<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER 1-13960
----------------
ITT CORPORATION
NEVADA 88-0340591
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
1330 AVENUE OF THE AMERICAS
NEW YORK, NY 10019-5490
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE NUMBER: (212) 258-1000
----------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES__X__ NO_____
AS OF OCTOBER 15, 1997, THERE WERE OUTSTANDING 117,136,158 SHARES OF COMMON
STOCK, NO PAR VALUE, OF THE REGISTRANT.
<PAGE> 2
ITT CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
PART I FINANCIAL INFORMATION
1 Financial Statements:
Consolidated Income - Third Quarter and Nine Months Ended
September 30, 1997 and 1996......................................... 2
Consolidated Balance Sheet - September 30, 1997 and December 31, 1996.. 3
Consolidated Cash Flow - Nine Months Ended September 30, 1997
and 1996............................................................ 4
Notes to Financial Statements.......................................... 5
Business Segment Information........................................... 9
2 Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 10
PART II OTHER INFORMATION
6 Exhibits and Reports on Form 8-K....................................... 14
Signature.............................................................. II-1
Exhibit Index.......................................................... II-2
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited financial statements, in the opinion of management,
reflect all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the financial position, the results of
operations and cash flow for the periods presented. For a description of
accounting policies, see notes to financial statements in ITT Corporation's
Annual Report on Form 10-K for the year ended December 31, 1996.
ITT CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME
(IN MILLIONS EXCEPT PER SHARE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
THIRD QUARTER SEPTEMBER 30,
------------- -------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues ................................ $ 1,682 $ 1,665 $ 4,897 $ 4,805
Costs and expenses:
Salaries, benefits and other operating 1,224 1,208 3,567 3,468
Selling, general and administrative ... 187 203 600 613
Restructuring charge .................. -- -- 58 --
Depreciation and amortization ......... 71 69 220 197
------- ------- ------- -------
1,482 1,480 4,445 4,278
------- ------- ------- -------
200 185 452 527
Interest expense, net ................... (51) (53) (161) (171)
Gain on sale of Alcatel Alsthom shares .. -- -- 183 --
Gain on sale of investment in
Madison Square Garden ................ -- -- 200 --
Miscellaneous income (expense), net ..... (17) 1 (35) 9
------- ------- ------- -------
132 133 639 365
Provision for income taxes .............. (63) (53) (276) (153)
Minority equity ......................... (8) (13) (23) (29)
------- ------- ------- -------
Net income .............................. $ 61 $ 67 $ 340 $ 183
======= ======= ======= =======
Earnings per share ...................... $ .51 $ .57 $ 2.87 $ 1.54
======= ======= ======= =======
Weighted average common equivalent shares 118.8 118.2 118.6 118.4
======= ======= ======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
2
<PAGE> 4
ITT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN MILLIONS EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................. $ 445 $ 224
Marketable securities ...................................... -- 599
Receivables, net ........................................... 609 659
Inventories ................................................ 91 103
Prepaid expenses and other ................................. 157 113
------- -------
Total current assets .................................... 1,302 1,698
Plant, property and equipment, net ............................ 4,667 4,746
Investment in Madison Square Garden ........................... 85 533
Other investments ............................................. 348 387
Long-term receivables, net .................................... 338 186
Other assets .................................................. 495 367
Goodwill, net ................................................. 1,529 1,358
Net assets held for sale ...................................... 423 --
------- -------
$ 9,187 $ 9,275
======= =======
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable ............................................ $ 313 $ 312
Accrued expenses ............................................ 655 551
Notes payable and current maturities of long-term debt ...... 232 297
Accrued taxes ............................................... 272 231
------- -------
Total current liabilities ................................ 1,472 1,391
Long-term debt ................................................ 3,467 3,894
Deferred income taxes ......................................... 176 196
Other liabilities ............................................. 475 430
Minority interest ............................................. 228 290
------- -------
5,818 6,201
------- -------
Stockholders Equity:
Common stock: authorized 200,000,000 shares, no par or stated
value, outstanding 117,023,516 and 116,366,176 shares,
respectively ............................................. 2,916 2,897
Cumulative translation adjustment ........................... (128) (2)
Unrealized loss on securities ............................... -- (62)
Retained earnings ........................................... 581 241
------- -------
Total stockholders equity ............................... 3,369 3,074
------- -------
$ 9,187 $ 9,275
======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
3
<PAGE> 5
ITT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW
(IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------
1997 1996
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ................................................................... $ 340 $ 183
Adjustments to net income:
Depreciation and amortization .............................................. 220 197
Provision for doubtful receivables ......................................... 38 38
Gain on divestments - pretax ............................................... (410) (23)
Changes in working capital:
Receivables ................................................................ (59) (68)
Inventories ................................................................ 3 (12)
Accounts payable ........................................................... (39) (32)
Accrued expenses ........................................................... 123 7
Accrued and deferred taxes ................................................... 22 2
Other, net ................................................................... (39) 8
------- -------
Cash from operating activities ............................................. 199 300
------- -------
INVESTING ACTIVITIES
Additions to plant, property and equipment ................................... (822) (359)
Proceeds from divestments .................................................... 1,618 242
Collection of note receivable from Cablevision Systems Corporation ........... 169 --
Acquisitions, net of acquired cash ........................................... (284) (309)
Other, net ................................................................... (91) (38)
------- -------
Cash from/[used for] investing activities .................................. 590 (464)
------- -------
FINANCING ACTIVITIES
Short-term debt, net ......................................................... (132) 5
Long-term debt issued ........................................................ 665 206
Long-term debt repaid ........................................................ (1,091) (56)
Other, net ................................................................... (5) 8
------- -------
Cash from/[used for] financing activities .................................. (563) 163
------- -------
EXCHANGE RATE EFFECT ON CASH AND CASH EQUIVALENTS ............................ (5) (1)
------- -------
Increase in cash and cash equivalents ........................................ 221 (2)
Cash and Cash Equivalents -- Beginning of Period ............................. 224 177
------- -------
CASH AND CASH EQUIVALENTS -- END OF PERIOD ................................... $ 445 $ 175
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ................................................................. $ 139 $ 158
======= =======
Income taxes ............................................................. $ 243 $ 144
======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
4
<PAGE> 6
ITT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions except per share)
BASIS OF PRESENTATION
ITT Corporation ("ITT") is one of the world's largest hotel and gaming
companies. ITT's principal lines of business are hotels, gaming and information
services. The hotels segment is comprised of a worldwide hospitality network of
over 420 full-service hotels serving three markets: luxury, upscale and
mid-price. ITT's hotel operations are represented in nearly every major world
market. ITT's gaming operations are located in several key domestic
jurisdictions. ITT also operates various hotel/casino ventures outside the
United States. ITT's information services segment publishes telephone
directories in certain countries outside the United States and owns and operates
post-secondary educational institutions in the United States.
