporation
and effective January 31, 1995, includes the newly acquired operations of
Caesars. Caesars owns and operates three hotel/casinos in Las Vegas and
Stateline, Nevada, and in Atlantic City, New Jersey. In conjunction with another
entity, Caesars manages a casino owned by the Ontario government in Windsor,
Canada.
"Dispositions" include the operating results of certain gaming operations
which are held for sale in Las Vegas, Nevada and Tunica, Mississippi.
"Income" consists of gross profit on revenues less operating expenses
incurred. "Other" includes non-operating income and corporate expenses.
Intercompany revenues, which are priced on an arm's-length basis, are not
material.
GEOGRAPHICAL INFORMATION -- TOTAL SEGMENTS
(IN MILLIONS)
<TABLE>
<CAPTION>
REVENUES OPERATING INCOME IDENTIFIABLE ASSETS
------------------------ ------------------ ------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
------ ------ ------ ---- ---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S.......................... $3,209 $3,038 $1,841 $358 $240 $ 67 $4,596 $4,281 $2,151
Western Europe............... 890 827 625 91 48 5 1,920 1,544 1,041
Canada and Other............. 1,619 1,531 1,410 133 111 89 920 590 637
------ ------ ------ ---- ---- ---- ------ ------ ------
Total Segments............... $5,718 $5,396 $3,876 $582 $399 $161 $7,436 $6,415 $3,829
====== ====== ====== ==== ==== ==== ====== ====== ======
</TABLE>
A-24
<PAGE> 72
ITT DESTINATIONS, INC.
CONSOLIDATED INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
MARCH 31,
-----------------
1997 1996
------ ------
<S> <C> <C>
Revenues................................................................... $1,333 $1,290
Costs and expenses:
Salaries, benefits and other operating................................... 1,026 978
Selling, general and administrative...................................... 222 169
Depreciation and amortization............................................ 68 56
------ ------
1,316 1,203
------ ------
17 87
Interest expense (net of interest income of $6 and $27).................... (38) (46)
Gain on sale of Alcatel Alsthom shares..................................... 183 --
Miscellaneous expense, net................................................. (20) (2)
------ ------
142 39
Provision for income taxes................................................. (59) (17)
Minority equity............................................................ 2 2
------ ------
Income from continuing operations.......................................... 85 24
Discontinued operations.................................................... (5) (4)
------ ------
Net income................................................................. $ 80 $ 20
====== ======
Earnings per share:
Income from continuing operations........................................ $ .72 $ .20
Loss from discontinued operations........................................ (.04) (.03)
------ ------
Net income............................................................... $ .68 $ .17
====== ======
Weighted average common and common equivalent shares....................... 118 119
====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
A-25
<PAGE> 73
ITT DESTINATIONS, INC.
CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
MARCH 31, ------------
1997
-----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................... $ 205 $ 205
Marketable securities............................................. -- 599
Receivables --
Accounts receivable, net....................................... 382 435
Sale of Alcatel Alsthom shares................................. 533 --
Inventories....................................................... 55 58
Prepaid expenses and other........................................ 124 102
------ ------
Total current assets...................................... 1,299 1,399
Plant, property and equipment, net.................................. 4,437 4,700
Investment in Madison Square Garden................................. 368 533
Other investments................................................... 343 386
Long-term receivables, net.......................................... 168 178
Other assets........................................................ 407 346
Goodwill, net....................................................... 1,297 1,323
Net assets held for sale............................................ 330 --
Net assets of discontinued operations............................... 62 57
------ ------
$ 8,711 $8,922
====== ======
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable.................................................. $ 218 $ 257
Accrued expenses.................................................. 498 451
Notes payable and current maturities of long-term debt............ 494 486
Accrued taxes..................................................... 206 171
------ ------
Total current liabilities................................. 1,416 1,365
Allocated debt of ITT............................................... 1,799 2,095
Other long-term debt................................................ 757 798
Deferred income taxes............................................... 194 186
Other liabilities................................................... 393 378
Net liabilities of discontinued operations.......................... 817 808
Minority interest................................................... 194 218
------ ------
5,570 5,848
------ ------
Stockholders equity:
Common stock: authorized 200,000,000 shares, no par or stated
value, outstanding 116,429,113 and 116,366,176 shares,
respectively................................................... 2,899 2,897
Cumulative translation adjustment................................. (79) (2)
Unrealized loss on securities..................................... -- (62)
Retained earnings................................................. 321 241
------ ------
Total stockholders equity...................................... 3,141 3,074
------ ------
$ 8,711 $8,922
====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
A-26
<PAGE> 74
ITT DESTINATIONS, INC.
CONSOLIDATED CASH FLOW
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
---------------
1997 1996
----- -----
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................... $ 80 $ 20
Loss from discontinued operations............................................ 5 4
---- ----
Income from continuing operations.......................................... 85 24
Adjustments to income from continuing operations:
Depreciation and amortization.............................................. 68 56
Provision for doubtful receivables......................................... 11 9
Gain on divestments -- pretax.............................................. (201) (8)
Changes in working capital:
Receivables................................................................ (7) 12
Inventories................................................................ -- (5)
Accounts payable........................................................... (47) (33)
Accrued expenses........................................................... 73 (6)
Accrued and deferred taxes................................................... 39 (23)
Other, net................................................................... 7 17
---- ----
Cash from continuing operations.............................................. 28 43
Cash from/(to) discontinued operations....................................... 37 (10)
---- ----
Cash from operating activities............................................. 65 33
---- ----
INVESTING ACTIVITIES
Additions to plant, property and equipment................................... (182) (84)
Proceeds from divestments.................................................... 365 21
Acquisitions................................................................. (31) --
Other, net................................................................... 112 (7)
---- ----
Cash (used for)/from investing activities.................................. 264 (70)
---- ----
FINANCING ACTIVITIES
Short-term debt, net......................................................... (4) 25
Long-term debt issued........................................................ 73 42
Long-term debt repaid........................................................ (396) (58)
Other, net................................................................... 2 39
---- ----
Cash (used for)/from financing activities.................................. (325) 48
---- ----
EXCHANGE RATE EFFECT ON CASH AND CASH EQUIVALENTS............................ (4) --
---- ----
Increase in cash and cash equivalents........................................ -- 11
Cash and cash equivalents -- Beginning of Period............................. 205 141
---- ----
CASH AND CASH EQUIVALENTS -- END OF PERIOD................................... $ 205 $ 152
==== ====
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest................................................................... $ 11 $ 19
==== ====
Income taxes............................................................... $ 13 $ 26
==== ====
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
A-27
<PAGE> 75
ITT DESTINATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED)
DISTRIBUTIONS AND BASIS OF PRESENTATION
On July 15, 1997, the Board of Directors of ITT Corporation ("ITT", which
is expected to be renamed ITT Information Services, Inc.) approved a plan to
distribute to the holders of ITT's common stock all the outstanding shares of
common stock of ITT Destinations, Inc. (which is expected to be renamed ITT
Corporation and is herein referred to as the "Company"), a newly formed company
that will hold the hotels and gaming business of ITT (the "Destinations
Distribution"), and all the shares representing its approximately 83% interest
in ITT Educational Services, Inc., its publicly traded post-secondary technical
education business, (the "ITT Educational Distribution" and, together with the
Destinations Distribution, the "Distributions"). Upon completion of the
Distributions, holders of ITT's common stock will receive the common stock of
the Company and ITT Educational. For accounting purposes, because of the
relative significance of the hotel and gaming operations, the businesses
comprising the information services segment of ITT (ITT World Directories and
ITT Educational) have been presented as discontinued operations. The net
liabilities of discontinued operations includes an allocation of ITT's
indebtedness which will occur prior to the Distributions.
The Company is one of the world's largest hotel and gaming companies. Its
principal lines of business are hotels and gaming. The hotels segment is
comprised of a worldwide hospitality network of over 420 full-service hotels
serving three markets: luxury, upscale and mid-price. The Company's hotel
operations are represented on every continent and in nearly every major world
market. The Company's gaming operations are located in several key domestic
jurisdictions. The Company also operates various hotel/casino ventures outside
the United States.
These financial statements represent the financial position, results of
operations and cash flows of the Company as if it were a separate entity for all
periods presented. ITT's historical basis in the assets and liabilities of the
Company has been carried over and all majority-owned subsidiaries have been
consolidated. All material intercompany transactions and balances have been
eliminated.
INTERIM PERIOD FINANCIAL STATEMENTS
The unaudited consolidated financial statements reflect all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position of the Company and it subsidiaries at March 31, 1997 and
their results of operations and cash flows for the three months ended March 31,
1997 and 1996. Interim results are not necessarily indicative of full year
performance.
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 such promotional allowances was $39 and $42 for the
three months ended March 31, 1997 and 1996, respectively. The estimated cost of
such promotional allowances was $30 and $28 for the three months ended March 31,
1997 and 1996, respectively, and has been included in costs and expenses.
A-28
<PAGE> 76
Revenues and costs and expenses of the Gaming operations are comprised of
the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------
1997 1996
---------------------- ----------------------
COSTS AND COSTS AND
REVENUES EXPENSES REVENUES EXPENSES
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Gaming...................................... $231 $ 152 $262 $ 147
Rooms....................................... 16 6 18 6
Food and beverage........................... 18 17 20 20
Other operations............................ 27 14 24 13
Selling, general and administrative......... -- 50 -- 57
Depreciation and amortization............... -- 21 -- 21
Provision for doubtful accounts............. -- 10 -- 7
---- ---- ---- ----
Total............................. $292 $ 270 $324 $ 271
==== ==== ==== ====
</TABLE>
DISCONTINUED OPERATIONS
As more fully discussed in "Distributions and Basis of Presentation", the
assets and liabilities of ITT World Directories and ITT Educational are included
in Net Liabilities of Discontinued Operations and Net Assets of Discontinued
Operations, respectively. Summary financial information of the discontinued
operations is as follows:
ITT World Directories
Balance Sheet Data:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
MARCH 31, ------------
1997
-----------
(UNAUDITED)
<S> <C> <C>
Total assets........................................ $ 489 $ 510
Total liabilities................................... (306) (318)
Allocated debt of ITT............................... (1,000) (1,000)
------- -------
Net liabilities of discontinued operations.......... $ (817) $ (808)
======= =======
</TABLE>
Income Statement Data:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Revenues............................................ $ 42 $ 41
=== ===
Operating income.................................... $ 2 $ 5
Interest expense, net............................... 18 18
Miscellaneous income................................ 1 --
Benefit for income taxes............................ 6 5
--- ---
Loss from discontinued operations................... $ (9) $ (8)
=== ===
</TABLE>
A-29
<PAGE> 77
ITT Educational Services
Balance Sheet Data:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
MARCH 31, ------------
1997
-----------
(UNAUDITED)
<S> <C> <C>
Total assets........................................ $ 130 $134
Total liabilities................................... (68) (77)
---- ----
Net assets of discontinued operations............... $ 62 $ 57
==== ====
</TABLE>
Income Statement Data:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Revenues............................................ $ 65 $ 57
=== ===
Operating income.................................... $ 9 $ 8
Interest income..................................... 1 --
Miscellaneous expense, net.......................... 1 --
Provision for income taxes.......................... 4 3
Minority equity..................................... 1 1
--- ---
Earnings from discontinued operations............... $ 4 $ 4
=== ===
</TABLE>
INVESTMENT IN MADISON SQUARE GARDEN
On February 18, 1997, the Company received $169 as payment of the remaining
amount necessary to equalize the partnership interests of Cablevision and ITT in
MSG. On April 15, 1997, ITT entered into a Partnership Interest Transfer
Agreement among ITT, ITT Eden Corporation, ITT MSG Inc., Cablevision, Rainbow
Media Holdings Inc., Rainbow Garden Corp., Garden L.P. Holding Corp., MSG Eden
Corporation and MSG (the "Partnership Interest Transfer Agreement"). Pursuant to
the Partnership Interest Transfer Agreement, Cablevision paid ITT $500 in cash
on June 17, 1997. ITT also has a "put" option to require Cablevision or MSG to
purchase half of ITT's continuing interest in MSG for $75 on June 17, 1998 and
the other half of this continuing interest for an additional $75 on June 17,
1999 (or, if the first option is not exercised the entire continuing interest
for $150). In addition, pursuant to an Aircraft Contribution Agreement dated as
of April 15, 1997, among Garden L.P. Holding Corp., MSG Eden Corporation, ITT
MSG, Inc., ITT Flight Operations, Inc. and MSG, ITT has agreed to contribute to
MSG an ITT-owned aircraft which MSG has used for the Knicks and the Rangers. In
consideration of the aircraft contribution, Cablevision has agreed to add an
additional $19 to the exercise price of each of ITT's "put" options. The
Partnership Interest Transfer Agreement also includes a "call" option requiring
ITT to sell its remaining stake in MSG on the third anniversary of the closing
at fair market value, but not below a minimum price based on the "put" prices.
NEW ACCOUNTING PRONOUNCEMENT
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128
"Earnings per Share," which is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods; earlier
application is not permitted. SFAS No. 128 requires replacement of primary and
fully diluted earnings (loss) per share with basic and diluted earnings per
share. The impact of SFAS No. 128 to the Company's current presentation is
immaterial for all periods presented.
A-30
<PAGE> 78
THE HILTON OFFER
On January 31, 1997, Hilton Hotels Corporation ("Hilton") commenced a
tender offer for approximately 50.1% of the outstanding shares of ITT's common
stock (the "Hilton Tender Offer") at $55 per share, net to the seller in cash
and without interest upon the terms and subject to the conditions set forth in
the Offer to Purchase dated January 31, 1997 and the related Letter of
Transmittal. The Hilton Tender Offer has been extended to August 1, 1997.
Hilton has announced that, if the Hilton Offer succeeds, it will obtain the
entire equity interest in ITT by merging ITT with Hilton or a subsidiary of
Hilton (such merger, together with the Hilton Tender Offer, the "Hilton
Transaction") in a transaction pursuant to which all shares not tendered and
purchased pursuant to the Hilton Tender Offer (other than shares owned by Hilton
and its subsidiaries or held in ITT's treasury) would be converted into the
right to receive a number of shares of Hilton common stock, par value $2.50 per
share, having a nominal value of $55 per share, subject to unspecified collar
provisions. The Hilton Transaction is more fully described in the Tender Offer
Statement on Schedule 14D-1 filed by Hilton with the Securities and Exchange
Commission.
RECLASSIFICATIONS
Certain amounts in the 1996 financial statements have been reclassified to
conform to the current year presentation.
RESTRUCTURING CHARGE
In the 1997 first quarter, ITT recorded a $58 pretax charge to restructure
and rationalize its World Headquarters operations. Of the total pretax charge,
$28 represents severance and other related employee termination costs associated
with the elimination of nearly 115 positions. It is expected that the majority
of the severance costs will be paid by the end of 1997. The balance of the
restructuring charge ($30 pretax) relates to charges for reduced facilities
utilization.
SALE OF ALCATEL ALSTHOM SHARES
During February and March 1997, ITT sold its remaining interest in the
capital stock of Alcatel Alsthom. Total proceeds from these sales were
approximately $830, resulting in a pretax gain of $183.
SUBSEQUENT EVENTS
On April 29, 1997, ITT announced its intention to sell two of its Gaming
Properties: The Desert Inn in Las Vegas, Nevada, and The Sheraton Casino in
Tunica, Mississippi. For financial reporting purposes, the assets and
liabilities attributable to these two properties have been classified in the
Consolidated Balance Sheet as "Net assets held for sale."
On May 12, 1997, ITT Dow Jones Television, a general partnership in which
each of ITT and Dow Jones & Company Inc. ("Dow Jones") owns a 50% interest,
agreed to sell the Federal Communications Commission license of WBIS+ Channel 31
in New York City, to Paxson Communications Corporation for a purchase price of
approximately $258. This agreement is subject to the approval of the Federal
Communications Commission, which is expected to be received in 1997. This
transaction is expected to be completed by the end of 1997.
A-31
<PAGE> 79
BUSINESS SEGMENT INFORMATION
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
REVENUES INCOME
----------------- -------------
THREE MONTHS ENDED MARCH 31,
-----------------------------------
1997 1996 1997 1996
------ ------ ---- ----
<S> <C> <C> <C> <C>
Hotels..................................................... $1,041 $ 966 $ 72 $ 56
Gaming..................................................... 263 265 47 53
------ ------ ---- ----
Ongoing Segments......................................... 1,304 1,231 119 109
Dispositions............................................... 29 59 (23) --
------ ------ ---- ----
Total Segments........................................... 1,333 1,290 96 109
Other...................................................... -- -- (79) (22)
------ ------ ---- ----
1,333 1,290 17 87
Interest expense, net...................................... (38) (46)
Gain on sale of Alcatel Alsthom shares..................... 183 --
Miscellaneous expenses, net................................ (20) (2)
Provision for income taxes................................. (59) (17)
Minority equity............................................ 2 2
---- ----
Income from continuing operations.......................... 85 24
Discontinued operations.................................... (5) (4)
------ ------ ---- ----
$1,333 $1,290 $ 80 $ 20
====== ====== ==== ====
</TABLE>
COMMON STOCK MARKET PRICE AND DIVIDENDS
(IN DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
1996
-------------------
HIGH LOW
------ ------
<S> <C> <C>
March 31,................................................ $62.63 $47.38
June 30,................................................. $68.25 $56.88
September 30,............................................ $66.63 $43.00
December 31,............................................. $46.50 $40.88
</TABLE>
<TABLE>
<CAPTION>
1995
-------------------
HIGH LOW
------ ------
<S> <C> <C>
Period commencing December 20, 1995 and ending December
31, 1995............................................... $53.13 $48.25
====== ======
</TABLE>
The above table reflects the range of market prices of ITT common stock
subsequent to the 1995 Spin-off, as reported in the consolidated transaction
reporting system of the New York Stock Exchange, the principal market in which
this security is traded, under the trading symbol "ITT".
During the period from January 1, 1997 through March 24, 1997, the high and
the low reported market prices of ITT common stock were $60.00 and $41.13,
respectively.
The Company has not declared any dividends to date and at present have no
plans to declare or pay any dividends.
There were approximately 56,000 holders of record of ITT Common Stock on
March 24, 1997.
The Company's common stock is listed on the New York Stock Exchange.
A-32
<PAGE> 80
SCHEDULE II
ITT DESTINATIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS (DEDUCTIONS)
-------------------------------------------
CHARGED TO WRITE-OFFS/
BALANCE COSTS AND TRANSLATIONS RECOVERIES/ BALANCE
DESCRIPTION JANUARY 1 EXPENSES ADJUSTMENT OTHER DECEMBER 31
- - --------------------------------------- --------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Trade Receivables -- Allowance for
doubtful accounts.................... $81 $ 39 $-- $ 1 $ 121
Notes Receivable -- Allowance for
doubtful accounts.................... $98 $ -- $-- $ (48) $ 50
YEAR ENDED DECEMBER 31, 1995
Trade Receivables -- Allowance for
doubtful accounts.................... $26 $ 50 $-- $ 5 $ 81
Notes Receivable -- Allowance for
doubtful accounts.................... $78 $ -- $-- $ 20 $ 98
YEAR ENDED DECEMBER 31, 1994
Trade Receivables -- Allowance for
doubtful accounts.................... $13 $ 33 $-- $ (20) $ 26
Notes Receivable -- Allowance for
doubtful accounts.................... $76 $ 6 $-- $ (4) $ 78
</TABLE>
SA-1
<PAGE> 81
ANNEX B
ITT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULE
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants............................................ B-2
Consolidated Income for the three years ended December 31, 1996..................... B-3
Consolidated Balance Sheet as of December 31, 1996 and 1995......................... B-4
Consolidated Cash Flow for the three years ended December 31, 1996.................. B-5
Consolidated Stockholders Equity (Deficit) for the three years ended December 31,
1996.............................................................................. B-6
Notes to Financial Statements....................................................... B-7
Business Segment Information........................................................ B-14
Geographical Information -- Total Segments.......................................... B-15
Quarterly Results for 1996 and 1995 (Unaudited)..................................... B-15
Consolidated Income for the three months ended March 31, 1997 and 1996
(Unaudited)....................................................................... B-16
Consolidated Balance Sheet as of March 31, 1997 (Unaudited) and December 31, 1996... B-17
Consolidated Cash Flow for the three months ended March 31, 1997 and 1996
(Unaudited)....................................................................... B-18
Notes to Financial Statements (Unaudited)........................................... B-19
Valuation and Qualifying Accounts................................................... SB-1
</TABLE>
B-1
<PAGE> 82
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO ITT CORPORATION:
We have audited the accompanying consolidated balance sheet of ITT
Corporation (a Nevada corporation, which is expected to be renamed ITT
Information Services, Inc.) and subsidiaries, as defined in the notes, as of
December 31, 1996 and 1995, and the related consolidated statements of income,
cash flow and stockholders equity (deficit) for each of the three years in the
period ended December 31, 1996, as described in the accompanying Index to
Financial Statements and Schedule. These financial statements are the
responsibility of the Corporation'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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ITT
Corporation and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Financial Statements and Schedule is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
New York, New York
July 15, 1997
B-2
<PAGE> 83
ITT CORPORATION
CONSOLIDATED INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues.............................................................. $647 $654 $646
Costs and expenses:
Salaries, benefits and other operating.............................. 332 342 402
Selling, general and administrative................................. 91 135 91
Depreciation and amortization....................................... 16 17 12
---- ---- ----
439 494 505
---- ---- ----
208 160 141
Interest expense...................................................... (72) (77) (76)
Miscellaneous expense, net............................................ (1) -- --
---- ---- ----
135 83 65
Provision for income taxes............................................ (50) (42) (26)
Minority equity....................................................... (31) (20) (16)
---- ---- ----
Net income............................................................ $ 54 $ 21 $ 23
==== ==== ====
Earnings per share.................................................... $.46 $.18 $.20
==== ==== ====
Weighted average common and common equivalent shares.................. 118 118 117
==== ==== ====
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
B-3
<PAGE> 84
ITT CORPORATION
CONSOLIDATED BALANCE SHEET
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 13 $ 30
Receivables, net......................................................... 358 341
Directories in progress.................................................. 44 41
Prepaid expenses and other............................................... 5 8
----- -----
Total current assets............................................. 420 420
Plant, property and equipment, net......................................... 27 31
Goodwill, net.............................................................. 34 37
Long-term receivables, net................................................. 8 9
Other assets............................................................... 21 22
----- -----
$ 510 $ 519
===== =====
LIABILITIES AND STOCKHOLDERS DEFICIT
Current liabilities:
Accounts payable......................................................... $ 43 $ 57
Accrued expenses......................................................... 93 122
Notes payable............................................................ 46 104
Accrued taxes............................................................ 57 47
----- -----
Total current liabilities........................................ 239 330
Deferred income taxes...................................................... 10 11
Long-term debt............................................................. 1,000 941
Other liabilities.......................................................... 8 7
Minority interest.......................................................... 61 39
----- -----
1,318 1,328
----- -----
STOCKHOLDERS DEFICIT....................................................... (808) (809)
----- -----
$ 510 $ 519
===== =====
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
B-4
<PAGE> 85
ITT CORPORATION
CONSOLIDATED CASH FLOW
(IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
1996 1995 1994
---- ----- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................................................... $ 54 $ 21 $ 23
Adjustments to net income:
Depreciation and amortization...................................... 16 17 12
Provision for doubtful receivables................................. 14 18 14
Minority equity in net income...................................... 31 20 16
Changes in working capital:
Receivables........................................................ (8) (3) (10)
Directories in progress............................................ (7) (4) --
Accounts payable................................................... (11) 13 (4)
Accrued expenses................................................... (26) 26 (29)
Accrued and deferred taxes........................................... 4 (9) (13)
Other, net........................................................... (9) (14) 1
---- ----- ----
Cash from operating activities..................................... 58 85 10
---- ----- ----
INVESTING ACTIVITIES
Additions to plant, property and equipment........................... (6) (7) (6)
Acquisition, net of acquired cash.................................... -- (19) --
Other, net........................................................... 1 1 (1)
---- ----- ----
Cash used for investing activities................................. (5) (25) (7)
---- ----- ----
FINANCING ACTIVITIES
Short-term debt, net................................................. (54) 98 2
Transfers (to)/from Destinations..................................... (12) (134) 3
Other, net........................................................... (3) (1) (7)
---- ----- ----
Cash used for financing activities................................. (69) (37) (2)
---- ----- ----
EXCHANGE RATE EFFECT ON CASH AND CASH EQUIVALENTS.................... (1) 2 --
---- ----- ----
(Decrease)/increase in cash and cash equivalents..................... (17) 25 1
Cash and Cash Equivalents -- Beginning of Year....................... 30 5 4
---- ----- ----
CASH AND CASH EQUIVALENTS -- END OF YEAR............................. $ 13 $ 30 $ 5
==== ===== ====
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest........................................................... $ 81 $ 76 $ 77
==== ===== ====
Income taxes....................................................... $ 69 $ 26 $ 37
==== ===== ====
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
B-5
<PAGE> 86
ITT CORPORATION
CONSOLIDATED STOCKHOLDERS EQUITY (DEFICIT)
(IN MILLIONS)
<TABLE>
<S> <C>
Balance -- January 1, 1994......................................................... $ 170
Net income......................................................................... 23
Translation of financial statements................................................ (15)
Transfers from Destinations, net................................................... 21
-------
Balance -- December 31, 1994....................................................... 199
Net income......................................................................... 21
Translation of financial statements................................................ (6)
Transfers to Destinations, net..................................................... (1,023)
-------
Balance -- December 31, 1995....................................................... (809)
Net income......................................................................... 54
Translation of financial statements................................................ (15)
Transfers to Destinations, net..................................................... (38)
-------
Balance -- December 31, 1996....................................................... $ (808)
=======
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
B-6
<PAGE> 87
ITT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED)
DISTRIBUTIONS AND BASIS OF PRESENTATION
On July 15, 1997, the Board of Directors of ITT Corporation ("ITT")
approved a plan to distribute (the "Distributions") to the holders of ITT's
common stock all the outstanding shares of common stock of ITT Destinations,
Inc. ("Destinations"), a newly formed company that will hold the hotels and
gaming businesses of ITT, and all the shares representing its approximately 83%
interest in ITT Educational Services, Inc. ("ITT Educational"), its
publicly-traded postsecondary technical education business. After the
Distributions, the shares of ITT (which is expected to be renamed ITT
Information Services, Inc. and is herein referred to as the "Company") will
represent its interest in its telephone directories publishing businesses.
The Company publishes telephone directories -- alphabetical and
classified -- and also publishes specialized directories. The Company's
principal source of revenue is advertisements published in its directories. Its
principal publications are in Belgium, The Netherlands, Portugal, the Republic
of Ireland, the Republic of South Africa, Puerto Rico and the United States
Virgin Islands. The Company publishes directories in these jurisdictions either
pursuant to a contract with the national telecommunications provider or as a
proprietary directory in such jurisdiction.
The accompanying consolidated financial statements, which include the
accounts of the Company and its wholly and majority owned directory publishing
subsidiaries, present the financial position, results of operations and cash
flows of the Company in a manner that accounts for the Distributions as if the
Company was spun-off by Destinations. Consequently, the accompanying financial
statements present the historical basis in the operations of the Company, after
adjustment for certain indebtedness not allocated to Destinations. All material
intercompany transactions and balances have been eliminated. Investments in
affiliated companies, owned more than 20%, but not in excess of 50%, are
recorded on the equity method.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ACCOUNTING POLICIES
Revenue Recognition
Revenues are recognized as directories are published and are comprised of
the total value of advertising contracts sold by the Company. Costs and expenses
include remuneration and franchise fees paid to telephone authorities in
jurisdictions where the Company operates as a publisher of directories or
operates as an agent.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Directories in Progress
Directories in progress include direct and indirect costs applicable to
unpublished directories. Such costs include the costs of soliciting advertising,
compiling and printing the directories. Where the Company is the publisher of
these directories, income and the related costs are recognized concurrently with
the distribution of the telephone directories. Revenues on multibook contracts,
however, are recognized at the time of publication of the first book; costs for
future books are accrued at that time. Where the Company operates as an agent of
B-7
<PAGE> 88
the telephone authorities, income and related costs are recognized concurrently
with performance of contractual responsibilities.
Plant, Property and Equipment
Plant, property and equipment are recorded at cost. The Company normally
claims the maximum deduction allowable for tax purposes. In general, for
financial reporting purposes, depreciation is provided on a straight-line basis
over the useful economic lives of the assets involved as follows: Buildings and
improvements -- primarily 15 to 40 years, Machinery, furniture and
equipment -- 2 to 10 years, and Other -- 5 to 10 years. Gains or losses on the
sale or retirement of assets are included in income.
Deferred Charges and Other Non-Current Assets
Costs in connection with computer systems development have been deferred
and are being amortized over three years. At December 31, 1996 and 1995, $9 and
$9, respectively, of these costs were deferred net of accumulated amortization
of $5 and $5, respectively. Amortization expense charged to income was $4, $5
and $4 in 1996, 1995 and 1994, respectively.
Income Taxes
Prior to the Distributions, the Company and its U.S. subsidiaries were
included in the consolidated U.S. Federal tax return of ITT and/or ITT
Industries as applicable and remitted to (received from) ITT and/or ITT
Industries an income tax provision (benefit) computed in accordance with a tax
sharing arrangement. This arrangement generally required that the Company
determine its tax provision (benefit) as if it were filing a separate U.S.
Federal income tax return. During 1996, 1995 and 1994, ITT allocated interest
expense along with the corresponding tax benefit to the Company.
Foreign Currency
Balance sheet accounts are translated at the exchange rates in effect at
each year end and income and expense accounts are translated at the average
rates of exchange prevailing during the year. The national currencies of foreign
operations are generally the functional currencies. Gains and (losses) from
foreign currency transactions are reported currently in costs and expenses and
were insignificant for all periods presented.
Goodwill
The difference between the purchase price and the value ascribed to net
tangible assets of operations acquired has been recorded as goodwill. The
Company does not amortize goodwill relating to companies acquired prior to
November 1, 1970. Unamortized balances were $4 and $4 respectively, as of
December 31, 1996 and 1995.
Goodwill recorded after November 1, 1970 is amortized on a straight-line
basis over varying periods not exceeding forty years. This goodwill is
attributable to directory franchises which management believes to have
indefinite lives based on the expectation of continuing operations either
through the renewal of the franchise contracts or independently. At December 31,
1996 and 1995 goodwill of $34 and $37, respectively, is presented net of
accumulated amortization of $9 and $6, respectively. Amortization expense
charged to income was $4 in 1996, $1 in 1995, and $-- in 1994.
The Company continually reviews goodwill to assess recoverability from
future operations using undiscounted cash flows. Impairments would be recognized
in operating results if a permanent diminution in value is deemed to have
occurred.
Earnings Per Share
Earnings per share were computed based upon the number of ITT common and
common equivalent shares which were outstanding during the applicable periods
presented.
B-8
<PAGE> 89
ACQUISITION
On October 31, 1995, the Company acquired a 60% interest in Maister
Directories (1981) (Pty) Ltd. and an additional 10% interest in Maister
Management Company (Pty) Ltd. (collectively "Maister") of the Republic of South
Africa (bringing its ownership to 60%). Accordingly, the accompanying
consolidated financial statements include the results of Maister from October
31, 1995. The costs of these acquisitions of $38 were allocated to the
proportionate share of the assets acquired and liabilities assumed with the
excess of $30 allocated to goodwill.
The following unaudited pro forma information presents the results of
operations assuming the Maister acquisition occurred at the beginning of the
respective periods:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------
1995 1994
---- ----
<S> <C> <C>
Revenues...................................................... $704 $717
Net income.................................................... $ 24 $ 29
Earnings per share............................................ $.20 $.24
==== ====
</TABLE>
The pro forma information is not necessarily indicative of the results that
would have occurred had the acquisition taken place at the beginning of the
respective periods.
RECEIVABLES
Current receivables are net of allowance for doubtful accounts of $19 and
$24 at December 31, 1996 and 1995, respectively. Included in current receivables
are interest bearing advances to Destinations subsidiaries of $142 and $47 at
December 31, 1996 and 1995, respectively, which are expected to be settled prior
to the Distributions. Such advances bear interest at current market rates. The
fair value of receivables at December 31, 1996 approximates their book value.
PLANT, PROPERTY AND EQUIPMENT
Plant, property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1995
---- ----
<S> <C> <C>
Land and improvements......................................... $ -- $ 2
Buildings and improvements.................................... 14 14
Machinery, furniture and equipment............................ 51 57
Other......................................................... 17 15
---- ----
82 88
Less: Accumulated depreciation and amortization............... (55) (57)
---- ----
$ 27 $ 31
==== ====
</TABLE>
FORMATION OF JOINT VENTURE
On January 1, 1997, the Company consummated the merger of ITT
Portugal -- Sociedade Gestora de Participacoes Socias, Lda., ITT Paginas
Amarelas, S.A. and ITT Pecas Automoveis Lda. and Portugal Telecom, S.A.
contributed capital to the merged entity. Under the new ownership structure, the
Company owns 50% of the outstanding shares of common stock and the other 50% is
owned by Portugal Telecom, S.A.. All preferred shares are held by the Company.
The preferred shares give right to a preferred dividend of 50% of the
distributable profit of the year with a guaranteed minimum payment, as defined.
The Company receives 75% of the merged entity's net income through a combination
of its common and preferred stock ownership. The merged company has been named
Paginas Amarelas, S.A.
B-9
<PAGE> 90
RESTRUCTURING
The Company recorded a $28 pretax charge in the 1995 third quarter to
restructure and rationalize headquarter operations and provide for the planned
disposal of non-core assets.
Of the total pretax charge, approximately $11 represents severance and
other related employee termination costs. The balance of the restructuring
charge ($17 pretax) related primarily to asset write-offs, lease commitments and
termination penalties and reserve actions in connection with the disposal of
non-core assets and reduced facilities utilization. As of December 31, 1996,
substantially all of these restructuring costs had been paid.