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 $40 and $38 for the
three months ended September 30, 1997 and 1996, respectively, and $115 and $121
for the nine months ended September 30, 1997 and 1996, respectively. The
estimated cost of such promotional allowances was $31 and $27 for the three
months ended September 30, 1997 and 1996, respectively, and $90 and $83 for the
nine months ended September 30, 1997 and 1996, respectively, and has been
included in costs and expenses.
Revenues and costs and expenses of the Gaming operations are comprised
of the following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
THIRD QUARTER SEPTEMBER 30,
--------------- ---------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Gaming ............................ $242 $264 $715 $790
Rooms ............................. 17 17 50 53
Food and beverage ................. 19 19 55 58
Other operations .................. 30 25 83 79
---- ---- ---- ----
Total ........................ $308 $325 $903 $980
==== ==== ==== ====
Cost and Expenses
Gaming ............................ $149 $146 $445 $448
Rooms ............................. 7 5 19 18
Food and beverage ................. 18 19 52 54
Other operations .................. 15 17 43 42
Selling, general and administrative 44 54 135 159
Depreciation and amortization ..... 22 19 63 58
Provision for doubtful accounts ... 8 8 22 22
---- ---- ---- ----
Total ........................ $263 $268 $779 $801
==== ==== ==== ====
</TABLE>
5
<PAGE> 7
ITT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions except per share)
INVESTMENT IN MADISON SQUARE GARDEN
On April 15, 1997, ITT entered into a Partnership Interest Transfer
Agreement (the "Partnership Interest Transfer Agreement") among ITT, ITT Eden
Corporation, ITT MSG Inc., Cablevision Systems Corporation ("Cablevision"),
Rainbow Media Holdings Inc., Rainbow Garden Corp., Garden L.P. Holding Corp.,
MSG Eden Corporation and Madison Square Garden L.P. ("MSG"). Pursuant to the
Partnership Interest Transfer Agreement, Cablevision paid ITT $500 in cash on
June 17, 1997 for 38.5% of its interest in MSG. 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 June 17, 2000
at fair market value, but not below a minimum price based on the "put" prices.
ITT WORLD DIRECTORIES: ACQUISITION OF 30% INTEREST
On July 15, 1997, ITT purchased for $254 the 20% minority interest in
ITT World Directories, Inc. ("ITT World Directories") owned by an affiliate of
BellSouth Corporation, bringing its ownership of ITT World Directories to 100%.
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 ITT's current presentation is immaterial for all
periods presented.
RECLASSIFICATIONS
Certain amounts in the 1996 financial statements have been reclassified
to conform to the current year presentation.
NET ASSETS HELD FOR SALE
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".
THE HILTON OFFER AND 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 November 17, 1997.
6
<PAGE> 8
ITT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions except per share)
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 $2.50
per share, having a nominal value of $55 per share, subject to certain collar
provisions. On August 7, 1997, Hilton amended the Hilton Tender Offer to
increase the offered purchase price to $70 per share of ITT common stock and to
indicate that each share not tendered and purchased pursuant to the Hilton
Tender Offer would be converted in the Squeeze Out Merger into the right to
receive a number of shares of Hilton common stock having a nominal value of $70
per share of ITT common stock, subject to certain collar provisions.
On November 3, 1997, Hilton amended the Hilton Tender Offer to increase
the offered purchase price to $80 per share of ITT common stock and increase the
number of shares to be purchased in the Hilton Tender Offer to 65,000,000, or
approximately 55% of the currently outstanding shares of ITT common stock. On
November 3, 1997, Hilton also amended the Hilton Tender Offer to indicate that
each share of ITT common stock not tendered and purchased pursuant to the Hilton
Tender Offer would be converted in the Proposed Squeeze Out Merger into the
right to receive two shares of Hilton common stock and two shares of Contingent
Value Preferred Stock ("CVPS"), which are designed to guarantee, subject to a
$12 maximum payment, that the Hilton common stock received by ITT stockholders
in the Proposed Squeeze Out Merger will be worth at least $40 per share
one year after the consummation of the Proposed Squeeze Out Merger. The CVPS
entitles the holder to receive from Hilton, in cash or shares of Hilton common
stock, the amount by which $40 exceeds the weighted average per share price of
Hilton common stock measured during a valuation period ending on the one-year
anniversary of the Proposed Squeeze Out Merger, up to a $12 maximum per share
of CVPS.
On October 19, 1997, ITT agreed to merge (the "Merger") with an entity
jointly owned by Starwood Lodging Corporation ("Starwood") and Starwood Lodging
Trust ("Starwood Trust"). The terms of the Merger are as set forth in an
Agreement and Plan of Merger (the "Merger Agreement") dated as of October 19,
1997, among ITT, Starwood, Starwood Trust and Chess Acquisition Corp. In the
Merger, each share of ITT common stock, no par value, will be converted into the
right to receive $67 worth of Paired Shares (as defined below), subject to
certain collar provisions, and $15 per share in cash. The shares of common
stock, par value of $0.01 per share, of Starwood and trust shares, par value of
$0.01 per share, of Starwood Trust trade as "paired shares" (the "Paired
Shares") on the New York Stock Exchange. As a result of the Merger, ITT will
become a subsidiary of Starwood.
The Merger is subject to the approval of the stockholders of ITT,
Starwood and Starwood Trust and other customary conditions. ITT expects the
Merger to be consummated in late January or early February 1998.
On October 19, 1997, ITT also entered into Amendment No. 1 ("Amendment
No.1") to the Rights Agreement dated as of November 1, 1995 (the "Rights
Agreement"), between ITT Destinations, Inc. (the former name of ITT) and The
Bank of New York, as Rights Agent, pursuant to which Series A Participating
Cumulative Preferred Stock purchase rights (the "Rights") were issued to holders
of ITT common stock. Capitalized terms used and not otherwise defined herein
shall have the meanings ascribed to such terms in the Rights Agreement.
Amendment No. 1 provides that none of Starwood, Starwood Trust or any of their
respective Affiliates or Associates or any of their permitted assignees or
transferees shall be deemed an Acquiring Person and no Distribution Date shall
be deemed to occur, in each such case, by reason of the approval, execution or
delivery of the Merger Agreement, the consummation of the Merger or the
consummation of the other transactions contemplated by the Merger Agreement.
In connection with the Merger, the Board of Directors of ITT has
suspended its plan to distribute to the holders of ITT common stock all of the
outstanding shares of common stock of ITT Destinations, Inc., a company
7
<PAGE> 9
formed to hold the hotel and gaming businesses of ITT, and all the shares
representing its approximately 83% interest in ITT Educational Services, Inc.,
its publicly traded subsidiary which owns its post-secondary technical education
business. ITT has also terminated its offer to purchase up to 30,000,000 shares
of ITT common stock, together with associated preferred share purchase rights,
for $70 per share, and its offer to purchase all of its outstanding public debt
securities.
The Hilton Transaction and the CVPS are more fully described in the
Tender Offer Statement on Schedule 14D-1 filed by Hilton with the Securities and
Exchange Commission.
8
<PAGE> 10
BUSINESS SEGMENT INFORMATION
(IN MILLIONS)
Business segment information is as follows:
<TABLE>
<CAPTION>
REVENUES
--------
THIRD QUARTER NINE MONTHS
------------- -----------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Hotels ........................ $1,151 $1,104 $3,371 $3,190
Gaming ....................... 265 273 779 807
Information Services ......... 223 236 623 634
------ ------ ------ ------
Ongoing Segments ........... 1,639 1,613 4,773 4,631
Dispositions ................. 43 52 124 174
------ ------ ------ ------
Total Segments .............. 1,682 1,665 4,897 4,805
Restructuring charge .......... -- -- -- --
Other ......................... ----- ----- ----- -----
1,682 1,665 4,897 4,805
Interest expense, net .........
Gain on sale of Alcatel Alsthom
Gain on sale of investment in
Madison Square Garden ......
Miscellaneous income
(expense), net .............
Provision for income taxes ....
Minority equity ...............
------ ------ ------ ------
$1,682 $1,665 $4,897 $4,805
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
INCOME
------
THIRD QUARTER NINE MONTHS
------------- -----------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Hotels ........................ $ 105 $ 84 $ 286 $ 242
Gaming ....................... 56 56 154 173
Information Services ......... 62 65 155 168
----- ----- ----- -----
Ongoing Segments ........... 223 205 595 583
Dispositions ................. (7) (3) (27) 10
----- ----- ----- -----
Total Segments .............. 216 202 568 593
Restructuring charge .......... -- -- (58) --
Other ......................... (16) (17) (58) (66)
----- ----- ----- -----
200 185 452 527
Interest expense, net ......... (51) (53) (161) (171)
Gain on sale of Alcatel Alsthom -- -- 183 --
Gain on sale of investment in
Madison Square Garden ...... -- -- 200 --
Miscellaneous income
(expense), net ............. (17) 1 (35) 9
Provision for income taxes .... (63) (53) (276) (153)
Minority equity ............... (8) (13) (23) (29)
----- ----- ----- -----
$ 61 $ 67 $ 340 $ 183
===== ===== ===== =====
</TABLE>
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollar amounts are in millions unless otherwise stated)
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1996
Revenues of $1,682 in the 1997 third quarter increased 1% compared with
$1,665 in the corresponding 1996 quarter. Hotel revenues, which increased 4% due
to strong average daily rate gains, were the primary driver of this improvement.