GENERAL AND ADMINISTRATIVE EXPENSES
Included in selling, general and administrative expenses is $2, $2, and $3
in 1996, 1995 and 1994, respectively, which represents the Company's share of
costs incurred by ITT for legal, financial, communication and other
administrative services. In the opinion of management, ITT's methods for
allocating costs are reasonable. However, the net cost of these services to ITT
are not necessarily indicative of the costs that would have been incurred if the
Company had been operated as an unaffiliated entity. It is not practical to
estimate such costs on a stand-alone basis.
DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------ ------
<S> <C> <C>
Bank loans and other short-term............................ $ 46 $ 104
Allocated debt of ITT...................................... 1,000 941
------ ------
$1,046 $1,045
====== ======
</TABLE>
ITT's historical practice has been to incur indebtedness for its
consolidated group at the parent company level or at a limited number of
subsidiaries, rather than at the operating company level, and to centrally
manage various cash functions. Consequently, a portion of the corporate debt of
ITT along with the corresponding interest expense has been allocated to the
Company. Interest expense was allocated at a rate equivalent to the overall
weighted average interest rate of ITT, which was 7.5% for 1996, 1995 and 1994.
Total pre-tax interest allocated to the Company was $75, $71 and $67 in 1996,
1995 and 1994, respectively.
Long-term corporate debt, including indebtedness allocated to Destinations,
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
DESCRIPTION 1996 1995
--------------------------------------------------------- ------- -------
<S> <C> <C>
Commercial paper
(5.75% and 5.94% weighted average rate in 1996 and
1995, respectively)................................. $ 1,102 $ 1,329
6.25% notes due 2000..................................... 698 698
6.75% notes due 2003..................................... 250 --
6.75% notes due 2005..................................... 449 449
7.375% debentures due 2015............................... 448 448
7.75% debentures due 2025................................ 148 148
------- -------
Total.................................................... 3,095 3,072
Less: indebtedness allocated to Destinations............. (2,095) (2,131)
------- -------
$ 1,000 $ 941
======= =======
</TABLE>
Prior to the Distributions, ITT intends to realign its existing
indebtedness. As part of the debt realignment, ITT will commence tender offers
for all publicly held debt securities issued by ITT and repay
B-10
<PAGE> 91
certain other debt. These tender offers will be financed by a combination of new
lines of credit of Destinations and the Company. Upon completion of the debt
realignment, the Company will have responsibility for approximately $1.0 billion
of debt, subject to certain adjustments, and Destinations will have
responsibility for the remaining indebtedness of ITT. The fair value of
indebtedness approximates its book value.
INCOME TAX
Income tax data is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Pretax income (loss)
U.S......................................................... $(54) $(69) $(39)
Foreign..................................................... 189 152 104
---- ---- ----
$135 $ 83 $ 65
==== ==== ====
Provision (benefit) for income tax*
Current:
U.S. Federal................................................ $(24) $(31) $(17)
Foreign..................................................... 69 77 58
---- ---- ----
45 46 41
---- ---- ----
Deferred:
U.S. Federal................................................ 1 1 1
Foreign and other........................................... 4 (5) (16)
---- ---- ----
5 (4) (15)
---- ---- ----
$ 50 $ 42 $ 26
==== ==== ====
</TABLE>
- - ---------------
* The provision (benefit) for income taxes was computed in accordance with tax
sharing arrangements among the Company, ITT Industries, Inc. and ITT that
generally requires that such provision (benefit) be computed as if the Company
were a stand-alone entity. The primary exception to the stand-alone
computation relates to the benefits arising from the allocation of interest
expense to the Company. On a pro forma basis, the Company's tax provision,
assuming the benefits of interest allocation had been limited to the Company's
ability to deduct them on its separate U.S. Federal tax return, would have
been $73, $72 and $42 for the years ended December 31, 1996, 1995 and 1994,
respectively.
No provision was made for U.S. taxes payable on undistributed foreign
earnings amounting to approximately $125 since these amounts are permanently
reinvested.
Deferred income taxes represent the tax effect of differences between the
book and tax basis of assets and liabilities. Deferred tax (assets) liabilities
include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1995
---- ----
<S> <C> <C>
Plant, property and equipment................................. $ 2 $ 2
Basis differentials........................................... 18 17
Other......................................................... (10) (8)
---- ---
$ 10 $11
==== ===
</TABLE>
B-11
<PAGE> 92
A reconciliation of the tax provision at the U.S. statutory rate to the
provision for income taxes as reported is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tax provision at U.S. statutory rate............................ $ 47 $ 29 $ 23
Tax on repatriation of foreign earnings......................... 4 3 3
Non-deductible goodwill......................................... 1 -- --
Foreign tax rate differential................................... 3 13 --
Other........................................................... (5) (3) --
--- --- ---
Provision for income taxes...................................... $ 50 $ 42 $ 26
=== === ===
</TABLE>
CAPITAL STOCK
ITT is authorized to issue 50 million shares of preferred stock, none of
which was outstanding at December 31, 1996.
In connection with its distribution from ITT Industries, ITT issued one
Series A Participating Cumulative Preferred Stock Purchase Right (a "Right") for
each share of ITT common stock outstanding. Additionally, Rights will be issued
in respect of common stock subsequently issued until the Rights Distribution
Date, as defined, and, in certain circumstances, with respect to common stock
issued after the Rights Distribution Date. In the event a person or group has
acquired, or has obtained the right to acquire, beneficial ownership of more
than 15% of the outstanding shares of common stock or certain specified tender
offers occur for more than 15% of the common stock, or in the event ITT is
acquired in a merger or other business combination or certain other specified
events occur, the Right entitles each holder, subject to certain exceptions, to
purchase the number of 1/1000ths of a share of Series A Participating Cumulative
Preferred Stock of ITT equivalent to the number of shares of ITT common stock or
common stock of the surviving corporation or other specified entity, as
applicable, which have a market value of twice the specified Purchase Price at
the relevant date. The Rights, which do not have voting rights, expire on the
tenth anniversary of the related rights agreement and are redeemable by ITT at
any time at a price of $.01 per Right.
EMPLOYEE BENEFITS
Certain employees of the Company, Destinations and ITT Educational
participate in ITT's stock incentive plans. The ITT incentive stock plan
provides for the granting of ITT common stock options and other stock awards at
a price not greater than market value at the date of grant. Outstanding options
on ITT common stock held by the Company, Destinations and ITT Educational
employees will be converted into new options of the Company, Destinations and
ITT Educational, as applicable, so as to preserve the aggregate economic value
of the options held prior to the Distribution.
Certain employees of the Company participate in ITT's Salaried Retirement
Plan and ITT 401(k) Retirement Savings Plan. Subsequent to the Distribution, the
Company intends to establish similar employee benefit plans. The Company
sponsors defined benefit pension plans covering a significant percentage of its
employees. The plans' assets are comprised of a broad range of domestic and
foreign equity securities, fixed income investments and real estate.
The components of net periodic pension cost are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost.................................................... $ 5 $ 4 $ 4
Interest cost................................................... 5 5 4
Return on assets................................................ (6) (6) --
Net amortization and deferral................................... 1 1 (4)
--- --- ---
Net periodic expense....................................... $ 5 $ 4 $ 4
=== === ===
</TABLE>
B-12
<PAGE> 93
The following table sets forth the funded status of the Company's pension
plans, amounts recognized in the Company's Balance Sheet at December 31, 1996
and 1995, and the principal weighted average assumptions inherent in their
determination:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1996 1995
-------------------- --------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligation --
Vested benefit obligation................... $ 5 $ 61 $ 4 $ 56
Accumulated benefit obligation.............. $ 5 $ 64 $ 4 $ 60
=== ==== === ===
Projected benefit obligation.................. $ 7 $ 79 $ 4 $ 78
Plan assets at fair value..................... 2 101 -- 81
--- ---- --- ---
Projected benefit obligation (in excess of)
less than plan assets....................... (5) 22 (4) 3
Unrecognized net gain......................... -- (23) -- (5)
Unrecognized net obligation................... -- 4 -- 4
--- ---- --- ---
Pension asset (liability) recognized in the
consolidated balance sheet.................. $ (5) $ 3 $ (4) $ 2
=== ==== === ===
Discount rate................................. 7.50% 6.82% 7.50% 7.08%
Rate of return on invested assets............. 9.75% 7.53% 9.75% 7.51%
Salary increase assumption.................... 4.50% 5.08% 6.00% 5.42%
</TABLE>
For substantially all foreign plans, the total of assets and recorded
liabilities exceed accumulated benefits.
COMMITMENTS AND CONTINGENCIES
The following presents the Company's obligations for future minimum rental
payments under long-term operating lease contracts which have an initial or
remaining term in excess of one year:
<TABLE>
<S> <C>
1997................................................... $ 9
1998................................................... 6
1999................................................... 3
2000................................................... 2
2001................................................... 1
Thereafter............................................. 8
---
$29
===
</TABLE>
Rental expense related to operating leases amounted to $11, $11 and $13 in
1996, 1995 and 1994, respectively.
The Company has entered into contracts with various foreign telephone
companies to publish telephone directories for varying periods through 2000. As
of December 31, 1996, the Company is required to make guaranteed aggregate
minimum payments of $162 through 2000. Directory publishing contracts are
renegotiable at the time of their expiration. The 1996 revenues of contracts
renewable in future years is summarized below:
<TABLE>
<CAPTION>
YEAR OF
RENEWAL
-------------
1999 2000
---- ----
<S> <C> <C>
Revenues...................................... $60 $111
</TABLE>
The Company and its subsidiaries are involved in various legal matters.
Reserves have been established when the outcome is probable and can be
reasonably estimated. While the ultimate results of claims and
B-13
<PAGE> 94
litigation cannot be determined, the Company does not expect that the resolution
of all legal matters will have a material adverse effect on its consolidated
results of operations, financial position or cash flow.
In order to assist in the orderly transition of Destinations and ITT
Educational into separate, publicly held companies, the Company intends to
modify, amend or enter into certain contractual agreements with Destinations and
ITT Educational, including a tax sharing agreement (see "Income Taxes"), an
employee benefits agreement, an insurance agreement, an administrative services
agreement and other ancillary agreements. These agreements will provide, among
other things that: (i) Destinations will become the sole sponsor of the ITT
Retirement Plan for Salaried Employees, the ITT Investment Savings Plan, and
various ITT welfare benefit plans; (ii) an allocation of responsibilities for
tax payments owing in respect of the Distributions will be made among the
Company, Destinations and ITT Educational; (iii) Destinations and ITT
Educational will retain specific insurance policies relating to their businesses
and will continue to have rights and obligations under certain parent-company
level insurance policies of the Company and (iv) Destinations will provide
certain transition services to the Company for a limited period of time
following the Distributions. The Company may be liable to or due reimbursement
from Destinations relating to the resolution of certain matters under these
agreements.
NEW ACCOUNTING PRONOUNCEMENT
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128
"Earnings per Share," which is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods; earlier
application is not permitted. SFAS No. 128 requires replacement of primary and
fully diluted earnings per share with basic and diluted earnings per share. The
impact of SFAS No. 128 to the Company's current presentation is immaterial for
all periods presented.
BUSINESS SEGMENT INFORMATION
The Company is primarily engaged in the business of publishing telephone
directories. It does not operate in any other industry segment.
SUBSEQUENT EVENT
On July 15, 1997, the Company entered into a definitive agreement with an
investor to purchase approximately 32.9% of the outstanding Common Stock of the
Company and warrants to purchase shares representing an additional 13.7% of the
outstanding Common Stock of the Company for aggregate consideration of $225. The
warrants will have a ten year term and permit the investor to buy Common Stock
of the Company at a 50% premium to the investor's initial purchase price.
Consummation of this transaction is subject to certain conditions including,
among other things, approval of the Company's stockholders following the
Distributions.
In addition, on July 15, 1997, the Company purchased for $254 the 20%
minority interest in ITT World Directories, Inc., which will be the only direct
subsidiary of the Company after the Distributions, bringing its ownership of ITT
World Directories, Inc. to 100%.
B-14
<PAGE> 95
GEOGRAPHICAL INFORMATION
<TABLE>
<CAPTION>
REVENUES
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Western Europe................................................ $512 $558 $578
Africa........................................................ 73 26 --
United States................................................. 62 70 68
---- ---- ----
Total Segments................................................ $647 $654 $646
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
OPERATING INCOME
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Western Europe................................................ $181 $146 $121
Africa........................................................ 11 6 2
United States................................................. 9 (5) 6
Other -- Asia................................................. 7 13 12
---- ---- ----
Total Segments................................................ $208 $160 $141
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Western Europe................................................ $335 $348 $297
Africa........................................................ 85 111 --
United States................................................. 84 54 88
Other -- Asia................................................. 6 6 6
---- ---- ----
Total Segments................................................ $510 $519 $391
==== ==== ====
</TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 YEAR
------- ------- -------- ------- ----
(IN MILLIONS EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
1996
Revenues........................................ $ 41 $ 250 $ 170 $ 186 $647
Costs and expenses.............................. $ 36 $ 153 $ 116 $ 134 $439
Net income (loss)............................... $ (8) $ 34 $ 12 $ 16 $ 54
Earnings (loss) per share....................... $(.07) $ .28 $ .10 $ .14 $.46
===== ==== ===== ==== ====
1995
Revenues........................................ $ 41 $ 257 $ 148 $ 208 $654
Costs and expenses.............................. $ 37 $ 167 $ 124 $ 166 $494
Net income (loss)............................... $ (10) $ 29 $ (5) $ 7 $ 21
Earnings (loss) per share....................... $(.09) $ .24 $ (.04) $ .06 $.18
===== ==== ===== ==== ====
</TABLE>
B-15
<PAGE> 96
ITT CORPORATION
CONSOLIDATED INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
----- -----
<S> <C> <C>
Revenues................................................................. $ 42 $ 41
Costs and expenses:
Salaries, benefits and other operating................................. 14 10
Selling, general and administrative.................................... 22 22
Depreciation and amortization.......................................... 4 4
------ ------
40 36
------ ------
2 5
Interest expense......................................................... (18) (18)
Miscellaneous income, net................................................ 1 --
------ ------
(15) (13)
Benefit for income taxes................................................. 6 5
------ ------
Net loss................................................................. $ (9) $ (8)
====== ======
Loss per share........................................................... $(.08) $(.07)
====== ======
Weighted average common equivalent shares................................ 118 119
====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
B-16
<PAGE> 97
ITT CORPORATION
CONSOLIDATED BALANCE SHEET
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
MARCH 31, ------------
1997
-----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 27 $ 13
Receivables, net.................................................. 319 358
Directories in progress........................................... 48 44
Prepaid expenses and other........................................ 12 5
------ ------
Total current assets...................................... 406 420
Plant, property and equipment, net.................................. 25 27
Goodwill, net....................................................... 34 34
Long-term receivables, net.......................................... 3 8
Other assets........................................................ 21 21
------ ------
$ 489 $ 510
====== ======
LIABILITIES AND STOCKHOLDERS DEFICIT
Current liabilities:
Accounts payable.................................................. $ 27 $ 43
Accrued expenses.................................................. 74 93
Notes payable..................................................... 83 46
Accrued taxes..................................................... 46 57
------ ------
Total current liabilities................................. 230 239
Deferred income taxes............................................... 9 10
Long-term debt...................................................... 1,000 1,000
Other liabilities................................................... 8 8
Minority interest................................................... 59 61
------ ------
1,306 1,318
------ ------
STOCKHOLDERS DEFICIT................................................ (817) (808)
------ ------
$ 489 $ 510
====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
B-17
<PAGE> 98
ITT CORPORATION
CONSOLIDATED CASH FLOW
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss................................................................ $ (9) $ (8)
Adjustment to net loss:
Depreciation and amortization......................................... 4 4
Changes in working capital:
Receivables........................................................... 70 90
Directories in progress............................................... (6) (7)
Accounts payable...................................................... (16) (21)
Accrued expenses...................................................... (10) (15)
Accrued and deferred taxes.............................................. (7) (10)
Other, net.............................................................. (8) (10)
---- ----
Cash from operating activities........................................ 18 23
---- ----
INVESTING ACTIVITIES
Additions to plant, property and equipment.............................. (1) (1)
Other, net.............................................................. (1) --
---- ----
Cash used for investing activities.................................... (2) (1)
---- ----
FINANCING ACTIVITIES
Short-term debt, net.................................................... 41 (37)
Transfers (to)/from Destinations........................................ (42) 13
Other, net.............................................................. (1) 3
---- ----
Cash used for financing activities.................................... (2) (21)
---- ----
Increase in cash and cash equivalents................................... 14 1
Cash and Cash Equivalents -- Beginning of Period........................ 13 30
---- ----
CASH AND CASH EQUIVALENTS -- END OF PERIOD.............................. $ 27 $ 31
==== ====
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.............................................................. $ 20 $ 20
==== ====
Income taxes.......................................................... $ 9 $ 9
==== ====
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
B-18
<PAGE> 99
ITT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED)
DISTRIBUTIONS AND BASIS OF PRESENTATION
On July 15, 1997, the Board of Directors of ITT Corporation ("ITT")
approved a plan to distribute (the "Distributions") to the holders of ITT's
common stock all the outstanding shares of common stock of ITT Destinations,
Inc. ("Destinations"), a newly formed company that will hold the hotels and
gaming businesses of ITT, and all the shares representing its approximately 83%
interest in ITT Educational Services, Inc. ("ITT Educational"), its
publicly-traded postsecondary technical education business. After the
Distributions, the shares of ITT (which will be renamed ITT Information
Services, Inc. and is herein referred to as the "Company") will represent its
interest in its telephone directories publishing businesses.
The Company publishes telephone directories -- alphabetical and
classified -- and also publishes specialized directories. The Company's
principal source of revenue in connection with its operations is advertisements
published in its directories. Its principal publications are in Belgium, The
Netherlands, Portugal, the Republic of South Africa, the Republic of Ireland,
Puerto Rico and the United States Virgin Islands. The Company publishes in these
jurisdictions either pursuant to a contract with the national telecommunications
provider or as a proprietary directory in such jurisdiction.
Prior to the Distributions, ITT intends to realign its existing
indebtedness. As part of the debt realignment, certain debt of Destinations will
be offered in exchange for certain issues of ITT debt. ITT will commence tender
offers for all publicly held debt securities issued by ITT and repay certain
other debt. These tender offers will be financed by a combination of new lines
of credit of Destinations and the Company. Upon completion of the debt
realignment, the Company will have responsibility for approximately $1.0 billion
of debt, subject to certain adjustments and Destinations will have
responsibility for the remaining indebtedness of ITT.
The accompanying consolidated financial statements, which include the
accounts of the Company and its wholly and majority owned directory publishing
subsidiaries, present the financial position, results of operations and cash
flows of the Company in a manner that accounts for the Distributions as if the
Company was spun-off by Destinations. Consequently, the accompanying financial
statements present the historical basis in the operations of the Company, after
adjustment for certain indebtedness not allocated to Destinations. All material
intercompany transactions and balances have been eliminated. Investments in
affiliated companies, owned more than 20%, but not in excess of 50%, are
recorded on the equity method.
INTERIM PERIOD FINANCIAL STATEMENTS
The unaudited consolidated financial statements reflect all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position of the Company at March 31, 1997 and their results of
operations and cash flows for the three months ended March 31, 1997 and 1996.
Interim results are not necessarily indicative of full year performances.
EARNINGS PER SHARE
Earnings per share were computed based upon the number of ITT common and
common equivalent shares which were outstanding on March 31, 1997.
SUBSEQUENT EVENT
On July 15, 1997, the Company entered into a definitive agreement with an
investor to purchase approximately 32.9% of the outstanding Common Stock of the
Company and warrants to purchase Shares representing an additional 13.7% of the
outstanding Common Stock of the Company for aggregate consideration of $225. The
warrants will have a ten year term and permit the investor to buy Common Stock
of the Company at a 50% premium to the investor's initial purchase price.
Consummation of this transaction is
B-19
<PAGE> 100
subject to certain conditions including, among other things, approval of the
Company's stockholders following the Distributions.
In addition, on July 15, 1997, the Company purchased for $254 the 20%
minority interest in ITT World Directories, Inc., which will be the only direct
subsidiary of the Company after the Distributions, bringing its ownership of ITT
World Directories, Inc. to 100%.
B-20
<PAGE> 101
SCHEDULE II
ITT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS (DEDUCTIONS)
--------------------------------------
CHARGED TO WRITE-OFFS/
BALANCE COSTS AND TRANSLATION RECOVERIES BALANCE
DESCRIPTION JANUARY 1 EXPENSES ADJUSTMENT OTHER DECEMBER 31
- - ------------------------------------------- --------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Trade Receivables -- Allowance for doubtful
accounts................................. $24 $ 14 $(1) $ (18) $19
YEAR ENDED DECEMBER 31, 1995
Trade Receivables -- Allowance for doubtful
accounts................................. $26 $ 18 $ 1 $ (21) $24
YEAR ENDED DECEMBER 31, 1994
Trade Receivables -- Allowance for doubtful
accounts................................. $23 $ 14 $ 2 $ (13) $26
</TABLE>
SB-1
<PAGE> 102
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal, certificates for Shares and/or Rights and
any other required documents should be sent or delivered by each stockholder of
the Company or such stockholder's broker, dealer, bank, trust company or other
nominee to the Depositary at one of its addresses set forth below.
The Depositary for the Offer is:
CITIBANK, N.A.
(800) 422-2077
<TABLE>
<S> <C> <C> <C>
By Mail: By Carrier: By Facsimile Transmission: By Hand:
CITICORP DATA CITICORP DATA (201) 262-3240 CITIBANK, N.A.
DISTRIBUTION, INC. DISTRIBUTION, INC. 111 Wall Street
P.O. Box 7072 404 Sette Drive Broker Services
Paramus, New Jersey 07653 Paramus, New Jersey 07652 5th Floor
New York, New York
</TABLE>
Questions and requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed
Delivery may be directed to the Information Agent or the Dealer Managers at
their respective telephone numbers and locations listed below. You may also
contact your broker, dealer, bank, trust company or other nominee for assistance
concerning the Offer.
The Information Agent for the Offer is:
(LOGO)
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect:
(212) 440-9800
or
All Others Call Toll Free:
(800) 223-2064
The Dealer Managers for the Offer are:
<TABLE>
<S> <C>
GOLDMAN, SACHS & CO. LAZARD FRERES & CO. LLC
85 Broad Street 30 Rockefeller Plaza
New York, New York 10004 New York, New York 10020
(800) 323-5678 (212) 632-6717
</TABLE>
July 17, 1997
<PAGE> 1
EXHIBIT (A)(2)
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
OF
ITT CORPORATION
PURSUANT TO THE OFFER TO PURCHASE
DATED JULY 17, 1997
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, AUGUST 13, 1997,
UNLESS THE OFFER IS EXTENDED. THE COMPANY EXPECTS (ALTHOUGH IT IS NOT OBLIGATED)
TO EXTEND THE OFFER, SUBJECT TO THE OTHER TERMS AND CONDITIONS THEREOF, UNTIL
SUCH TIME AS ALL REQUIRED APPROVALS FOR THE OFFER AND THE DESTINATIONS
DISTRIBUTION (AS DEFINED IN THE OFFER TO PURCHASE) ARE OBTAINED.
To: CITIBANK, N.A., Depositary
<TABLE>
<S> <C> <C>
By Mail: By Courier: By Hand:
CITICORP DATA CITICORP DATA CITIBANK, N.A.
DISTRIBUTION, INC. DISTRIBUTION, INC. 111 Wall Street
P.O. Box 7072 404 Sette Drive Broker Services
Paramus, New Jersey 07653 Paramus, New Jersey 07652 5th Floor
New York, New York
</TABLE>
By Facsimile Transmission:
(201) 262-3240
(For Eligible Institutions Only)
Confirm by Telephone:
(800) 422-2077
FOR INFORMATION CALL THE INFORMATION AGENT:
(GEORGESON & COMPANY LOGO)
Banks and Brokers Call Collect:
(212) 440-9800
All Others Call Toll Free:
(800) 223-2064
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN THOSE SHOWN ABOVE OR
TRANSMISSION OF INSTRUCTIONS TO A FACSIMILE NUMBER OTHER THAN THOSE LISTED ABOVE
DOES NOT CONSTITUTE A VALID DELIVERY.
This Letter of Transmittal is to be used only if (a) certificates for
Shares (as defined below) are to be delivered with it or (b) Shares are being
delivered by book-entry transfer to the account maintained by the Depositary at
The Depository Trust Company ("DTC") or the Philadelphia Depository Trust
Company ("PDTC") (collectively, the "Book-Entry Transfer Facilities") as set
forth in Section 2 under the "The Tender Offer" in the Offer to Purchase (as
defined below).
<PAGE> 2
Stockholders who cannot deliver the certificates for their Shares to the
Depositary prior to the Expiration Date (as defined in the Offer to Purchase) or
who cannot complete the procedure for book-entry transfer on a timely basis or
who cannot transmit this Letter of Transmittal and all other required documents
to the Depositary prior to the Expiration Date, in any such case, must tender
their Shares pursuant to the guaranteed delivery procedures set forth in Section
2 under the "The Tender Offer" the Offer to Purchase. See Instruction 2.
Delivery of the Letter of Transmittal and the other required documents to one of
the Book-Entry Transfer Facilities does not constitute delivery to the
Depositary.
The name(s) and address(es) of the registered holder(s) should be printed
below, if they are not already printed below, exactly as they appear on the
receipt(s) representing the Shares tendered herewith. The receipt(s) and the
number of Shares that the registered holder(s) wish(es) to tender should be
indicated in the appropriate boxes below.
2
<PAGE> 3
- - --------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF COMMON STOCK TENDERED (SEE INSTRUCTIONS 3 AND 4)
<TABLE>
<S> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN EXACTLY AS CERTIFICATE(S) TENDERED
NAME(S) APPEAR(S) ON CERTIFICATE(S)) (ATTACH SIGNED LIST IF NECESSARY)
------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES
OF COMMON STOCK NUMBER OF SHARES
CERTIFICATE REPRESENTED BY OF COMMON STOCK
NUMBER(S)* CERTIFICATE(S)* TENDERED**
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
======================================================
TOTAL SHARES OF
COMMON STOCK TENDERED
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Shares are delivered by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares represented
by any certificates delivered to the Depositary
are being tendered. See Instruction 4.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY AT ONE OF THE BOOK-ENTRY
TRANSFER FACILITIES AND COMPLETE THE FOLLOWING
Name of Tendering Institution:
------------------------------------------------------------------------------
Check Box of Applicable Book-Entry Transfer Facility:
Depository Trust Company [ ] Philadelphia Depository
Trust Company [ ]
Account Number:
------------------------------------------------------------------------------
Transaction Code Number:
------------------------------------------------------------------------------
[ ] CHECK HERE IF CERTIFICATES FOR TENDERED SHARES ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE
DEPOSITARY AND COMPLETE THE FOLLOWING
Name(s) of Registered Holder(s):
------------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-------------------------------------------------------------------
Name of Institution that Guaranteed Delivery:
--------------------------------------------------------------------------
Window ticket number (if available):
------------------------------------------------------------------------------
If Delivery is by Book-Entry Transfer Check Box of Applicable Book-Entry
Transfer Facility:
Depository Trust Company [ ] Philadelphia Depository
Trust Company [ ]
Name of Tendering Institution:
------------------------------------------------------------------------------
Account Number:
------------------------------------------------------------------------------
Transaction Code Number:
------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
3
<PAGE> 4
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to ITT Corporation, a Nevada corporation
(the "Company"), the above-described shares of Common Stock, no par value, of
the Company (the "Common Stock"), together with the associated preferred share
purchase rights (the "Rights" and, together with the Common Stock, the
"Shares"), at a price of $70.00 per Share (the "Purchase Price"), net to the
seller in cash, upon the terms and subject to the conditions set forth in the
Offer to Purchase dated July 17, 1997 (the "Offer to Purchase"), receipt of
which is hereby acknowledged, and in this Letter of Transmittal (which together
constitute the "Offer").
Subject to and effective upon acceptance for payment of the Shares tendered
herewith in accordance with terms of the Offer (including, if the Offer is
extended or amended, the terms or conditions of any such extension or
amendment), the undersigned hereby sells, assigns and transfers to or upon the
order of the Company all right, title and interest in and to all the Shares
tendered hereby, or orders the registration of such Shares tendered by
book-entry transfer, that are purchased pursuant to the Offer to or upon the
order of the Company and hereby irrevocably constitutes and appoints the
Depositary the true and lawful agent and attorney-in-fact of the undersigned
with respect to such Shares, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest), to:
(a) deliver certificates for such Shares, or transfer ownership of such
Shares on the account books maintained by either of the Book-Entry
Transfer Facilities, together, in any such case, with all accompanying
evidences of transfer and authenticity, to or upon the order of the
Company, upon receipt by the Depositary, as the undersigned's agent, of
the Purchase Price with respect to such Shares;
(b) present certificates for such Shares for cancelation and transfer of
such Shares on the Company's books; and
(c) receive all benefits and otherwise exercise all rights of beneficial
ownership of such Shares, all in accordance with the terms of the
Offer.
The undersigned hereby represents warrants to the Company that:
(a) the undersigned "owns" the Shares tendered hereby within the meaning of
Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as
amended, and has full power and authority to validly tender, sell,
assign and transfer the Shares tendered hereby.
(b) when and to the extent the Company accepts the Shares for purchase, the
Company will acquire good, marketable and unencumbered title thereto,
free and clear of all security interests, liens, charges, encumbrances,
conditional sales agreements or other obligations relating to their
sale or transfer, and not subject to any adverse claim;
(c) on request, the undersigned will execute and deliver any additional
documents the Depositary or the Company deems necessary or desirable to
complete the assignment, transfer and purchase of the Shares tendered
hereby; and
(d) the undersigned has read and agrees to and accepts all the terms of the
Offer.
The undersigned understands that all Shares properly tendered and not
withdrawn will be purchased at $70.00 per Share (or such other price that may be
set forth in an amendment to the Offer), net to the seller in cash, upon the
terms and subject to the conditions of the Offer, including the proration
provisions thereof and that the Company will return all other Shares, including
Shares not purchased because of proration.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 2 under "The Tender Offer" in the Offer to
Purchase and in the instructions hereto will constitute a
4
<PAGE> 5
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Offer.
The undersigned recognizes that, under certain circumstances set forth in
the Offer to Purchase, the Company may terminate or amend the Offer or may not
be required to accept for payment any of the Shares tendered herewith or may
accept for payment, pro rata with Shares tendered by other stockholders, fewer
than all the Shares tendered therewith.
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned, and any
obligations of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Except as
stated on the Offer, this tender is irrevocable.
Unless otherwise indicated under "Special Payment Instructions," please
issue the check for the aggregate Purchase Price and/or return or issue the
certificate(s) evidencing any Shares not tendered or not accepted for payment in
the name(s) of the registered holder(s) appearing under "Description of Shares
Tendered." Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail the check for the aggregate Purchase Price and/or the
certificate(s) evidencing any Shares not tendered or not accepted for payment
(and accompanying documents, as appropriate) to the address(es) of the
registered holder(s) appearing under "Description of Shares Tendered." In the
event that both the "Special Delivery Instructions" and the "Special Payment
Instructions" are completed, please issue the check for the aggregate Purchase
Price and/or issue or return the certificate(s) evidencing any Shares not
tendered or accepted for payment in the name(s) of, and deliver said check
and/or certificate(s) to, the person or persons so indicated. In the case of
book-entry delivery of Shares, please credit the account maintained at the
Book-Entry Transfer Facility indicated above with any Shares not accepted for
payment. The undersigned recognizes that the Company has no obligation pursuant
to the "Special Payment Instructions" to transfer any Shares from the name(s) of
the registered holder(s) thereof, or to order the registration or transfer of
such Shares tendered by book-entry transfer, if the Company does not accept for
payment any of the Shares so tendered.
5
<PAGE> 6
------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(See Instructions 1, 4, 5, 6, 7 and 8)
To be completed ONLY if certificate(s) for Shares not tendered or not
purchased and/or any check for the Purchase Price of Shares purchased are
to be issued in the name of someone other than the undersigned, or if
Shares delivered by book-entry transfer that are not purchased are to be
returned by credit to an account maintained by a Book-Entry Transfer
Facility.
Issue: [ ] Check [ ] Certificate(s) to:
Name:
----------------------------------------------------
(PLEASE PRINT)
Address:
--------------------------------------------------
------------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER)
[ ] Credit Shares rendered by book-entry transfer and not purchased to the
account set forth below
------------------------------------------------------------
(NAME OF ACCOUNT PARTY)
------------------------------------------------------------
(ACCOUNT NUMBER)
CHECK BOX OF APPLICABLE BOOK-ENTRY TRANSFER FACILITY
[ ] DTC [ ] PDTC
============================================================
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 4, 5, 6, 7 and 8)
To be completed ONLY if certificate(s) for Shares not tendered or not
purchased and/or any check for the Purchase Price of Shares purchased are
to be sent to someone other than the undersigned or to the undersigned at
an address other than that shown above.
Deliver: [ ] Check [ ] Certificate(s) to:
Name:
----------------------------------------------------
(PLEASE PRINT)
Address:
--------------------------------------------------
------------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------
6
<PAGE> 7
STOCKHOLDER(S) SIGN HERE
(See Instructions 1 and 5)
(PLEASE COMPLETE ENCLOSED SUBSTITUTE FORM W-9)
Must be signed by registered holder(s) exactly as name(s) appear(s) on the
certificate(s) or on a security position listing or by person(s) authorized to
become registered holder(s) by certificates and documents transmitted with the
Letter of Transmittal. If signature is by attorney-in-fact, executor,
administrator, trustee, guardian, officer of a corporation or another person
acting in a fiduciary or representative capacity, please set forth full title.
See Instruction 5.