Excluding the results of the two gaming properties planned for disposition,
Gaming revenues decreased 3% due to the impacts of the continuing construction
projects at Caesars Palace in Las Vegas, Nevada, and Caesars Atlantic City in
Atlantic City, New Jersey and an unusually low hold percentage at Caesar's Lake
Tahoe property. Revenues at ITT Educational Services, Inc. ("ITT Educational")
increased 12% due to strong gains in total student enrollment. Revenues at ITT
World Directories, Inc. ("ITT World Directories") decreased 12% due to the
unfavorable effects of currency exchange.
Salaries, benefits and other operating expenses increased 1% in the
quarter to $1,224 from $1,208 in the 1996 quarter. This increase primarily
reflected the additional costs of certain hotel properties acquired in the
second half of 1996. Selling, general and administrative expenses decreased 8%
in the 1997 third quarter to $187 compared with $203 in the 1996 third quarter.
This decrease was primarily due to the positive effects of cost containment
efforts at ITT's World Headquarters and at operating units.
Excluding the results of assets held for sale, earnings before
interest, taxes, depreciation and amortization ("EBITDA") were $275 in the 1997
third quarter compared with $252 in the 1996 third quarter. Significant
increases in average room rates, particularly in owned and leased properties,
and the benefits of hotel acquisitions more than offset the unfavorable effects
of currency exchange at ITT World Directories and construction impacts at
Caesars Palace and Caesars Atlantic City. Depreciation and amortization
increased 3% compared with the prior period due primarily to the effects of
currency exchange somewhat offsetting the impact of hotel acquisitions.
Operating income increased 7% in the 1997 third quarter as the strong
improvements in hotels and reduced costs at ITT's World Headquarters more than
offset unfavorable effects of currency exchange and the continued construction
impacts at Caesars Palace and Caesars Atlantic City.
Net interest expense of $51 in the 1997 third quarter decreased from
$53 in the 1996 third quarter. Excluding interest income on the Cablevision
note and a dividend on the Alcatel Alsthom stock totaling $18 which is
included in 1996 results, interest expense decreased 28%. This decrease is
due to lower average debt balances resulting primarily from the receipt of the
proceeds from the sale of the ITT's remaining interest in Alcatel Alsthom and a
majority of its investment in MSG.
Miscellaneous expense includes $17 for costs associated with the Hilton
Transaction.
Income tax expense increased to $63 in the 1997 third quarter from $53
in the 1996 third quarter. ITT is reviewing the nature of certain of the costs
related to the Hilton Transaction and has not recorded a tax benefit on these
costs in the quarter. Excluding the effect of these costs, ITT's effective tax
rate of 42% is the same as the prior year. The minority equity represents the
net income attributable to the minority shareholders of ITT World Directories,
ITT Educational and Ciga S.p.A. and decreased compared with the prior period due
to the increase in ITT's ownership in ITT World Directories to 100% in the third
quarter of 1997.
Business Segments - Revenues, EBITDA and operating income, excluding
the effects of overhead, restructuring charges, assets held for sale and
minority equity, for each of ITT's three major business segments were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1997 THREE MONTHS ENDED SEPTEMBER 30, 1996
- --------------------------------------- -------------------------------------
OPERATING OPERATING
REVENUES EBITDA INCOME REVENUES EBITDA INCOME
- ------- ------ --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C>
$1,151 $148 $105 ............. Hotels ........... $1,104 $125 $84
</TABLE>
10
<PAGE> 12
Hotels 1997 third quarter generated EBITDA of $148, an 18% increase
over $125 in the 1996 third quarter. Owned and leased hotels continued to be the
primary driver of this improved performance, with EBITDA increasing to $107 in
the quarter from $91 a year ago. The EBITDA margin at these properties was 28%
for the 1997 third quarter compared with 24% in the 1996 quarter. In North
America, the average daily rate at owned and leased hotels increased 10%, to
$164, and revenue per available room ("REVPAR") rose 12%, to $127.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1997 THREE MONTHS ENDED SEPTEMBER 30, 1996
- --------------------------------------- -------------------------------------
OPERATING OPERATING
REVENUES EBITDA INCOME REVENUES EBITDA INCOME
- -------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
$265 $71 $56 ............. Gaming ........... $273 $71 $56
</TABLE>
Gaming's 1997 third quarter results reflect EBITDA of $71 which is
equal to the results in the 1996 third quarter despite the continuing effects of
construction disruption at Caesars Palace and Caesars Atlantic City and
abnormally low hold at Caesars' Lake Tahoe property.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1997 THREE MONTHS ENDED SEPTEMBER 30, 1996
- --------------------------------------- -------------------------------------
OPERATING OPERATING
REVENUES EBITDA INCOME REVENUES EBITDA INCOME
- -------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
$223 $70 $62 ...... Information Services .... $236 $72 $65
</TABLE>
Results at ITT World Directories reflect lower revenues, EBITDA and
operating income as cost reductions achieved in the quarter were more than
offset by unfavorable effects of currency exchange. ITT Educational continued to
grow its revenues and earnings during the quarter through increased student
enrollment as well as continuing improvement in operating margins.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996
Revenues of $4,897 in the 1997 period increased 2% compared with $4,805
in the corresponding 1996 period. Hotel revenues, which increased 6% due to
strong average daily rate gains, were the primary driver of this improvement.
Excluding the results of the two gaming properties planned for disposition,
Gaming revenues decreased 3% due to the impacts of the continued construction
projects at Caesars Palace and Caesars Atlantic City and an unusually low hold
percentage at Caesars' Lake Tahoe property in the third quarter. Revenues at ITT
Educational increased 13% due to strong gains in total student enrollment over
the prior period. Revenues at ITT World Directories decreased 7% due primarily
to the unfavorable effects of currency exchange.
Salaries, benefits and other operating expenses increased 3% in the
period to $3,567 from $3,468 in the 1996 period. This increase primarily
reflects the costs of acquired hotel properties. Selling, general and
administrative expenses decreased 2% in the period to $600 from $613 in the 1996
period. This decrease was due to strong cost containment efforts more than
offsetting an increase attributable to hotel property additions. Included in the
1997 nine month period is a restructuring charge of $58 for severance and other
costs to streamline ITT's World Headquarters operations.
Excluding the results of assets held for sale and the 1997
restructuring charge described above, EBITDA was $746 in the 1997 period
compared with $702 in the 1996 period, a 6% improvement. This improvement
reflects significant increases in average room rates, particularly in owned and
leased properties, and the benefits of hotel acquisitions somewhat offset by the
unfavorable effects of currency exchange at ITT World Directories and
construction impacts at Caesars Palace and Caesars Atlantic City. Depreciation
and amortization increased 12% compared with the prior period due primarily to
the impact of hotel acquisitions. Operating income increased 4% from the prior
period.
Net interest expense decreased to $161 in the 1997 period from $171 in
the 1996 period. Excluding interest income on the Cablevision note, dividend
income on the Alcatel Alsthom stock and other one-time items
11
<PAGE> 13
included in the 1996 results, interest expense decreased 15%. This decrease is
due to lower average debt balances from asset dispositions (see "Liquidity and
Capital Resources" for a more detailed discussion of these asset dispositions).
Miscellaneous expense includes $46 for costs associated with the Hilton
Transaction. ITT recorded a pre-tax gain of $200 related to the sale of a
majority of its interest in MSG and a pre-tax gain of $183 related to the sale
of its remaining interest in the capital stock of Alcatel Alsthom.
Income tax expense increased in the 1997 period on higher pretax
earnings due to the sales of a majority of ITT's interest in MSG and its
remaining interest in Alcatel Alsthom. The minority equity represents the net
income attributable to the minority shareholders of ITT World Directories, ITT
Educational and Ciga S.p.A. and was lower than the prior period due to the
increase in ITT's ownership in ITT World Directories to 100% in the 1997 third
quarter.
Business Segments - Revenues, EBITDA and operating income, excluding the effects
of overhead, restructuring charges, assets held for sale and minority equity,
for each of ITT's three major business segments were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 NINE MONTHS ENDED SEPTEMBER 30, 1996
- -------------------------------------- ------------------------------------
OPERATING OPERATING
REVENUES EBITDA INCOME REVENUES EBITDA INCOME
- -------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
$3,371 $418 $286 ............. Hotels ........... $3,190 $355 $242
</TABLE>
Hotels generated EBITDA of $418 in the 1997 nine month period, a
18% increase over $355 in the 1996 period. Owned and leased hotels continued to
be the primary driver of this improved performance, with EBITDA increasing to
$307 in the period from $268 a year ago. The EBITDA margin at these properties
was 28% for the period, compared with 26% in the 1996 period. In North America,
the average daily rate at owned hotels increased 10%, to $169, and REVPAR rose
11%, to $126.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 NINE MONTHS ENDED SEPTEMBER 30, 1996
- -------------------------------------- ------------------------------------
OPERATING OPERATING
REVENUES EBITDA INCOME REVENUES EBITDA INCOME
- -------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
$779 $203 $154 ............. Gaming ........... $807 $220 $173
</TABLE>
Gaming's 1997 nine month results reflect EBITDA of $203 compared with
$220 in the 1996 period. This decline is primarily related to the significant
construction activity at Caesars Palace and at Caesars Atlantic City, which is
expected to be completed by year-end.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 NINE MONTHS ENDED SEPTEMBER 30, 1996
- -------------------------------------- ------------------------------------
OPERATING OPERATING
REVENUES EBITDA INCOME REVENUES EBITDA INCOME
- -------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
$623 $177 $155 ...... Information Services .... $634 $189 $168
</TABLE>
Results at ITT World Directories reflect lower revenues, EBITDA and
operating income due primarily to unfavorable effects of currency exchange. ITT
Educational continued to grow its revenues and earnings during the period
through increased student enrollment as well as continuing improvement in
operating margins.
DISPOSITIONS
At the two Gaming properties planned for disposition, The Desert Inn in
Las Vegas, Nevada experienced a $22 EBITDA loss in the nine months ended
September 30, 1997 compared with EBITDA of $4 in the 1996 period. This loss was
due to a negative win percentage in bacarrat in the first quarter and
construction disruption. The Sheraton Casino in Tunica, Mississippi, posted
EBITDA of $7 for the nine months ended
12
<PAGE> 14
September 30, 1997 compared with $13 in the 1996 period. The effects of
increased local competition continued to depress results at this property.
On August 1, 1997, ITT Sheraton Corporation entered into a non-binding
agreement in principle with an affiliate of Marvin Davis to form two 50/50 joint
ventures to own The Desert Inn and the 34 acre parcel of land adjacent to The
Desert Inn. Discussions regarding these two joint ventures have ceased and ITT
does not expect to enter into definitive agreements with affiliates of Marvin
Davis relating to joint ventures for The Desert Inn or the 34 acre parcel
adjacent to The Desert Inn.