X
- - --------------------------------------------------------------------------------
X
- - --------------------------------------------------------------------------------
(SIGNATURE(S) OF OWNER(S))
Name(s):
- - --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title):
- - --------------------------------------------------------------------------------
Address:
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Area Code and Telephone Number:
- - --------------------------------------------------------------------------------
Taxpayer ID Number or Social Security Number:
- - --------------------------------------------------------------------------------
Date:
- - --------------------------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 5)
Authorized Signature:
- - --------------------------------------------------------------------------------
Name(s):
- - --------------------------------------------------------------------------------
(PLEASE PRINT)
Title:
- - --------------------------------------------------------------------------------
Name of Firm:
- - --------------------------------------------------------------------------------
Address:
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
Area Code and Telephone Number:
- - --------------------------------------------------------------------------------
Tax ID Number or Social Security Number:
- - --------------------------------------------------------------------------------
Date:
- - ---------------------------
7
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES.
Except as otherwise provided below, all signatures on this Letter of
Transmittal must be guaranteed by a financial institution (including most
commercial banks, savings and loan associations, and brokerage houses) that is a
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange
Medallion Program (each such entity being hereinafter referred to as an
"Eligible Institution"). Signatures on this Letter of Transmittal need not be
guaranteed if (a) this Letter of Transmittal is signed by the registered owner
of the Shares (which term, for purposes of this document, shall include any
participant in one of the Book-Entry Transfer Facilities whose name appears on a
security position listing as the owner of Shares) tendered herewith and such
owner has not completed either of the boxes entitled "Special Payment
Instructions" or "Special Delivery Instructions" on this Letter of Transmittal
or (b) such Shares are tendered for the account of an Eligible Institution. See
Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES; GUARANTEED DELIVERY PROCEDURES.
This Letter of Transmittal is to be used only if (a) certificates are to be
forwarded with it to the Depositary or (b) delivery of Shares is to be made by
book-entry transfer pursuant to the procedure set forth in Section 2 under "The
Tender Offer" in the Offer to Purchase. Certificates for all physically
delivered Shares, or a confirmation of a book-entry transfer of all Shares
delivered electronically into the Depositary's account at either of the
Book-Entry Transfer Facilities, together in each case with a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof), with any
required signature guarantees, and any other documents required by this Letter
of Transmittal, must be received by the Depositary at one of its addresses set
forth on the front page of this Letter of Transmittal before the Expiration Date
(as defined in the Offer to Purchase). Delivery of documents to either of the
Book-Entry Transfer Facilities does not constitute delivery to the Depositary.
Stockholders whose certificates are not immediately available (or who
cannot follow the procedures for book-entry transfer on a timely basis) or who
cannot transmit this Letter of Transmittal and all other required documents to
reach the Depositary before the Expiration Date, must tender their Shares
pursuant to the guaranteed delivery procedure set forth in Section 2 under "The
Tender Offer" in the Offer to Purchase. Pursuant to such procedure: (a) such
tender must be made by or through an Eligible Institution, (b) the Depositary
must receive (by hand, mail or facsimile transmission), before the Expiration
Date, a properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form the Company has provided with the Offer to Purchase
and (c) the certificates for all tendered Shares in proper form for transfer (or
confirmation of a book-entry transfer of all such Shares into the Depositary's
account at either of the Book-Entry Transfer Facilities), together with a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) and any other documents required by this Letter of Transmittal, must be
received by the Depositary within three New York Stock Exchange trading days
after the date of execution of such Notice of Guaranteed Delivery, all as
provided in Section 2 under "The Tender Offer" in the Offer to Purchase.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING STOCK CERTIFICATES, THE
LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE ELECTION AND
RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH
RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
No alternative, conditional or contingent tenders will be accepted, and no
fractional Shares will be purchased. By executing this Letter of Transmittal (or
a facsimile thereof), each tendering stockholder waives any right to receive any
notice of the acceptance of such stockholder's tender.
8
<PAGE> 9
3. INADEQUATE SPACE.
If the space provided in the box entitled "Description of Shares Tendered"
is inadequate, the certificate numbers and/or the number of Shares should be
listed on a separate signed schedule and attached to this Letter of Transmittal.
4. PARTIAL TENDERS AND UNPURCHASED SHARES. (Not applicable to stockholders who
deliver Shares by book-entry transfer).
If fewer than all the Shares evidenced by a certificate delivered to the
Depositary are to be tendered, fill in the number of Shares that are to be
tendered in the box entitled "Number of Shares Tendered." If such Shares are
purchased, a new certificate for the remainder of the Shares evidenced by the
old certificate(s) will be sent to and in the name of the registered holder(s)
(unless otherwise specified by such holder(s) having completed either of the
boxes entitled "Special Delivery Instructions" or "Special Payment Instructions"
on this Letter of Transmittal) as soon as practicable following the expiration
or termination of the Offer. All Shares represented by the certificate(s) listed
and delivered to the Depositary will be deemed to have been tendered unless
otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS; AND ENDORSEMENTS.
(a) If this Letter of Transmittal is signed by the registered holder(s) of
the Shares tendered herewith, the signature(s) must correspond exactly with the
name(s) as written on the face of the certificates without any change
whatsoever.
(b) If any of the Shares tendered herewith are registered in the names of
two or more joint owners, each such owner must sign this Letter of Transmittal.
(c) If any of the Shares tendered herewith are registered in different
names on different certificates, it will be necessary to complete, sign and
submit as many separate Letters of Transmittal as there are different
registrations of certificates.
(d) If this Letter of Transmittal is signed by the registered holder(s) of
the Shares tendered herewith, no endorsements of certificates or separate stock
powers are required unless payment is to be made and/or certificates for Shares
not tendered or not purchased are to be issued to a person other than the
registered holder(s). If this Letter of Transmittal is signed by a person other
than the registered holder(s) of the Shares tendered herewith, however, the
certificates must be endorsed or accompanied by appropriate stock powers, in
either case, signed exactly as the name(s) of the registered holder(s) appear on
the certificates for such Shares. Signatures on any such certificates or stock
powers must be guaranteed by an Eligible Institution. See Instruction 1.
(e) If this Letter of Transmittal or any certificates or stock powers are
signed by a trustee, executor, administrator, guardian, attorney-in-fact, agent,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing and proper evidence
satisfactory to the Company of the authority of such person so to act must be
submitted.
6. STOCK TRANSFER TAXES.
The Company will pay any stock transfer taxes with respect to the transfer
and sale of Shares to it or its order pursuant to the Offer. If, however,
payment of the aggregate Purchase Price is to be made to, or certificates for
Shares not tendered or accepted for purchase are to be registered in the name
of, any person other than the registered holder, or if tendered certificates are
registered in the name of any person other than the person(s) signing this
Letter of Transmittal, the amount of any stock transfer taxes (whether imposed
on the registered holder or such person) payable on account of the transfer to
such person will be deducted from the aggregate purchase price unless
satisfactory evidence of payment of such taxes or exemption therefrom is
submitted.
9
<PAGE> 10
7. IRREGULARITIES.
All questions as to the number of Shares to be accepted and the validity,
form, eligibility (including time of receipt) and acceptance for payment of any
tender of Shares will be determined by the Company, in its sole discretion,
which determination shall be final and binding on all parties. The Company
reserves the absolute right to reject any or all tenders determined by it not to
be in proper form or the acceptance for payment of which may, in the opinion of
the Company's counsel, be unlawful. The Company also reserves the absolute right
to waive any of the conditions of the Offer (except as provided in Section 11
under "The Tender Offer" in the Offer to Purchase) and any defect or
irregularity in the tender of any particular Shares. The Company's
interpretation of the terms and conditions of the Offer (including these
instructions) shall be final and binding on all parties. No tender of Shares
will be deemed properly made until all defects or irregularities have been cured
or waived. None of the Company, the Depositary, the Information Agent or any
other person is or will be obligated to give notice of any defects or
irregularities in tenders, and none of them will incur any liability for failure
to give any such notice.
8. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS.
If the check for the aggregate Purchase Price of any Shares purchased is to
be issued to, or any Shares not tendered or not purchased are to be returned in
the name of, a person other than the person(s) signing this Letter of
Transmittal or if the check or any certificates for Shares not tendered or not
purchased are to be mailed to someone other than the person(s) signing this
Letter of Transmittal or the person(s) signing this Letter of Transmittal at an
address other than that shown in the box entitled "Description of Shares
Tendered," the boxes entitled "Special Payment Instructions" and/or "Special
Delivery Instructions" on this Letter of Transmittal should be completed.
9. REQUEST FOR ASSISTANCE OR ADDITIONAL COPIES.
Requests for assistance or additional copies of the Offer to Purchase, this
Letter of Transmittal or the Notice of Guaranteed Delivery may be directed to
the Information Agent or one of the Dealer Managers at their addresses or
telephone numbers set forth below.
10. FEDERAL INCOME TAX WITHHOLDING
Except as provided above under "Important Tax Information," each tendering
stockholder is required to provide the Depositary with a correct TIN on
Substitute Form W-9 which is provided under "Important Tax Information" below.
Failure to provide the information on the form may subject the tendering
stockholder to a $50 penalty and a 31% Federal backup withholding tax may be
imposed on the payments made to the stockholder or other payee with respect to
Shares purchased pursuant to the Offer. For further information concerning
backup withholding and instructions for completing the Substitute Form W-9,
consult the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute W-9."
11. WITHHOLDING ON FOREIGN STOCKHOLDERS.
The Depositary will withhold Federal income tax equal to 30% of the gross
payments payable to a foreign stockholder unless the Depositary determines that
a reduced rate of withholding or an exemption from withholding is applicable.
For this purpose, a foreign stockholder is any stockholder that is not (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof or (iii) any estate or trust the income of
which is subject to United States Federal income taxation regardless of the
source of such income. The Depositary will determine a stockholder's status as a
foreign stockholder and eligibility for a reduced rate of, or an exemption from,
withholding by reference to the stockholder's address and to any outstanding
certificates or statements concerning eligibility for a reduced rate of, or
exemption from, withholding unless facts and circumstances indicate that
reliance is not warranted. A foreign stockholder who has not previously
submitted the appropriate certificates or statements with respect to a reduced
rate of, or exemption from, withholding for which such stockholder may be
eligible should consider doing so in order to avoid over-withholding. A foreign
10
<PAGE> 11
stockholder may be eligible to obtain a refund of tax withheld if such
stockholder meets one of the two tests for capital gain or loss treatment
described in Section 5 under "The Tender Offer" in the Offer to Purchase or is
otherwise able to establish that no tax or a reduced amount of tax was due.
IMPORTANT TAX INFORMATION
Under U.S. Federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required by law to provide the Depositary with such
stockholder's correct taxpayer identification number ("TIN") on the Substitute
Form W-9 below. If the Depositary is not provided with the correct TIN, the
Internal Revenue Service may subject the stockholder or other payee to a $50
penalty. In addition, payments that are made to such stockholder or other payee
with respect to Shares purchased pursuant to the Offer may be subject to 31%
backup withholding.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements and should indicate their status by writing "exempt" across the
face of the Substitute Form W-9. In order for a foreign individual to qualify as
an exempt recipient, the stockholder must submit a Form W-8, signed under
penalties of perjury, attesting to that individual's exempt status. A Form W-8
can be obtained from the Depositary. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for more
instructions.
If backup withholding applies, the Depositary is required to withhold 31%
of any such payments to be made to the stockholder or other payee. Backup
withholding is not an additional tax. Rather, the tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained from
the Internal Revenue Service.
The box in Part 2 in the Substitute Form W-9 may be checked if the
tendering stockholder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future. If the box in Part 2 is checked,
the stockholder or other payee must also complete the Certificate of Awaiting
Taxpayer Identification Number below in order to avoid backup withholding.
Notwithstanding that the Box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Depositary will
withhold 31% on all payments made prior to the time a properly certified TIN is
provided to the Depositary.
Facsimile copies of this Letter of Transmittal, properly completed and duly
executed, will be accepted. The Letter of Transmittal, certificates for Shares
and any other required documents should be sent or delivered by each stockholder
of the Company or such stockholder's broker, dealer, commercial bank, trust
company or other nominee to the Depositary at one of its addresses set forth
below.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF
(TOGETHER WITH DEPOSITARY RECEIPTS FOR DEPOSITARY SHARES OR CONFIRMATION OF
BOOK-ENTRY TRANSFER OF DEPOSITARY SHARES AND ALL OTHER REQUIRED DOCUMENTS) OR A
NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE
EXPIRATION DATE.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the TIN (e.g., social
security number or employer identification number) of the record owner of the
Shares or of the last transferee appearing on the transfers attached to, or
endorsed on, the certificates evidencing the Shares. If the Shares are
registered in more than one name or are not registered in the name of the actual
owner, consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
number to report.
11
<PAGE> 12
<TABLE>
<S> <C> <C>
- - ----------------------------------------------------------------------------------------------------
PAYER'S NAME: CITIBANK, N.A.
- - ----------------------------------------------------------------------------------------------------
PART 1 -- PLEASE PROVIDE YOUR TIN IN THE Social Security Number
BOX AT THE RIGHT AND CERTIFY BY SIGNING or Employer
AND DATING BELOW. Identification Number
----------------------------
------------------------------------------------------------------------
PART 2 -- CERTIFICATES -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me); and
SUBSTITUTE
FORM W-9 (2) I am not subject to backup withholding because: (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal
DEPARTMENT OF THE Revenue Service (the "IRS") that I am subject to backup withholding
TREASURY as a result of a failure to report all interest or dividends, or (c)
INTERNAL REVENUE SERVICE the IRS has notified me that I am no longer subject to backup
withholding.
PAYER'S REQUEST FOR
TAXPAYER IDENTIFICATION CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if
NUMBER ("TIN") you have been notified by the IRS that you are currently subject to
backup withholding because of under-reporting interest or dividends
on your tax return. However, if after being notified by the IRS that
you were subject to backup withholding you received another
notification from the IRS that you are no longer subject to backup
withholding, do not cross out such item (2).
------------------------------------------------------------------------
SIGNATURE
---------------------------------- PART 3 --
DATE
----------------------------------------- Awaiting TIN [ ]
NAME
-----------------------------------------
ADDRESS
--------------------------------------
-----------------------------------------
(City, State and Zip Code)
---------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or
delivered an application to receive a taxpayer identification number to
the appropriate Internal Revenue Service Center or Social Security
Administration Office, or (2) I intend to mail or deliver an application
in the near future. I understand that if I do not provide a taxpayer
identification number by the time of payment, 31% of all reportable
payments made to me will be withheld.
Signature
--------------------------------------------------------------------------
Date
--------------------------------------------------------------------------
12
<PAGE> 13
IMPORTANT: TO VALIDLY TENDER SHARES, THIS LETTER OF TRANSMITTAL OR A MANUALLY
SIGNED FACSIMILE HEREOF (TOGETHER WITH CERTIFICATES FOR SHARES OR CONFIRMATION
OF BOOK-ENTRY TRANSFER OF SHARES AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE
OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE
EXPIRATION DATE.
The Depositary for the Offer is:
CITIBANK, N.A.
<TABLE>
<S> <C> <C>
By Mail: By Courier: By Hand:
CITICORP DATA CITICORP DATA CITIBANK, N.A.
DISTRIBUTION, INC. DISTRIBUTION, INC. 111 Wall Street
P.O. Box 7072 404 Sette Drive Broker Services
Paramus, New Jersey 07653 Paramus, New Jersey 07652 5th Floor
New York, New York
</TABLE>
By Facsimile Transmission:
(201) 262-3240
For Information
(800) 422-2077
Any questions or requests for assistance or for additional copies of the Offer
to Purchase, this Letter of Transmittal or the Notice of Guaranteed Delivery may
be directed to the Information Agent. Stockholders may also contact their
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Offer.
The Information Agent for the Offer is:
[Georgeson & Company Logo]
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect:
(212) 440-9800
ALL OTHERS CALL TOLL FREE:
(800) 223-2064
The Dealer Managers for the Offer are:
<TABLE>
<S> <C> <C>
GOLDMAN, SACHS & CO. LAZARD FRERES & CO. LLC
85 Broad Street 30 Rockefeller Plaza
New York, New York 10004 New York, New York 10020
(800) 323-5678 (212) 632-6717
</TABLE>
<PAGE> 1
EXHIBIT (a)(3)
[ITT LOGO]
ITT CORPORATION
Rand V. Araskog
Chairman and Chief
Executive
July 16, 1997
Dear Stockholder:
At a meeting yesterday, your Board of Directors approved a comprehensive
plan which is a further step in ITT's refinement of its strategic plan and is
designed to enhance the value of ITT to its stockholders.
A major element of the comprehensive plan involves the separation of ITT
into three distinct publicly owned companies focused on (a) hotels and gaming,
(b) telephone directories publishing and (c) post-secondary technical education.
The separation will be effected through the distribution or "spin-off" of all of
the shares owned by ITT of its subsidiaries that hold its hotels and gaming
business and post-secondary technical education business to stockholders of ITT,
leaving ITT's telephone directories publishing subsidiary as its only remaining
business. A second major element of the comprehensive plan involves the
repurchase through a cash tender offer of 30 million shares (approximately 25.7%
of the outstanding shares) at a price per share of $70. A third element of the
comprehensive plan involves the allocation of ITT's existing indebtedness
between ITT's hotels and gaming business and telephone directories publishing
business in a manner that is appropriate for the credit capacity and
capitalization requirements of each business. To accomplish this allocation, ITT
intends to commence a tender offer for all the publicly held debt securities of
ITT Corporation and to repay certain other debt.