LIQUIDITY AND CAPITAL RESOURCES
ITT's EBITDA, excluding assets held for sale and the 1997 first quarter
restructuring charge, increased 5% reflecting strong earnings growth in Hotels.
Cash flows are expected to be sufficient to service indebtedness, satisfy tax
obligations and fund maintenance capital expenditures and other liquidity needs.
Additional liquidity needs are expected to be funded through traditional debt or
equity financing, asset sales or any combination thereof.
Cash from operating activities, as defined by SFAS No. 95 "Statement of
Cash Flows" and excluding the impacts of divestments, was strong in both
periods. The SFAS definition of cash from operating activities differs from
EBITDA largely due to the inclusion of interest, income taxes and changes in
working capital.
On June 27,1996, ITT announced a capital expenditure program to upgrade
and expand its existing gaming operations. Approximately $495 is expected to be
invested at Caesars Palace and approximately $280 is expected to be invested at
Caesars Atlantic City. ITT is also in the process of renovating The Desert Inn
at a total cost of approximately $175. In addition to the expansion of existing
gaming operations, ITT is in the process of constructing a riverboat casino and
a hotel in Harrison County, Indiana, at a cost of approximately $270. Total
capital expenditures related to these projects is estimated to be $840 and $270
in 1997 and 1998, respectively. ITT plans to finance this capital expenditure
program from a combination of cash generated from operations, net proceeds
received from the issuance of securities and the sale of non-strategic assets.
On June 28, 1997, ITT entered into an agreement in principle to form a
joint venture with Planet Hollywood International, Inc. ("Planet Hollywood") to
develop, own and operate "Planet Hollywood" themed hotel/casinos. On October 31,
1997, Planet Hollywood announced an agreement with a competitor of ITT to
develop, own and operate a hotel/casino in Las Vegas, Nevada. As a result of
this agreement, ITT does not expect that a definitive agreement with Planet
Hollywood will be executed or that ITT will develop "Planet Hollywood" themed
hotel/casinos.
On February 11, 1997, ITT sold 3 million shares of capital stock of
Alcatel Alsthom for approximately $300. On March 27, 1997, ITT sold its
remaining 4.5 million shares of capital stock of Alcatel Alsthom for
approximately $530. Proceeds from these sales were used for general corporate
purposes, including debt reduction.
On February 18, 1997, ITT received $169 as payment of the remaining
amount necessary to equalize the partnership interests of Cablevision Systems
Corporation ("Cablevision") and ITT in MSG. On July 17, 1997, ITT 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 plus the assumption of approximately $115 of
indebtedness. At such closing, MSG redeemed a portion of ITT's interest in MSG,
such that after such redemption ITT owned an 11.5% limited partnership interest
in MSG, for $493.5, and the general partner of MSG redeemed all of the shares of
its capital stock owned by ITT for $6.5. In addition, at such closing,
Cablevision caused Sports Channel Associates, a New York general partnership, to
be contributed as a capital contribution to MSG, which diluted ITT's limited
partnership interest in MSG to 10.2%. ITT has a "put" option to require
Cablevision to purchase (or cause MSG to redeem) half of ITT's continuing
interest in MSG for $75 on June 17, 1998 and ITT's other half of this continuing
interest for an additional $75 (or if the first "put" is not exercised on June
17, 1998, ITT's entire continuing interest for $150) on June 17, 1999. On June
17, 2000, Cablevision has the right to purchase (or cause MSG to redeem) ITT'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
13
<PAGE> 15
proportionate "put" price. ITT also has the right to cause to be contributed as
a capital contribution to MSG an aircraft owned by ITT at a value of $38. If ITT
causes such contribution to occur, each of the "put" prices will be increased by
$19 (or if the first "put" option is not exercised, $38) and the floor price in
respect of Cablevision's third-year call right will be correspondingly
increased. In the event Cablevision does not exercise its third-year call right,
ITT's percentage interest in MSG will be increased to reflect a capital
contribution to MSG of $38 due to the contribution of the aircraft.
On May, 12 1997, ITT and Dow Jones & Co. reached a definitive
agreement to sell WBIS+, Channel 31 in New York City, to Paxson Communications
Corporation ("Paxson") for a purchase price of approximately $258. The closing
of the sale of ITT's interest in WBIS+ 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.
On June 30, 1997, ITT sold to FelCor Suite Hotels, Inc. five Sheraton
hotels for $200 in cash and retained a 20-year contract to manage these hotels,
subject to a limited change of control provision.
Capital expenditures totaled $822 in the 1997 nine month period, 21%
and 77% at the Hotels and Gaming segments, respectively, compared with $359 in
the 1996 nine month period, with 45% and 44% attributable to the Hotels and
Gaming segments, respectively.
External borrowings were $3.70 billion and $4.19 billion at September
30, 1997 and December 31, 1996, respectively. This decrease was funded primarily
with proceeds related to the sale of ITT's interest in Alcatel Alsthom, the
payment by Cablevision of the amount required to equalize its interest in MSG
and the sale of a majority of ITT's investment in MSG.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See the Exhibit Index for a list of exhibits filed herewith.
(b) There were no reports on Form 8-K filed by ITT during the quarter for which
this report is filed.
14
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ITT CORPORATION
By J.F. Danski
-----------------------------------
J.F. Danski
Senior Vice President and Controller
(Principal Accounting Officer)
November 4, 1997
II-1
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION LOCATION
<S> <C> <C>
3.1 Restated Articles of Incorporation .................... Incorporated by reference to Exhibit 3.1 to the Registrant's
Amendment No. 1 to Form 10/A dated November 13, 1995
(File No. 1-13960).
3.2 Certificate of Amendment of Articles of
Incorporation. .................................... Incorporated by reference to Exhibit 1 to the Registrant's
Current Report on Form 8-K dated December 22, 1995 (File
No. 1-13960).
3.3 Amended and Restated By-Laws. ......................... Incorporated by reference to Exhibit 3.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1996 (File No. 1-13960).
4.1 Specimen common share certificate ..................... Incorporated by reference to Exhibit 4.1 to the Registrant's
Amendment No. 1 to Form 10/A dated November 13, 1995
(File No. 1-13960).
4.2 Rights Agreement dated as of November 1, 1995
between the Registrant and The Bank of New York ... Incorporated by reference to Exhibit 4.4 to the Registrant's
Amendment No. 1 to Form 10/A dated November 13, 1995
(File No. 1-13960).
4.3 Form of Certificate of Voting Powers, Preferences and
Relative Participating, Optional and Other Special
Rights and Qualifications, Limitations or
Restrictions of Series A Participating Cumulative
Preferred Stock ................................... Incorporated by reference to Exhibit 4.4 (attached as Exhibit
A thereto) to the Registrant's Amendment No. 1 to Form
10/A dated November 13, 1995 (File No. 1-13960).
4.4 Form of Right Certificate. Incorporated by reference to Exhibit 4.4 (attached as Exhibit
B thereto) to the Registrant's Amendment No. 1 to Form
10/A dated November 13, 1995 (File No. 1-13960).
4.5 Amendment No. 1, dated as of October 19, 1997, to the
Rights Agreement, dated as of November 1, 1995,
between the Registrant and The Bank of New York,
as Rights Agent. .................................. Incorporated by reference to Exhibit 2.2 to the Registrant's
Current Report on Form 8-K dated October 20, 1997 (File
No. 1-13960).
4.6 Other instruments defining rights of security holders,
including indentures .............................. The Registrant hereby agrees to file with the Commission a
copy of any instrument defining the rights of long-term
debt holders of the Registrant and its consolidated
subsidiaries upon the request of the Commission.
10.1 Distribution Agreement among ITT Industries, Inc., the
Registrant and ITT Hartford Group, Inc. ........... Incorporated by reference to Exhibit 10.1 to the Registrant's
Annual Report on Form 10-K for the year ended December
31, 1995 (File No. 1-13960).
10.2 Intellectual Property License Agreement between and
among ITT Industries, Inc., the Registrant and ITT
Hartford Group, Inc. .............................. Incorporated by reference to Exhibit 10.2 to the Registrant's
Annual Report on Form 10-K for the year ended December
31, 1995 (File No. 1-13960).
</TABLE>
II-2
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION LOCATION
<S> <C> <C>
10.3 Trademark Assignment Agreement between ITT Industries,
Inc. and the Registrant ........................... Incorporated by reference to Exhibit 10.3 to the Registrant's
Annual Report on Form 10-K for the year ended December
31, 1995 (File No. 1-13960).
10.4 License Assignment Agreement between ITT Industries,
Inc. and the Registrant ........................... Incorporated by reference to Exhibit 10.4 to the Registrant's
Annual Report on Form 10-K for the year ended December
31, 1995 (File No. 1-13960).
10.5 License Assignment Agreement among the Registrant, ITT
Hartford Group, Inc. and Nutmeg Insurance
Company .......................................... Incorporated by reference to Exhibit 10.5 to the Registrant's
Annual Report on Form 10-K for the year ended December
31, 1995 (File No. 1-13960).
10.6 License Assignment Agreement among the Registrant,
Nutmeg Insurance Company and Hartford Fire
Insurance Company ................................. Incorporated by reference to Exhibit 10.6 to the Registrant's
Annual Report on Form 10-K for the year ended December
31, 1995 (File No. 1-13960).
10.7 Tax Allocation Agreement among ITT Industries, Inc.,
the Registrant and ITT Hartford Group, Inc. ....... Incorporated by reference to Exhibit 10.7 to the Registrant's
Annual Report on Form 10-K for the year ended December
31, 1995 (File No. 1-13960).
10.8 Employee Benefit Services and Liability Agreement
among ITT Industries, Inc., the Registrant
and ITT Hartford Group, Inc. ...................... Incorporated by reference to Exhibit 10.8 to the Registrant's
Annual Report on Form 10-K for the year ended December
31, 1995 (File No. 1-13960).
10.9 Form of ITT Corporation 1996 Restricted Stock Plan
for Non-Employee Directors ....................... Incorporated by reference to Exhibit 10.9 to the Registrant's
Annual Report on Form 10-K for the year ended December
31, 1995 (File No. 1-13960).
10.10 Form of indemnification agreement with members of
the Board of Directors ............................ Incorporated by reference to Exhibit 10.10 to the
Registrant's Form 10 dated September 18, 1995 (File No.
1-13960).
10.11 Form of 1995 ITT Corporation Incentive Stock
Plan ............................................. Incorporated by reference to Exhibit 10.11 to the
Registrant's Form 10 dated September 18, 1995 (File No.
1-13960).
10.12 Form of ITT Corporation Senior Executive Severance
Pay Plan .......................................... Incorporated by reference to Exhibit 86 to Amendment No. 29
dated as of August 15, 1997 to the Registrant's Schedule
14D-9 dated February 12, 1997 (File No. 1-13960).