Your Board has substantial experience with the benefits of spin-off
transactions. In 1994, our predecessor spun-off its forestry products subsidiary
to create an independent company. In addition, your Company is itself the
product of the December 1995 separation of a conglomerate that controlled the
businesses now operated by your Company as well as ITT Industries, Inc. and The
Hartford Financial Services Group, Inc. Holders of ITT stock for the five years
through 1996 have seen their investment outperform the Standard & Poor's 500
Index by more than 70% and increase in aggregate value by approximately $10
billion during the same period.
As part of the comprehensive plan, ITT has also reached a definitive
agreement with an affiliate of Clayton, Dubilier & Rice, Inc., a New York-based
private investment firm, to invest an initial $225 million in cash for a 32.9%
interest in ITT (which will own our telephone directories publishing business)
to be completed after the completion of the distributions. Following this
transaction with Clayton, Dubilier & Rice, our telephone directories publishing
company will have approximately $1.05 billion in debt, giving the Company an
initial total enterprise value of approximately $1.7 billion. In connection with
this transaction, Clayton, Dubilier & Rice will also receive 10-year warrants to
buy common stock of ITT at a 50% premium to Clayton, Dubilier & Rice's initial
purchase price which, if exercised, would result in Clayton, Dubilier & Rice
owning a 46.6% fully diluted interest in our telephone directories publishing
company.
The comprehensive plan is intended to enhance the value of the ongoing
investment of stockholders as well as further the interests of ITT's employees,
creditors, customers, and the economies and communities in which ITT operates.
ITT currently operates three distinct businesses with different characteristics,
competitive environments and growth prospects. Separating ITT's businesses and
allowing them to operate independently is expected to result in, among other
things, increased strategic focus, a flattening of organizational structures,
the implementation of narrowly-tailored incentive compensation plans and
enhanced market understanding and valuations of these businesses. The Board also
took account of the tax-free nature of spin-offs.
Your Board believes that the business justifications for the comprehensive
plan are compelling without regard to Hilton's unsolicited offer and intends to
pursue the plan even if Hilton withdraws its interest in acquiring ITT. YOUR
BOARD OF DIRECTORS CONTINUES TO RECOMMEND UNANIMOUSLY THAT YOU NOT TENDER YOUR
SHARES TO HILTON OR TAKE ANY OTHER ACTION TO FACILITATE HILTON'S UNSOLICITED
OFFER.
<PAGE> 2
A copy of an amendment to ITT's Schedule 14D-9 (which includes our press
release announcing these important decisions by your Board) and materials
relating to the equity tender offer are enclosed. Your Board urges you to
consider this information carefully.
The equity tender offer is explained in detail in the enclosed Offer to
Purchase and Letter of Transmittal. If you want to tender your shares, the
instructions for tendering shares are also explained in detail in the enclosed
materials. I encourage you to read these materials carefully before making any
decision with respect to the equity tender offer. The equity tender offer,
proration period and withdrawal rights will expire at 12:00 midnight, New York
City time, on Wednesday, August 13, 1997, unless the offer is extended. The
Company expects (although it is not obligated) to extend the equity tender
offer, subject to the other terms and conditions thereof, until such time as all
required approvals for the equity tender and the distribution of the hotel and
gaming company are obtained.
Your Board of Directors is not making any recommendation as to whether any
stockholder should tender any or all of such stockholder's shares pursuant to
the equity tender offer. Each stockholder must make such stockholder's own
decision whether to tender shares and, if so, how many shares to tender.
Any questions you have about the equity tender offer should be directed to
Georgeson & Company Inc., for general information, at (800) 223-2064 or Goldman,
Sachs & Co. or Lazard Freres & Co. LLC, the dealer managers for the equity
tender offer, at the phone numbers on the back cover of the enclosed Offer to
Purchase.
Your Board believes that, after implementation of the transactions
described above, each of ITT's existing business units will be an independent
and sound entity with a bright future, and will remain a leader in its
respective industry. Please be assured that your Board of Directors and the
management of ITT will continue to act in the best interests of its stockholders
and ITT. Your Directors thank you for your support.
Very truly yours,
/s/ Rand V. Araskog
Rand V. Araskog
Chairman and
Chief Executive
<PAGE> 1
EXHIBIT (a)(4)
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
OF
ITT CORPORATION
This form or a facsimile hereof must be used to accept the Offer (as
defined below) if:
(a) certificates for shares of Common Stock, no par value (the "Common
Stock"), together with the associated preferred share purchase rights (the
"Rights" and, together with the Common Stock, the "Shares"), of ITT
Corporation, a Nevada corporation (the "Company"), are not immediately
available; or
(b) the procedure for book-entry transfer (set forth in Section 2
under "The Tender Offer" in the Company's Offer to Purchase dated July 17,
1997 (the "Offer to Purchase")), cannot be followed on a timely basis; or
(c) time will not permit the Letter of Transmittal and all other
required documents to be delivered to the depositary (the "Depositary") for
the Offer before the Expiration Date (as defined in Section 1 under "The
Tender Offer" in the Offer to Purchase).
This form, properly completed and duly executed, may be delivered by hand,
mail or facsimile transmission to the Depositary. See Section 2 under "The
Tender Offer" in the Offer to Purchase.
To: CITIBANK, N.A., Depositary
<TABLE>
<S> <C> <C>
By Mail: By Courier: By Hand:
CITICORP DATA CITICORP DATA CITIBANK, N.A.
DISTRIBUTION, INC. DISTRIBUTION, INC. 111 Wall Street
P.O. Box 7072 404 Sette Drive Broker Services
Paramus, New Jersey 07653 Paramus, New Jersey 07652 5th Floor
New York, New York
</TABLE>
By Facsimile Transmission:
(201) 262-3240
(For Eligible Institutions only)
To Confirm Receipt of
Notice of Guaranteed Delivery:
(800) 422-2077
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS TO A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
(as defined in Section 2 under "The Tender Offer" in the Offer to Purchase)
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, at a price of $70.00 per
Share (or such other price set forth in an amendment to the Offer referred to
below), net to the seller in cash, upon the terms and subject to the conditions
set forth in the Offer to Purchase and the related Letter of Transmittal (which
together constitute the "Offer"), receipt of which is hereby acknowledged,
____________ Shares pursuant to the guaranteed delivery procedure set forth in
Section 2 under "The Tender Offer" in the Offer to Purchase.
<TABLE>
<S> <C>
- - ---------------------------------------------- ----------------------------------------------
Number of Shares tendered: SIGN HERE
--------------------------------------------- ----------------------------------------------
(SIGNATURE(S))
Certificate Nos. (if available):
--------------------------------------------- ----------------------------------------------
(SIGNATURE(S))
If Shares will be delivered by book-entry
transfer: ----------------------------------------------
(NAME(S)) (PLEASE PRINT)
Name of Tendering
Institution:
--------------------------------------- ----------------------------------------------
(ADDRESS)
--------------------------------------------- ----------------------------------------------
(ZIP CODE)
Account No.
-------------------------------------------
at ----------------------------------------------
(AREA CODE AND TELEPHONE NO.)
[ ] The Depositary Trust Company
[ ] Philadelphia Depository Trust Company
- - ---------------------------------------------- ----------------------------------------------
</TABLE>
2
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, an "Eligible Institution," guarantees that (a) the above
named person(s) "own(s)" the Shares tendered hereby within the meaning of Rule
14e-4 under the Securities Exchange Act of 1934, as amended, (b) such tender of
Shares complies with Rule 14e-4 and (c) the Depositary will receive either the
stock certificates representing the Shares tendered hereby, in proper form for
transfer, or confirmation of the book-entry transfer of such Shares into the
Depositary's account at The Depository Trust Company or the Philadelphia
Depository Trust Company, in any such case together with a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) and any other
required documents, all within three New York Stock Exchange trading days after
the date of execution of this notice.
Name of Firm:
- - --------------------------------------------------------------------------------
Authorized Signature:
- - --------------------------------------------------------------------------------
Name:
- - --------------------------------------------------------------------------------
Title:
- - --------------------------------------------------------------------------------
Address:
- - --------------------------------------------------------------------------------
Zip Code:
- - --------------------------------------------------------------------------------
Area Code and Telephone Number:
- - --------------------------------------------------------------------------
Date:
- - --------------------------------------------------------------------------------
DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE.
SHARE CERTIFICATES SHOULD BE SENT WITH YOUR
LETTER OF TRANSMITTAL
3
<PAGE> 1
EXHIBIT (A)(5)
OFFER TO PURCHASE FOR CASH
UP TO 30,000,000 SHARES OF ITS COMMON STOCK
AT $70.00 NET PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
OF
ITT CORPORATION
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON WEDNESDAY, AUGUST 13, 1997, UNLESS EXTENDED. THE COMPANY
EXPECTS (ALTHOUGH IT IS NOT OBLIGATED) TO EXTEND THE OFFER, SUBJECT TO THE OTHER
TERMS AND CONDITIONS THEREOF, UNTIL SUCH TIME AS ALL REQUIRED APPROVALS FOR THE
OFFER AND THE DESTINATIONS DISTRIBUTION (AS DEFINED IN THE OFFER TO PURCHASE)
ARE OBTAINED.
July 17, 1997
To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
ITT Corporation, a Nevada corporation (the "Company"), has appointed us to
act as Dealer Managers in connection with its offer pursuant to which the
Company is inviting its stockholders to tender shares of its Common Stock, no
par value (the "Common Stock"), together with the associated preferred share
purchase rights (the "Rights" and, together with the Common Stock, the
"Shares"), at a price of $70.00 per Share (such price, or any other price set
forth in an amendment to the Offer to Purchase referred to below, being the
"Purchase Price"), net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated July 17, 1997 (the "Offer to
Purchase"), and in the related Letter of Transmittal (which together constitute
the "Offer"). We enclose herewith the materials listed below relating to the
Offer.
All shares properly tendered and not withdrawn will be purchased at the
Purchase Price, net to the seller in cash, upon the terms and subject to the
conditions of the Offer, including the proration provisions described therein.
The Company reserves the right, in it sole discretion, to purchase more than
30,000,000 Shares pursuant to the Offer.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
VALIDLY TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS.
SEE SECTION 11 OF THE OFFER TO PURCHASE.
For your information and for forwarding to your clients for whom you hold
Shares registered in your name or in the name of your nominee, we are enclosing
the following documents:
(1) Offer to Purchase dated July 17, 1997;
(2) Letter of Transmittal for your use and for the information of your
clients (together with "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9");
(3) Letter from Rand V. Araskog, Chairman, and Chief Executive of the
Company, dated July 16, 1997, to stockholders of the Company;
(4) Notice of Guaranteed Delivery to be used to accept the Offer if
certificates for Shares are not immediately available (or the procedure for
book-entry transfer cannot be followed on a timely basis) or time will not
permit the Letter of Transmittal and all other required documents to reach
Citibank, N.A.,
<PAGE> 2
the depositary for the Offer (the "Depositary"), before the Expiration Date
(as defined in the Offer to Purchase);
(5) Letter to Clients which may be sent to your clients for whose
accounts you hold Shares registered in your name (or in the name of your
nominee), with space provided for obtaining such clients' instructions with
regard to the Offer; and
(6) Return envelope addressed to Citibank, N.A., as Depositary.
WE URGE YOU TO BRING THE OFFER TO THE ATTENTION OF YOUR CLIENTS AS PROMPTLY
AS POSSIBLE. THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, AUGUST 13, 1997, UNLESS THE
OFFER IS EXTENDED.
No fees or commissions will be payable to brokers, dealers or other persons
for soliciting tenders of Shares pursuant to the Offer other than fees paid to
the Dealer Managers, the Information Agent or the Depository as described in
Section 13 of the Offer to Purchase. The Company will, however, upon request,
reimburse you for customary mailing and handling expenses incurred by you in
forwarding any of the enclosed materials to your clients. The Company will pay
any stock transfer taxes with respect to the transfer and sale of Shares to it
or its order pursuant to the Offer, except as otherwise provided in Instruction
6 of the Letter of Transmittal.
In order to take advantage of this Offer, a duly executed and properly
completed Letter of Transmittal and any other required documents should be sent
to the Depositary with either certificate(s) representing the tendered Shares or
confirmation of their book-entry transfer, all in accordance with the
instructions set forth in the Letter of Transmittal and the Offer to Purchase.
As described in Section 2 under "The Tender Offer" in the Offer to
Purchase, tenders may be made even though stock certificates are not immediately
available (or the procedure for book-entry transfer cannot be followed on a
timely basis) or time will not permit the Letter of Transmittal and all other
required documents to reach the Depositary before the Expiration Date, if such
tenders are made by or through an "Eligible Institution" (as defined in the
Offer to Purchase). Certificates for Shares so tendered in proper form for
transfer (or a confirmation of a book-entry transfer of such Shares into the
Depositary's account at either of the "Book-Entry Transfer Facilities" described
in the Offer to Purchase), together with a properly completed and duly executed
Letter of Transmittal (or a facsimile thereof) and any other documents required
by the Letter of Transmittal, must be received by the Depositary within three
New York Stock Exchange trading days after the date of execution of a properly
completed and duly executed Notice of Guaranteed Delivery.
Any inquiries you may have with respect to the Offer should be directed to
the Dealer Managers or the Information Agent at their respective addresses and
telephone numbers set forth on the back cover page of the Offer to Purchase.
Additional copies of the enclosed material may be obtained from the
Information Agent, Georgeson & Company Inc., telephone: (212) 440-9800 (collect)
or (800) 223-2064 (toll free).
Very truly yours,
GOLDMAN, SACHS & CO. LAZARD FRERES & CO. LLC
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON THE AGENT OF THE COMPANY, THE DEPOSITARY, THE INFORMATION
AGENT OR THE DEALER MANAGERS OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY
STATEMENTS OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM WITH RESPECT TO THE
OFFER, OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS
SPECIFICALLY CONTAINED THEREIN.
2
<PAGE> 1
EXHIBIT (A)(6)
OFFER TO PURCHASE FOR CASH
BY
ITT CORPORATION
UP TO 30,000,000 SHARES OF ITS COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED SHARE RIGHTS)
AT
$70.00 NET PER SHARE
JULY 17, 1997
To Our Clients:
Enclosed for your consideration are the Offer to Purchase dated July 17,
1997, and the related Letter of Transmittal (which together constitute the
"Offer") in connection with the Offer by ITT Corporation, a Nevada corporation
(the "Company"), pursuant to which the Company is inviting its stockholders to
tender shares of its Common Stock, no par value (the "Common Stock"), together
with the associated preferred share purchase rights (the "Rights" and, together
with the Common Stock, the "Shares"), at a price of $70.00 per Share (such
price, or any other price set forth in an amendment to the Offer to Purchase
referred to below being the "Purchase Price"), net to the seller in cash, upon
the terms and subject to the conditions of the Offer.
All Shares properly tendered and not withdrawn will be purchased at the
Purchase Price, net to the seller in cash, upon the terms and subject to the
conditions of the Offer, including the proration provisions thereof. All Shares
not purchased pursuant to the Offer, including Shares not purchased because of
proration, will be returned to the tendering stockholders at the Company's
expense as promptly as practicable following the Expiration Date (as defined in
the Offer to Purchase). The Company reserves the right, in its sole discretion,
to purchase more than 30,000,000 Shares pursuant to the Offer. See Section 1
under "The Tender Offer" in the Offer to Purchase.
WE ARE THE HOLDER OF RECORD OF SHARES HELD FOR YOUR ACCOUNT. AS SUCH, WE
ARE THE ONLY ONES WHO CAN TENDER YOUR SHARES, AND THEN ONLY PURSUANT TO YOUR
INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FOR YOUR INFORMATION ONLY AND CANNOT
BE USED BY YOU TO TENDER SHARES WE HOLD FOR YOUR ACCOUNT.
Please instruct us as to whether you wish us to tender any of or all the
Shares we hold for your account upon the terms and subject to the conditions of
the Offer.
We call your attention to the following:
1. You may tender any portion of or all your Shares as indicated in
the attached instruction form.
2. The Offer is not conditioned upon any minimum number of Shares
being tendered. The Offer is, however, subject to certain other conditions.
See Section 11 under "The Tender Offer" in the Offer to Purchase.
3. The Offer, proration period and withdrawal rights will expire at
12:00 Midnight, New York City time, on Wednesday, August 13, 1997, unless
the Offer is extended.
4. The Offer is for up to 30,000,000 Shares, representing
approximately 25.7% of the Shares outstanding as of June 30, 1997.
5. Tendering stockholders will not be obligated to pay any brokerage
commissions, solicitation fees, or, subject to Instruction 6 of the Letter
of Transmittal, any stock transfer taxes with respect to the transfer and
sale of Shares to the Company pursuant to the Offer.
<PAGE> 2
If you wish to have us tender any of or all your Shares, please so instruct
us by completing, executing and returning to us the attached instruction form.
An envelope to return your instruction form to us is enclosed. If you authorize
us to tender your Shares, we will tender all such Shares unless you specify
otherwise on the instruction form.
YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO
SUBMIT A TENDER ON YOUR BEHALF BEFORE THE EXPIRATION DATE. THE OFFER, PRORATION
PRICE AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME,
ON WEDNESDAY, AUGUST 13, 1997, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT TENDERS FROM OR
ON BEHALF OF, OWNERS OF SHARES RESIDING IN ANY JURISDICTION IN WHICH THE MAKING
OF THE OFFER OR ITS ACCEPTANCE WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH
JURISDICTION. IN THOSE JURISDICTIONS WHOSE SECURITIES, BLUE SKY OR OTHER LAWS
REQUIRE THE OFFER TO BE MADE BY A LICENSED BROKER OR DEALER, THE OFFER SHALL BE
DEEMED TO BE MADE ON BEHALF OF THE COMPANY BY GOLDMAN, SACHS & CO. AND LAZARD
FRERES & CO. LLC OR ONE OR MORE REGISTERED BROKERS OR DEALERS LICENSED UNDER THE
LAWS OF SUCH JURISDICTION.
2
<PAGE> 3
INSTRUCTION FORM
WITH RESPECT TO THE
OFFER TO PURCHASE FOR CASH
BY
ITT CORPORATION
UP TO 30,000,000 SHARES OF ITS COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase dated July 17, 1997, and the related Letter of Transmittal
(which together constitute the "Offer"), in connection with the Offer by ITT
Corporation, a Nevada corporation (the "Company"), to purchase for cash up to
30,000,000 shares of its Common Stock, no par value (the "Common Stock"),
together with the associated preferred share purchase rights (the "Rights" and,
together with the Common Stock, the "Shares"), at a price of $70,000 per share
(or such other price that may be set forth in an amendment to the Offer), net to
the seller in cash, upon the terms and subject to the conditions of the Offer.
This will instruct you to tender to the Company the number of Shares
indicated below or, if no number is indicated, all Shares you hold for the
account of the undersigned, upon the terms and subject to the conditions of the
Offer.
[ ] By checking this box, all Shares held by us for your account will be
tendered. If fewer than all Shares are to be tendered, please indicate
below the aggregate number of Shares to be tendered.
____________________ Shares*
SIGNATURE BOX
Signature(s)
- - --------------------------------------------------------------------------------
Date
- - --------------------------------------------------------------------------------
Name(s) and Address(es)
- - ------------------------------------------------------------------------------
(PLEASE PRINT)
Account Number
- - --------------------------------------------------------------------------------
Area Code and Telephone Number
- - ---------------------------------------------------------------------
Taxpayer Identification or
Social Security Number
- - --------------------------------------------------------------------------------
- - ---------------
* Unless otherwise indicated, all the Shares held for the account of the
undersigned will be tendered.
3
<PAGE> 1
EXHIBIT (a)(7)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER--Social Security numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<C> <S> <C>
- - ---------------------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF--
- - ---------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if
combined funds, any
one of the
individuals(1)
3. Husband and wife (joint The actual owner of
account) the account or, if
joint funds, either
person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if
the minor is the
only contributor,
the minor(1)
6. Account in the name of guardian The ward, minor, or
or committee for a designated incompetent
ward, minor, or incompetent person(3)
person
7. (a) The usual revocable savings The grantor-
trust account (grantor is trustee(1)
also trustee)
(b) So-called trust account The actual owner(1)
that is not a legal or
valid trust under State law
=========================================================
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF--
- - ---------------------------------------------------------
8. Sole proprietorship account The owner(4)
9. A valid trust, estate, or The legal entity
pension trust (Do not furnish the
identifying number
of the personal
representative or
trustee unless the
legal entity itself
is not designated
in the account
title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held in the The partnership
name of the business
13. Association, club, or other The organization
tax-exempt organization
14. A broker or registered nominee The broker or
nominee
15. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a state
or local government, school
district, or prison) that
receives agricultural program
payments
- - ---------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 (PAGE 2)
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a),or an individual
retirement plan or a custodial account under Section 403(b)(7).
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency, or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An exempt charitable remainder trust, or a nonexempt trust described in
section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of 1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER IF THE PAYMENTS ARE INTEREST, DIVIDENDS OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under Sections 6041, 6041A(a),
6045 and 6050A.
PRIVACY ACT NOTICE--Section 6019 requires most recipients of dividend, interest
or other payments to give taxpayer identification numbers to payers who must
report the payments to IRS. IRS uses the numbers for identification purposes.
Payers must be given the numbers whether or not recipients are required to file
tax returns. Payers must generally withhold 31% of taxable interest, dividend
and certain other payments to a payee who does not furnish a taxpayer
identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to wilful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an under
payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE.
<PAGE> 1
EXHIBIT (a)(8)
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares. The Offer is made solely by the Offer
to Purchase dated July 17, 1997, and the related Letter of Transmittal, and is
being made to all holders of Shares. The Offer is not being made to (nor will
tenders be accepted from or on behalf of) holders of Shares in any jurisdiction
in which the making of the Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. In those jurisdictions whose
securities, blue sky or other laws require the Offer to be made by a licensed
broker or dealer, the Offer shall be deemed to be made on behalf of ITT
Corporation by Goldman, Sachs & Co., Lazard Freres & Co. LLC or one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH
BY
ITT CORPORATION
UP TO 30,000,000 SHARES OF ITS COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
AT
$70.00 NET PER SHARE
ITT Corporation, a Nevada corporation (the "Company"), is offering to
purchase up to 30,000,000 shares of its Common Stock, no par value (the "Common
Stock"), together with the associated preferred share purchase rights (the
"Rights" and, together with the Common Stock, the "Shares"), at $70.00 per
Share, net to the seller in cash, upon the terms and subject to the conditions
set forth in the Offer to Purchase dated July 17, 1997 (the "Offer to Purchase")
and in the related Letter of Transmittal (which together constitute the
"Offer"). Upon the terms and subject to the conditions of the Offer, the Company
will accept for payment and pay for up to 30,000,000 Shares or such lesser
number of Shares as are validly tendered prior to the Expiration Date and not
theretofore validly withdrawn. The term "Expiration Date" means 12:00 midnight,
New York City time, on Wednesday, August 13, 1997, unless and until the Company,
in its sole discretion, shall have extended the period of time during which the
Offer is open, in which event the term "Expiration Date" shall mean the latest
time and date at which the Offer, as so extended by the Company, will expire. If
the Offer is oversubscribed, Shares tendered before the Expiration Date will be
subject to proration. The proration period also expires on the Expiration Date.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS, INCLUDING
RECEIPT OF FINANCING ON ACCEPTABLE TERMS, SATISFACTION OF ALL PRECONDITIONS TO
CONSUMMATION OF THE DESTINATIONS DISTRIBUTION (AS DEFINED BELOW) (OTHER THAN IN
RESPECT OF THE OFFER) AND THE COMPANY BEING SATISFIED, IN ITS REASONABLE
DISCRETION, THAT THERE EXISTS NO SIGNIFICANT IMPEDIMENT, OR MATERIAL LIKELIHOOD
OF A SIGNIFICANT IMPEDIMENT, TO THE TIMELY CONSUMMATION OF THE DESTINATIONS
DISTRIBUTION ON SUBSTANTIALLY THE TERMS DESCRIBED IN THE OFFER TO PURCHASE. SEE
SECTION 11 UNDER "THE TENDER OFFER" IN THE OFFER TO PURCHASE. THE COMPANY
INTENDS TO TERMINATE THE OFFER IF HILTON HOTELS CORPORATION ("HILTON") OR ANY
AFFILIATE OF HILTON ACQUIRES A MATERIAL NUMBER OF SHARES PURSUANT TO ITS
UNSOLICITED OFFER FOR SHARES OR OTHERWISE OR IF ANY OF HILTON'S NOMINEES ARE
ELECTED TO THE BOARD OF DIRECTORS OF THE COMPANY.
- - --------------------------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, AUGUST 13, 1997, UNLESS THE
OFFER IS EXTENDED. THE COMPANY EXPECTS (ALTHOUGH IT IS NOT OBLIGATED) TO
EXTEND THE OFFER, SUBJECT TO THE OTHER TERMS AND CONDITIONS THEREOF, UNTIL
SUCH TIME AS ALL REQUIRED APPROVALS FOR THE OFFER AND THE DESTINATIONS
DISTRIBUTION ARE OBTAINED.
- - --------------------------------------------------------------------------------
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION AS
TO WHETHER ANY STOCKHOLDER SHOULD TENDER ANY OR ALL OF SUCH STOCKHOLDER'S SHARES
PURSUANT TO THE OFFER. EACH STOCKHOLDER MUST MAKE ITS OWN DECISION WHETHER TO
TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. THE COMPANY HAS BEEN
ADVISED THAT NONE OF ITS DIRECTORS OR EXECUTIVE OFFICERS INTENDS TO TENDER ANY
SHARES PURSUANT TO THE OFFER.
The Offer is an element of the comprehensive plan (the "Comprehensive Plan")
approved by the Board of Directors of the Company. The Comprehensive Plan is
intended to enhance the value of the ongoing investment of stockholders as well
as further the interests of the Company's employees, creditors, customers and
the economies and communities in which the Company operates. Another major
element of the Comprehensive Plan involves the separation of the Company into
three distinct publicly owned companies by means of (i) the pro rata
distribution to the Company's stockholders of all the shares of ITT
Destinations, Inc. ("Destinations"), a newly formed subsidiary of the Company
that will hold the Company's hotels and gaming business (the "Destinations
Distribution"), and (ii) the pro rata distribution to the Company's stockholders
of all the shares owned by the Company of ITT Educational Services, Inc. ("ITT
Educational"), the subsidiary of the Company that operates its post-secondary
technical education business (the "ITT Educational Distribution" and, together
with the Destinations Distribution, the "Distributions"). After the
Distributions, the .Company's only business will be its telephone directories
publishing business and it is expected that the Company will change its name to
"ITT Information Services, Inc." ("ITT ISI"). A third element of the
Comprehensive Plan is the allocation of the Company's indebtedness between
Destinations and ITT ISI in a manner that is appropriate for the credit capacity
and capitalization requirements of each entity. The Company's preferred means of
making this allocation is to replace the Company's existing indebtedness with
indebtedness issued by the entity that will ultimately be liable for such
indebtedness. Accordingly, the Company intends to commence a tender offer for
all the publicly held debt securities of ITT Corporation (the "Debt Tender
Offer") and to repay certain other indebtedness. In order to finance the Offer,
the Debt Tender Offer and the repayment of such other indebtedness, the Company
will use a combination of available cash and the proceeds of borrowings by
Destinations and the proceeds of borrowings and the issuance of debt securities
by ITT ISI and its subsidiaries. The Company has received a letter from The
Chase Manhattan Bank and Chase Securities Inc. stating that they are highly
confident that they will be able to arrange these financings. The Offer is not
conditioned upon the repurchase of any minimum amount of debt securities in the
Debt Tender Offer.
<PAGE> 2
The purpose of the Offer is to return to the Company's stockholders the
after-tax proceeds from recent asset sales by the Company and the proceeds of
the Company's borrowing capacity. The Offer provides to stockholders who wish to
sell a portion of their Shares an opportunity to do so at a premium to recent
market prices and provides stockholders who wish to increase their proportionate
investment in ITT ISI, Destinations and ITT Educational, and thus in the future
earnings and assets of ITT ISI, Destinations and ITT Educational, an opportunity
to do so. The Offer will also afford to stockholders the opportunity to dispose
of Shares without the usual transaction costs associated with a market sale.
STOCKHOLDERS WHOSE SHARES ARE ACCEPTED FOR PAYMENT AND PAID FOR IN THE OFFER
WILL NOT PARTICIPATE IN THE DISTRIBUTIONS WITH RESPECT TO SUCH SHARES.
The Board believes that the business justifications for the Comprehensive
Plan, including the Offer, are compelling without regard to Hilton's unsolicited
tender offer for Shares and intends to pursue the plan even if Hilton withdraws
its interest in acquiring the Company. However, in reviewing the Comprehensive
Plan, the Board took account of the possibility that the transactions
contemplated by the Comprehensive Plan, including the Offer, could adversely
affect Hilton's unsolicited offer for Shares. See "Background and Purpose of the
Offer -- Purpose of the Offer" in the Offer to Purchase.
Subject to the applicable rules and regulations of the Securities and
Exchange Commission, the Company expressly reserves the right, in its sole
discretion, at any time and from time to time, and regardless of whether or not
the conditions to the Offer have been satisfied, to extend the period of time
during which the Offer is open, by giving oral or written notice of such
extension to the Depositary. See Sections 1 and 11 under "The Tender Offer" in
the Offer to Purchase.
Except as otherwise provided in Section 3 under "The Tender Offer" in the
Offer to Purchase, a tender of Shares pursuant to the Offer is irrevocable.
Shares tendered pursuant to the Offer may be withdrawn pursuant to the
procedures set forth in the Offer to Purchase at any time prior to the
Expiration Date and, unless theretofore accepted for payment and paid for by the
Company pursuant to the Offer, may also be withdrawn at any time after September
12, 1997. See Section 3 under "The Tender Offer" in the Offer to Purchase. For a
withdrawal to be effective, a written, telegraphic or facsimile transmission
notice of withdrawal must be timely received by the Depositary at one of its
addresses set forth on the back cover of the Offer to Purchase and must specify
the name of the person having tendered the Shares to be withdrawn, the number of
Shares to be withdrawn and the name of the registered holder of the Shares to be
withdrawn, if different from the name of the person who tendered the Shares. If
certificates for Shares have been delivered or otherwise identified to the
Depositary, then, prior to the physical release of such certificates, the serial
numbers shown on such certificates must be submitted to the Depositary and,
unless such Shares have been tendered by an Eligible Institution (as defined in
Section 2 under "The Tender Offer" in the Offer to Purchase), the signatures on
the notice of withdrawal must be guaranteed by an Eligible Institution. If
Shares have been delivered pursuant to the procedure for book-entry transfer as
set forth in Section 2 under "The Tender Offer" in the Offer to Purchase, any
notice of withdrawal must also specify the name and number of the account at the
appropriate Book-Entry Transfer Facility (as defined in Section 2 under "The
Tender Offer" in the Offer to Purchase) to be credited with the withdrawn Shares
and otherwise comply with such Book-Entry Transfer Facility's procedures.
Withdrawals of tenders of Shares may not be rescinded, and any Shares properly
withdrawn will thereafter be deemed not validly tendered for purposes of the
Offer. However, withdrawn Shares may be retendered again following one of the
procedures described in Section 2 under "The Tender Offer" in the Offer to
Purchase at any time prior to the Expiration Date.
THE OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION THAT SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE
OFFER. These documents are being mailed to record holders of Shares and will be
furnished to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the Company's
stockholder list or, if applicable, who are listed as participants in a clearing
agency's security position listing for subsequent transmittal to beneficial
owners of Shares.
The information required by Rule 13e-4(d)(1) of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended, is contained
in the Offer to Purchase and is incorporated herein by reference.
Any questions or request for assistance may be directed to the Information
Agent at its address and telephone numbers set forth below. Requests for copies
of the Offer to Purchase, Letter of Transmittal, Notice of Guaranteed Delivery
or other tender offer materials may be directed to the Information Agent and
such copies will be furnished promptly at the Company's expense. Stockholders
may also contact their broker, dealer, commercial bank, trust company or other
nominee for assistance concerning the Offer.
The Information Agent for the Offer is:
(LOGO)
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect:
(212) 440-9800
All Others Call Toll Free:
(800) 223-2064
The Dealer Managers for the Offer are:
<TABLE>
<S> <C>
GOLDMAN, SACHS & CO. LAZARD FRERES & CO. LLC
85 Broad Street 30 Rockefeller Plaza
New York, New York 10004 New York, New York 10020
(800) 323-5678 (212) 632-6717
</TABLE>
July 17, 1997
<PAGE> 1
EXHIBIT (a)(9)
[ITT LOGO] ITT CORPORATION
<TABLE>
<S> <C> <C>
CONTACT: Jim Gallagher George Sard/David Reno
ITT Corporation Sard Verbinnen & Co
212-258-1261 212-687-8080
</TABLE>
ITT TO SPLIT INTO THREE SEPARATE PUBLIC COMPANIES
WILL CREATE HOTEL/GAMING, TELEPHONE DIRECTORIES, TECHNICAL SCHOOLS COMPANIES
WILL TENDER FOR 30 MILLION ITT SHARES, 26% OF TOTAL OUTSTANDING SHARES,
FOR $70 PER SHARE, OR A TOTAL OF $2.1 BILLION
- - --------------------------------------------------------------------------------
NEW YORK, JULY 16, 1997 -- ITT Corporation (NYSE: ITT) today announced its Board
of Directors has unanimously approved a comprehensive plan designed to further
sharpen ITT's strategic focus and enhance shareholder value through the tax-free
creation of three independent public companies and a fixed-price stock tender
for 30 million shares at $70 per share.
The three new companies are:
- ITT Destinations, Inc., a worldwide leader in hotels and gaming, with 424
existing hotels in 62 countries and casinos in Las Vegas, Atlantic City
and other major gaming centers. It will focus on further increasing the
value of the Sheraton and Caesars brands -- two of the best known and
most respected names in the hotel and gaming industries.