</TABLE>
II-3
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION LOCATION
<S> <C> <C>
10.13 Form of R.V. Araskog employment agreement ............. Incorporated by reference to Exhibit 10.13 to the
Registrant's Form 10 dated September 18, 1995 (File No.
1-13960).
10.14 364-Day Competitive Advance and Revolving Credit
Facility Agreement dated as of November 5, 1996
among the Registrant, the lenders parties thereto
and The Chase Manhattan Bank , as administrative
agent ............................................. Incorporated by reference to Exhibit 10.14 to the
Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1996 (File No.
1-13960).
10.15 Five-Year Competitive Advance and Revolving Credit
Facility Agreement dated as of November 5, 1996
among the Registrant, the lenders parties thereto
and The Chase Manhattan Bank, as issuing bank and
administrative agent .............................. Incorporated by reference to Exhibit 10.15 to the
Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1996 (File No.
1-13960).
10.16 First Amendment to Employment and Consulting Agreement
dated as of December 19, 1995 between the
Registrant and R.V. Araskog ....................... Incorporated by reference to Exhibit 99.2 to the Registrant's
Schedule 14D-9 dated February 12, 1997 (File No.
1-13960).
10.17 Second Amendment to Employment and Consulting Agreement
dated as of December 19, 1995 between the Registrant
and R. V. Araskog ................................. Incorporated by reference to Exhibit 88 to Amendment No. 29
dated as of August 15, 1997 to the Registrant's Schedule
14d-9 dated February 12, 1997 (File No. 1-13960).
10.18 Agreement and Plan of Merger dated as of October 19,
1997, among the Registrant, Starwood Lodging
Corporation, Starwood Lodging Trust and Chess
Acquisition Corp. ................................. Incorporated by reference to Exhibit 2.1 to the Registrant's
Current Report on Form 8-K dated October 20, 1997 (File
No. 1-13960).
11 Statement re computation of per share earnings ........ None.
12 Statement re computation of ratios ................... Filed herewith.
15 Letter re unaudited interim financial information .... None.
</TABLE>
II-4
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION LOCATION
<S> <C> <C>
18 Letter re change in accounting principles ............ None.
19 Report furnished to security holders ................. None.
13 Annual report to security holders .................... None.
22 Published report regarding matters submitted to vote
of security holders .............................. None.
23 Consents of experts and counsel ...................... None.
24 Power of attorney .................................... None.
27 Financial data schedule .............................. Filed herewith.
99.1 Schedule 14D-9 of the Registrant dated February 12,
1997 .............................................. Incorporated by reference to the Registrant's Schedule 14D-9
dated February 12, 1997, as amended (File No. 1-13960).
99.2 Certain Information relating to the Private Securities
Litigation ....................................... Reform Act Incorporated by reference to Exhibit 99.2 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 (File No. 1-13960).
</TABLE>
II-5
<PAGE> 1
EXHIBIT 12
ITT CORPORATION AND SUBSIDIARIES
CALCULATION OF RATIO OF EARNINGS TO TOTAL FIXED CHARGES
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
1997 1996
---- ----
<S> <C> <C>
Earnings:
Net Income ................................................................. $340 $183
Add:
Adjustment for distributions (less than) in excess of undistributed equity
earnings and losses (a) ............................................... -- 7
Income taxes ............................................................. 276 153
Minority equity in net income ............................................ 23 29
Amortization of interest capitalized ..................................... 3 2
---- ----
642 374
---- ----
Fixed Charges:
Interest and other financial charges ..................................... 177 222
Interest factor attributable to rentals (b) .............................. 19 20
---- ----
196 242
---- ----
Earnings, as adjusted ...................................................... $838 $616
==== ====
Fixed Charges:
Fixed charges above ...................................................... $196 $242
Interest capitalized ..................................................... 20 8
---- ----
Total fixed charges ...................................................... $216 $250
==== ====
Ratio:
Earnings, as adjusted, to total fixed charges ............................ 3.88 2.46
==== ====
</TABLE>
Notes:
a) The adjustment for distributions in excess of (less than) undistributed
equity earnings and losses represents the adjustments to income for
distributions in excess of (less than) undistributed earnings and losses of
companies in which at least 20% but less than 50% equity is owned.
b) The interest factor attributable to rentals consists of one third of rental
charges, deemed by ITT to be representative of the interest factor inherent
in rents.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
September 30, 1997 Financial Statements included in Form 10-Q and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 445
<SECURITIES> 0
<RECEIVABLES> 718
<ALLOWANCES> 109
<INVENTORY> 91
<CURRENT-ASSETS> 1,302
<PP&E> 5,477
<DEPRECIATION> 810
<TOTAL-ASSETS> 9,187
<CURRENT-LIABILITIES> 1,472
<BONDS> 3,699
0
0
<COMMON> 2,916
<OTHER-SE> 453
<TOTAL-LIABILITY-AND-EQUITY> 9,187
<SALES> 0
<TOTAL-REVENUES> 4,897
<CGS> 0
<TOTAL-COSTS> 4,445
<OTHER-EXPENSES> 35
<LOSS-PROVISION> 38
<INTEREST-EXPENSE> 161
<INCOME-PRETAX> 639
<INCOME-TAX> 276
<INCOME-CONTINUING> 340
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 340
<EPS-PRIMARY> 2.87
<EPS-DILUTED> 2.87
</TABLE>