- ITT Corporation, whose sole asset will be 100% of ITT World Directories,
Inc., one of the largest and most successful publishers of telephone
directories and classified information outside the United States, with
operations in Belgium, Ireland, Japan, The Netherlands, Puerto Rico,
Portugal and South Africa. ITT has entered into an agreement with an
affiliate of Clayton, Dubilier & Rice, Inc., a New York-based private
investment firm, under which it will acquire a substantial minority
interest in the World Directories company after the three-way split.
- ITT Educational Services, Inc. (NYSE: ESI), a leading provider of
post-secondary technical education with 60 ITT Technical Institutes
operating in 27 states. ESI is currently 83.3% owned by ITT with the
remaining 16.7% publicly held.
ITT plans to repurchase 30 million shares, or approximately 26% of its
total shares outstanding, for $70 per share, or $2.1 billion in total, through a
cash tender offer. In connection with the allocation of debt obligations between
ITT Destinations and the World Directories company, ITT also plans to offer to
repurchase the entire $2.0 billion of existing ITT Corporation public debt,
through a tender offer later in the year.
The tender offers will be funded with proceeds of recent asset sales and
bank financing. The Chase Manhattan Bank and Chase Securities Inc. have
delivered a letter to ITT stating that they are highly confident they could
successfully arrange the aggregate financings required for the tender offers,
capitalization of ITT Destinations and the World Directories company, and
working capital needs.
1330 Avenue of the Americas, New York, NY 10019-5490
Telephone (212) 258-1000 Facsimile (212) 258-1027/1028
<PAGE> 2
In addition to retaining their ITT shares (which will now represent
ownership of the stand-alone World Directories), ITT shareholders will receive
one new share in ITT Destinations, Inc. and approximately 0.25 of a share of ITT
Educational Services for each existing ITT share.
In approving the comprehensive plan, ITT's Board of Directors again voted
unanimously to recommend that ITT shareholders reject Hilton's $55 per share
partial tender offer and the proposed second-step "squeeze out" merger as
inadequate and not in the best interests of ITT shareholders. The ITT Board
reaffirmed its belief that the interests of ITT shareholders, as well as ITT
employees, creditors, customers and the communities in which it operates, would
best be served by the Company remaining independent and executing its plan.
"Separating our lodging and gaming operations from ITT's other remaining
assets is in keeping with our goal of creating current value for ITT
shareholders while enhancing the long-term prospects and strategic opportunities
for each business," said Rand V. Araskog, Chairman and Chief Executive of ITT,
who will become Chairman and Chief Executive of ITT Destinations. "The actions
we are announcing today are consistent with our concerted efforts to increase
shareholder value, which began with the decision to divest ITT's stake in
Alcatel, followed by the establishment of an independent Rayonier and our
well-received split into three independent companies in 1995. These actions have
created five leading companies in their respective industries."
Since 1991, ITT has sold its entire stake in Alcatel and created four
separate public companies: Rayonier (NYSE: RYN), Hartford Financial Services
Group, Inc. (NYSE: HIG), ITT Industries, Inc. (NYSE: INN), and ITT Corporation
(NYSE: ITT). Holders of ITT stock for the five years through 1996 have seen
their investment outperform the S&P 500 Index by more than 70% and increase in
aggregate value by approximately $10 billion during this same period.
Araskog added, "Building on these earlier efforts and our successful recent
asset sales, this latest initiative will further sharpen our focus, allowing
management to concentrate on the growth and profitability of closely related
businesses while enabling shareholders to make clear investment choices. ITT
shareholders will own three dynamic companies on a tax-free basis and retain all
the upside. Hilton cannot execute our plan because it could not do a tax-free
spin-off of World Directories and ESI for five years, and it would have to pay
at least $500 million in taxes if it carried out its promise to sell these
assets, which have a very low tax basis."
In addition to Araskog, ITT Destinations will be led by Robert A. Bowman,
ITT's President and Chief Operating Officer, who will have the same role at the
new company. Daniel P. Weadock, ITT Senior Vice President-Hotels, will continue
to run its hotel business and Peter G. Boynton, ITT Senior Vice President-
Gaming, will continue to run its gaming business.
Gerald C. Crotty, ITT Senior Vice President and Chairman of ITT Information
Services, Inc., will become Chief Executive of the independent directories
business. ITT Educational Services will continue to be led by Rene R. Champagne,
its Chairman and Chief Executive.
ITT Corporation and ITT Destinations both expect to hold their 1997 annual
shareholder meetings in November. ITT Corporation will remain a Nevada company
with an 11-member Board of Directors, all of whom will stand for election in
November. ITT Destinations will be incorporated in Nevada with a classified
Board comprised of the 11 existing ITT directors, four of whom will stand for
election in November. Most other major companies, including six of the largest
hotel and gaming companies (Hilton Hotels, Marriott International, Host
Marriott, Circus Circus, Mirage Resorts and Harrah's), have classified boards.
ITT Educational Services will remain a Delaware corporation with its existing
10-member classified Board of Directors.
In connection with the comprehensive plan, ITT has acquired from BellSouth
Corporation (NYSE: BLS) the 20% of ITT World Directories it does not currently
own for $254 million in cash. In a separate transaction last week, ITT World
Directories declared and paid an $11 million dividend to BellSouth.
Following the three-way split, Clayton, Dubilier & Rice (CD&R) would invest
an initial $225 million in cash for a 32.9% interest in World Directories.
Following the transaction with CD&R, World Directories
<PAGE> 3
would also have approximately $1.05 billion in debt, giving the company an
initial total enterprise value of approximately $1.7 billion. CD&R would also
receive 10-year warrants to buy common stock of the company at a 50% premium to
CD&R's initial purchase price which, if exercised, would result in CD&R owning a
46.6% fully diluted interest in the World Directories company.
"Since rejecting Hilton's inadequate offer five months ago and implementing
our plan to create shareholder value, we have sold non-strategic assets at
premium prices, generating approximately $1.5 billion in proceeds which we are
returning to our shareholders," said Araskog. "Based on its leading worldwide
market position, ITT Destinations will emerge from the split as a formidable
competitor with the management depth and the financial strength to further
expand its presence in the consolidating global hotel and gaming industries
while delivering strong double-digit growth in earnings and cash flow. ESI and
World Directories are strong companies which generate substantial cash flows.
This tax-efficient split will allow all three companies to make the necessary
strategic decisions that will create superior value for shareholders, as we have
done with our previous spin-offs."
"Both Sheraton and Caesars continue to build on their global leadership,"
said Robert A. Bowman, ITT President and Chief Operating Officer. "Since January
of this year, we have acquired three hotels and signed or acquired 55 franchise
agreements and management contracts in 15 different countries, totaling more
than 15,000 rooms. We will continue to grow our portfolio of owned, managed and
franchised hotels around the world, while further enhancing our presence in
principal gaming centers. With extensive capital improvements to our major
casinos in Las Vegas and Atlantic City targeted for completion by year-end, and
with superior management now in place in each of these casinos, we are well
positioned for accelerated earnings growth."
"Moreover, Dan Weadock, Peter Boynton and their senior teams throughout the
world have hundreds of years of experience in the hotel and gaming industries,"
added Bowman. "That experience, combined with widespread industry and customer
recognition of their management talent and innovation, are additional reasons to
expect strong growth in both hotel and gaming operations in the future."
"World Directories, already the leading proprietary classified information
business in the world, will have a powerful partner in Clayton, Dubilier & Rice,
strong cash flow and many growth opportunities in a fragmented global market,"
said Gerald C. Crotty, who will be Chairman and CEO of the independent
directories business.
Rene R. Champagne, Chairman and CEO of ITT Educational Services, said: "ESI
will have much greater public float and the same strong balance sheet, enabling
us to exploit our leading position in the rapidly growing market for
post-secondary technical educational services."
ITT Corporation today consists of Sheraton, a premier hotel company which
owns and/or manages 424 hotels in 62 countries; Caesars, the leading brand name
in the gaming industry; and ownership interests in ITT World Directories (100%),
ITT Educational Services (83.3%), and Madison Square Garden (10.2%). ITT has a
definitive agreement to sell its 50% interest in New York City television
station WBIS+ to Paxson Communications Corp. (ASE: PXN).
<PAGE> 1
EXHIBIT (a)(10)
BANKERS TRUST COMPANY
280 PARK AVENUE
NEW YORK, NEW YORK 10015
July 17, 1997
Dear 401(k) Plan Participant:
As you are no doubt aware, ITT Corporation ("ITT") has commenced a tender offer
to buy up to 30 million shares (approximately 26%) of its common stock at $70 a
share from its stockholders. This letter, and copies of the relevant documents
making the offer, are being sent to you in accordance with the terms of the ITT
401(k) Retirement Savings Plan (the "401(k) Plan").
ITT's Board of Directors has approved making the offer. However, NEITHER ITT NOR
ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO STOCKHOLDERS AS TO WHETHER OR
NOT TO TENDER (OFFER TO SELL) SHARES TO ITT.
The offer is being made to all ITT stockholders, which includes the Trustee for
the 401(k) Plan. As a Member, Deferred Member, or Beneficiary under the 401(k)
Plan, you have the right to determine what portion, if any, of the ITT shares
credited to your 401(k) Plan account are to be tendered. Bankers Trust Company,
as Trustee, will retain or tender ITT shares credited to your 401(k) Plan
account based on your response. Your election will be processed by the 401(k)
Plan's recordkeeper, who is required to keep such election confidential.
As a 401(k) Plan participant, the effects of a decision to tender and the
procedures you must follow to direct the Trustee are different than for other
ITT stockholders. To record your election to retain or tender shares allocated
to your 401(k) account, call the ITT 401(k) Voice Response System at
1-888-ITT-401K (1-888-488-4015). Indicate which percentage (from 0% to 100% in
whole numbers) of the ITT shares credited to your 401(k) account you wish to
have tendered. YOUR RESPONSE MUST BE RECEIVED BY 4 P.M. EASTERN TIME, AUGUST 11,
1997 (WHICH IS TWO BUSINESS DAYS BEFORE THE ITT OFFER IS CURRENTLY SET TO
EXPIRE). You must have your personal identification number and Social Security
number available when calling. THE ENCLOSED LETTER OF TRANSMITTAL, WHICH DIRECT
ITT STOCKHOLDERS ARE TO USE, HAS BEEN INCLUDED FOR YOUR INFORMATION ONLY AND
CANNOT BE USED TO INSTRUCT THE TRUSTEE AS TO WHETHER TO TENDER ITT SHARES
CREDITED TO YOUR 401(k) PLAN ACCOUNT.
THE 401(k) PLAN STATES THAT IF YOU DO NOT ISSUE INSTRUCTIONS TO TENDER, ITT
SHARES IN YOUR 401(k) PLAN ACCOUNT WILL NOT BE TENDERED BY THE TRUSTEE.
Each 401(k) Plan participant must decide individually how to direct the Trustee.
Some factors you might wish to consider are:
1. If you choose to tender all or a portion of the ITT shares credited
to your 401(k) Plan account and such shares are accepted for tender
by ITT, the cash proceeds will be temporarily invested by the Trustee
in a short-term fund established under the 401(k) Plan on your
behalf.
2. In making your decision whether to tender your ITT common stock to
ITT, you should also consider the offer previously made by HLT
Corporation, a wholly owned subsidiary of Hilton Hotels Corporation,
to purchase shares of ITT at $55 per share. The offering materials
relating to the HLT offer were previously distributed to you. If you
have not already made an election under
<PAGE> 2
the HLT offer, you may still do so. If you have already made an
election under the HLT offer, you have the right to change that
election. Elections may be made or changed by calling the ITT 401(k)
Voice Response System and following the instructions given. You can
make or change an election under the HLT offer until July 30, 1997
(unless such offer is extended by HLT, in which case you may make
such election no later than the second business day prior to the
publicized expiration date as extended).
3. The terms of the 401(k) Plan provide that the cash proceeds received
by the Trustee from tendering ITT shares (whether pursuant to the HLT
or ITT tender offers) will be reinvested in ITT stock (or if no such
stock is then available for purchase, in other "employer
securities"). The price at which any such shares are repurchased by
the Trustee will be based on then prevailing open market prices,
which may be greater or less than the HLT or ITT tender offer price
at which shares are tendered in accordance with participant
instructions.
Please note that ITT Corporation may choose to extend the expiration of the
tender offer. The ITT 401(k) Voice Response System will remain open for you to
make or change your election as long as the tender offer is outstanding. If the
tender offer by ITT is extended, you will have until 4 p.m. on the second
business day prior to each publicized expiration date as extended to record your
election.
If you are also a direct stockholder of ITT, you will receive under separate
cover another copy (or copies) of the ITT tender offer documents which should be
used to tender your directly owned shares, if you should choose to do so.
BANKERS TRUST COMPANY, AS TRUSTEE OF THE 401(k) PLAN, MAKES NO REPRESENTATION OR
RECOMMENDATION ON THE TENDER OFFER BY ITT OR HLT.
Bankers Trust Company
2
<PAGE> 1
EXHIBIT (b)(1)
CHASE LOGO
THE CHASE MANHATTAN BANK
270 PARK AVENUE
NEW YORK, NEW YORK 10017
CHASE SECURITIES INC.
270 PARK AVENUE
NEW YORK, NEW YORK 10017
July 15, 1997
ITT Corporation
1330 Avenue of the Americas
New York, New York 10019-5490
Attention: Ann N. Reese, Executive Vice President
and Chief Financial Officer
Ladies and Gentlemen:
ITT Corporation ("ITT") has advised The Chase Manhattan Bank ("Chase") and
Chase Securities Inc. ("CSI") that it intends to (i) repurchase approximately
30,000,000 shares of its common stock at a price of $70.00 per share in cash,
(ii) refinance certain indebtedness of ITT and its direct and indirect
subsidiaries and (iii) subsequent to such repurchase and refinancing, spin-off
(collectively, the "Spin-Offs") to its shareholders its education services and
hotels and gaming businesses (collectively, the "Transactions"). The education
services business will be spun-off as ITT Educational Services, Inc. ("ITT
Educational") and the hotels and gaming businesses will be spun-off as ITT
Destinations, Inc. ("ITT Destinations"). Following the Spin-Offs, ITT will be
renamed ITT Information Services, Inc. ("ITT Information Services").
We understand that for and in connection with the Transactions, you are
planning (a) a financing for ITT Destinations (the "Destinations Financing") in
the syndicated loan market of up to $5,000,000,000 and (b) financings for ITT
Information Services and certain of its direct and indirect subsidiaries (the
"Information Services Financings") in the syndicated loan and securities
markets, aggregating the U.S. dollar equivalent of $1,365,000,000. The
Destinations Financing and the Information Services Financings (collectively,
the "Financings") will yield aggregate proceeds of $6,365,000,000. Chase and CSI
have participated with ITT in substantial discussions and work relating to the
Financings, including due diligence reviews of the businesses which will
comprise ITT Destinations and ITT Information Services, term sheet preparation
and consideration of certain legal, regulatory, tax and collateral matters
relating to the Financings.
We are pleased to inform you that, based upon the work and discussions to
date and subject to the conditions set forth below, we are highly confident that
we could successfully arrange the Financings. The structure, covenants and terms
of the Financings would be determined by Chase, CSI and you.
Our view expressed above is subject to, among other things, (a) there not
occurring or becoming known to us any material adverse condition or material
adverse change in or affecting the business, operations, property or financial
condition or prospects of ITT and its subsidiaries, either individually or taken
as a whole, (b) our final satisfaction that the credit structure contemplated
for the Financings can be achieved with all necessary third party consents and
without resulting in material adverse tax, regulatory, legal, contractual or
other consequences not currently known to us, (c) our not becoming aware after
the date hereof of any information or other matter affecting ITT or any of its
subsidiaries or the Transactions which is inconsistent in a material and adverse
manner with any such information or other matter disclosed to us prior to the
date hereof and (d) there not having occurred any material adverse litigation
affecting the Transactions or any of
<PAGE> 2
the Financings that has not been settled, dismissed, vacated or discharged prior
to the proposed closing date for the Financings to the reasonable satisfaction
of Chase and CSI.
Furthermore, our view is based on current conditions in the syndicated loan
and securities markets in which the Financings would be completed and assumes
that there will be no material disruption of, or material adverse change in, the
conditions of such markets that, in our reasonable judgment, could materially
and adversely impair the completion of the Financings.
It should be understood that this letter is not intended to be, and shall
not constitute, a commitment by Chase to provide any financing or an agreement
by CSI to arrange any financing. This letter shall be governed by, and construed
in accordance with, the laws of the State of New York, without giving effect to
conflicts of law principles.
Chase and CSI are pleased to have been given the opportunity to assist you
in providing this letter relating to the Financings.
Very truly yours,
THE CHASE MANHATTAN BANK
By: /s/ JAMES B. LEE, JR.
------------------------------------
Name: James B. Lee, Jr.
Title: Vice Chairman
CHASE SECURITIES INC.
By: /s/ NANCY G. MISTRETTA
------------------------------------
Name: Nancy G. Mistretta
Title: Managing Director
2
